<PAGE>
As filed with the Securities and Exchange Commission on December 1, 1999
Registration No. 333-85141
333-85141-01
333-85141-02
333-85141-03
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Huntsman ICI Chemicals LLC
(Exact Name of Registrant as Specified in its Charter)
---------------
Delaware 2800 87-0630358
(Primary Standard Industrial (I.R.S. Employer
(State or Other Classification Code Number) Identification Number)
Jurisdiction
of Incorporation or
Organization) ---------------
500 Huntsman Way
Salt Lake City, UT 84108
(801) 584-5700
(Address, Including Zip Code and Telephone Number, Including Area Code, of Co-
Registrants' Principal Executive Offices)
---------------
Robert B. Lence, Esq.
Secretary
Huntsman ICI Chemicals LLC
500 Huntsman Way
Salt Lake City, UT 84108
(801) 584-5700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------
Copy to:
Phyllis G. Korff, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
(212) 735-3000
---------------
<TABLE>
<CAPTION>
Jurisdiction
Exact Name of Additional of Primary Standard Industrial I.R.S. Employer
Registrants Incorporation Classification Code Number Identification Number
- ------------------------ -------------- --------------------------- ---------------------
<S> <C> <C> <C>
Huntsman ICI Financial
LLC*................... Delaware 2800 87-0632917
Tioxide Group*.......... U.K. 2800 00-0000000
Tioxide Americas Inc.*.. Cayman Islands 2800 98-0015568
</TABLE>
- -------
* Address and telephone of principal executive offices are the same as those
of Huntsman ICI Chemicals LLC.
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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: [_]
---------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities and is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion--Dated December 1, 1999.
PRELIMINARY PROSPECTUS
[LOGO OF HUNTSMAN APPEARS HERE] [LOGO OF ICI APPEARS HERE]
Huntsman ICI Chemicals LLC
Exchange Offer for
$600,000,000 10 1/8% Senior Subordinated Notes due 2009
(Euro)200,000,000 10 1/8% Senior Subordinated Notes due 2009
-----------
This exchange offer will expire at , New York City Time,
on , 1999, unless extended.
-----------
Terms of the exchange offer:
. We will exchange all outstanding notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
. You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
. The exchange of outstanding notes will not be a taxable exchange for
United States federal income tax purposes.
. The terms of the notes to be issued are substantially identical to the
terms of the outstanding notes, except for transfer restrictions and
registration rights relating to the outstanding notes.
. We will not receive any proceeds from the exchange offer.
. There is no existing market for the notes to be issued, and we have not
applied for their listing on any securities exchange other than the
Luxembourg Stock Exchange.
See the "Description of Notes" section on page 97 for more information about
the notes to be issued in this exchange offer.
This investment involves risks. See the section entitled "Risk Factors" that
begins on page 13 for a discussion of the risks that you should consider prior
to tendering your outstanding notes for exchange.
-----------
Neither the Securities and Exchange Commission nor any state securities and
exchange commission has approved or disapproved of these securities or passed
upon the adequacy or the accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
-----------
Prospectus dated , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Market and Industry Data................................................. iii
Where You Can Find More Information...................................... iii
Cautionary Notice Regarding Forward-Looking Statements................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 13
The Exchange Offer....................................................... 22
The Transaction.......................................................... 32
Use of Proceeds.......................................................... 35
Capitalization........................................................... 36
Unaudited Pro Forma Financial Data....................................... 37
Selected Historical Financial Data....................................... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
Business................................................................. 60
Management............................................................... 85
Certain Relationships and Related Transactions........................... 90
Description of Credit Facilities......................................... 95
Description of Notes..................................................... 97
Plan of Distribution..................................................... 148
Material U.S. Federal Income Tax Consequences............................ 149
Legal Matters............................................................ 150
Experts.................................................................. 150
General Listing Information.............................................. 150
Index to Financial Statements............................................ F-1
</TABLE>
- --------
Our principal executive offices, and the principal executive offices of the
guarantors of the notes, are located at 500 Huntsman Way, Salt Lake City, Utah
84108, and our telephone number is (801) 584-5700.
ii
<PAGE>
MARKET AND INDUSTRY DATA
Market data used throughout this prospectus was obtained from internal
company surveys and industry surveys and publications. These industry surveys
and publications generally state that the information contained therein has
been obtained from sources believed to be reliable. Results of internal company
surveys contained in this prospectus, while believed to be reliable, have not
been verified by any independent sources. References in this prospectus to our
market position and to industry trends are based on information supplied by
Chem Systems, an international consulting and research firm, and International
Business Management Associates, an industry research and consulting firm.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
notes offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information that is
included in the registration statement. You will find additional information
about our company and the notes in the registration statement. Any statements
made in this prospectus concerning the provisions of legal documents are not
necessarily complete and you should read the documents that are filed as
exhibits to the registration statement for a more complete understanding of the
document or matter.
After the registration statement becomes effective, we will be subject to
the informational requirements of the Exchange Act of 1934, and will file
periodic reports, registration statements and other information with the SEC.
You may read and copy the registration statement and any of the other documents
we file with the SEC at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the SEC's regional offices located at 7 World Trade Center, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800- SEC-0330 for more
information on the public reference rooms. In addition, reports and other
filings are available to the public on the SEC's web site at
http://www.sec.gov.
If for any reason we are not subject to the reporting requirements of the
Securities Exchange Act of 1934 in the future, we will still be required under
the indenture governing the notes to furnish the holders of the notes with
certain financial and reporting information. See "Description of Notes --
Covenants--Reports" for a description of the information we are required to
provide.
----------------
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus are forward-looking in
nature. In some cases, you can identify forward-looking statements by
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative of such terms or other comparable terminology, or
by discussions of strategy. You are cautioned that our business and operations
are subject to a variety of risks and uncertainties and, consequently, our
actual results may materially differ from those projected by any forward-
looking statements. Some of those risks and uncertainties are discussed below
under "Risk Factors". We make no commitment to revise or update any forward-
looking statements in order to reflect events or circumstances after the date
any such statement is made.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. This
prospectus includes the basic terms of the notes we are offering, as well as
information regarding our business and detailed financial information. You
should carefully read this entire document.
The Exchange Offer
Securities Offered............. $600,000,000 aggregate principal amount
of new 10 1/8% Senior Subordinated Notes
due 2009 and (Euro)200,000,000 aggregate
principal amount of new 10 1/8% Senior
Subordinated Notes due 2009, all of which
have been registered under the Securities
Act of 1933. The terms of the notes
offered in the exchange offer are
substantially identical to those of the
outstanding notes, except that certain
transfer restrictions, registration
rights and liquidated damages provisions
relating to the outstanding notes do not
apply to the new registered notes.
The Exchange Offer............. We are offering to issue registered notes
in exchange for a like principal amount
and like denomination of our outstanding
notes. We are offering to issue these
registered notes to satisfy our
obligations under an exchange and
registration rights agreement that we
entered into with the initial purchasers
of the outstanding notes when we sold
them in a transaction that was exempt
from the registration requirements of the
Securities Act. You may tender your
outstanding notes for exchange by
following the procedures described under
the heading "The Exchange Offer".
Tenders; Expiration Date; The exchange offer will expire at ,
Withdrawal..................... New York City time, on , 1999,
unless we extend it. If you decide to
exchange your outstanding notes for new
notes, you must acknowledge that you are
not engaging in, and do not intend to
engage in, a distribution of the new
notes. You may withdraw any notes that
you tender for exchange at any time prior
to , 1999. If we decide for any
reason not to accept any notes you have
tendered for exchange, those notes will
be returned to you without cost promptly
after the expiration or termination of
the exchange offer. See "The
1
<PAGE>
Exchange Offer--Terms of the Exchange
Offer" for a more complete description of
the tender and withdrawal provisions.
Conditions to the Exchange Offer.... The exchange offer is subject to
customary conditions, some of which we
may waive.
U.S. Federal Income Tax Your exchange of outstanding notes for
Consequences................... notes to be issued in the exchange offer
will not result in any gain or loss to
you for U.S. federal income tax purposes.
Use of Proceeds................ We will not receive any cash proceeds
from the exchange offer.
Exchange Agent................. Bank One, N.A.
Consequences of Failure to Outstanding notes that are not tendered
Exchange....................... or that are tendered but not accepted
will continue to be subject to the
restrictions on transfer that are
described in the legend on those notes.
In general, you may offer or sell your
outstanding notes only if they are
registered under, or offered or sold
under an exemption from, the Securities
Act and applicable state securities laws.
We, however, will have no further
obligation to register the outstanding
notes. If you do not participate in the
exchange offer, the liquidity of your
notes could be adversely affected.
Consequences of Exchanging Your Based on interpretations of the staff of
Notes.......................... the SEC, we believe that you may offer
for resale, resell or otherwise transfer
the notes that we issue in the exchange
offer without complying with the
registration and prospectus delivery
requirements of the Securities Act if
you:
. acquire the notes issued in the
exchange offer in the ordinary course
of your business;
. are not participating, do not intend
to participate, and have no
arrangement or undertaking with anyone
to participate, in the distribution of
the notes issued to you in the
exchange offer; and
. are not an "affiliate" of our company
as defined in Rule 405 of the
Securities Act.
2
<PAGE>
If any of these conditions are not
satisfied and you transfer any notes
issued to you in the exchange offer
without delivering a proper prospectus or
without qualifying for a registration
exemption, you may incur liability under
the Securities Act. We will not be
responsible for, or indemnify you
against, any liability you may incur.
Any broker-dealer that acquires notes in
the exchange offer for its own account in
exchange for outstanding notes, which it
acquired through market-making or other
trading activities, must acknowledge that
it will deliver a prospectus when it
resells or transfers any notes issued in
the exchange offer. See "Plan of
Distribution" for a description of the
prospectus delivery obligations of
broker-dealers in the exchange offer.
The Notes
The terms of the notes we are issuing in this exchange offer and the
outstanding notes are identical in all material respects, except:
(1) the notes issued in the exchange offer will have been registered under
the Securities Act;
(2) the notes issued in the exchange offer will not contain transfer
restrictions and registration rights that relate to the outstanding
notes; and
(3) the notes issued in the exchange offer will not contain provisions
relating to the payment of liquidated damages to be made to the holders
of the outstanding notes under circumstances related to the timing of
the exchange offer.
A brief description of the material terms of the notes follows:
Issuer......................... Huntsman ICI Chemicals LLC.
Notes Offered.................. $600,000,000 aggregate principal amount
of dollar denominated 10 1/8% Senior
Subordinated Notes due 2009 and
(Euro)200,000,000 aggregate principal
amount of euro denominated 10 1/8% Senior
Subordinated Notes due 2009.
Maturity Date.................. July 1, 2009.
Interest Payment Dates......... January 1 and July 1 of each year,
commencing January 1, 2000.
Guarantors..................... The notes are guaranteed by three of our
subsidiaries: Huntsman ICI Financial LLC,
Tioxide
3
<PAGE>
Group and Tioxide Americas Inc. If we
cannot make payments on the notes when
they are due, then our guarantors are
required to make payments on our behalf.
Optional Redemption............ We may redeem the notes, in whole or in
part, at our option at any time on or
after July 1, 2004, at the redemption
prices listed in "Description of Notes--
Optional Redemption".
In addition, on or before July 1, 2002,
we may, at our option and subject to
certain requirements, use the net
proceeds from one or more public equity
offerings to redeem up to 35% of the
original aggregate principal amount of
the notes at 110.125% of their face
amount, plus accrued and unpaid interest.
Before July 1, 2004, we may redeem some
or all of the notes at a redemption price
equal to 100% of their face amount plus a
"make whole" premium. See "Description of
Notes--Optional Redemption".
Sinking Fund................... None.
Ranking........................ The notes and guarantees are general
unsecured obligations of our company and
our guarantors.
The notes are:
. junior in right of payment to all of
our existing and future senior,
unsecured indebtedness,
. senior in right of payment to any of
our future indebtedness that is
expressly subordinated to the notes
and
. effectively junior in right of payment
to all of our existing and future
secured indebtedness to the extent of
the value of the assets securing such
indebtedness and to all of our
subsidiaries' liabilities (including
payments on the senior secured credit
facilities of Huntsman ICI Chemicals,
which we guarantee, and trade
payables).
The guarantees are:
. junior in right of payment to all of
the existing and future senior,
unsecured indebtedness of our
guarantors,
. senior in right of payment to all of
their future indebtedness that is
expressly subordinated to the
guarantees and
4
<PAGE>
. effectively junior in right of payment
to all of their existing and future
secured indebtedness to the extent of
the value of the assets securing such
indebtedness.
As of September 30, 1999, the notes and
guarantees were subordinated only to
$1,694 million of secured indebtedness of
our company and its subsidiaries, which
we borrowed under our credit facilities.
Change of Control.............. If we go through a change of control, we
must make an offer to repurchase the
notes at 101% of their face amount, plus
accrued and unpaid interest. See
"Description of Notes--Repurchase at the
Option of Holders upon Change of
Control".
Asset Sales.................... We may have to use the net proceeds from
asset sales to offer to repurchase notes
under certain circumstances at their face
amount, plus accrued and unpaid interest.
See "Description of Notes--Certain
Covenants--Limitation on Asset Sales".
Certain Covenants.............. The indenture governing the notes
contains certain covenants that, among
other things, limit our ability and the
ability of certain of our subsidiaries
to:
. incur more debt;
. pay dividends, redeem stock or make
other distributions;
. issue capital stock;
. make certain investments;
. create liens;
. enter into transactions with
affiliates;
. enter into sale and leaseback
transactions;
. merge or consolidate; and
. transfer or sell assets.
These covenants are subject to a number
of important qualifications and
limitations. See "Description of Notes--
Certain Covenants".
5
<PAGE>
Registration Covenant; Exchange We have agreed to consummate the exchange
Offer.......................... offer within 45 days after the effective
date of the registration statement. In
addition, we have agreed, in certain
circumstances, to file a "shelf
registration statement" that would allow
some or all of the notes to be offered to
the public.
If we fail to fulfill our obligations
with respect to registration of the
exchange notes (a "registration
default"), the annual interest rates on
the affected notes will increase by 0.25%
during the first 90-day period during
which the registration default continues,
and will increase by an additional 0.25%
for each subsequent 90-day period during
which the registration default continues,
up to a maximum increase of 1.00% over
the interest rates that would otherwise
apply to the notes. As soon as we cure a
registration default, the interest rates
on the affected notes will revert to
their original levels.
Upon consummation of the exchange offer,
holders of notes will no longer have any
rights under the exchange and
registration rights agreement, except to
the extent that we have continuing
obligations to file a shelf registration
statement.
For additional information concerning the
above, see "Description of Notes--Form,
Denomination, Transfer, Exchange and
Book-entry Procedures,--Registration
Covenant; Exchange Offer".
Use of Proceeds................ We will not receive any proceeds from the
exchange offer. We used the net proceeds
from the sale of the notes to fund a
portion of the transfer of Imperial
Chemicals Industries PLC's and Huntsman
Specialty Chemicals Corporation's
businesses to us and related fees and
expenses, and for general corporate
purposes. See "Use of Proceeds".
6
<PAGE>
The Company
General
We are a global manufacturer and marketer of specialty and commodity
chemicals through our principal businesses: specialty chemicals (the
polyurethane chemicals and propylene oxide businesses), petrochemicals, and
titanium dioxide. Our company is characterized by superior low cost operating
capabilities; a high degree of technological expertise; a diversity of
products, end markets and geographic regions served; significant product
integration; and strong growth prospects.
. Our global polyurethane chemical business produces and markets a complete
line of polyurethane chemicals, including methylene diphenyl diisocyanate,
commonly referred to in the chemicals industry as "MDI"; toluene
diisocyanate, commonly referred to in the chemicals industry as "TDI";
polyols; polyurethane systems and aniline, with an emphasis on MDI-based
products. Our polyurethane chemicals business has the world's second largest
production capacity for MDI and MDI-based polyurethane systems. Our
customers use our products in a wide variety of polyurethane applications,
including automotive interiors, refrigeration and appliance insulation,
construction products, footwear, furniture cushioning and adhesives.
. Our propylene oxide business is one of three North American producers of
propylene oxide, which is commonly referred to in the chemicals industry as
"PO". PO is used in a variety of applications, the largest of which is the
production of polyols sold into the polyurethane chemicals market.
. Our petrochemicals business produces olefins and aromatics at our integrated
facilities in Northern England. These facilities make up one of Europe's
largest single production sites for these products. Olefins and aromatics
are the key building blocks for the petrochemical industry and are used in
plastics, synthetic fibers, packaging materials and a wide variety of other
applications.
. Our titanium dioxide business, which operates under the trade name
"Tioxide", has the largest production capacity for titanium dioxide in
Europe and the third largest production capacity in the world. Titanium
dioxide, which is commonly referred to in the chemicals industry as
"TiO\\2\\", is a white pigment used to impart whiteness, brightness and
opacity to products such as paints, plastics, paper, printing inks,
synthetic fibers and ceramics.
For the year ended December 31, 1998, we had pro forma revenues of $3.7
billion, pro forma EBITDA of $424 million and pro forma Adjusted EBITDA of $481
million. For the nine months ended September 30, 1999, we had pro forma
revenues of $2.8 billion, pro forma EBITDA of $420 million and pro forma
Adjusted EBITDA of $436 million (see footnote 2 to "--Summary Historical and
Pro Forma Financial Data"). For the year ended December 31, 1998, we derived
54%, 33%, 9% and 4% of our pro forma revenues in Europe, the Americas, Asia and
the rest of the world, respectively. For the year ended December 31, 1998, our
polyurethane chemicals, PO, petrochemicals and TiO\\2\\ businesses represented
37%, 9%, 28% and 26% of pro forma revenues, respectively.
7
<PAGE>
Management and Ownership
Huntsman Corporation is a privately owned chemical company, that is
controlled by Jon M. Huntsman and members of his family. Affiliates of Huntsman
Corporation indirectly own 60% of our common equity interests. Huntsman
Corporation is a global, vertically integrated company distinguished by leading
market positions, breadth of product offerings, superior operating capabilities
and a track record of growth. Since 1983, Huntsman Corporation and its
predecessors have successfully completed over 35 acquisitions and investments
in joint ventures to build a global chemicals business. Imperial Chemical
Industries PLC, a U.K. publicly traded specialty products and paints company
that is referred to in this prospectus as "ICI", indirectly owns 30% of our
common equity interests. Since its incorporation in 1926, ICI has been one of
the major industrial chemical organizations in the world with an impressive
record of innovation. The remainder of our common equity interests is
indirectly owned collectively by BT Capital Investors, L.P., Chase Equity
Associates, L.P., GS Mezzanine Partners, L.P. and GS Mezzanine Partners
Offshore, L.P.
The Transaction
On June 30, 1999, under a contribution agreement and ancillary agreements
between our company, Huntsman Specialty Chemicals Corporation, ICI and our
parent, Huntsman ICI Holdings LLC, we acquired assets and stock representing:
. ICI's polyurethane chemicals businesses,
. selected petrochemicals businesses of ICI (including ICI's 80% interest
in the Wilton olefins facility),
. ICI's TiO\\2\\ businesses, and
. Huntsman Specialty's PO business.
Additionally, and under a separate agreement, we also acquired the
remaining 20% ownership interest in the Wilton olefins facility from BP
Chemicals Limited for approximately $117 million in cash.
In exchange for transferring its business to us, Huntsman Specialty, the
direct parent company of Huntsman ICI Holdings prior to the closing of the
transaction,
. retained a 60% common equity interest in Huntsman ICI Holdings and
. received approximately $360 million in cash.
In exchange for transferring its businesses to us, ICI received:
. a 30% common equity interest in Huntsman ICI Holdings,
. approximately $2 billion in cash that was paid in a combination of U.S.
dollars and euros, and
. discount notes of Huntsman ICI Holdings with $508 million of accreted
principal value at issuance.
8
<PAGE>
BT Capital Investors, L.P., Chase Equity Associates, L.P. and The Goldman
Sachs Group, Inc. purchased the remaining 10% common equity interest in
Huntsman ICI Holdings for $90 million in cash.
<TABLE>
Sources (in millions) Uses
<S> <C> <S> <C>
Senior secured credit facilities... $1,683 Cash to ICI................................... $2,021
The notes.......................... 807 Cash to BP Chemicals.......................... 117
Cash equity(b)..................... 90 Cash to Huntsman Specialty(a)................. 360
Cash advanced to Huntsman ICI Hold- Issuance of discount notes of Huntsman ICI
ings by ICI....................... 508 Holdings..................................... 508
------ Cash distributions to members................. 10
Total sources..................... $3,088 Transaction fees and expenses................. 72
====== ------
Total uses................................... $3,088
======
</TABLE>
- --------------
(a) Used for the repayment of Huntsman Specialty debt and the acquisition of
Huntsman Specialty preferred stock.
(b) Represents $90 million cash contribution for 10% of our common equity. This
implies a $900 million common equity value for our company.
9
<PAGE>
Summary Historical and Pro Forma Financial Data
The summary financial data set forth below presents the historical
financial data of Huntsman Specialty, our predecessor, and the predecessor of
Huntsman Specialty, as of the dates and for the periods indicated. Effective
March 1, 1997, Huntsman Specialty purchased from Texaco Chemicals, Inc. its PO
business (see Note 1 to the audited financial statements of Huntsman
Specialty). In accordance with U.S. GAAP, Huntsman Specialty is considered the
acquirer of the businesses transferred to us in connection with our
transactions with ICI and Huntsman Specialty and with BP Chemicals at the close
of business on June 30, 1999 because the shareholders of Huntsman Specialty
acquired majority control of the businesses transferred to us. The summary
financial and other data as of December 31, 1996 has been derived from audited
financial statements. The summary financial and other data as of December 31,
1997 and 1998 and for the year ended December 31, 1996, the two months ended
February 28, 1997, the ten months ended December 31, 1997 and the year ended
December 31, 1998 has been derived from the audited financial statements of
Huntsman Specialty included elsewhere in this prospectus. The summary financial
and other data as of September 30, 1999, for the nine months ended September
30, 1998, the six months ended June 30, 1999 and the three months ended
September 30, 1999 has been derived from the unaudited financial statements of
Huntsman Specialty and Huntsman ICI Chemicals included elsewhere in this
prospectus.
The summary unaudited pro forma financial data prepared by us and set forth
below gives effect to our transactions with ICI and Huntsman Specialty and with
BP Chemicals and the related financing thereof, including the offering of the
notes. The summary unaudited pro forma statement of operations data for the
nine months ended September 30, 1999 and the year ended December 31, 1998 give
effect to our transaction with ICI and Huntsman Specialty and related financing
thereof, including the offering of the notes, as if they had occurred on
January 1, 1998. The pro forma statements of operations do not include the
historical results of operations for the 20% ownership of the Wilton olefins
facility acquired from BP Chemicals. The summary unaudited pro forma financial
data does not purport to be indicative of results of operations of future
periods or indicative of results that would have occurred had our transactions
with ICI and Huntsman Specialty and with BP Chemicals been consummated on the
dates indicated. The pro forma and other adjustments, as described in the
accompanying notes to the summary unaudited pro forma condensed statement of
operations data, are based on available information and certain assumptions
that we believe are reasonable.
You should read the summary historical and unaudited pro forma financial
data in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Unaudited Pro Forma Financial Data", the
audited and unaudited financial statements of Huntsman Specialty and the
audited and unaudited combined financial statements of the polyurethane
chemicals, selected petrochemicals and TiO\\2\\ businesses of ICI, included
elsewhere in this prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
Predecessor Huntsman Specialty Huntsman ICI Chemicals
------------------------- -------------------------------------- ----------------------------------------
Pro Forma
Two Months Ten Months Six Months Three Months Pro Forma Nine Months
Year Ended Ended Ended Year Ended Ended Ended Year Ended Ended
December 31, February 28, December 31, December 31, June 30, September 30, December 31, September 30,
------------ ------------ ------------ ------------ ------------ ------------- ------------ -------------
1996 1997 1997 1998 1998 1999 1999 1998 1999
------------ ------------ ------------ ------------ ----- ----- ------------- ------------ -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Sales-net: $405 $61 $ 348 $339 $ 250 $ 192 $ 961 $3,671 $2,832
Cost of
sales(1)....... 377 65 300 277 210 134 763 3,079 2,262
---- --- ----- ---- ----- ----- ------ ------ ------
Gross profit
(loss)......... 28 (4) 48 62 40 58 198 592 570
Operating
expenses....... 19 2 8 8 7 5 84 353 288
---- --- ----- ---- ----- ----- ------ ------ ------
Operating income
(loss)......... 9 (6) 40 54 33 53 114 239 282
Interest
expense-net.... -- -- 35 40 31 18 53 229 168
Other
income(1)...... 10 -- -- 1 1 -- 1 9 1
---- --- ----- ---- ----- ----- ------ ------ ------
Income (loss)
before income
tax and
minority
interest....... 19 (6) 5 15 3 35 62 19 115
Income tax
expense
(benefit)...... 7 (2) 2 6 1 13 8 5 18
Minority
Interest....... -- -- -- -- -- -- 1 2 1
---- --- ----- ---- ----- ----- ------ ------ ------
Income (loss)
from continuing
operations..... $ 12 $(4) $ 3 $ 9 $ 2 $ 22 53 $ 12 $ 96
==== === ===== ==== ===== ===== ====== ====== ======
Other Data:
Depreciation and
amortization... $ -- $ 1 $ 26 $ 31 $ 23 $ 16 49 $ 176 $ 137
EBITDA(1)(2).... 49 1 66 86 57 69 164 424 420
Net cash
provided by
(used in)
operating
activities..... 48 (5) 37 46 16 40 135
Net cash used in
investing
activities..... (1) (1) (510) (10) (16) (4) 2,461
Net cash
provided by
(used in)
financing
activities..... (47) 6 483 (43) (10) (34) 2,381
Capital
expenditures... 1 1 2 10 10 4 60
Ratio of
earnings to
fixed
charges(3)..... 2.7x -- 1.1x 1.4x 1.1x 2.9x 2.1x 1.1x 1.5x
Balance Sheet
Data
(at period
end):
Working
capital(4)..... $ 39 $ 40 $ 28 $ 28 $ 445
Total assets.... 292 594 578 578 4,614
Long-term
debt(5)........ -- 464 428 396 2,506
Total
liabilities(6).. 287 569 547 528 3,500
Stockholders'
and members'
equity......... 5 25 31 50 1,107
</TABLE>
(See footnotes on next page)
11
<PAGE>
(Footnotes from previous page)
- --------
(1) Prior to March 1, 1997, Texaco Chemical leased substantially all of the
plant and equipment of the PO business under an operating lease agreement.
Also, Texaco Chemical received interest income on net intercompany advances
prior to the acquisition by Huntsman Specialty. Historical rental expense
for the year ended December 31, 1996 and the two months ended February 28,
1997 was $34 million and $6 million, respectively. Interest income on net
intercompany advances was $4 million for the year ended December 31, 1996.
No interest was charged or credited during the two months ended February
28, 1997.
(2) EBITDA is defined as earnings from continuing operations before interest
expense, depreciation and amortization, and taxes. Prior to March 1, 1997,
EBITDA excludes interest income on net intercompany investments and
advances to Texaco Chemical and rental expense (see footnote (1) above).
EBITDA is included in this prospectus because it is a basis on which we
assess our financial performance and debt service capabilities, and because
certain covenants in our borrowing arrangements are tied to similar
measures. However, EBITDA should not be considered in isolation or viewed
as a substitute for cash flow from operations, net income or other measures
of performance as defined by GAAP or as a measure of a company's
profitability or liquidity. We understand that while EBITDA is frequently
used by security analysts, lenders and others in their evaluation of
companies, EBITDA as used herein is not necessarily comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
The following other adjustments to pro forma EBITDA do not qualify as pro
forma adjustments under the Securities and Exchange Commission's rules
(principally Article 11 of Regulation S-X), but are included to eliminate the
effect of nonrecurring items.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
(in millions)
<S> <C> <C>
EBITDA:
Polyurethane chemicals.......................... $196 $160
Propylene oxide................................. 86 110
---- ----
Specialty chemicals............................ 282 270
---- ----
Petrochemicals.................................. (35) 11
Tioxide......................................... 158 139
---- ----
Total EBITDA..................................... 405 420
To conform the accounting policy for turnaround
and inspection costs of the petrochemicals
business....................................... 19 --
---- ----
Pro forma EBITDA................................. 424 420
Net reduction in corporate overhead allocation
and insurance expenses......................... 21 11
Impact of PO facility turnaround and
inspection..................................... 19 --
Rationalization of TiO\\2\\ operations.......... 17 5
---- ----
Pro forma Adjusted EBITDA........................ $481 $436
==== ====
</TABLE>
Pro forma Adjusted EBITDA does not include any amounts related to our
transaction with BP Chemicals at the close of business on June 30, 1999. We
believe that pro forma Adjusted EBITDA for the year ended December 31, 1998
would have increased by approximately $16 million to approximately $497
million had our transaction with BP Chemicals at the close of business on
June 30, 1999 been consummated on January 1, 1998.
(3) The ratio of earnings to fixed charges has been calculated by dividing (1)
the sum of income before taxes plus fixed charges by (2) fixed charges.
Fixed charges are equal to interest expense (including amortization of
deferred financing costs), plus the portion of rent expense estimated to
represent interest. Earnings were insufficient to cover fixed charges by $6
million for the two months ended February 28, 1997.
(4) Working capital represents total current assets, less total current
liabilities, excluding cash and the current maturities of long-term debt.
(5) Long-term debt includes the current portion of long-term debt.
(6) Total liabilities includes minority interests and mandatorily redeemable
preferred stock of $68 million and $72 million at December 31, 1997 and
1998, respectively.
12
<PAGE>
RISK FACTORS
You should carefully consider the risks described below in addition to all
other information provided to you in this prospectus before deciding whether to
participate in this exchange offer. The risk factors described below, other
than those which discuss the consequences of failing to exchange your
outstanding notes in the exchange offer, are generally applicable to both the
outstanding notes and the notes issued in the exchange offer.
You may have difficulty selling the notes that you do not exchange.
If you do not exchange your outstanding notes for the notes offered in this
exchange offer, you will continue to be subject to the restrictions on the
transfer of your notes. Those transfer restrictions are described in the
indenture governing the notes and in the legend contained on the outstanding
notes, and arose because we originally issued the outstanding notes under
exemptions from, and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding notes under the Securities Act.
If a large number of outstanding notes are exchanged for notes issued in
the exchange offer, it may be more difficult for you to sell your unexchanged
notes. In addition, if you do not exchange your outstanding notes in the
exchange offer, you will no longer be entitled to have those notes registered
under the Securities Act.
See "The Exchange Offer--Consequences of Failure to Exchange Outstanding
Notes" for a discussion of the possible consequences of failing to exchange
your notes.
If our subsidiaries do not make sufficient distributions to us, then we may not
be able to make payments on our debt, including the notes.
The notes are the exclusive obligations of our company and the guarantors
of the notes and not of any of our other subsidiaries. Because a significant
portion of our operations are conducted by our subsidiaries, our cash flow and
our ability to service indebtedness, including our ability to pay the interest
on and principal of the notes when due, are dependent to a large extent upon
cash dividends and distributions or other transfers from our subsidiaries. In
addition, any payment of dividends, distributions, loans or advances by our
subsidiaries to us could be subject to restrictions on dividends or
repatriation of earnings under applicable local law, monetary transfer
restrictions and foreign currency exchange regulations in the jurisdictions in
which our subsidiaries operate, and any restrictions imposed by the current and
future debt instruments of our subsidiaries. Our senior secured credit
facilities currently prohibit, and the indenture governing these notes
currently restricts, these types of payments by our subsidiaries. In addition,
payments to us by our subsidiaries are contingent upon our subsidiaries'
earnings.
Our subsidiaries are separate and distinct legal entities and, except for
the guarantors of the notes, have no obligation, contingent or otherwise, to
pay any amounts due pursuant to the notes or to make any funds available
therefor, whether by dividends, loans, distributions or other payments, and do
not guarantee the payment of interest on, or principal of, the notes. Any right
that we have to receive any assets of any of our subsidiaries that are not
guarantors upon the liquidation or reorganization of those subsidiaries, and
the consequent right of holders of notes to realize proceeds from the sale of
their assets, will be effectively subordinated to the claims of that
subsidiary's creditors, including trade creditors and holders of debt issued by
that subsidiary. In addition, the guarantees of the notes are subordinated to
all indebtedness of each guarantor that is either senior or secured.
13
<PAGE>
We have substantial debt in addition to the notes that we may be unable to
service and that restricts our activities, which could adversely affect our
ability to meet our obligations under the notes.
We have incurred substantial debt in connection with our transactions with
ICI and Huntsman Specialty and with BP Chemicals. As of September 30, 1999, we
had total outstanding indebtedness of $2,506 million and a ratio of total
indebtedness to total capitalization of .69. We require substantial capital to
finance our operations and continued growth, and we may incur substantial
additional debt from time to time for a variety of purposes, including
acquiring additional businesses. However, the terms of the indenture governing
the notes and the senior secured credit facilities contain restrictive
covenants. Among other things, these covenants limit or prohibit our ability to
incur more debt; make prepayments of other debt in whole or in part; pay
dividends, redeem stock or make other distributions; issue capital stock; make
investments; create liens; enter into transactions with affiliates; enter into
sale and leaseback transactions; and merge or consolidate and transfer or sell
assets. Also, if we undergo a change of control, the indenture governing the
notes may require us to make an offer to purchase the notes. Under these
circumstances, we may also be required to repay indebtedness under our credit
facilities prior to the notes. We cannot assure you that we will have the
financial resources necessary to purchase the notes in this event. See
"Description of Notes".
The degree to which we have outstanding debt could have important
consequences for our business, including:
. 40% of our pro forma EBITDA (as previously defined) for the nine months
ended September 30, 1999, was applied towards payment of pro forma
interest on our debt, which reduced funds available for other purposes,
including our operations and future business opportunities;
. our ability to obtain additional financing may be constrained due to our
existing level of debt;
. a high degree of debt will make us more vulnerable to a downturn in our
business or the economy in general; and
. part of our debt is, and any future debt may be, subject to variable
interest rates, which might make us vulnerable to increases in interest
rates.
We are required to make scheduled principal payments under the credit
facilities commencing on June 30, 2000. Our ability to make scheduled payments
of principal and interest on, or to refinance, our debt depends on our future
financial performance, which, to a certain extent, is subject to economic,
competitive, regulatory and other factors beyond our control. We cannot
guarantee that we will have sufficient cash from our operations or other
sources to service our debt (including the notes). If our cash flow and capital
resources are insufficient to fund our debt service obligations, we may be
forced to reduce or delay capital expenditures, sell assets or seek to obtain
additional equity capital or restructure or refinance our debt. We cannot
guarantee that such alternative measures would be successful or would permit us
to meet our scheduled debt service obligations. In the absence of such
operating results and resources, we could face substantial liquidity problems
and might be required to dispose of material assets or operations to meet our
debt service obligations. We cannot guarantee our ability to consummate any
asset sales or that any proceeds from an asset sale would be sufficient to meet
the obligations then due.
If we are unable to generate sufficient cash flow and we are unable to
obtain the funds required to meet payments of principal and interest on our
indebtedness, or if we otherwise fail to comply with the various covenants in
the instruments governing our indebtedness, including those under the credit
facilities and the indenture governing the notes, we could be in default under
the terms of those agreements. In the event of a default by us, a holder of the
indebtedness could elect to declare all of the funds borrowed under those
agreements to be due and payable together with accrued and
14
<PAGE>
unpaid interest, the lenders under the credit facilities could elect to
terminate their commitments thereunder and we could be forced into bankruptcy
or liquidation. Any default under the agreements governing our indebtedness
could have a material adverse effect on our ability to pay principal and
interest on the notes and on the market value of the notes.
Our ability to repay our debt may be adversely affected if our joint venture
partners do not perform their obligations or if we have disagreements with
them.
We conduct a substantial amount of our operations through our joint
ventures. Our ability to meet our debt service obligations depends, in part,
upon the operation of our joint ventures. If any of our joint venture partners
fails to observe its commitments, that joint venture may not be able to operate
according to its business plans or we may be required to increase our level of
commitment to give effect to such plans. In general, joint venture arrangements
may be affected by relations between the joint venture partners. Differences in
views among the partners may, for example, result in delayed decisions or in
failure to agree on significant matters. Such circumstances may have an adverse
effect on the business and operations of the joint ventures, adversely
affecting the business and operations of our company. There can be no assurance
that we and our joint venture partners will always agree on significant issues.
Any such differences in our views or problems with respect to the operations of
the joint ventures could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Because the notes are subordinated to senior debt, our assets will first be
used to repay our senior debt and may not be sufficient to repay the notes.
The notes are general unsecured obligations and are subordinated in right
of payment to the prior payment of all our current and future senior debt. As
of September 30, 1999, we had total senior indebtedness of $1,694 million. The
effect of this subordination is that if we were to undergo a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding, our assets
would be available to pay our obligations on the notes only after all senior
debt is paid, and we cannot guarantee that there will be sufficient assets
remaining to pay amounts due on all or any of the notes. Our senior debt under
the credit facilities is secured by liens on substantially all our U.S. assets,
including the stock of certain of our subsidiaries. The notes are unsecured and
therefore do not have the benefit of this collateral. Accordingly, if an event
of default occurs under the credit facilities, the lenders under the credit
facilities will have a right to our assets and may foreclose upon the
collateral. In that case, our assets would first be used to repay in full
amounts outstanding under the credit facilities and may not be available to
repay the notes.
If we are unable to integrate successfully our newly-acquired businesses, then
our ability to make payments on the notes may be impaired.
Prior to our transactions with ICI and Huntsman Specialty and with BP
Chemicals, we did not own the majority of our assets. As you evaluate our
prospects, you should consider the many risks we will encounter during our
process of integrating these acquired businesses, including:
. our potential inability to successfully integrate acquired operations
and businesses or to realize anticipated synergies, economies of scale
or other value;
. diversion of our management's attention from business concerns;
. difficulties in increasing production at acquired sites and
coordinating management of operations at the acquired sites;
. delays in implementing consolidation plans;
. unanticipated legal liabilities; and
. loss of key employees of acquired operations.
15
<PAGE>
The full benefit of the businesses transferred to us in connection with our
transactions with ICI and Huntsman Specialty and with BP Chemicals requires the
integration of administrative functions and the implementation of appropriate
operations, financial and management systems and controls. If we are unable to
integrate our various businesses effectively, our business, financial
condition, results of operations and cash flows may suffer.
Demand for some of our products is cyclical and we may experience prolonged
depressed market conditions for our products, which may adversely affect our
ability to make payments on the notes.
A substantial portion of our revenue is attributable to sales of products,
the prices of which have been historically cyclical and sensitive to relative
changes in supply and demand, the availability and price of feedstocks and
general economic conditions. Historically, the markets for some of our products
have experienced alternating periods of tight supply, causing prices and profit
margins to increase, followed by periods of capacity additions, resulting in
oversupply and declining prices and profit margins. Currently, several of our
markets are experiencing periods of oversupply, and the pricing of our products
in these markets is depressed. We cannot guarantee that future growth in demand
for these products will be sufficient to alleviate any existing or future
conditions of excess industry capacity or that such conditions will not be
sustained or further aggravated by anticipated or unanticipated capacity
additions or other events. See "--The industries in which we compete are highly
competitive and we may not be able to compete effectively with our competitors
that are larger and have greater resources", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Competition".
The significant price volatility for many of our raw materials may result in
increased costs, which we may be unable to recover.
The prices for a large portion of our raw materials are similarly cyclical.
While we attempt to match raw material price increases with corresponding
product price increases, our ability to pass on increases in the cost of raw
materials to our customers is, to a large extent, dependent upon market
conditions. There may be periods of time in which we are not able to recover
increases in the cost of raw materials due to weakness in demand for or
oversupply of our products. Therefore, increases in raw material prices may
have a material adverse effect on our business, financial condition, results of
operations or cash flows.
The industries in which we compete are highly competitive and we may not be
able to compete effectively with our competitors that are larger and have
greater resources.
The industries in which we operate are highly competitive. Among our
competitors are some of the world's largest chemical companies and major
integrated petroleum companies that have their own raw material resources. Some
of these companies are able to produce products more economically than we can.
In addition, many of our competitors are larger and have greater financial
resources, which may enable them to invest significant capital into their
businesses, including expenditures for research and development. If any of our
current or future competitors develop proprietary technology that enables them
to produce products at a significantly lower cost, our technology could be
rendered uneconomical or obsolete. Moreover, certain of our businesses use
technology that is widely available. Accordingly, barriers to entry, apart from
capital availability, are low in certain product segments of our business, and
the entrance of new competitors into the industry may reduce our ability to
capture improving profit margins in circumstances where overcapacity in the
industry is diminishing. Further, petroleum-rich countries have become more
significant participants in the petrochemical industry and may expand this role
significantly in the future. Any of these developments would have a significant
impact on our ability to enjoy higher profit margins during periods of
increased demand. See "--Demand for some of our products is cyclical
16
<PAGE>
and we may experience prolonged depressed market conditions for our products,
which may adversely affect our ability to make payments on the notes."
If our key suppliers are unable to provide the raw materials necessary in our
production, then we may not be able to obtain raw materials from other sources
on favorable terms, if at all.
In the nine months ended September 30, 1999, less than 30% of our raw
materials purchases were from four key suppliers. If any of these suppliers is
unable to meet its obligations under present supply agreements, we may be
forced to pay higher prices to obtain the necessary raw materials and we may
not be able to increase prices for our finished products. In addition, some of
the raw materials we use may become unavailable within the geographic area from
which we now source our raw materials, and there can be no assurance that we
will be able to obtain suitable and cost effective substitutes. Any
interruption of supply or any price increase of raw materials could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
Consents have not been obtained from two of the four key suppliers with
whom we have supply contracts that require the consent of the supplier for the
transfer of the contract to us following our transactions with ICI and Huntsman
Specialty and with BP Chemicals. There can be no assurance that we will receive
those consents or that such suppliers will agree to continue to provide the raw
materials on the same terms. If we do not receive these consents, we may be
forced to pay higher prices to obtain necessary raw materials and we may not be
able to increase prices for our finished products. This could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
If we are not able to maintain our relationships with Huntsman Corporation and
ICI, then we may not be able to replace on favorable terms our contracts with
them or the services and facilities that they provide, if at all.
We have entered and will continue to enter into certain agreements,
including service, supply and purchase contracts with Huntsman Corporation and
ICI or their affiliates. A breach by Huntsman Corporation or ICI or their
affiliates in performing its obligations under any of these agreements could
have a material adverse effect on our business, financial condition, results of
operations or cash flows. There can be no assurance that we would be able to
obtain similar service, supply or purchase contracts on the same terms from
third parties should Huntsman Corporation or ICI or their affiliates terminate
or breach any of these agreements. For example, we have only one operating
facility for our PO business, which is located in Port Neches, Texas. The
facility is dependent on Huntsman Petrochemical Corporation's existing
infrastructure and its adjacent facilities for certain utilities, raw
materials, product distribution systems and safety systems. In addition, we
depend upon employees of Huntsman Petrochemical Corporation, a subsidiary of
Huntsman Corporation, to operate our Port Neches facility. We purchase all of
the propylene used in the production of PO through Huntsman Petrochemical
Corporation's pipeline, which is the only existing propylene pipeline connected
to our PO facility. If we were required to obtain propylene from another
source, we would need to make a substantial investment in an alternative
pipeline. This could have a material adverse effect on our business, financial
condition, results of operations or cash flows. See "Certain Relationships and
Related Transactions".
We are subject to many environmental and safety regulations that may result in
unanticipated costs or liabilities.
We are subject to extensive federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, the protection of the
environment and the use or cleanup of hazardous substances and wastes. We may
incur substantial costs, including fines, damages and
17
<PAGE>
criminal or civil sanctions, or experience interruptions in our operations for
actual or alleged violations arising under any environmental laws. Our
operations could result in violations under environmental laws, including
spills or other releases of hazardous substances to the environment. In the
event of a catastrophic incident, we could incur material costs as a result of
addressing and implementing measures to prevent such incidents. We know of two
current environmental issues that may each result in penalties over $100,000;
however, we do not believe that these matters will be material to us. Given the
nature of our business, however, we cannot assure you that violations of
environmental laws will not result in restrictions imposed on our operating
activities, substantial fines, penalties, damages or other costs. See
"Business--Environmental Regulations".
In addition, we could incur significant expenditures in order to comply
with existing or future environmental laws. Capital expenditures and, to a
lesser extent, costs and operating expenses relating to environmental matters
will be subject to evolving regulatory requirements and will depend on the
timing of the promulgation and enforcement of specific standards which impose
requirements on our operations. Therefore, we cannot assure you that capital
expenditures beyond those currently anticipated will not be required under
environmental laws. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Furthermore, we may be liable for the costs of investigating and cleaning
up environmental contamination on or from our properties or at off-site
locations where we disposed of or arranged for the disposal or treatment of
hazardous wastes. Based on available information and the indemnification rights
that we possess, we believe that the costs to investigate and remediate known
contamination will not have a material adverse effect on our business,
financial condition, results of operations or cash flows; however, we cannot
give any assurance that such indemnities will fully cover the costs of
investigation and remediation, that we will not be required to contribute to
such costs or that such costs will not be material. See "Business--
Environmental Regulations".
Pending or future litigation or legislative initiatives related to MTBE may
subject us to products or environmental liability or materially adversely
affect our sales.
The presence of methyl tertiary butyl ether, which is commonly referred to
in the chemicals industry as "MTBE", in some groundwater in California and
other states (primarily due to gasoline leaking from underground storage tanks)
and in surface water (primarily from recreational water craft) has led to
public concern about MTBE's potential to contaminate drinking water supplies.
Heightened public awareness regarding this issue has resulted in several
state and federal initiatives and proposed legislation to rescind the oxygenate
requirements for reformulated gasoline, or to restrict or prohibit the use of
MTBE in particular. Ongoing debate regarding this issue is continuing at all
levels of federal and state government.
Any phase-out of or prohibition against the use of MTBE could result in a
significant reduction in demand for our MTBE. In that event, we may be required
to make significant capital expenditures to modify our PO production process to
make alternative co-products other than MTBE. In addition, we could incur a
material loss in revenues or material costs or expenditures in the event of a
widespread decrease or cessation of use of MTBE.
Furthermore, we cannot give any assurance that we will not be named in
litigation by citizens groups, municipalities or others relating to the
environmental effects of MTBE or that such litigation will not have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
For more information on recent developments concerning MTBE, see
"Business--Propylene Oxide--Recent Developments".
18
<PAGE>
Huntsman Corporation and ICI may have conflicts of interest with us, and these
conflicts could adversely affect our business.
As a result of Huntsman Corporation's and ICI's ownership interests,
conflicts of interest could arise with respect to transactions involving
business dealings between us and them, potential acquisitions of businesses or
properties, the issuance of additional securities, the payment of dividends by
us and other matters. See "Description of Notes--Certain Covenants--Limitations
on Transactions with Affiliates". In addition, most of our executive officers
serve as executive officers and directors of various Huntsman companies and of
ICI and its affiliates. Any such conflicts of interest could result in
decisions that adversely affect our business. See "Management" and "Certain
Relationships and Related Transactions" for more detailed descriptions of the
relationships between our company and our subsidiaries, Huntsman Corporation
and its affiliates, and ICI and its affiliates and among the management of
these companies.
Our business may be adversely affected by international operations and
fluctuations in currency exchange rates.
We conduct a significant portion of our business outside the United States.
Our operations outside the United States are subject to risks normally
associated with international operations. These risks include the need to
convert currencies which we may receive for our products into currencies
required to pay our debt, or into currencies in which we purchase raw materials
or pay for services, which could result in a gain or loss depending on
fluctuations in exchange rates. Other risks of international operations include
trade barriers, tariffs, exchange controls, national and regional labor
strikes, social and political risks, general economic risks, required
compliance with a variety of foreign laws, including tax laws and the
difficulty of enforcing agreements and collecting receivables through foreign
legal systems.
Our ability to protect our intellectual property may affect our ability to
compete.
Proprietary protection of our processes, apparatuses, and other technology
is important to our business. Consequently, we rely on judicial enforcement for
protection of our patents. While a presumption of validity exists with respect
to patents issued to us in the U.S., there can be no assurance that any of our
patents will not be challenged, invalidated, circumvented or rendered
unenforceable. Furthermore, there can be no assurance that any pending patent
application filed by us will result in an issued patent, or that if patents do
issue to us, that such patents will provide meaningful protection against
competitors or against competitive technologies.
We also rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While it is our policy to enter into confidentiality
agreements with our employees and third parties to protect our intellectual
property, there can be no assurances that our confidentiality agreements will
not be breached, that they will provide meaningful protection for our trade
secrets or proprietary know-how, or that adequate remedies will be available in
the event of an unauthorized use or disclosure of such trade secrets and know-
how. In addition, there can be no assurances that others will not obtain
knowledge of such trade secrets through independent development or other access
by legal means. The failure of our patents or confidentiality agreements to
protect our processes, apparatuses, technology, trade secrets or proprietary
know-how could have a material adverse effect on our business, financial
condition, results of operations or cash flows.
Year 2000 issues could adversely affect our business.
Our business operations are dependent upon a large number of business
support and manufacturing distributive control software and systems including a
reliance on software and systems
19
<PAGE>
of third parties. Many existing computer software programs and systems could
fail or create erroneous results by or at the Year 2000. A degree of risk
exists that we will not adequately identify and remedy each Year 2000 problem
that exists in our business. We are also dependent on a limited number of
internal professionals with critical knowledge and expertise required for
remedying Year 2000 issues. Unanticipated Year 2000 problems with respect to
our internal software and systems or that of a third party may arise which,
depending on the nature and magnitude of the problem, could adversely affect
our business, financial condition, results of operations or cash flows. In
addition to the computer software and systems that we use directly, our
operations also depend upon the performance of computer software and systems
used by our significant service providers including services such as utilities,
telecommunications or banking services. These problems could adversely affect
our business. We are unable at this time to assess the possible impact on our
business of Year 2000 problems involving any third party.
There is no established market for the notes and you may find it difficult to
sell your notes.
Although we have applied to list the notes on the Luxembourg Stock
Exchange, the notes constitute a new issue of securities for which there is no
established trading market. The initial purchasers have advised us that they
intend to make a market in the notes, but they are not obligated to do so and
may discontinue market-making activities any time. Accordingly, we cannot give
any assurance as to
(1) the likelihood that an active market for the notes will develop,
(2) the liquidity of any such market,
(3) the ability of holders to sell their notes, or
(4) the prices that holders may obtain for their notes upon any sale.
Future trading prices for the notes will depend on many factors, including
our operating results, the market for similar securities and interest rates.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the notes. We cannot guarantee that the market for the notes will
not be subject to similar disruptions or that any such disruptions will not
have an adverse effect on the value or marketability of the notes.
The notes and the guarantees may be void, avoided or subordinated under laws
governing fraudulent transfers, insolvency and financial assistance.
In connection with our transactions with ICI and Huntsman Specialty and
with BP Chemicals, we have incurred substantial debt, including debt under our
senior secured credit facilities and the notes. Various fraudulent conveyance
laws enacted for the protection of creditors may apply to our issuance of the
notes and the guarantors' issuance of the guarantees. To the extent that a
court were to find that
(1) the notes were issued or a guarantee was incurred with actual intent to
hinder, delay or defraud any present or future creditor, or
(2) we or a guarantor did not receive fair consideration or reasonably
equivalent value for issuing the notes or guarantee
and we or a guarantor
(A) was insolvent,
(B) was rendered insolvent by reason of the issuance of the notes or a
guarantee,
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(C) was engaged or about to engage in a business or transaction for which
our remaining assets or those of a guarantor constituted unreasonably
small capital to carry on its business or
(D) intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they matured,
then the court could avoid the notes or the guarantee or subordinate the notes
or the guarantee in favor of our or the guarantor's creditors. Furthermore, to
the extent that the notes or a guarantee were avoided as a fraudulent
conveyance or held unenforceable for any other reason:
. claims of holders of the notes against us or a guarantor would be
adversely affected,
. the notes would be effectively subordinated to all obligations of our
creditors or the creditors of the guarantor, and
. the other creditors would be entitled to be paid in full before any
payment could be made on the notes.
If insolvency proceedings are commenced by or against Tioxide Group, our
English subsidiary that is a guarantor of the notes, the presiding court may
apply English insolvency laws. Under English insolvency laws, the liquidator or
administrator of Tioxide Group may, among other things, apply to the court to
rescind the guarantee if
. Tioxide Group received consideration of significantly less value than
the benefit of its guarantee provides to us,
. Tioxide Group was insolvent at the time of, or immediately after,
entering into the guarantee and
. Tioxide Group enters into a formal insolvency process before June 30,
2001.
Under applicable provisions of English company law, the giving of the
guarantee by Tioxide Group constitutes "financial assistance". Accordingly, if
the guarantee has reduced the net assets of Tioxide Group, the guarantee will
be void. In the event that a guarantee is void, avoided or subordinated, we can
give no assurance that after providing for all prior claims there would be
sufficient assets remaining to satisfy the claims of holders of the notes.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
When we sold the outstanding notes on June 30, 1999, we entered into an
exchange and registration rights agreement with the initial purchasers of those
notes. Under the exchange and registration rights agreement, we agreed to file
the registration statement of which this prospectus forms a part regarding the
exchange of the outstanding notes for notes which are registered under the
Securities Act of 1933. We also agreed to use our reasonable best efforts to
cause the registration statement to become effective with the SEC, and to
conduct this exchange offer for at least 30 days after the registration
statement is declared effective. We will use our best efforts to keep this
registration statement effective until the exchange offer is completed. The
exchange and registration rights agreement provides that we will be required to
pay liquidated damages to the holders of the outstanding notes if:
. the registration statement is not declared effective by January 26,
2000; or
. the exchange offer has not been consummated within 45 days after the
effective date of the registration statement.
A copy of the exchange and registration rights agreement is filed as an
exhibit to the registration statement to which this prospectus is a part.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is p.m., New York City time, on , 1999, or such
later date and time to which we, in our sole discretion, extend the exchange
offer. The exchange offer, however, will be in effect no longer than 45 days
from the date of this prospectus.
The form and terms of the notes being issued in the exchange offer are the
same as the form and terms of the outstanding notes, except that:
. the notes being issued in the exchange offer will have been registered
under the Securities Act;
. the notes issued in the exchange offer will not bear the restrictive
legends restricting their transfer under the Securities Act; and
. the notes being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding notes.
Notes tendered in the exchange offer must be in denominations of the
principal amount of $1,000 or (Euro)1,000 and any integral multiple thereof.
We expressly reserve the right, in our sole discretion:
. to extend the expiration date;
. to delay accepting any outstanding notes;
. if any of the conditions set forth below under "--Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange
offer and not accept any notes for exchange; and
. to amend the exchange offer in any manner.
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We will give oral or written notice of any extension, delay, non-
acceptance, termination or amendment as promptly as practicable by a public
announcement, and in the case of an extension, no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date.
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
How to Tender Notes for Exchange
When the holder of outstanding notes tenders, and we accept, notes for
exchange, a binding agreement between us and the tendering holder is created,
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender notes for exchange must, on or prior to
the expiration date:
(1) transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal,
to Bank One, N.A. (the "exchange agent") at the address set forth
below under the heading "--The Exchange Agent"; or
(2) if notes are tendered pursuant to the book-entry procedures set forth
below, the tendering holder must transmit an agent's message to the
exchange agent at the address set forth below under the heading "--The
Exchange Agent."
In addition, either:
(1) the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the notes being
tendered into the exchange agent's account at the Depository Trust
Company ("DTC"), Euroclear or Cedelbank, as applicable, in each case
along with the letter of transmittal or an agent's message; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC, Euroclear
or Cedelbank, as applicable, and received by the exchange agent and forming a
part of a book-entry transfer (a "book-entry confirmation"), which states that
DTC, Euroclear or Cedelbank, as applicable, has received an express
acknowledgment that the tendering holder agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
holder.
The method of delivery of the outstanding notes, the letters of transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, we recommend registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letters of transmittal or notes should be sent
directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the notes surrendered for exchange are
tendered:
(1) by a holder of outstanding notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of an eligible institution.
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An "eligible institution" is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
notes are registered in the name of a person other than the signer of the
letter of transmittal, the notes surrendered for exchange must be endorsed by,
or accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by us in our sole discretion, duly executed
by the registered holder with the holder's signature guaranteed by an eligible
institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve
the absolute right to:
(1) reject any and all tenders of any note improperly tendered;
(2) refuse to accept any note if, in our judgment or the judgment of our
counsel, acceptance of the note may be deemed unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular note either before or after the expiration
date, including the right to waive the ineligibility of any holder who
seeks to tender notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular notes either before or after the expiration date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects and irregularities in connection
with tenders of notes for exchange within such reasonable period of time as we
will determine, unless we waive such defects or irregularities. Neither we, the
exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of notes
for exchange, nor shall any of us incur any liability for failure to give such
notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we
waive this requirement.
By tendering, each holder will represent to us that, among other things,
that the person acquiring notes in the exchange offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the notes
issued in the exchange offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of our company,
or is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such notes to be acquired
in the exchange offer, such holder or any such other person:
(1) may not rely on the applicable interpretations of the staff of the
SEC; and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
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Each broker-dealer who acquired its outstanding notes as a result of
market-making activities or other trading activities and thereafter receives
notes issued for its own account in the exchange offer, must acknowledge that
it will deliver a prospectus in connection with any resale of such notes issued
in the exchange offer. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution" for a discussion of the exchange and
resale obligations of broker-dealers in connection with the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue notes registered under the Securities Act. For
purposes of the exchange offer, we shall be deemed to have accepted properly
tendered outstanding notes for exchange when, as and if we have given oral or
written notice to the exchange agent, with written confirmation of any oral
notice to be given promptly thereafter. See "--Conditions to the Exchange
Offer" for a discussion of the conditions that must be satisfied before we
accept any notes for exchange.
For each outstanding note accepted for exchange, the holder will receive a
note registered under the Securities Act having a principal amount equal to,
and in the denomination of, that of the surrendered outstanding note.
Accordingly, registered holders of notes issued in the exchange offer on the
relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid on
the outstanding notes, from June 30, 1999. Outstanding notes that we accept for
exchange will cease to accrue interest from and after the date of consummation
of the exchange offer. Under the exchange and registration rights agreement, we
may be required to make additional payments in the form of liquidated damages
to the holders of the outstanding notes under circumstances relating to the
timing of the exchange offer.
In all cases, we will issue notes in the exchange offer for outstanding
notes that are accepted for exchange only after the exchange agent timely
receives:
(1) certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's
account at DTC, Euroclear or Cedelbank, as applicable;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged notes without cost to
the tendering holder. In the case of notes tendered by book-entry transfer into
the exchange agent's account at DTC, Euroclear or Cedelbank, as applicable,
such non-exchanged notes will be credited to an account maintained with DTC,
Euroclear or Cedelbank, as applicable. We will return the notes or have them
credited to DTC, Euroclear or Cedelbank account, as applicable, as promptly as
practicable after the expiration or termination of the exchange offer.
Book Entry Transfers
The exchange agent will make a request to establish an account at DTC with
respect to outstanding notes denominated in dollars and at Euroclear or
Cedelbank with respect to outstanding
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<PAGE>
notes denominated in euros for purposes of the exchange offer within two (2)
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's, Euroclear's or Cedelbank's systems, as applicable,
must make book-entry delivery of outstanding notes denominated in dollars by
causing DTC to transfer those outstanding notes denominated in dollars into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer and must make book-entry delivery of outstanding notes denominated in
euros by causing Euroclear or Cedelbank to transfer those outstanding notes
denominated in euros into the exchange agent's account at Euroclear or
Cedelbank in accordance with Euroclear's or Cedelbank's procedures, as
applicable. Such participant should transmit its acceptance to DTC, Euroclear
or Cedelbank, as applicable, on or prior to the expiration date or comply with
the guaranteed delivery procedures described below. DTC, Euroclear or
Cedelbank, as applicable, will verify such acceptance, execute a book-entry
transfer of the tendered outstanding notes into the exchange agent's account at
DTC, Euroclear or Cedelbank, as applicable, and then send to the exchange agent
confirmation of such book-entry transfer. The confirmation of such book-entry
transfer will include an agent's message confirming that DTC, Euroclear or
Cedelbank, as applicable, has received an express acknowledgment from such
participant that such participant has received and agrees to be bound by the
letter of transmittal and that we may enforce the letter of transmittal against
such participant. Delivery of notes issued in the exchange offer may be
effected through book-entry transfer at DTC, Euroclear or Cedelbank, as
applicable. However, the letter of transmittal or facsimile thereof or an
agent's message, with any required signature guarantees and any other required
documents, must:
(1) be transmitted to and received by the exchange agent at the address
set forth below under "--Exchange Agent" on or prior to the expiration
date; or
(2) comply with the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1) the holder tenders the notes through an eligible institution;
(2) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
telegram, telex, facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder of the notes being
tendered and the amount of the notes being tendered. The notice of
guaranteed delivery shall state that the tender is being made and
guarantee that within three (3) New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, together
with a properly completed and duly executed letter of transmittal or
agent's message with any required signature guarantees and any other
documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a book-
entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal or agent's message
with any required signature guarantees and any other documents
required by the letter of transmittal, within three (3) New York Stock
Exchange trading days after the date of execution of the notice of
guaranteed delivery.
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Withdrawal Rights
You may withdraw tenders of your outstanding notes at any time prior to
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must:
(1) specify the name of the person having tendered the outstanding notes
to be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes; and
(3) where certificates for outstanding notes are transmitted, specify the
name in which outstanding notes are registered, if different from that
of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC, Euroclear or Cedelbank, as applicable,
to be credited with the withdrawn notes and otherwise comply with the
procedures of such facility. We will determine all questions as to the
validity, form and eligibility (including time of receipt) of such notices and
our determination will be final and binding on all parties. Any tendered notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any notes which have been tendered for exchange
but which are not exchanged for any reason will be returned to the holder
thereof without cost to such holder. In the case of notes tendered by book-
entry transfer into the exchange agent's account at DTC, Euroclear or
Cedelbank, the notes withdrawn will be credited to an account maintained with
DTC, Euroclear or Cedelbank, as applicable, for the outstanding notes. The
notes will be returned or credited to DTC, Euroclear or Cedelbank account, as
applicable, as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn notes may be re-tendered
by following one of the procedures described under "--How to Tender Notes for
Exchange" above at anytime on or prior to p.m., New York City time, on the
expiration date.
Conditions to the Exchange Offer
We are not required to accept for exchange, or to issue notes in the
exchange offer for any outstanding notes. We may terminate or amend the
exchange offer, if at any time before the acceptance of such outstanding notes
for exchange:
(1) any federal law, statute, rule or regulation shall have been adopted
or enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer;
(2) any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act of
1939, as amended;
(3) there shall occur a change in the current interpretation by staff of
the SEC which permits the notes issued in the exchange offer in
exchange for the outstanding notes to be offered for resale, resold
and otherwise transferred by such holders, other than broker-dealers
and any such holder which is an "affiliate" of our company within the
meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery
27
<PAGE>
provisions of the Securities Act, provided that such notes acquired in
the exchange offer are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any
person to participate in the distribution of such notes issued in the
exchange offer;
(4) there has occurred any general suspension of or general limitation on
prices for, or trading in, securities on any national exchange or in
the over-the-counter market;
(5) any governmental agency creates limits that adversely affect our
ability to complete the exchange offer;
(6) there shall occur any declaration of war, armed hostilities or other
similar international calamity directly or indirectly involving the
United States, or the worsening of any such condition that existed at
the time that we commence the exchange offer;
(7) there shall have occurred a change (or a development involving a
prospective change) in our and our subsidiaries' businesses,
properties, assets, liabilities, financial condition, operations,
results of operations taken as a whole, that is or may be adverse to
us; or
(8) we shall have become aware of facts that, in our reasonable judgment,
have or may have adverse significance with respect to the value of the
outstanding notes or the notes to be issued in the exchange offer.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may
waive the preceding conditions in whole or in part at any time and from time
to time in our sole discretion. If we do so, the exchange offer will remain
open for at least five (5) business days following any waiver of the preceding
conditions. Our failure at any time to exercise the foregoing rights shall not
be deemed a waiver of any such right and each such right shall be deemed an
ongoing right which we may assert at any time and from time to time.
The Exchange Agent
Bank One, N.A. has been appointed as our exchange agent for the exchange
offer. All executed letters of transmittal should be directed to our exchange
agent at the address set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for notices of guaranteed delivery should be directed
to the exchange agent addressed as follows:
Main Delivery To:
Bank One, N.A.
By mail:
By hand delivery or overnight
courier:
Bank One Trust Company, NA
Corporate Trust Operations
Bank One Trust Company, NA P.O. Box 710184
Corporate Trust Operations, OHI- Columbus, OH 43271-0184
0184
235 West Schrock Rd. Attention: Special Processing--
Westerville, OH 43081 Confidential
Attention: Special Processing--
Confidential
By facsimile transmission:
(for eligible institutions only)
614-248-9987
Confirm by Telephone:
800-346-5153
Delivery of the letter of transmittal to an address other than as set
forth above or transmission of such letter of transmittal via facsimile other
than as set forth above does not constitute a valid delivery of such letter of
transmittal.
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Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$ .
Transfer Taxes
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, notes issued in the exchange offer are to be delivered to, or are to
be issued in the name of, any person other than the holder of the notes
tendered, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes in connection with the exchange offer, then the
holder must pay any such transfer taxes, whether imposed on the registered
holder or on any other person. If satisfactory evidence of payment of, or
exemption from, such taxes is not submitted with the letter of transmittal, the
amount of such transfer taxes will be billed directly to the tendering holder.
Consequences of Failure to Exchange Outstanding Notes
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor our company is under any duty
to give notification of defects or irregularities with respect to the tenders
of notes for exchange.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the outstanding notes and in the offering circular dated June 22,
1999, relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the outstanding notes under the Securities Act or under any
state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes
will not be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances.
Holders of the notes issued in the exchange offer and any outstanding notes
which remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or exercised
certain rights under the indenture.
Consequences of Exchanging Outstanding Notes
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the notes issued in the exchange
offer may be offered for resale, resold or otherwise transferred by holders of
such notes, other than by any holder which is an "affiliate" of our company
within the meaning of Rule 405 under the Securities Act. Such notes may be
offered for resale,
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<PAGE>
resold or otherwise transferred without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
(1) such notes issued in the exchange offer are acquired in the ordinary
course of such holder's business; and
(2) such holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of
such notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must furnish a written
representation, at our request, that:
(1) it is not an affiliate of ours;
(2) it is not engaged in, and does not intend to engage in, a distribution
of the notes issued in the exchange offer and has no arrangement or
understanding to participate in a distribution of notes issued in the
exchange offer;
(3) it is acquiring the notes issued in the exchange offer in the ordinary
course of its business; and
(4) it is not acting on behalf of a person who could not make
representations (1)-(3).
Each broker-dealer that receives notes issued in the exchange offer for its
own account in exchange for outstanding notes must acknowledge that such
outstanding notes were acquired by such broker-dealer as a result of market-
making or other trading activities and that it will deliver a prospectus in
connection with any resale of such notes issued in the exchange offer. Each
broker-dealer that receives notes issued in the exchange offer for its own
account in exchange for outstanding notes:
. must acknowledge that such outstanding notes were acquired by such
broker-dealer as a result of market-making or other trading activities,
. acknowledged that it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale transaction, including the delivery of a prospectus that
contains information with respect to any selling holder required by the
Securities Act in connection with any resale of the notes issued in the
exchange offer, and
. may not rely on the applicable interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings Corp., SEC No-Action
Letter (April 13, 1989), Morgan, Stanley & Co., Inc., SEC No-Action
Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter
(July 2, 1983).
See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the notes issued in the exchange offer may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the notes. We have agreed in the exchange and registration
rights agreement that, prior to any public offering of transfer restricted
securities, we will register or qualify the transfer restricted securities for
offer or sale under the securities laws of any jurisdiction requested by a
holder. Unless a holder requests, we currently do not intend to register or
qualify the sale of the
30
<PAGE>
notes issued in the exchange offer in any state where an exemption from
registration or qualification is required and not available. "Transfer
restricted securities" means each note until:
(1) the date on which such note has been exchanged by a person other than
a broker-dealer for a note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of a
note for a note issued in the exchange offer, the date on which the
note issued in the exchange offer is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of
this prospectus;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with a shelf registration
statement that we file in accordance with the exchange and
registration rights agreement; or
(4) the date on which such note is distributed to the public in a
transaction under Rule 144 of the Securities Act.
31
<PAGE>
THE TRANSACTION
Summary
At the close of business on June 30, 1999, we acquired assets and stock
representing ICI's polyurethane chemicals, selected petrochemicals (including
ICI's 80% interest in the Wilton olefins facility) and TiO\\2\\ businesses and
Huntsman Specialty Chemicals Corporation's PO business. In addition, at the
close of business on June 30, 1999, we also acquired the remaining 20%
ownership interest in the Wilton olefins facility from BP Chemicals Limited.
The chart below shows our company structure, together with common equity
ownership:
[Flow chart of Huntsman Corporation and affiliates]
Transaction Consideration
Initial Transaction Consideration
In exchange for transferring its business to us, Huntsman Specialty:
. retained a 60% common equity interest in Huntsman ICI Holdings and
. received approximately $360 million in cash.
In exchange for transferring its businesses, ICI received:
. a 30% common equity interest in Huntsman ICI Holdings,
32
<PAGE>
. approximately $2 billion in cash that was paid in a combination of U.S.
dollars and euros and
. discount notes of Huntsman ICI Holdings with $508 million of accreted
value at issuance.
The obligations of the discount notes from Huntsman ICI Holdings are non-
recourse to us.
In exchange for $90 million in cash, BT Capital Investors, L.P., Chase
Equity Associates, L.P. and The Goldman Sachs Group, Inc. received the
remaining 10% common equity interest in us.
<TABLE>
<CAPTION>
Sources Uses
------- ----
(in millions)
<S> <C> <C> <C>
Senior secured credit facilities.......................... $1,683 Cash to ICI.......................................... $2,021
The notes (in U.S. dollars as adjusted at June 30, 1999).. 807 Cash to BP Chemicals................................. 117
Cash equity(b)............................................ 90 Cash to Huntsman Specialty(a)........................ 360
Cash advanced to Huntsman ICI Holdings by ICI............. 508 Issuance of discount notes of Huntsman ICI Holdings.. 508
------ Cash distributions to members........................ 10
Total sources........................................... $3,088 Transaction fees and expenses........................ 72
====== ------
Total uses........................................ $3,088
======
</TABLE>
- --------
(a) Used for the repayment of Huntsman Specialty debt and the acquisition of
Huntsman Specialty preferred stock.
(b) Represents $90 million cash contribution for 10% of our common equity. This
implies a $900 million common equity value for our company.
Approximately $1,773 million dollars in cash paid in connection with the
purchase price was funded by:
(1) the $90 million in cash received from BT Capital Investors, Chase
Equity Associates, and The Goldman Sachs Group and
(2) funds under that we borrowed under a senior secured credit agreement,
which provides an aggregate of $2.07 billion of senior secured credit
facilities.
Our obligations under the credit facilities are supported by guarantees of
Huntsman ICI Holdings, of our domestic subsidiaries and of Tioxide Group and
Tioxide Americas Inc. Payments of the notes are subordinated in right of
payment to our obligations under the credit facilities. See "Description of
Credit Facilities" for a more detailed description of the credit facilities.
Approximately $508 million of the purchase price was paid in the form of
the discount notes issued by Huntsman ICI Holdings to ICI. Huntsman ICI
Holdings issued discount notes to ICI in two classes, senior discount notes
with $242.7 million of accreted value at issuance and subordinated discount
notes with $265.3 million of accreted value at issuance, neither of which
require cash interest payments. The senior discount notes accrete interest at a
rate of 13.375%. The subordinated discount notes accrete interest at a rate of
8% for approximately the first four years following their issuance and will be
reset to accrete at a market rate thereafter. The covenants in the indentures
governing the discount notes are not more restrictive on us than the covenants
contained in the indenture governing the notes. In addition, without the
consent of Huntsman ICI Holdings, ICI has agreed not to sell the subordinated
discount notes prior to the reset of the interest rate on those notes. Both the
senior and the subordinated discount notes mature on December 31, 2009.
33
<PAGE>
With the consent of Huntsman ICI Holdings, on August 2, 1999, ICI sold the
senior discount notes of Huntsman ICI Holdings in a private transaction under
Rule 144A and Regulation S of the Securities Act. Huntsman ICI Holdings has
also agreed to register substantially similar notes under the Securities Act to
be exchanged for the outstanding senior discount notes. Huntsman ICI Holding's
registration obligations are substantially similar to our obligations to
register the notes offered in this prospectus, except that ICI has agreed to
pay the fees and expenses of Huntsman ICI Holdings incurred in connection with
its registration of those notes.
Adjustments to Consideration
Because ICI failed to transfer less than 3% of the assets comprising the
businesses that it was obligated to transfer to us at the closing of our
transaction with them, we reduced the cash payable to ICI by an agreed amount.
ICI has since transferred two out of the three local businesses whose transfer
was delayed, leaving only the transfer of the Taiwanese polyurethane business
outstanding. ICI is under a continuing obligation to use its reasonable
endeavors to transfer the Taiwanese polyurethane business to us. Until the
assets comprising the Taiwanese polyurethane business are so transferred, ICI
will hold the assets for our benefit and we will indemnify ICI for any losses
it incurs in respect of those assets during that time. When and if ICI
transfers any of the excluded assets to us, then we will pay ICI the amount by
which the cash payable to ICI at the closing was reduced with respect to such
assets. However, after June 30, 2001, at our option, we may either (1) require
ICI to maintain the existing arrangement and pay ICI the portion of the
purchase price that we withheld with respect to any such excluded assets that
have not been transferred to us or (2) terminate the arrangement and require
ICI to refund the remaining portion of the purchase price attributable to those
assets.
In addition to the Taiwanese polyurethane business, ICI also failed to
transfer its interests in Nippon Polyurethane Industry Co. Ltd. and Arabian
Polyol Company Limited to us at the closing. Under the terms of the
contribution agreement under which we acquired ICI's and Huntsman Specialty's
businesses, we did not receive a purchase price adjustment with respect to
those retained joint venture interests. Instead, ICI has agreed to hold the
retained joint venture interests for our benefit and will pay to us any
dividends received from the joint ventures, and we will indemnify ICI for any
losses relating to any such retained joint venture interest from the closing
until such time as such interests are transferred to us or we are refunded the
fair market value of such interests. ICI is required to pay us an amount equal
to the fair market value as of the closing of our transaction with ICI of
either of these joint venture interests if either (1) any of the other joint
venture partners exercise a right of first refusal to acquire that joint
venture interest or (2) on or before June 30, 2001, ICI has not obtained all
consents necessary to transfer that interest to us. We do not believe the
failure by ICI to transfer these interests will have a material adverse impact
on our results of operations or cash flows.
Warranties and Indemnification
In connection with the transfer of the assets to us, both ICI and Huntsman
Specialty gave standard warranties to Huntsman ICI Holdings in connection with
the businesses being transferred, including warranties relating to
environmental liabilities and potential environmental liabilities; existence
of, or breaches in connection with, any material contracts and tax matters.
Each of ICI and Huntsman Specialty has agreed to indemnify Huntsman ICI
Holdings for certain specified matters and will be liable for damages in the
event of a breach of any of its warranties, other than nominal damages, as well
as for certain specific losses and claims. Generally, most claims for breaches
of warranty must be brought on or before June 30, 2001, while claims under
certain specific indemnities are subject to longer time limits. ICI generally
will not be liable for
34
<PAGE>
damages from any breach of warranty unless the aggregate amount of damages in
respect of its breaches of warranties exceeds (1) (Pounds)10 million to the
extent these breaches relate to events in existence as of April 15, 1999 and
(2) (Pounds)30 million to the extent these breaches relate to events occurring
between April 15, 1999 and June 30, 1999. Huntsman Specialty will not generally
be liable for damages from any breach of warranty unless the aggregate amount
of damages in respect of its breaches of warranties exceeds $3.5 million. In
addition to giving warranties, ICI and Huntsman Specialty have also given
specific indemnities to us in relation to liabilities arising out of product
liability claims for products manufactured before June 30, 1999, certain
litigation existing prior to June 30, 1999, and certain employee claims. ICI
and Huntsman Specialty have also each given indemnities with respect to certain
environmental matters. In any event, neither ICI nor Huntsman Specialty will be
liable for any damages, whether arising from a breach of warranty or under a
specific indemnity that (with limited exceptions), in the case of ICI, exceed
(Pounds)650 million in the aggregate and in the case of Huntsman Specialty
exceed $225 million in the aggregate.
Description of Put and Call Options
Under the terms of the limited liability company agreement for Huntsman ICI
Holdings, Huntsman Specialty has the option to purchase, and ICI has the right
to require Huntsman Specialty to purchase, ICI's 30% interest in Huntsman ICI
Holdings between June 30, 2002 and June 30, 2003 subject to extension under
some circumstances. The exercise price for each of these put and call options
will be based partially upon an agreed formula and the parties' agreed value of
our businesses or based upon a third party valuation at the time of the
exercise of a put or a call option. If the put or call option is exercised and
Huntsman Specialty does not purchase ICI's interests in accordance with the
terms of the put or call option, then ICI has the right to sell its interest in
Huntsman ICI Holdings in a public offering or a private sale and, if the
proceeds of the sale are less than the put or call option exercise price, ICI
has the right to require Huntsman Specialty to sell, for the benefit of ICI,
sufficient equity interests in Huntsman ICI Holdings owned by Huntsman
Specialty as are necessary to provide ICI with proceeds equal to the shortfall.
Under the terms of an agreement between Huntsman Specialty and BT Capital
Investors, L.P., Chase Equity Associates, L.P., GS Mezzanine Partners, L.P. and
GS Mezzanine Partners Offshore, L.P., each of these institutional investors has
the right to require Huntsman Specialty to purchase its interest in Huntsman
ICI Holdings contemporaneously with any exercise of the Huntsman Specialty and
ICI put and call arrangements described above. In addition, each institutional
investor has the right to require Huntsman Specialty to purchase its equity
interest in Huntsman ICI Holdings at any time after June 30, 2004. Each
institutional investor also has an option to require Huntsman Specialty to
purchase its equity interest in Huntsman ICI Holdings following the occurrence
of a change of control of Huntsman ICI Holdings or Huntsman Corporation.
Huntsman Specialty has the option to purchase all outstanding interests owned
by the institutional investors at any time after June 30, 2006. The exercise
price for each of these put and call options will be the value of our business
as agreed between Huntsman Specialty and the institutional investors or as
determined by a third party at the time of the exercise of the put or call
option. If Huntsman Specialty, having used commercially reasonable efforts,
does not purchase such interests, the selling institutional investor will have
the right to require Huntsman ICI Holdings to register such interests for
resale under the Securities Act.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The net proceeds
from the sale of the notes to the initial purchasers was approximately $789
million, less fees and expenses. We used the net proceeds to fund a portion of
our transaction with ICI and Huntsman Specialty and related fees and expenses,
and for general corporate purposes. See "The Transaction".
35
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of our company as of
September 30, 1999. The information set forth below is unaudited and should be
read in conjunction with "Unaudited Pro Forma Financial Data" and audited and
unaudited financial statements of Huntsman ICI Chemicals LLC and the related
notes included elsewhere in this prospectus. Except as set forth in the pro
forma column below, there has been no material change in the capital of our
company since September 30, 1999.
<TABLE>
<CAPTION>
As of September
30, 1999
---------------
<S> <C>
Cash............................................................ $ 67
======
Long-term debt:
Senior secured credit facilities.............................. $1,677
The notes..................................................... 812
Other long-term debt.......................................... 17
------
Total long-term debt............................................ 2,506
Equity(a)....................................................... 1,107
------
Total capitalization............................................ $3,613
======
</TABLE>
- --------
(a) At September 30, 1999, our total authorized ownership interests consisted
of 1,000 units.
36
<PAGE>
UNAUDITED PRO FORMA
FINANCIAL DATA
The unaudited pro forma financial data of our company set forth below gives
effect to our transactions with ICI and Huntsman Specialty and with BP
Chemicals and the related financing thereof, including the offering of the
notes. The unaudited pro forma condensed statement of operations data for the
year ended December 31, 1998 and the nine months ended September 30, 1999 gives
effect to our transactions with ICI and Huntsman Specialty and with BP
Chemicals at the close of business on June 30, 1999 as if they had occurred on
January 1, 1998. The pro forma statements of operations do not include the
historical results of operations for the 20% ownership of the Wilton olefins
facility acquired from BP Chemicals. The unaudited pro forma financial data
does not purport to be indicative of the combined results of operations of
future periods or indicative of results that would have occurred had our
transactions with ICI and Huntsman Specialty and with BP Chemicals referred to
above been consummated on the dates indicated. The pro forma and other
adjustments, as described in the accompanying notes to the unaudited pro forma
condensed balance sheet and statements of operations, are based on available
information and certain assumptions that management believes are reasonable.
You should read the unaudited pro forma financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited and unaudited financial statements of Huntsman
Specialty and the audited and unaudited combined financial statements of the
polyurethane chemicals, selected petrochemicals and TiO\\2\\ businesses of ICI,
included elsewhere in this prospectus.
37
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ICI Businesses
-------------------------------------------- Combined Pro Forma
U.S. GAAP Huntsman Huntsman ICI Pro Forma Huntsman ICI
(U.K. GAAP) Adjustments(a) (U.S. GAAP)(a) Specialty Adjustments Chemicals Adjustments Chemicals
------------- -------------- -------------- --------- ----------- ------------ ----------- ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales--net....... (Pounds)2,011 $3,332 $339 $3,671 $ $3,671
Cost of sales.... 1,687 (Pounds) 12 2,815 277 $(19)(b) 3,073 6 (c) 3,079
------------- ----------- ------ ---- ---- ------ ---- ------
Gross profit.... 324 12 517 62 19 598 (6) 592
Operating
expenses........ 211 (3) 345 8 353 353
------------- ----------- ------ ---- ---- ------ ---- ------
Operating
income......... 113 (9) 172 54 19 245 (6) 239
Interest
expense--net.... 71 (12) 97 40 137 92 (d) 229
Other income..... 5 -- 8 1 9 9
------------- ----------- ------ ---- ---- ------ ---- ------
Income before
income tax and
minority
interest........ 47 3 83 15 19 117 (98) 19
Income tax
expense
(benefit)....... (12) 13 2 6 8 (3)(e) 5
Minority
interest........ 1 -- 2 -- 2 2
------------- ----------- ------ ---- ---- ------ ---- ------
Income (loss)
from continuing
operations...... (Pounds) 58 (Pounds)(10) $ 79 $ 9 $ 19 $ 107 $(95) $ 12
============= =========== ====== ==== ==== ====== ==== ======
Other Data:
Depreciation and
amortization... (Pounds) 76 $ 139 $ 31 $ 170 $ 176
</TABLE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
-----------------------------------------------------------------
Three Months
Ended
ICI Businesses September
------------------------------------------- 30, 1999 Pro Forma
U.S. GAAP Huntsman Pro Forma Huntsman ICI Huntsman ICI
(U.K. GAAP) Adjustments(a) (U.S. GAAP)(a) Specialty Adjustments Chemicals Chemicals
------------- -------------- -------------- --------- ----------- ------------ ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales--net.............. (Pounds)1,045 $1,679 $192 $ $961 $2,832
Cost of sales........... 890 (Pounds) 5 1,358 134 7 (c) 763 2,262
------------- ---------- ------ ---- ---- ---- ------
Gross profit........... 205 (5) 321 58 (7) 198 570
Operating expenses...... 125 3 206 5 7 (f) 84 288
------------- ---------- ------ ---- ---- ---- ------
Operating income....... 80 (8) 115 53 114 282
Interest expense--net... 32 (12) 32 18 $ 65 (d) 53 168
Other income............ 1 1
------------- ---------- ------ ---- ---- ---- ------
Income (loss) before
income tax ............ 48 4 83 35 (65) 62 115
Income tax expense
(benefit).............. 16 5 34 13 (37)(e) 8 18
Minority interest....... 1 1
------------- ---------- ------ ---- ---- ---- ------
Income (loss) from
continuing operations.. (Pounds) 32 (Pounds)(1) $ 49 $ 22 $(28) $ 53 $ 96
============= ========== ====== ==== ==== ==== ======
Other Data:
Depreciation and
amortization.......... (Pounds) 40 $ 72 $ 16 $ 49 $ 137
</TABLE>
(See footnotes on next page)
38
<PAGE>
(Footnotes from previous page)
- --------
(a) To adjust the financial information of the businesses transferred to us by
ICI from U.K. GAAP to U.S. GAAP. See Note 31 to the unaudited interim
condensed combined financial statements of the polyurethane chemicals,
selected petrochemicals and TiO\\2\\ businesses of ICI contained elsewhere
in this prospectus. The average exchange rates used to translate the
statement of operations are 1.6570 for the year ended December 31, 1998
and 1.6066 for the six months ended June 30, 1999.
(b) To change the accounting policy for turnaround and inspection costs to
conform to Huntsman Specialty's policy of capitalizing and amortizing such
costs.
(c) Reflects the additional depreciation and amortization expense of the
assets transferred to us by ICI and by BP Chemicals. Plant and equipment
is depreciated over 15 years and intangible assets, primarily finance
costs, intellectual property, non-compete agreements and goodwill, are
amortized over 5 to 20 years.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1998 June 30, 1999
----------------- -------------
(in millions)
<S> <C> <C>
Historical depreciation expense recorded
by ICI.................................. $(139) $(72)
Pro forma depreciation expense on stepped
up assets............................... 132 66
Pro forma amortization of intellectual
property................................ 5 3
Pro forma amortization of non-compete
agreement............................... 6 2
Pro forma amortization of goodwill....... 2 1
Reclassification of asset write-off
provision (see Note (f))................ -- 7
----- ----
$ 6 $ 7
===== ====
(d) Reflects the sum of the following:
<CAPTION>
Six Months
Year Ended Ended
December 31, 1998 June 30, 1999
----------------- -------------
(in millions)
<S> <C> <C>
Interest on the senior secured credit
facilities at LIBOR (5.6558%) plus
applicable margin....................... $ 138 $ 69
Interest on the notes (10.125%).......... 82 41
Amortization of deferred loan fees....... 9 5
Interest expense for debt of Huntsman
Speciality that is not included in our
transaction with ICI and Huntsman
Speciality.............................. (40) (18)
Interest on ICI debt repaid.............. (97) (32)
----- ----
$ 92 $ 65
===== ====
</TABLE>
If the interest rate changes by one-eighth of one percent, the amount of
interest expense would change by $2 million annually.
(e) Reflects the elimination of the historic U.S. tax provision for Huntsman
Specialty and ICI's U.S. businesses and the foreign tax effect of certain
pro forma adjustments at an estimated effective rate of 35%.
(f) Reflects a reclassification of $7 million of costs relating to an asset
writedown of ICI businesses to cost of sales from selling, general and
administrative and other operating expenses.
39
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below presents the historical
financial data of our company, of Huntsman Specialty, our predecessor, and the
predecessor of Huntsman Specialty, as of the dates and for the periods
indicated. Effective March 1, 1997, Huntsman Specialty purchased from Texaco
Chemical, Inc. its PO business (see Note 1 to the financial statements of
Huntsman Specialty). The selected financial data as of December 31, 1994 and
1995 and for the years ended have been derived from audited financial
statements. The selected financial data as of December 31, 1996 has been
derived from audited financial statements. The selected financial data as of
December 31, 1997 and 1998 and for the year ended December 31, 1996, the two
months ended February 28, 1997, the ten months ended December 31, 1997 and the
year ended December 31, 1998 has been derived from the audited financial
statements of Huntsman Specialty included elsewhere in this prospectus. The
selected financial data as of September 30, 1999, for the nine months ended
September 30, 1998, the six months ended June 30, 1999, and the three months
ended September 30, 1999 has been derived from the unaudited financial
statements of Huntsman Specialty and Huntsman ICI Chemicals LLC included
elsewhere in this prospectus. You should read the selected financial data in
conjunction with "Unaudited Pro Forma Financial Data", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our audited
historical financial statements of Huntsman Specialty and its predecessor and
the accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Huntsman
ICI
Predecessor(1) Huntsman Specialty(1) Chemicals
-------------------------------- -------------------------------------------- ---------
Nine Three
Months Six Months
Ended Months Ended
Year Ended Two Ten September Ended September
December 31, Months Ended Months Ended Year Ended 30, June 30, 30,
------------------ February 28, December 31, December 31, --------- -------- ---------
1994(2) 1995 1996 1997 1997 1998 1998 1999 1999
------- ---- ---- ------------ ------------ ------------ --------- -------- ---------
(dollars in millions) (dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Sales--net............. $ 81 $316 $405 $61 $ 348 $339 $250 $192 $ 961
Cost of sales.......... 88 309 377 65 300 277 210 134 763
---- ---- ---- --- ----- ---- ---- ---- ------
Gross profit (loss).... (7) 7 28 (4) 48 62 40 58 198
Operating expenses...... 14 20 19 2 8 8 6 5 84
---- ---- ---- --- ----- ---- ---- ---- ------
Operating income
(loss)................ (21) (13) 9 (6) 40 54 34 53 114
Interest expense--net.. -- -- -- -- 35 40 31 18 53
Other income........... 12 11 10 -- -- 1 -- -- 1
---- ---- ---- --- ----- ---- ---- ---- ------
Income (loss) before
income tax............ (9) (2) 19 (6) 5 15 3 35 62
Income tax, expense
(benefit)............. (3) (1) 7 (2) 2 6 1 13 8
Minority interest...... -- -- -- -- -- -- -- -- 1
---- ---- ---- --- ----- ---- ---- ---- ------
Income (loss) from
continuing
operations............ $ (6) $ (1) $ 12 $(4) $ 3 $ 9 $ 2 $ 22 $ 53
==== ==== ==== === ===== ==== ==== ==== ======
Other Data:
Depreciation and
amortization.......... $ 1 $ 1 $ -- $ 1 $ 26 $ 31 $ 23 $ 16 49
EBITDA(3).............. (8) 7 49 1 66 86 57 69 164
Net cash provided by
(used in) operating
activities............ (5) (73) 48 (5) 37 46 16 40 135
Net cash used in
investing activities.. -- -- (1) (1) (510) (10) (10) (4) 2,461
Net cash provided by
(used in) financing
activities............ 5 73 (47) 6 483 (43) (16) (34) 2,381
Capital expenditures... -- -- 1 1 2 10 10 4 60
Ratio of earnings to
fixed charges(4)...... -- -- 2.7x -- 1.1x 1.4x 1.1x 2.9x 2.1x
Balance Sheet Data (at
period end):
Working capital(5)..... $ 45 $ 44 $ 39 $ 40 $ 28 $ 28 $ 445
Total assets........... 199 243 292 594 578 578 4,614
Long-term debt(6)...... -- -- -- 464 428 396 2,506
Total liabilities(7)... 205 250 287 569 547 528 3,507
Stockholders' and
members' equity....... (6) (7) 5 25 31 50 1,107
</TABLE>
(See footnotes on next page)
40
<PAGE>
(Footnotes from previous page)
- --------
(1) Prior to March 1, 1997, Texaco Chemical leased substantially all of the
plant and equipment of the PO business under an operating lease agreement.
Also, Texaco Chemical received interest income on net intercompany
advances prior to the acquisition by Huntsman Specialty. Historical rental
expense for the years ended December 31, 1994, 1995, and 1996 and the two
months ended February 28, 1997 was $0, $14, $34 and $6 million,
respectively. Depreciation and amortization is net of $2 million, $6
million, $6 million and $0 million of amortization of deferred income and
suspense credits related to the lease for the two years ended December 31,
1994, 1995 and 1996 and the two months ended February 28, 1997. Interest
income (expense) on net intercompany advances was $(1) million, $4 million
and $4 million for the years ended December 31, 1994, 1995, and 1996,
respectively. No interest was charged or credited during the two months
ended February 28, 1997.
(2) The PO facility commenced operations in August 1994.
(3) EBITDA is defined as earnings from continuing operations before interest
expense, depreciation and amortization, and taxes. Prior to March 1, 1997,
EBITDA excludes interest income on net intercompany investments and
advances to Texaco Chemical and rental expenses (see footnote (1) above).
EBITDA is included in this prospectus because it is a basis on which we
assess our financial performance and debt service capabilities, and
because certain covenants in our borrowing arrangements are tied to
similar measures. However, EBITDA should not be considered in isolation or
viewed as a substitute for cash flow from operations, net income or other
measures of performance as defined by GAAP or as a measure of a company's
profitability or liquidity. We understand that while EBITDA is frequently
used by security analysts, lenders and others in their evaluation of
companies, EBITDA as used herein is not necessarily comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(4) The ratio of earnings to fixed charges has been calculated by dividing (A)
income before income taxes plus fixed charges by (B) fixed charges. Fixed
charges are equal to interest expense (including amortization of deferred
financing costs), plus the portion of rent expense estimated to represent
interest. Earnings were insufficient to cover fixed charges by $2 million
and $6 million for the year ended December 31, 1995 and the two months
ended February 28, 1997, respectively. There were no fixed charges for the
year ended December 31, 1994.
(5) Working capital represents total current assets, less total current
liabilities, excluding cash and the current maturities of long-term debt.
(6) Long-term debt includes the current portion of long-term debt.
(7) Total liabilities includes minority interests and mandatorily redeemable
preferred stock of $68 million and $72 million at December 31, 1997 and
1998, respectively.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
We derive revenues, earnings and cash flow from the sale of a wide variety
of specialty and commodity chemicals. We manage our operations through our
principal businesses: specialty chemicals (the polyurethane chemicals and PO
businesses), petrochemicals and TiO\\2\\. These products are manufactured at
facilities located in the Americas, Europe, Asia and Africa, and are sold
throughout the world.
Total revenues derived through our four principal businesses are as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended
Year ended September 30,
December 31, -------------
1998 1998 1999
------------- ------ ------
<S> <C> <C> <C>
Polyurethane chemicals.............................. $1,352 $1,017 $1,035
Propylene oxide..................................... 339 250 324
------ ------ ------
Specialty chemicals................................. 1,691 1,267 1,359
Petrochemicals...................................... 1,029 799 728
Titanium dioxide.................................... 951 720 745
------ ------ ------
Total............................................. $3,671 $2,786 $2,832
====== ====== ======
</TABLE>
Our principal businesses are impacted to varying degrees by economic
conditions, prices of raw materials and global supply and demand pressures.
Generally, the demand for our polyurethane chemicals products has been
relatively resistant to changes in global economic conditions because of the
industry's growth through continuing innovation and product substitution. Sales
have also been resistant to specific industry cycles due to the wide variety of
end markets for polyurethane chemicals. As a result, sales volumes of our
polyurethane chemicals have grown at rates in excess of global GDP growth. The
global PO market is influenced by supply and demand imbalances. However, prices
and margins for PO in North America, the primary market in which our PO
business operates, have been relatively stable due to the limited number of
producers, the tendency of producers to consume a substantial amount of the PO
that they produce internally and the tendency of producers to enter into long-
term contracts with customers. PO demand is largely driven by the polyurethane
industry, and as a result, growth rates for PO have generally exceeded GDP
growth rates as well.
Petrochemicals and TiO\\2\\ sales have generally grown at rates that are
approximately equal to GDP growth. Many of the markets for our petrochemicals
and TiO\\2\\ products are cyclical and sensitive to changes in the balance
between supply and demand, the price of raw materials and the level of general
economic activity. Historically, the petrochemicals and TiO\\2\\ markets have
experienced alternating periods of tight supply and rising prices and profit
margins, followed by periods of capacity additions resulting in over-capacity
and falling prices and profit margins. Due to differing factors affecting
supply and demand, the cycles for the petrochemicals and TiO\\2\\ markets are
generally independent of one another. According to Chem Systems, the
petrochemical industry is at or near its cyclical trough following a period of
oversupply in the last few years and supply and demand characteristics are
expected to improve in coming years, resulting in improved profitability.
TiO\\2\\ prices have historically been driven by industry-wide operating
rates but have typically lagged behind movements in these rates by up to twelve
months due to the effects of product stocking and destocking by customers and
suppliers, contract arrangements and cyclicality. The industry experiences some
seasonality in its sales because sales of paints, the primary end use for
TiO\\2\\, are generally highest in the spring and summer months in the northern
hemisphere. This results in greater sales volumes in the first half of the year
because the proportion of our TiO\\2\\ products sold in Europe and North
America is greater than that sold in Asia and the rest of the world.
42
<PAGE>
We conduct our businesses on a global basis using a number of currencies,
primarily the U.S. dollar and the deutschemark. For financial reporting
purposes, the results of the businesses transferred to us by ICI have been
reported in Sterling. See the audited and unaudited combined financial
statements of the businesses transferred to us by ICI included elsewhere in
this prospectus. As a result of the translation of our results of operations to
Sterling, operating costs have been impacted by movements in the value of the
Sterling relative to other currencies. Historically, the impacts on sales from
these currency translations have generally been offset by corresponding impacts
in expenses which has tended to mitigate the overall impact of currency
translations. In the future, we will be reporting our results of operations in
U.S. dollars and, because a greater portion of our business operations is
conducted in U.S. dollars, management believes a smaller proportion of our
sales and expenses will be subject to the impacts of currency translations.
Discussion of Huntsman ICI Chemicals Financial Data
The financial information for the nine months ended September 30, 1998 and
1999 discussed below are presented in a pro forma basis as if the transactions
with ICI and BP Chemicals had occurred on January 1, 1998. The pro forma
statements of operations do not include the historical results of operations
for the 20% ownership of the Wilton olefins facility acquired from BP
Chemicals. The pro forma adjustments consist of adjustments to reflect the fair
value of assets acquired, interest expense related to the new financing and
related income tax effects.
<TABLE>
<CAPTION>
Actual Pro Forma
-------------------------------------- --------------
Nine Months
Nine Months Six Months Three Months Ended
Ended Ended Ended September 30,
September 30, June 30, September 30, --------------
1998 1999 1999 1998 1999
------------- ---------- ------------- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Sales--net............... $250 $192 $961 $2,786 $2,832
Cost of sales............ 210 134 763 $2,349 2,262
---- ---- ---- ------ ------
Gross profit............. 40 58 198 437 570
Selling, general and
administrative expenses
(including research and
development expenses)... 6 5 84 263 288
---- ---- ---- ------ ------
Income from operations... 34 53 114 174 282
Interest expense--net.... 31 18 53 164 168
Other income ............ - - 1 3 1
---- ---- ---- ------ ------
Income before income
tax..................... 3 35 62 13 115
Income tax expense
(benefit)............... 1 13 8 (7) 18
Minority interest........ - - 1 (1) 1
---- ---- ---- ------ ------
Net income .............. $ 2 $ 22 $ 53 $ 21 $ 96
==== ==== ==== ====== ======
</TABLE>
Nine Months Ended September 30, 1999 (Pro Forma) Compared to Nine Months Ended
September 30, 1998 (Pro Forma)
Revenues. Our revenues increased $46 million to $2,832 million for the nine
months ended September 30, 1999 from $2,786 million for the same period in
1998. This increase was partially attributable to a 9% increase in total MDI
sales volumes from the comparable period in 1998, with our sales volumes to the
U.S. region increasing by 10%, to the Asia region increasing by 30% and to the
European region increasing by 1%. The effect of this sales volume increase,
however, was partially offset by a decrease in average selling prices for MDI.
Revenues from our PO business increased $74 million due to increased volumes
and slightly higher MTBE prices, partially offset by lower PO and PG prices.
Our PO plant was shut down during May and June of 1998 for a scheduled testing
and inspection, resulting in lower production volumes during the first nine
months of 1998.
43
<PAGE>
Revenues for our petrochemicals business decreased $271 million in the first
nine months of 1999 compared with the same period in 1998. Sales volumes of
ethylene and propylene increased by 5% and 4%, respectively, primarily as a
result of the additional revenues from the 20% interest in the Wilton olefins
facility we acquired from BP Chemicals on June 30, 1999. Sales volumes of
aromatics decreased 6% due primarily to lower cumene sales resulting from the
temporary shutdown of the cumene plant facility in 1999 in order to change the
catalyst. Selling prices for all of our major petrochemicals products
decreased, despite higher feedstock prices. Ethylene, propylene and paraxylene
prices declined 13%, 15% and 10%, respectively. Revenues from our feedstock
procurement activities decreased $73 million due to the reduction of raw
materials trading operations after June 30, 1999. TiO\\2\\ sales increased $28
million due largely to higher volumes, primarily in Asia. We have historically
engaged in feedstock procurement activities which includes the buying and
selling of naptha and other feedstocks with the primary objective of ensuring a
reliable and cost competitive raw material supply.
Gross profit. Gross profit increased $133 million to $570 million for the
nine months ended September 30, 1999 from $437 million for the same period in
1998. Gross profit for polyurethane chemicals increased approximately $51
million from the same period in 1998. This increase was primarily due to lower
raw material prices. Gross profit in our PO business increased approximately
$53 million from the 1998 period. Our PO plant was shut down during May and
June of 1998 for a scheduled testing and inspection, resulting in lower
production volumes during the first nine months of 1998. The increase in the
gross profits of our PO business was also a result of lower raw materials
prices for MTBE during the first nine months of 1999. Gross profit for our
petrochemicals business increased approximately $15 million due to lower fixed
production costs, reflecting ($2.3 million) the absence of overhauls in the
1999 period and a lower level of maintenance spending. Gross profit for our
TiO\\2\\ business increased approximately $14 million primarily due to lowered
fixed costs, resulting from on-going cost reduction initiatives.
Selling, general and administrative expenses (including research and
development expenses). SG&A increased $25 million to $288 million for the nine
months ended September 30, 1999 from $263 million for the same period in 1998.
The increase is primarily attributable to non-recurring items, including an $11
million pension accrual reversal in the 1998 period and $8 million in severance
and related costs in the 1999 period.
Interest expense. Net interest expense increased $4 million to $168 million
for the nine months ended September 30, 1999 from $164 million for the same
period in 1998. Higher interest expense was a result of higher interest rates
during 1999 as compared to 1998.
Income taxes. Income taxes increased $25 million to $18 million for the
nine months ended September 30, 1999 from a benefit of $7 million for the same
period in 1998. The increase was due to higher income from operations outside
the U.S.
Net income. Net income increased $75 million to $96 million for the nine
months ended September 30, 1999 from $21 million for the same period in 1998 as
a result of the factors discussed above.
Discussion of Huntsman Specialty Financial Data
General
The domestic market for PO has historically experienced less cyclicality
than the commodity petrochemical markets in general. However, we believe that
the PO market in the future may experience periods of tight supply, higher
prices and higher margins followed by capacity additions, oversupply and
declining or flat prices. We sell substantially all of our PO under multi-year
contracts and tolling agreements primarily in the domestic market. These
contracts generally use formulas to link PO prices to the underlying price of
propylene, PO's main raw material, thereby affording our margins some
protection from propylene price volatility.
44
<PAGE>
We supply certain customers with PO under tolling agreements. Under these
agreements, the customer is obligated to deliver the propylene required to
produce the PO and we receive a toll fee which is adjusted for changes in
production costs. We sold approximately 62%, 42% and 42% of our PO under
tolling arrangements in 1996, 1997 and 1998, respectively.
The market for methyl tertiary butyl ether, which is commonly referred to
in the chemicals industry as "MTBE", is cyclical, with prices and production
rising or falling based on changes in global supply and demand, raw material
prices, the cost structure of various producers and the price of gasoline.
Historically, the market for MTBE has been strongly influenced by changes in
government regulation in the U.S. and elsewhere, and could be further
influenced by recent proposed changes. See "Business--Propylene Oxide--Recent
Developments". We expect that the market for MTBE will continue to be
influenced by government regulation as the federal government and the states
contemplate the future role of MTBE in environmental policy and as foreign
governments enact standards limiting motor vehicle emissions. We sell the
majority of our MTBE under long-term contracts. Our emphasis on contractual,
high-volume sales allows us to obtain generally higher and more stable prices
than are typically available on the spot market.
The financial information for the years ended December 31, 1996 and 1997
discussed below are presented on a pro forma basis as if the acquisition by
Huntsman Specialty of the PO business from Texaco Chemical had occurred on
January 1, 1996. Prior to the acquisition on March 31, 1997, Texaco Chemical
leased substantially all of the plant and equipment of the PO business under an
operating lease agreement. The pro forma adjustments consist primarily of
adjustments to reflect the plant and equipment as if owned and not leased,
interest expense related to the financing to acquire Texaco Chemical and
related income tax adjustments.
The pro forma results for the years ended December 31, 1996 and 1997, and
the actual results for the year ended December 31, 1998 are illustrated below.
<TABLE>
<CAPTION>
Pro Forma
Year
Ended
December
31, Year Ended
---------- December 31,
1996 1997 1998
---- ---- ------------
(in millions)
<S> <C> <C> <C>
Sales--net........................................... $405 $409 $339
Cost of sales........................................ 363 364 277
---- ---- ----
Gross profit......................................... 42 45 62
Selling, general and administrative expenses
(including research and development expenses)....... 19 10 8
---- ---- ----
Income from operations............................... 23 35 54
Interest expense--net................................ 42 42 40
Other income......................................... - - 1
---- ---- ----
Income before income tax............................. (19) (7) 15
Income tax expense................................... (8) (2) 6
Minority interest.................................... - - 1
---- ---- ----
Net income (loss).................................... $(11) $ (5) $ 9
==== ==== ====
</TABLE>
45
<PAGE>
Year Ended December 31, 1998 (Actual) Compared to Year Ended December 31, 1997
(Pro Forma)
Revenues. Revenues for our PO business in 1998 decreased by $70 million, or
17%, to $339 million from $409 million in 1997. Lower revenues from the sale of
MTBE and by-products were partially offset by higher revenues from propylene
glycol, which is commonly referred to in the chemicals industry as "PG". MTBE
revenues declined as a result of a 25% decline in average sales prices and a
10% decline in sales volumes. Higher PG revenues were a result of a 68%
increase in sales volumes, partially offset by a 10% decline in average selling
prices. Revenues from the sale of PO remained essentially unchanged as a 1%
decline in sales volume was offset by a 1% increase in average sales prices.
Higher average PO sales prices were a result of higher tolling fees. PO and
MTBE sales volumes were negatively impacted by a 49 day turnaround and
inspection ("T&I") period which occurred during 1998.
Gross profit. Gross profit in 1998 increased by $17 million, or 38%, to $62
million from $45 million in 1997. The increase was a result of significantly
lower costs of raw materials used to produce MTBE as the cost of isobutane and
methanol declined significantly as compared to 1997. Gross margin was
negatively impacted by the T&I mentioned above.
Selling, general and administrative expenses (including research and
development expenses). SG&A in 1998 decreased by $2 million, or 20%, to $8
million from $10 million in 1997. Lower SG&A expenses were a result of ongoing
expense reduction initiatives which have been instituted since the acquisition
of the PO business by Huntsman Specialty in March 1997.
Interest expense. Net interest expense in 1998 declined by $2 million, or
5%, to $40 million from $42 million in 1997. Lower interest expense was a
result of the repayment of debt and lower interest rates during 1998 as
compared to 1997.
Net income. Net income in 1998 increased by $14 million to $9 million as
compared to a net loss of $5 million in 1997 as a result of the factors
discussed above.
Year Ended December 31, 1997 (Pro Forma) Compared to Year Ended December 31,
1996 (Pro Forma)
Revenues. Revenues for our PO business in 1997 increased by $4 million, or
1%, to $409 million from $405 million in 1996. Higher PO revenue was offset by
lower revenues from the sale of MTBE, PG and by-products. Higher PO revenue was
due to a 11% increase sales volume and a 17% increase in average selling prices
during 1997 as compared to 1996. Higher sales volume was a result of an
increase in PO production during 1997 resulting from internal engineering
efforts and higher capacity utilization. Higher average PO sales prices were a
result of higher tolling fees and higher customer contract prices. The decrease
in MTBE revenue was due to a 13% decline in sales volume partially offset by a
2% increase in average selling price during 1997 as compared to 1996. The
reduction in MTBE sales volume was primarily due to elimination of MTBE spot
sales purchased under contractual obligations not assumed by Huntsman Specialty
in connection with the acquisition of the PO business from Texaco.
Gross profit. Gross profit in 1997 increased by $3 million, or 7%, to $45
million from $42 million in 1996. The increase was primarily due to lower
quantities of PO, MTBE and PG purchased for resale in 1997 as compared to 1996.
Selling, general and administrative expenses (including research and
development expenses). SG&A in 1997 decreased by $9 million, or 47%, to $10
million from $19 million in 1996. Lower SG&A expenses were a result of the
elimination of certain expenses incurred by the company's predecessor.
46
<PAGE>
Interest expense. Net interest expense was $42 million in both 1997 and
1996.
Net income. Net income in 1997 increased by $6 million to a loss of $5
million as compared to a net loss of $11 million in 1996 as a result of the
factors discussed above.
Discussion of ICI Businesses Combined Financial Data
The financial data and discussion presented below aggregates the financial
information of the polyurethane chemicals, petrochemicals and TiO\\2\\
businesses transferred to us by ICI. The financial information for these
businesses was historically prepared by ICI under U.K. GAAP in Sterling. The
financial data below has been derived from the U.K. GAAP financial statements
included elsewhere in this prospectus and adjusted for certain differences
between U.K. GAAP and U.S. GAAP. These adjustments have not generally been
significant for these businesses, but where there are significant differences
between U.K. GAAP and U.S. GAAP, these differences are discussed. Information
regarding adjustments from U.K. GAAP to U.S. GAAP is set forth in the combined
financial statements of the businesses transferred to us by ICI included
elsewhere in this prospectus. The financial data does not include any
information concerning the 20% interest in the Wilton olefins facility that BP
Chemicals owned during these periods. The following table presents combined
financial data for the polyurethane chemicals, petrochemicals and TiO\\2\\
businesses for the years ended December 31, 1996, 1997 and 1998 and for the six
months ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
------------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------- -------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C>
Turnover................ (Pounds)2,534 (Pounds)2, 337 (Pounds)2,011 (Pounds)1,070 (Pounds)1,045
------------- -------------- ------------- ------------- -------------
Operating costs and
other operating in-
come(1)................ 2,374 2,301 1,888 992 968
Operating exceptional
items.................. 11 56 10 -- --
Non-operating
exceptional items--
(profit)/loss on sale
or closure of
operations............. -- (23) 4 4 --
------------- -------------- ------------- ------------- -------------
Total................. 2,385 2,334 1,902 996 968
------------- -------------- ------------- ------------- -------------
Profit on ordinary ac-
tivities before inter-
est.................... 149 3 109 74 77
Net interest payable.... 66 55 59 22 25
Taxation on profit on
ordinary activities.... 39 (3) 1 14 21
Attributable to minori-
ties................... 3 1 1 -- --
------------- -------------- ------------- ------------- -------------
Net profit/(loss)....... (Pounds) 41 (Pounds) (50) (Pounds) 48 (Pounds) 38 (Pounds) 31
============= ============== ============= ============= =============
</TABLE>
- --------
(1)Includes income from fixed asset investments.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Turnover. Turnover represents sales revenue. Turnover in the first half of
1999 decreased by (Pounds)25 million, or 2%, to (Pounds)1,045 million from
(Pounds)1,070 million in the comparable period of 1998. The decline was
primarily attributable to a (Pounds)47 million decline in petrochemicals
turnover resulting from lower prices and volumes resulting from our feedstock
procurement activities. As part of our normal ongoing operations, we engage in
feedstock procurement activities, which include the buying and selling of
naptha and other feedstocks with the primary objective of ensuring a reliable
and cost competitive raw material supply. Naphtha and other feedstocks that are
subsequently resold prior to delivery are included in turnover. Revenues from
our sales of olefins and aromatics decreased as a result of lower average sales
prices. The decline was offset by a (Pounds)26 million increase in polyurethane
chemicals turnover resulting from increased sales volumes and an (Pounds)11
million increase in TiO\\2\\ turnover.
47
<PAGE>
Operating costs and other operating income. Operating costs and other
operating income in the first half of 1999 decreased by (Pounds)24 million, or
2%, to (Pounds)968 million from (Pounds)992 million in the comparable period in
1998. This decline is due primarily to lower raw material costs for
petrochemicals and from lower product costs relating to our petrochemicals
feedstock procurement activities.
Non-operating exceptional items. There were no non-operating exceptional
items in the first half of 1999 compared with non-operating exceptional losses
of (Pounds)4 million in the comparable period in 1998 which related to minor
disposals in that period.
Net interest payable. Net interest payable in the first half of 1999
decreased by (Pounds)3 million, or 14%, to (Pounds)25 million from (Pounds)22
million in the comparable period in 1998. This increase was due to a
significant reduction in the level of interest being capitalized on assets
under construction offset by a decrease in the weighted average interest rate
to 7.3% in the first half of 1999 from 9.0% in the first half of 1998.
Taxation. The tax charge of (Pounds)21 million for the first half of 1999
compares with a charge of (Pounds)14 million for the comparable period of 1998.
Net profit. The net profit for the first half of 1999 of (Pounds)31 million
compares with a net profit of (Pounds)38 million for the comparable period of
1998, a decrease in profit of (Pounds)7 million, which resulted from the
factors described above.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Turnover. Turnover in 1998 decreased by (Pounds)326 million, or 14%, to
(Pounds)2,011 million from (Pounds)2,337 million in 1997. The decrease was due
primarily to petrochemicals turnover which was lower by (Pounds)309 million
resulting from a significant decrease in the turnover of our feedstocks
procurement activities, and lower average selling prices for our olefins and
aromatics products. Additionally, polyurethane chemicals turnover declined due
to MDI price erosion in Asia and the impact of unfavorable currency
translations. These declines were marginally offset by an increase of
(Pounds)27 million in TiO\\2\\ turnover due to higher average selling prices.
Turnover was further reduced by a continuation of the 1997 decrease in
paraxylene demand, reflecting weakness in the PTA market. Overall sales volumes
in TiO\\2\\ decreased 6% in 1998 as compared to 1997, primarily due to
significantly lower demand in Asia. However, these declines were partially
offset by an increase in polyurethane sales volumes, which was driven by an 8%
increase in sales volumes for MDI.
Operating costs and other operating income. Operating costs and other
operating income in 1998 decreased by (Pounds)413 million, or 18%, to
(Pounds)1,888 million from (Pounds)2,301 million in 1997. The decrease was
primarily due to lower raw material costs for petrochemicals and polyurethane
chemicals. Specifically, the price of naphtha declined, affecting manufacturing
cost for petrochemicals, and the price of benzene declined, affecting
manufacturing costs for polyurethane chemicals.
Operating exceptional items. Operating exceptional items in 1998 decreased
by (Pounds)46 million, to (Pounds)10 million from (Pounds)56 million in 1997.
The 1998 charge was comprised of rationalization expenditures for our TiO\\2\\
business.
Non-operating exceptional items. Net non-operating exceptional losses from
disposal of businesses of (Pounds)4 million in 1998 compared with net gains of
(Pounds)23 million in the previous year.
Net interest payable. Net interest payable increased by (Pounds)4 million,
or 7%, to (Pounds)59 million in 1998 from (Pounds)55 million in 1997. The
increase was primarily due to an increase in the weighted average interest rate
to 8.0% in 1998 from 7.6% in 1997. Net interest payable under U.K. GAAP was
(Pounds)71 million in 1998 compared with (Pounds)69 million in 1997. The
difference between the U.K. and U.S. GAAP amounts resulted from the U.S. GAAP
requirement to capitalize interest incurred as part of the cost of constructing
fixed assets.
48
<PAGE>
Taxation. Under U.S. GAAP, there was a tax charge of (Pounds)1 million in
1998 compared to a tax credit of (Pounds)3 million in 1997. This represents an
effective tax rate of 2% in 1998 and 6% in 1997. In 1998, the effective rate
was relatively low due to brought forward trading losses being utilized against
current year profits. The 1997 effective rate reflects the net impact of a non-
deductible write down of the aromatics assets within petrochemicals and
deferred tax assets recognized for TiO\\2\\ carried forward trading losses.
Under U.S. GAAP, deferred taxation is provided on a full provision basis,
whereas under U.K. GAAP, provision is only made for taxes payable or
recoverable in the foreseeable future. The effective tax rates under U.K. GAAP
were 26% in 1998 and 32% in 1997. The differences between U.S. and U.K. GAAP
are primarily driven by the fact that benefit for carried forward trading
losses was taken in 1997 for U.S. GAAP and in 1998 for U.K. GAAP purposes.
Net profit. The net profit for 1998 of (Pounds)48 million compares with a
net loss of (Pounds)50 million for 1997, an improvement in profit of (Pounds)98
million, which resulted from the factors described above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Turnover. Turnover in 1997 decreased by (Pounds)197 million, or 8%, to
(Pounds)2,337 million from (Pounds)2,534 million in 1996. The decline was
primarily attributable to the impact of unfavorable currency translations.
Additionally, average MDI sales prices in our polyurethane chemicals business
declined due to price erosion in Asia and TiO\\2\\ average sales prices
declined due to destocking by customers in 1997. In our petrochemicals
business, paraxylene prices fell in local currency terms by 16%. In our
polyurethane chemicals business, MDI volumes increased 13%; TiO\\2\\ volumes
increased 6%; and petrochemicals volumes decreased 13% for olefins, 10% for
paraxylene.
Operating costs and other operating income. Operating costs and other
operating income in 1997 decreased by (Pounds)73 million, or 3%, to
(Pounds)2,301 million from (Pounds)2,374 million in 1996 due primarily to lower
raw material costs, resulting from the impact of favorable currency
translations, partially offset by the increase in costs due to higher sales of
polyurethane chemicals.
Operating exceptional items. Operating exceptional items increased by
(Pounds)45 million to (Pounds)56 million from (Pounds)11 million in 1996. The
1997 charge included (Pounds)14 million for our TiO\\2\\ business
rationalization program, (Pounds)17 million to settle a raw material supplier
dispute, and (Pounds)25 million to write down the book value of our aromatics
assets.
Non-operating exceptional items. Net non-operating exceptional items in
1997 of (Pounds)23 million comprised a (Pounds)25 million profit on the sale of
our Australian polyurethane chemicals business, offset by a (Pounds)2 million
loss on other asset disposals. There were no non-operating exceptional items in
1996.
Net interest payable. Net interest payable in 1997 decreased by (Pounds)11
million, or 17%, to (Pounds)55 million in 1997 from (Pounds)66 million in 1996.
This decrease was primarily due to a decrease in the weighted average interest
rate to 7.6% in 1997 from 8.5% in 1996. Net interest payable under U.K. GAAP
was (Pounds)69 million in 1997 compared with (Pounds)78 million in 1996. The
difference between the U.K. and U.S. GAAP amounts resulted from the U.S. GAAP
requirement to capitalize interest incurred as part of the cost of constructing
fixed assets.
Taxation. Under U.S. GAAP, there was a tax credit of (Pounds)3 million in
1997 compared to a tax charge of (Pounds)39 million in 1996. This represents an
effective tax rate of 6% in 1997 and 47% in 1996. The 1997 effective rate
reflects the net impact of a non-deductible write down of the aromatics assets
within petrochemicals and deferred tax assets recognized for TiO\\2\\ carried
forward trading losses. The 1996 effective rate is primarily caused by TiO\\2\\
trading losses not being recognized in that year as utilization in future
periods was uncertain. Under U.S. GAAP, deferred taxation is provided on a full
49
<PAGE>
provision basis, whereas under U.K. GAAP, provision is only made for taxes
payable or recoverable in the foreseeable future. The effective tax rates under
U.K. GAAP are 32% in 1997 and 34% in 1996. The significant difference in 1997
between U.S. and U.K. GAAP is primarily driven by the fact that no deferred tax
asset was recognized under U.K. GAAP for trading losses.
Net profit/(loss). The net loss for 1997 of (Pounds)50 million compares
with a net profit of (Pounds)41 million for 1996, a reduction in profit of
(Pounds)91 million which resulted from the factors described above.
Discussion of Polyurethane Chemicals, Petrochemicals and TiO\\2\\ Businesses
Financial Data
The financial data and discussion presented below for each of the
polyurethane chemicals, petrochemicals and TiO\\2\\ businesses has been derived
from financial statements prepared under U.K. GAAP in Sterling and adjusted for
certain differences between U.K. GAAP and U.S. GAAP. The financial data does
not include any information concerning 20% interest in the Wilton olefins
facility that BP Chemicals owned during these periods.
Polyurethane Chemicals
The results for the years ended December 31, 1996, 1997 and 1998 and for
the six months ended June 30, 1998 and 1999 are illustrated below. The
financial information for the polyurethane chemicals business was historically
prepared by ICI under U.K. GAAP in Sterling. The financial data presented below
has been derived from the U.K. GAAP financial statements included elsewhere in
this prospectus, adjusted for certain significant differences between U.K. GAAP
and U.S. GAAP and translated into U.S. dollars at average exchange rates of
1.6570 and 1.6066 for the year ended December 31, 1998 and the six months ended
June 30, 1999, respectively. This translation does not necessarily result in
the same U.S. dollar amounts as would have arisen if the translation had been
performed in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------------- -------- ------------
(Pounds) (Pounds) (Pounds) $ (Pounds) (Pounds) $
-------- -------- -------- ----- -------- -------- ---
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... 907 860 816 1,352 409 435 699
Cost of sales, operating
expenses and other
income, net............ 795 762 727 1,204 373 386 620
--- --- --- ----- --- --- ---
Income before interest
and income tax......... 112 98 89 148 36 49 79
=== === === ===== === === ===
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Sales. Sales of polyurethane chemicals in the first half of 1999 increased
by (Pounds)26 million, or 6%, to (Pounds)435 million from (Pounds)409 million
in the comparable period in 1998 primarily due to increased sales volumes in
the U.S. and Asia.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in the first half of 1999 increased by
(Pounds)13 million, or 3%, to (Pounds)386 million from (Pounds)373 million in
the comparable period in 1998.
Income before interest and income tax. Income before interest and income
tax in the first half of 1999 of (Pounds)49 million compares with (Pounds)36
million for the comparable period of 1998, an increase in income before
interest and tax of (Pounds)13 million as a result of the factors described
above.
50
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales. Sales of polyurethane chemicals in 1998 decreased by (Pounds)44
million, or 5%, to (Pounds)816 million from (Pounds)860 million in 1997 due
primarily to a decrease in the average sales price of MDI resulting from lower
underlying raw material prices, price pressures in Asia and the impact of
unfavorable currency translations. The price declines and unfavorable currency
translations were partially offset by increased MDI volumes of 8%. This volume
growth was driven by a 14% sales volume increase in the U.S. resulting
primarily from continued growth in wood binders and a 10% growth in European
sales volumes. These volume gains were partially offset by a volume decline of
19% in the Asian market related to a weakening of the Asian economy.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1998 decreased by (Pounds)35
million, or 5%, to (Pounds)727 million from (Pounds)762 million in 1997. This
decline was largely attributable to a decline in the price of benzene, MDI's
primary raw material. Additionally, operating expenses declined due to lower
manufacturing costs which resulted from improvements in our production process
following a restructuring of our European manufacturing assets.
Income before interest and income tax. Income before interest and income
tax for 1998 of (Pounds)89 million compares with (Pounds)98 million for 1997, a
decrease in income before interest and income tax of (Pounds)9 million as a
result of the factors described above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales. Sales of polyurethane chemicals in 1997 decreased by (Pounds)47
million, or 5%, to (Pounds)860 million from (Pounds)907 million in 1996. This
decrease was attributable primarily to a decline in average MDI sales prices
and the substantial impact of unfavorable currency translations which more than
offset sales volume increases. MDI prices declined primarily as a result of
general pricing pressures in Asia. Lower Asian prices reflected the addition of
significant global capacity, coupled with a weakening of the Asian economy. In
1997, MDI sales volumes increased 13% from 1996 due to significant growth of
MDI in the U.S. of 19%. This increase was driven by demand for the MDI based
wood binder applications and insulation panels used in construction. MDI sales
volumes in Europe grew at 9%, while sales volumes in Asia declined by 2%.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1997 decreased by (Pounds)33
million, or 4%, to (Pounds)762 million from (Pounds)795 million in 1996
including a one-time gain of (Pounds)25 million resulting from the sale of our
Australian polyurethane chemicals business. Excluding the impact of the one-
time gain, costs of sales, operating expenses and other income/expense in 1997
decreased by (Pounds)8 million.
Income before interest and income tax. Income before interest and income
tax in 1997 of (Pounds)98 million compares with (Pounds)112 million for 1996, a
decrease in income before interest and income tax of (Pounds)14 million as a
result of the factors described above.
Petrochemicals
The results for the years ended December 31, 1996, 1997, and 1998 and for
the six months ended June 30, 1998 and 1999 are illustrated below. The
financial data does not include any information concerning BP Chemicals's
interest in the Wilton olefins facility. The financial information for the
petrochemicals business was historically prepared by ICI under U.K. GAAP in
Sterling. The financial data presented below has been derived from the U.K.
GAAP financial statements included elsewhere in this prospectus, adjusted for
certain significant differences between U.K. GAAP and
51
<PAGE>
U.S. GAAP and translated into U.S. dollars at average exchange rates of 1.6570
and 1.6066 for the year ended December 31, 1998 and the six months ended June
30, 1999, respectively. This translation does not necessarily result in the
same U.S. dollar amounts as would have arisen if the translation had been
performed in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------------- -------- ------------
(Pounds) (Pounds) (Pounds) $ (Pounds) (Pounds) $
-------- -------- -------- ----- -------- -------- ---
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... 1,009 930 621 1,029 367 305 490
Cost of sales, operating
expenses and other
income, net............ 954 964 653 1,082 360 313 503
----- --- --- ----- --- --- ---
Income (loss) before
interest and income
tax.................... 55 (34) (32) (53) 7 (8) (13)
===== === === ===== === === ===
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Sales. Sales of petrochemicals in the first half of 1999 decreased by
(Pounds)62 million, or 17%, to (Pounds)305 million from (Pounds)367 million in
the comparable period in 1998. This decrease was primarily a result of lower
revenues from sales of both olefins and aromatics and a reduction in sales
related to our feedstock procurement activities. As part of our normal ongoing
operations, we engage in feedstock procurement activities, which include the
buying and selling of naphtha and other feedstocks with the primary objective
of ensuring a reliable and cost competitive raw material supply. Naphtha and
other feedstocks that are subsequently resold prior to delivery are included in
turnover. Revenues from our sales of olefins and aromatics decreased as a
result of lower average sales prices, partially offset by the impact of
favorable currency translations. Average sales prices decreased due primarily
to a weakening in the European petrochemical sector and slightly lower raw
material costs. Sales decreases from our feedstock procurement activities were
offset by a reduction in our cost of sales as a result of a reduction in crude
oil and feedstock prices.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in the first half of 1999 decreased by
(Pounds)47 million, or 13%, to (Pounds)313 million from (Pounds)360 million in
the comparable period in 1998. This decrease was primarily attributable to a
decline in raw material costs, a reduction in the amount of purchased finished
product and a reduction in our product costs related to our feedstock
procurement activities.
Income (loss) before interest and income tax. The loss before interest and
income tax in the first half of 1999 of (Pounds)8 million compares with a
profit of (Pounds)7 million for the comparable period in 1998, a decrease in
income before interest and income tax of (Pounds)15 million as a result of the
factors described above.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales. Sales of petrochemicals in 1998 decreased by (Pounds)309 million, or
33%, to (Pounds)621 million from (Pounds)930 million in 1997. This decrease was
primarily a result of lower revenues from sales of olefins and aromatics and a
reduction in sales related to our feedstock procurement activities. Revenues
from our sales of olefins and aromatics decreased primarily as a result of
decreases in average sales prices and, to a lesser extent, decreases in sales
volumes. For example, average sales prices for two of our primary petrochemical
products, ethylene and paraxylene, declined by 16% and 20%, respectively. Sales
related to our feedstock procurement activities accounted for
52
<PAGE>
nearly half of our sales decrease and were substantially offset by a reduction
in our cost of sales due to a substantial reduction in crude oil and feedstock
prices.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1998 decreased by (Pounds)311
million, or 32%, to (Pounds)653 million from (Pounds)964 million in 1997. This
decrease was primarily attributable to a decline in raw material costs and
lower volumes of finished product purchased for resale. The average cost for
our primary raw material, naphtha, declined by 31%. Additionally, operating
expenses were (Pounds)25 million lower due to the absence of a one-time write
down which was expensed in 1997.
Income (loss) before interest and income tax. The loss before interest and
income tax for 1998 of (Pounds)32 million compares with a loss of (Pounds)34
million for 1997, a reduction in loss before interest and income tax of
(Pounds)2 million as a result of the factors described above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales. Sales of petrochemicals in 1997 decreased by (Pounds)79 million, or
8%, to (Pounds)930 million from (Pounds)1,009 million in 1996. The decrease was
attributable to a decline in the average sales price and sales volumes of
paraxylene and the significant impact of unfavorable currency fluctuations.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1997 increased by (Pounds)10
million, or 1%, to (Pounds)964 million from (Pounds)954 million in 1996. This
increase was primarily attributable to a one-time charge of (Pounds)25 million
related to the write down of the book value of our aromatics facility. The
increase was partially offset by the impact of favorable currency translations
impacting the cost of our primary feedstock, naphtha.
Income (loss) before interest and income tax. The loss before interest and
income tax for 1997 of (Pounds)34 million compares with income before interest
and tax of (Pounds)55 million for 1996, a decrease in income before interest
and income tax of (Pounds)89 million as a result of the factors described
above.
Titanium Dioxide
The results for the years ended December 31, 1996, 1997 and 1998 and for
the six months ended June 30, 1998 and 1999 are illustrated below. The
financial information for the TiO\\2\\ business was historically prepared by
ICI under U.K. GAAP in Sterling. The financial data presented below has been
derived from the U.K. GAAP financial statements included elsewhere in this
prospectus, adjusted for certain significant differences between U.K. GAAP and
U.S. GAAP and translated into U.S. dollars at average exchange rates of 1.6570
and 1.6066 for the year ended December 31, 1998 and the six months ended June
30, 1999, respectively. This translation does not necessarily result in the
same U.S. dollar amounts as would have arisen if the translation had been
performed in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
------------------------------ ---------------------
1996 1997 1998 1998 1999
-------- -------- ------------ -------- ------------
(Pounds) (Pounds) (Pounds) $ (Pounds) (Pounds) $
-------- -------- -------- --- -------- -------- ---
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................... 618 547 574 951 294 305 490
Cost of sales, operating
expenses and other
income, net............. 636 608 522 865 263 269 432
--- --- --- --- --- --- ---
Income (loss) before
interest and income
tax..................... (18) (61) 52 86 31 36 58
=== === === === === === ===
</TABLE>
53
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Sales. Sales of TiO\\2\\ in the first half of 1999 increased by (Pounds)11
million, or 4%, to (Pounds)305 million from (Pounds)294 million in the
comparable period in 1998. The increase was primarily attributable to higher
average sales prices in the first half of 1999 resulting from price increases
implemented in 1998.
Cost of sales, operating costs and other income, net. Cost of sales,
operating costs and other income, net in the first half of 1999 increased by
(Pounds)6 million, or 2%, to (Pounds)269 million from (Pounds)263 million in
the comparable period in 1998. This increase was primarily a result of
unfavorable fluctuations in currency translation rates.
Income (loss) before interest and income tax. Income before interest and
income tax for the six months ended June 30, 1999 of (Pounds)36 million
compares with (Pounds)31 million for the same period in 1998, an increase in
income before interest and income tax of (Pounds)5 million as a result of the
factors described above.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales. Sales of TiO\\2\\ in 1998 increased by (Pounds)27 million, or 5%, to
(Pounds)574 million from (Pounds)547 million in 1997. The increase was
primarily a result of higher average local selling prices in Europe and North
America. This increase was partially offset by the impact of unfavorable
currency translations, and, to a lesser extent, lower sales volumes in Asia.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1998 decreased by (Pounds)86
million, or 14%, to (Pounds)522 million from (Pounds)608 million in 1997. The
decline was a result of lower operating costs, primarily due to favorable
currency translations, and a reduction in operating expenses resulting from our
ongoing cost reduction initiatives. Additionally, during 1998, we recognized
exceptional charges of (Pounds)10 million, as compared to an exceptional charge
of (Pounds)31 million in 1997. The 1998 charge included severance costs
relating to the continued implementation of our ongoing cost reduction
initiatives.
Income (loss) before interest and income tax. Income before interest and
income tax for 1998 of (Pounds)52 million compares with a loss of (Pounds)61
million in 1997, an increase in income before interest and taxation of
(Pounds)113 million as a result of the factors described above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales. Sales of TiO\\2\\ in 1997 decreased by (Pounds)71 million, or 11%,
to (Pounds)547 million from (Pounds)618 million in 1996. The decrease was
primarily attributable to lower average selling prices and unfavorable currency
translations, partially offset by increased sales volumes. Prices dropped
sharply in the second half of 1996 as customers reduced their stock levels in
response to falling demand in Europe. Although prices stabilized and improved
from April 1997 onwards, the overall average selling price was approximately 7%
lower than the average selling price in 1996. Excluding the impact of currency
translations, sales would have been substantially the same as 1996.
Cost of sales, operating expenses and other income, net. Cost of sales,
operating expenses and other income, net in 1997 decreased by (Pounds)28
million, or 4%, to (Pounds)608 million from (Pounds)636 million in 1996. The
decrease was primarily attributable to favorable currency translations,
partially offset by an increase in exceptional charges of (Pounds)20 million
which were (Pounds)31 million in 1997 compared with (Pounds)ll million in 1996.
The exceptional charges for 1997 were comprised of (Pounds)17 million to settle
a supplier dispute, (Pounds)l0 million in severance charges in connection with
our ongoing cost reduction initiative and (Pounds)4 million of other charges.
54
<PAGE>
Income (loss) before interest and income tax. The loss before interest and
income tax for 1997 of (Pounds)61 million compares with a loss of (Pounds)18
million in 1996, an increase of (Pounds)43 million as a result of the factors
described above.
Recent Developments
Concurrently with our acquisition of ICI's and Huntsman Specialty's
businesses, we also acquired BP Chemicals's 20% ownership interest in the
Wilton olefins facility. In connection with our acquisition of this interest
from BP Chemicals, BP Chemicals has agreed to become a significant long-term
customer of our petrochemicals business. We believe that pro forma Adjusted
EBITDA for the year ended December 31, 1998 would have increased by
approximately $16 million to approximately $497 million had our acquisition of
BP Chemicals's interest in the Wilton olefins facility been consummated on
January 1, 1998.
Liquidity and Capital Resources
Liquidity
We are highly leveraged as a result of the debt that we incurred to fund
the transfer of ICI's and Huntsman Specialty's businesses to us.
Contemporaneously with the closing of the transfer of those businesses, our
company and Huntsman ICI Holdings took the following actions:
. We issued the outstanding notes.
. We entered into the senior secured credit facilities which provide for
borrowings of up to $2,070 million, including $400 million under a
revolving facility, a substantial portion of which remains available as
of the date of this prospectus. The credit facilities are secured by a
first priority perfected lien on substantially all of our assets. See
"Description of Credit Facilities".
. Huntsman ICI Holdings issued the senior discount notes and the senior
subordinated discount notes to ICI. See "The Transaction--Transaction
Consideration".
. We received $90 million from institutional investors.
As of September 30, 1999, we had approximately $400 million available under
our revolving credit facility and approximately $67 million in available cash
balances. We also maintain $80 million of short-term overdraft facilities, of
which $80 million was available as of September 30, 1999.
Our senior secured credit facilities currently prohibit, and the indenture
governing the notes currently restricts, payment of dividends, distributions,
loans or advances to us by our subsidiaries. We do, however, anticipate that
borrowings under the credit facilities and cash flow from operations will be
sufficient for us to make required payments of principal and interest on our
debt when due, as well as to fund capital expenditures.
Capital Expenditures
Our capital expenditures for our business for the nine months ended
September 30, 1999 were $64 million and for the nine months ended September 30,
1998 were $10 million; combined capital expenditures for our polyurethane
chemicals, petrochemicals and TiO\\2\\ businesses collectively were (Pounds)50
million and (Pounds)83 million in the first half of 1998 and 1999,
respectively. Capital expenditures for the years ended December 31, 1996, 1997
and 1998 were $1 million, $3 million and $10 million, respectively, for our PO
business. Combined capital expenditures for our polyurethane chemicals,
petrochemicals and TiO\\2\\ businesses collectively were (Pounds)190 million,
(Pounds)170 million and (Pounds)134 million for the years ended December 31,
1996, 1997 and 1998, respectively. The increases reflect expenditures relating
to extensive production process improvements, primarily for our polyurethane
chemicals and TiO\\2\\ businesses. For our polyurethane chemicals business,
these improvements, expected to be completed in 1999, included the closure of
our Hillhouse, U.K. facility in 1997, the construction of our nitrobenzene
facility at Wilton, U.K. completed in 1997, the capacity expansion at
55
<PAGE>
Rozenburg, Netherlands completed in 1997, and the capacity expansion program at
our Geismar, Louisiana facility which is expected to be completed in 1999. We
expect to incur an additional $72 million during the fourth quarter of 1999,
including approximately $31 million to complete the capacity expansion at the
Geismar facility. Aside from the completion of the expansion program at the
Geismar facility, we do not have any planned extraordinary capital expenditures
in the near-term. We estimate our total capital expenditures for 2000,
including expenditures relating to environmental compliance, to be between $200
million and $250 million.
Environmental Regulation
The operations of any chemical manufacturing plant and the distribution of
chemical products, and the related production of co-products and wastes, entail
risk of adverse environmental effects, and therefore, we are subject to
extensive federal, state, local and foreign laws, regulations, rules and
ordinances relating to pollution, the protection of the environment and the
generation, storage, handling, transportation, treatment, disposal and
remediation of hazardous substances and waste materials. In the ordinary course
of business, we are subject continually to environmental inspections and
monitoring by governmental enforcement authorities. The ultimate costs under
environmental laws and the timing of such costs are difficult to predict;
however, potentially significant expenditures could be required in order to
comply with existing or future environmental laws.
Our costs and operating expenses and capital expenditures relating to
safety, health and environmental matters totaled approximately $4 million in
1996, $3 million in 1997 and $3 million in 1998 for our PO business.
Environmental expenses and capital expenditures for our polyurethane chemicals,
petrochemicals and TiO\\2\\ businesses were approximately (Pounds)53 million,
(Pounds)44 million and (Pounds)42 million in 1996, 1997 and 1998, respectively.
Costs in 1999 and 2000 are expected to remain at historical levels in order to
cover, among other things, our routine measures to prevent, contain and clean
up spills of materials that occur in the ordinary course of business. Our
estimated capital expenditures for environmental, safety and health matters in
1999 and 2000 are expected to be similar to historical expenditures. Capital
expenditures are planned, for example, under national legislation implementing
the European Union Directive on Integrated Pollution Prevention and Control.
Under this directive, the majority of our plants will, over the next few years,
be required to obtain governmental authorizations which will regulate air and
water discharges, waste management and other matters relating to the impact of
operations on the environment, and to conduct site assessments to evaluate
environmental conditions. Although the implementing legislation in most Member
States is not yet in effect, it is likely that additional expenditures may be
necessary in some cases to meet the requirements of authorizations under this
directive. In particular, we believe that related expenditures to upgrade our
wastewater treatment facilities at several sites may be necessary and
associated costs could be material. Wastewater treatment upgrades unrelated to
this initiative also are planned at certain facilities. In addition, we may
incur material expenditures in complying with the European Union Directive on
Hazardous Waste Incineration beyond currently anticipated expenditures,
particularly in relation to our Wilton facility. It is also possible that
additional expenditures to reduce air emissions at two of our U.K. facilities
may be material. Capital expenditures and, to a lesser extent, costs and
operating expenses relating to environmental matters will be subject to
evolving regulatory requirements and will depend on the timing of the
promulgation of specific standards which impose requirements on our operations.
Therefore, we cannot assure you that material capital expenditures beyond those
currently anticipated will not be required under environmental laws. See
"Business--Environmental Regulations".
Risk Management
We are exposed to market risk, including changes in interest rates,
currency exchange rates, and certain commodity prices. To manage the volatility
relating to these exposures, we enter into various derivative transactions. We
do not hold or issue derivative financial instruments for trading purposes.
56
<PAGE>
Our cash flows and earnings are subject to fluctuations due to exchange
rate variation. Historically, the businesses transferred to us by ICI have
managed the majority of their foreign currency exposures by entering into
short-term forward foreign exchange contracts with ICI. In addition, short-term
exposures to changing foreign currency exchange rates at certain of our foreign
subsidiaries were, managed, and will continue to be managed, through financial
market transactions, principally through the purchase of forward foreign
exchange contracts (with maturities of six months or less) with various
financial institutions. Huntsman Specialty did not hedge its foreign currency
exposure in a manner that would entirely eliminate the impact of currency
fluctuations on our cash flows and earnings. While the overall extent of our
currency hedging activities has not changed significantly, we have altered the
scope of our currency hedging activities to reflect the currency denomination
of our cash flow. In addition, we are now conducting our currency hedging
activities for our exposures arising in connection with the businesses
transferred to us by ICI with various financial institutions rather than with
ICI as we had done previously. We do not hedge our currency exposures in a
manner that would entirely eliminate the effect of changes in exchange rates on
our cash flow and earnings. Currently we have outstanding approximately $85
million equivalent of foreign exchange forward contracts with third party banks
with final settlement of not more than 60 days. Predominantly our hedging
activity is to sell forward the majority of our surplus non-U.S. dollar
receivables for U.S. dollars. We expect that our foreign exchange hedging
activities will continue at a similar level to those currently outstanding.
Historically, Huntsman Specialty used interest rate swaps, caps and collar
transactions entered into with various financial institutions to hedge against
the movements in market interest rates associated with our floating rate debt
obligations. We do not hedge our interest rate exposure in a manner that would
entirely eliminate the effects of changes in market interest rates on our cash
flow and earnings. Under the terms of our senior secured credit facilities, we
are required to hedge a significant portion of our floating rate debt. As a
result, we have entered into approximately $650 million notional amount of
interest rate swap, cap and collar transactions, approximately $600 million of
which have terms ranging from approximately three years to five years. The
majority of these transactions hedge against movements in U.S. dollar interest
rates. The U.S. dollar swap transactions obligate us to pay fixed amounts
ranging from approximately 5.75% to approximately 6.00%. The U.S. dollar collar
transactions carry floors ranging from 5.00% to 6.00% and caps ranging from
6.60% to 7.50%. We have also entered into a Euro-denominated swap transaction
that obligates us to pay a fixed rate of approximately 4.3%.
In order to reduce our overall raw material costs, our petrochemical
business engages in feedstock procurement activities. From time-to-time, we
have entered into short-term (with a maturity less than one year) forward
purchase agreements for various feedstocks, including crude oil, naphtha, and
LPGs. From time to time, we also purchase and sell crude oil futures. We do not
hedge our commodity exposure in a manner that would entirely eliminate the
effects of changes in commodity prices on our cash flows and earnings.
Recently Issued Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.133
established accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
assets or liabilities in the balance sheet and measure those instruments at
fair value. SFAS No.133 is effective for our financial statements for the year
ending December 31, 2001. We are currently evaluating the effects of SFAS
No.133 on our financial statements.
Year 2000 Preparations
The "Year 2000 problem" is the result of computer programs and embedded
computer chips being designed to read and store dates using only the last two
digits of the year rather than four
57
<PAGE>
digits to define the applicable year and therefore may not correctly recognize
date changes such as the change from December 31, 1999 to January 1, 2000. This
could result in a systems failure. The Year 2000 problem is believed to affect
virtually all companies and organizations which include us as well as our key
suppliers and customers. Our failure, or the failure of our key suppliers or
customers, to address this issue could adversely affect our operations.
State of Readiness
We have been working since mid-1996 to prepare and implement a Year 2000
plan to address the potential Year 2000 problem in relation to our systems.
Specifically, this addressed:
. our information technology ("IT") systems, which include hardware and
software for our business IT systems, PC systems and IT infrastructure
(networks, servers, databases, tools and voice/telephone); and
. non-information technology ("Non-IT") systems, which include hardware
and software for our manufacturing systems, other systems with embedded
computer chips and our facilities infrastructure (i.e. power, security
systems, elevators, fire systems, etc.)
Our Year 2000 plan involved the identification, itemization, assessment and
prioritization of all of our IT and Non-IT systems used in each of our four
principal businesses (including communication with our significant vendors,
suppliers, service providers, and customers regarding their Year 2000 plans).
From this, we conducted a Year 2000 problem evaluation and remediation where
necessary. The remediation process involved either fixing or replacing (by
manual workarounds) relevant parts of key components and embedded chips in such
IT and Non-IT systems. We then followed up confirmation testing.
Using the criteria that "Year 2000 ready" means the ability to (1)
accurately process all date information, and (2) function accurately,
efficiently and without interruption before, during and after December 31,
1999, we believe that as of October 31, 1999, all of our "critical" IT and Non-
IT systems are Year 2000 ready. To ensure these systems remain as such, we have
implemented measures to impose a temporary moratorium from October through
January 2000 on all changes of such systems.
In evaluating the Year 2000 readiness of third party IT and Non-IT systems
service providers, each of our businesses employed a recognized methodology to
contact, identify and prioritize key hardware/software vendors, utility
providers and suppliers of raw materials. While some third party providers have
provided us with Year 2000 upgrades or fixes unprompted by us, we sent to each
of
our third party providers a questionnaire regarding its Year 2000 readiness and
engaged in follow up communication, which included for certain providers, an
on-site physical inspection. Additionally, we conducted our own independent
internal testing of all commercial business systems and infrastructure which
are currently provided by Huntsman Corporation or ICI for our four businesses.
As of October 31, 1999 all "critical" third party IT and Non-IT systems
providers have furnished us with assurances that they are Year 2000 ready.
Additionally, as part of our proactive approach in respect of our "critical" IT
and Non-IT systems, we periodically continue to reassess and re-evaluate
certain third party providers' Year 2000 readiness and results are confirmatory
of our state of readiness.
Contingency Plans
Our company has written contingency plans in place to address Year 2000
implications in each of our four core businesses using carefully defined
operating conditions of the plants for the rollover period. Our overriding goal
is to focus on alternative methods for completing required operations, some of
which have been used in normal course of business historically; however, our
specific
58
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contingency plans are as diverse as our business operations. For example, in
the event of potential disruptions to telecommunications, power sources and
access to raw materials, we have:
(1) back-up or alternate methods of communication in place (i.e., e-mail,
telephone, satellite, radio communication);
(2) provided access to generators in all "critical" Non-IT facilities; and
(3) stockpiled an optimal amount of feedstock to supply our manufacturing
processes.
We also have received assurances from all of our "critical" third party
providers that they have Year 2000 contingency plans in place; however, we are
not able to verify the adequacy of their assurances. Additionally, while we
believe that our contingency planning will mitigate any Year 2000 problems, we
cannot guarantee that they will prevent such issues from having a material
adverse effect on our businesses.
Risks
It is not possible to predict with certainty all the adverse effects that
could arise as a result of our failure, or the failure of third parties upon
which we rely, to become Year 2000 ready, or whether such effects would have a
material adverse effect on any or all of our businesses. In light of our Year
2000 preparations and contingency plans described above, we believe that a Year
2000-related system failure will not cause our businesses to suffer
significantly as a result. However, if our systems encounter Year 2000 problems
which cannot be mitigated by our contingency plans, or if one or more of our
significant third party providers is unable to provide services due to a Year
2000 problem (e.g. the disruption of services forcing a shutdown of all or part
of our manufacturing processes), our business, financial condition, results of
operations or cash flows could suffer a material adverse effect.
Costs
As of October 31, 1999, in accordance with our Year 2000 preparations, we
had spent approximately $156,000 for our PO business and approximately
(Pounds)12 million for our petrochemicals, polyurethane chemicals and TiO\\2\\
businesses combined. We expect to have additional expenses of approximately $3
million for the remainder of 1999 and in 2000. The costs of our Year 2000
readiness program are based on our current best estimates, which were derived
using numerous assumptions regarding future events, including the continued
availability of certain resources and the continued progression toward the
implementation of procedures at various facilities. There can be no assurance
that these estimates will prove to be accurate and, therefore, actual results
could differ materially from those anticipated. Specific factors that could
cause material differences with actual results include, but are not limited to,
the results of testing and the timeliness and effectiveness of remediation
efforts of third parties.
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BUSINESS
General
We are a global manufacturer and marketer of specialty and commodity
chemicals through our principal businesses: specialty chemicals (the
polyurethane chemicals and PO businesses) petrochemicals and titanium dioxide.
Our company is characterized by superior low cost operating capabilities; a
high degree of technological expertise; a diversity of products, end markets
and geographic regions served; significant product integration; and strong
growth prospects.
. Our global polyurethane chemicals business has the world's second
largest production capacity for MDI, and MDI-based polyurethane
systems. Our customers use our products in a wide variety of
polyurethane applications, including automotive interiors,
refrigeration and appliance insulation, construction products,
footwear, furniture cushioning and adhesives.
. Our propylene oxide business is one of three North American producers
of PO. PO is used in a variety of applications, the largest of which is
the production of polyols sold into the polyurethane chemicals market.
. Our petrochemicals business produces olefins and aromatics at
integrated facilities in northern England. These facilities make up one
of Europe's largest single production sites for these products. Olefins
and aromatics are the key building blocks for the petrochemical
industry and are used in plastic, synthetic fibers, packaging materials
and a wide variety of other applications.
. Our TiO\\2\\ business, which operates under the trade name "Tioxide",
has the largest production capacity for TiO\\2\\ in Europe and the
third largest production capacity in the world. TiO\\2\\ is a white
pigment used to impart whiteness, brightness and opacity to products
such as paints, plastics, paper, printing inks, synthetic fibers and
ceramics.
For the year ended December 31, 1998, we had pro forma revenues of $3.7
billion, pro forma EBITDA of $424 million and pro forma Adjusted EBITDA of $481
million. For the six months ended June 30, 1999, we had pro forma revenues of
$1.9 billion, pro forma EBITDA of $420 million and pro forma Adjusted EBITDA of
$436 million (see footnote 2 to "Prospectus Summary--Summary Historical and Pro
Forma Financial Data"). For the year ended December 31, 1998, we derived 54%,
33%, 9% and 4% of our pro forma revenues in Europe, the Americas, Asia and the
rest of the world, respectively. For the year ended December 31, 1998, our
polyurethane chemicals, PO, petrochemicals and TiO\\2\\ businesses represented
37%, 9%, 28% and 26%, respectively, of pro forma revenues.
Polyurethane Chemicals
General
We are one of the leading polyurethane chemicals producers in the world in
terms of production capacity. We market a complete line of polyurethane
chemicals, including MDI, TDI, polyols, polyurethane systems and aniline, with
an emphasis on MDI-based chemicals. We have the world's second largest
production capacity for MDI and MDI-based polyurethane systems, with an
estimated 24% global MDI market share. Our customers produce polyurethane
products through the combination of an isocyanate, such as MDI or TDI, with
polyols, which are derived largely from PO and ethylene oxide. Primary
polyurethane end-uses include automotive interiors, refrigeration and appliance
insulation, construction products, footwear, furniture cushioning, adhesives
and other specialized engineering applications. According to Chem Systems,
global consumption of MDI was approximately 4.6 billion pounds in 1998, growing
from 2.9 billion pounds in 1992, which represents an 8.1% compound annual
growth rate. This high growth rate is the result of the broad end-uses for MDI
and its superior performance characteristics relative to other polymers.
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Our polyurethane chemicals business is recognized as an industry leader in
utilizing state-of-the-art application technology to develop new polyurethane
chemical products and applications. Approximately 30% of our 1998 polyurethane
chemicals sales were generated from products and applications introduced in the
last three years. Our rapid rate of new product and application development has
led to a high rate of product substitution, which in turn has led to MDI sales
volume growth for our business of approximately 9.2% per year over the past 10
years, a rate in excess of the industry growth rate. Largely as a result of our
technological expertise and history of product innovation, we have enjoyed
long-term relationships with a diverse customer base, including BMW,
Weyerhaeuser, Ford, Nike, Louisiana Pacific, DaimlerChrysler, Whirlpool, Bosch-
Siemens and Electrolux.
We own the world's two largest MDI production facilities in terms of
capacity, located in Rozenburg, Netherlands and Geismar, Louisiana. These
facilities receive raw materials from our company's aniline facilities located
in Wilton, U.K. and Geismar, Louisiana, which in the terms of production
capacity are the world's two largest aniline facilities. Since 1996, we have
invested over $500 million to significantly enhance our production capabilities
through the rationalization of our older, less efficient facilities and the
modernization of our newer facilities listed above. According to Chem Systems,
we are the lowest cost MDI producer in the world, largely due to the scale of
our operations, our modern facilities and our integration with our suppliers of
the products' primary raw materials.
Industry Overview
The polyurethane chemicals industry is a $24 billion global market,
consisting primarily of the manufacture and marketing of MDI, TDI and polyols.
Polyurethane chemicals are used to develop a broad range of products utilized
in many industries, including the appliance, automotive, footwear, furniture,
construction and coatings and adhesives industries. Product applications for
polyurethanes are diverse, including automotive seating, dash boards, steering
wheels, refrigeration and appliance insulation, wood binders, athletic shoe
soles, rollerblade wheels, furniture cushions, adhesives and other specialized
applications.
In 1998, MDI, TDI, polyols and other products, such as specialized
additives and catalysts, accounted for 26%, 16%, 44% and 14% of industry-wide
polyurethane chemicals sales, respectively. MDI is used primarily in rigid
polyurethane foam and other specialty non-foam applications. Conversely, TDI is
used primarily in flexible foam applications that are generally sold as
commodities. Polyols, including polyether and polyester polyols, are used in
conjunction with MDI and TDI in rigid foam, flexible foam and other non-foam
applications. The following chart illustrates the range of product types and
end uses for polyurethane chemicals:
[FLOWCHART OF POLYURETHANE CHEMICALS]
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Polyurethane products are created through the reaction of MDI or TDI with a
polyol. Polyurethane chemicals are sold to customers who react the chemicals to
produce polyurethane products. Depending on their needs, customers will use
either commodity polyurethane chemicals produced for mass sales or specialty
polyurethane chemicals tailored for their specific requirements. By varying the
blend, additives and specifications of the polyurethane chemicals,
manufacturers are able to produce and develop a breadth and variety of
polyurethane products. The following table sets forth information regarding the
three principal polyurethane chemicals markets:
[CHART OF POLYURETHANE PRODUCTS]
As reflected in the chart above, MDI has a substantially larger market size
and a higher growth rate than TDI. TDI was the first isocyanate invented and
produced, but it has been steadily replaced by MDI in many applications. MDI's
leadership in the polyurethane chemicals market primarily results from its
ability to be used in a more diverse range of polyurethane applications than
TDI. In addition, because MDI has a lower toxicity than TDI, many polyurethane
product manufacturers have begun substituting MDI for TDI in their products. As
a result, TDI is now used primarily in the production of low-density foam for
furniture and automotive seating cushions, mattresses and inexpensive footwear.
According to Chem Systems, future growth of MDI is expected to be driven by the
continued substitution of MDI for fiberglass and other materials currently used
in insulation foam for construction. Other high growth markets, such as binders
for reconstituted wood board products, are expected to further contribute to
the continued growth of MDI.
MDI. Since 1992, the global consumption of MDI has grown at an average rate
of 8.1%, which exceeds both GDP growth and TDI consumption growth during the
same period. The U.S. and European markets consume the largest quantities of
MDI. We believe the Asian market will become an increasingly important market
for MDI as the market continues to recover from recent macro-economic
difficulties, and the less developed economies in Asia continue to mature.
There are four major producers of MDI: Bayer, Huntsman ICI Chemicals, BASF
and Dow, which have global market shares of 29%, 24%, 19% and 19%,
respectively. We believe it is unlikely that any new major producers of MDI
will emerge due to the substantial requirements for entry such as the limited
availability of licenses for MDI technology and the substantial capital
commitment that is required to develop both the necessary technology and the
infrastructure to manufacture and market MDI.
The price of MDI tends to vary by region and by product type. In the
Americas, where we have the largest MDI market share, the margin between MDI
prices and raw material costs has remained relatively stable over the last ten
years. In Europe, where we have the second largest MDI market share, these
margins have tended to be higher on average but with slightly greater
volatility due to occasional supply and demand imbalances. The volatility in
margins has been highest in Asia
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primarily due to the region's status as a net importer of MDI. As a result,
Asia has the most severe excess supply in times of surplus in the Americas and
Europe, and the most severe shortage in times of strong global demand.
Historically, oversupply of MDI has been rapidly absorbed due to the high
growth rate of MDI consumption.
TDI. The TDI market generally grows at a rate consistent with GDP and
exhibits relatively stable prices. The four largest TDI producers supply
approximately 60% of global TDI demand. The consumers of TDI consist primarily
of numerous small producers that manufacture flexible foam blocks sold as
commodities for use as furniture cushions and mattresses. Flexible foam is
typically the first polyurethane market to become established in developing
countries, and, as a result, development of TDI demand typically precedes MDI
demand. Accordingly, as the Asian economy continues to improve, we expect TDI
demand in the developing Asian nations to increase, followed thereafter by
increasing demand for MDI.
Polyols. Polyols are reacted with isocyanates, primarily MDI and TDI, to
produce finished polyurethane products. In the U.S., approximately 77% of all
polyols produced are used in polyurethane foam applications. In 1998,
approximately 50% of polyols were used to produce flexible foam blocks sold as
commodities and the remaining 50% were sold as specialty products for use in
various applications that meet the specific needs of individual customers. The
creation of a broad spectrum of polyurethane products is made possible through
the different combinations of the various polyols with MDI, TDI and other
isocyanates. The market for specialty polyols that are reacted with MDI has
been growing at approximately the same rate at which MDI consumption has been
growing. The growth of consumption of commodity polyols has paralleled the
growth of global GDP.
Aniline. Aniline is an intermediate chemical used primarily as a raw
material to manufacture MDI. Approximately 80% of all aniline produced is
consumed by MDI producers, while the remaining 20% is consumed by synthetic
rubber and dye producers. According to Chem Systems, global capacity for
aniline is approximately 4.3 billion pounds per year. Generally, most aniline
produced is either consumed downstream by the producers of the aniline or is
sold to third parties under long-term, sole supply contracts. The lack of a
significant spot market for aniline means that in order to remain competitive,
MDI manufacturers must either be integrated with an aniline manufacturing
facility or have a long-term cost-competitive aniline supply contract.
Key Strengths
Our polyurethane chemicals business is characterized by the following
strengths:
. Leading Market Share in an Attractive Industry--We are the world's
second largest producer of MDI and MDI-based polyurethane systems in
terms of capacity, with a 24% global MDI market share. Since 1992,
global MDI consumption has grown at an average rate of 8.1% per year.
The high growth rate, relatively stable margins and substantial
technological and capital requirements for entry make the MDI market
attractive.
. Technological Leader--We have demonstrated the ability to sustain a
strong record of utilizing state-of-the-art application technology to
develop polyurethane chemical products and applications. Approximately
30% of our 1998 sales of polyurethane chemicals were generated from
products and applications introduced in the last three years. This
rapid rate of new product and application development has led to a high
rate of materials substitution, and correspondingly high MDI sales
volume growth of approximately 9.2% per year over the past 10 years,
which is in excess of the industry growth rate.
. Low Cost Producer--We are the lowest cost MDI producer in the world,
according to Chem Systems. This is largely due to the scale of our
modern facilities and their integration
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with their suppliers of the products' primary raw materials. Since
1996, we have invested over $500 million in order to significantly
enhance our production capabilities through the rationalization of
older, less efficient facilities and the modernization of newer
facilities.
. Strength and Quality of Customer Relationships--Our polyurethane
chemicals business custom blends our products to meet each customer's
specifications. We employ regionally focused and experienced sales
forces and technical support personnel trained to service highly
differentiated end markets. By assisting our customers to overcome
production obstacles at their facilities, we have strengthened our
relationships with them and created new opportunities to develop
products for them.
Strategy
The strategy for our polyurethane chemicals business is based on the
following initiatives:
. Leverage our Technological Expertise for Growth--We intend to leverage
our technological expertise to strengthen our relationships with
existing customers and create opportunities to service new customers
and end-markets. In particular, we are focused on developing products
that will allow us to better serve high-value, high-growth markets such
as the automotive interiors, footwear, and coatings, adhesives,
sealants and elastomers ("CASE") markets.
. Maintain Low Cost Leadership--We will continue to focus on process
innovation and invest in low-cost production and process improvement
projects to incrementally increase the production capacity of our
facilities and maintain our low production cost position. In addition
to our large-scale capacity expansions, we have historically been able
to increase the capacities of our existing MDI, aniline and
nitrobenzene facilities for minimal capital investment. We believe that
similar opportunities exist within our newly-modernized asset base, and
we intend to identify and capture these opportunities going forward.
. Capitalize on Product Synergies--We intend to evaluate selective
opportunities to utilize our PO internally to increase the scope and
scale of our specialty polyol offerings at improved profitability. We
believe we will be able to use our PO production in this manner as a
platform for growth in MDI and TDI sales. Additionally, we believe that
by managing our products and technologies together with Huntsman
Corporation's existing polyurethane catalyst, polyol, and amine
technologies, further benefits will be created for our company.
Sales and Marketing
We manage a global sales force at 43 locations with a presence in 32
countries, which sells our polyurethane chemicals to over 2,000 customers in 67
countries. Our sales and technical resources are organized to support major
regional markets, as well as key end-use markets which require a more global
approach. These key end-use markets include the appliance, automotive,
footwear, furniture, construction, binders and CASE industries.
Approximately 50% of our polyurethane chemicals sales are in the form of
"systems" in which we provide the total isocyanate and polyol formulation to
our customers in a ready-to-use form. Our ability to supply polyurethane
systems is a critical factor in our overall strategy to offer comprehensive
product solutions to our customers. We have strategically located our polyol
blending facilities, commonly referred to in the chemicals industry as "systems
houses", close to our customers, enabling us to focus on customer support and
technical service. We believe this customer support and technical service
system contributes to customer retention and also provides
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opportunities for identifying further product and service needs of customers.
We intend to increase the utilization of our systems houses to produce and
market greater volumes of polyols and MDI polyol blends.
Manufacturing and Operations
Our primary polyurethane chemicals facilities are located at Geismar,
Louisiana, Rozenburg, Netherlands and Wilton, U.K. Our Wilton facility
currently has the largest production capacity for nitrobenzene and aniline in
the world. Following the completion of an expansion project expected in the
fourth quarter of 1999, the Geismar facility is expected to have the largest
production capacity for nitrobenzene, aniline and MDI in the world.
The following chart provides information regarding the capacities of our
primary facilities:
<TABLE>
<CAPTION>
Annual Capacities
-------------------------------------------------
Location MDI TDI Polyols Aniline Nitrobenzene
-------- ----- --- ------- ------- ------------
(millions of pounds)
<S> <C> <C> <C> <C> <C>
Geismar, Louisiana(a)...... 550(a)(b) 90 150 500(b)(c) 660(b)(c)
Wilton, U.K. .............. 640 880
Rozenburg, Netherlands..... 550 -- 100 -- --
----- --- --- ----- -----
Total.................... 1,100 90 250 1,140 1,540
===== === === ===== =====
</TABLE>
- --------
(a) The Geismar facility is owned as follows: we own 100% of the MDI, TDI and
polyol facilities, and Rubicon, Inc., a manufacturing joint venture with
Uniroyal in which we own 50%, owns the aniline and nitrobenzene
facilities. Rubicon is a separate legal entity that operates both the
assets that we own jointly with Uniroyal and our wholly-owned assets at
Geismar.
(b) Following an expansion project that is scheduled to be completed in the
fourth quarter of 1999, the annual capacity of the Geismar facility is
expected to increase to approximately 835 million pounds of MDI, 825
million pounds of aniline and 1,100 million pounds of nitrobenzene.
(c) We have the right to approximately 73% of this capacity under the Rubicon
joint venture arrangements.
Since 1996, we have invested over $500 million to improve and expand our
polyurethane chemicals production facilities. In 1996, we substantially
restructured our manufacturing assets by constructing new world-class aniline
and nitrobenzene production facilities at Wilton, expanding our MDI capacity
at Rozenburg from approximately 200 million pounds per year to approximately
550 million pounds per year and closing our older MDI facility at Hillhouse,
U.K. (approximately 130 million pounds of annual capacity). We effected this
restructuring without increasing our manufacturing fixed cost base.
Subsequently in 1998, we commenced capital projects at our Geismar facility
designed to increase its total production capacity with respect to MDI,
aniline and nitrobenzene. The total budgeted cost for the Geismar facility MDI
expansion is estimated to be $198 million, the majority of which was spent on
or before June 30, 1999. We expect to pursue future plant expansions and
capacity modification projects when justified by market conditions.
We also produce TDI and polyols at our Geismar facility and polyols and
polyol blends at our Rozenburg facility. We manufacture TDI and polyols
primarily to support our MDI customers' requirements. We believe the
combination of our PO business, which produces the major feedstock for
polyols, with our polyols business creates an opportunity to expand our
polyols business and market greater volumes of polyols through our existing
sales network and customer base.
Rubicon Joint Venture. We are a 50% joint venture owner, along with
Uniroyal, of Rubicon, Inc., which owns aniline, nitrobenzene and
diphenlylamine ("DPA") manufacturing facilities in Geismar, Louisiana. In
addition to operating our 100% owned MDI, TDI and polyol facilities at
Geismar, Rubicon also operates the jointly-owned aniline, nitrobenzene and DPA
facilities and is responsible for providing other auxiliary services to the
entire Geismar complex. We are entitled to
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approximately 73% of the nitrobenzene and aniline production capacity of
Rubicon, and Uniroyal is entitled to 100% of the DPA production. As a result of
this joint venture, we are able to achieve greater scale and lower costs for
our products than we would otherwise have been able to obtain.
Raw Materials. The primary raw materials for polyurethane chemicals are
benzene and PO. Benzene is a widely-available commodity that is the primary
feedstock for the production of MDI. Approximately one-third of the raw
material costs of MDI is attributable to the cost of benzene. Our integration
with our suppliers of benzene, nitrobenzene and aniline provides us with a
competitively priced supply of feedstocks and reduces our exposure to supply
interruption. We believe that this integration contributes to our status as the
world's lowest cost producer of MDI.
A major cost in the production of polyols is attributable to the costs of
PO. We believe that the integration of our PO business with our polyurethane
chemicals business will give us access to a competitively priced, strategic
source of PO and the opportunity to further expand into the polyol market. See
"--Propylene Oxide--Industry Overview--PO Market".
Competition
The polyurethane chemicals business is characterized by a small number of
competitors, including BASF, Bayer, Dow and Lyondell. While these competitors
produce various types and quantities of polyurethane chemicals, we focus on MDI
and MDI-based polyurethane systems. We compete based on technological
innovation, technical assistance, customer service, product reliability and
price. In addition, our polyurethane chemicals business also differentiates
itself from its competition in the MDI market in two ways: (1) where price is
the dominant element of competition, our polyurethane chemicals business
differentiates itself by its high level of customer support including
cooperation on technical and safety matters; and (2) elsewhere, we compete on
the basis of product performance and our ability to react to customer needs,
with the specific aim of obtaining new business through the solution of
customer problems.
Propylene Oxide
General
We are one of three North American producers of PO. Our customers process
PO into derivative products such as polyols for polyurethane products,
propylene glycol, which is commonly referred to in the chemicals industry as
"PG", and various other chemical products. End uses for these derivative
products include applications in the home furnishings, construction, appliance,
packaging, automotive and transportation, food, paints and coatings and
cleaning products industries. Our PO business is also the third largest U.S.
marketer of PG which is used primarily to produce unsaturated polyester resins
for bath and shower enclosures and boat hulls, and to produce heat transfer
fluids and solvents. As a co-product of our PO manufacturing process, we also
produce methyl tertiary butyl ether which is commonly referred to in the
chemicals industry as "MTBE". MTBE is an oxygenate that is blended with
gasoline to reduce harmful vehicle emissions and to enhance the octane rating
of gasoline.
Our PO business utilizes our proprietary technology to manufacture PO and
MTBE at our state-of-the-art facility in Port Neches, Texas. This facility,
which is the most recently built PO manufacturing facility in North America,
was designed and built under the supervision of Texaco and began commercial
operations in August 1994. According to Chem Systems, we are the lowest cost PO
producer in North America largely due to our proprietary manufacturing process.
Since acquiring the facility in 1997, we have increased its PO capacity by
approximately 30% through a series of low cost process improvement projects.
The current capacity of the PO facility is approximately 525 million pounds of
PO per year. We produce PG under a tolling arrangement with Huntsman
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Petrochemical Corporation, which has the capacity to produce approximately 120
million pounds of PG per year at a neighboring facility.
Industry Overview
PO Market. Demand for PO depends largely on overall economic demand,
especially that of consumer durables. Consumption of PO in the U.S. represents
approximately 40% of global consumption. According to Chem Systems, U.S.
consumption of PO was approximately 3.7 billion pounds in 1998, growing from
2.8 billion pounds in 1992, which represents a 4.9% compound annual growth
rate. The following chart illustrates the primary end markets and applications
for PO, and their respective percentages of total PO consumption:
[FLOWCHART OF PROPYLENE OXIDE]
Two U.S. producers, Lyondell and Dow, account for approximately 90% of
North American PO production. We believe that Lyondell and Dow consume
approximately 50% and 70%, respectively, of their North American PO production
in their North American downstream operations. Because both Dow and Lyondell
consume large amounts of their PO production in their downstream operations,
and because of the relatively high transportation costs relating to imports,
the development of a merchant PO market has been limited.
MTBE Market. Methyl tertiary butyl ether, which is commonly referred to in
the chemicals industry as "MTBE", is an oxygenate that is blended with gasoline
to reduce harmful vehicle emissions and to enhance the octane rating of
gasoline. Historically, the refining industry utilized tetra ethyl lead as the
primary additive to increase the octane rating of gasoline until health
concerns resulted in the removal of tetra ethyl lead from gasoline. This led to
the increasing use of MTBE as a component in gasoline during the 1980s. U.S.
consumption of MTBE, which was approximately
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290,000 barrels per day in 1998, has grown at a compound annual rate of 15.2%
in the 1990s due primarily to the implementation of federal environmental
standards that require improved gasoline quality through the use of oxygenates.
MTBE has experienced strong growth due to its ability to satisfy the
oxygenation requirement of the Clean Air Act Amendments of 1990 with respect to
exhaust emissions of carbon monoxide and hydrocarbon emissions from automobile
engines. Some regions of the U.S. have adopted this oxygenate requirement to
improve air quality even though they may not be mandated to do so by the Clean
Air Act. While this trend has further increased MTBE consumption, the continued
use of MTBE is becoming increasingly controversial. See "Business--Propylene
Oxide--Recent Developments".
Key Strengths
Our PO business is characterized by the following strengths:
. Low Cost Producer--According to Chem Systems, our proprietary
manufacturing process makes us one of the lowest cost producers of PO.
Furthermore, because our Port Neches, Texas facility is less than five
years old, we expect our annual maintenance-related capital
expenditures to be minimal for the next several years.
. Attractive Industry--The U.S. PO market is attractive to existing
manufacturers for a number of reasons, including significant
technological requirements for entry, a limited number of producers in
the U.S. and the stability of PO demand. As a result, producers in the
U.S. PO market have enjoyed relatively stable margins and growth, and
have been able to expand capacity to capture the substantial growth in
the PO market.
. Long-Term Customer Contracts--Currently, we enjoy the benefit of long-
term contracts under which 100% of our annual PO production,
approximately 95% of our annual MTBE production and over 70% of our
annual PG production is sold to various consumers, including Huntsman
Petrochemical Corporation. Additionally, our principal PO contracts are
structured to effectively reduce our exposure to price volatility in
propylene, the principal raw material in PO, by providing for a
variable processing fee plus the market value of propylene consumed in
PO production.
. Broad Range of End-Use Products for PO--PO is a versatile chemical used
to produce derivative products for a wide array of end-use applications
in a variety of industries, including the home furnishings,
construction, appliance, packaging, automotive and transportation,
food, paint, CASE and cleaning product industries.
Strategy
The strategy for our PO business is based upon the following:
. Capitalize on Product Synergies--As our existing PO contracts expire,
we intend to evaluate selective opportunities to utilize our PO
internally to increase the scope and scale of our specialty polyol
offerings at improved profitability. We believe we will be able to use
our PO production in this manner as a platform for growth in MDI and
TDI sales.
. Continue to Increase Capacity--Since acquiring our PO facility in 1997,
we have increased our PO capacity by approximately 30% through a series
of low-cost process improvement projects. We believe further low-cost
process improvement opportunities exist and we will continuously work
to implement further low cost projects in these areas.
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Sales and Marketing
We have entered into contractual arrangements with Huntsman Corporation and
Huntsman Petrochemical Corporation under which Huntsman Corporation provides us
with all of the management, sales, marketing and production personnel required
to operate our PO business. See "Certain Relationships and Related
Transactions". We believe that the extensive market knowledge and industry
experience of the sales executives and technical experts provided to us by
Huntsman Corporation and Huntsman Petrochemical Corporation, in combination
with our strong emphasis on customer relationships, has facilitated our ability
to establish and maintain long-term customer contracts. Due to the specialized
nature of our markets, our sales force must possess technical knowledge of our
products and their applications. Our strategy is to continue to increase sales
to existing customers and to attract new customers by providing quality
products, reliable supply, competitive prices and superior customer service.
Based on current production levels, we have entered into long-term
contracts to sell 100% of our PO to customers including BASF, Arch Chemicals,
Inc. and Huntsman Petrochemical Corporation through 2007. Other contracts
provide for the sale of 95% of our annual MTBE production through 1999 to
Texaco and BP Amoco, 63% of our annual MTBE production in 2000 to Texaco and
51% of our annual MTBE production from 2001 through March 2007 to Texaco. In
addition, over 70% of our current annual PG production is sold pursuant to
long-term contracts.
Manufacturing and Operations
We manufacture both PO and its co-product, MTBE, at our facility in Port
Neches, Texas. We produce PG under a tolling arrangement with Huntsman
Petrochemical Corporation. Our Port Neches facility has a current capacity of
approximately 525 million pounds of PO per year and 260 million gallons of MTBE
per year and the neighboring Huntsman Petrochemical Corporation facility at
which our PG is produced has a capacity of 120 million pounds of PG per year.
We use a proprietary manufacturing process to manufacture PO. This
technology was commercialized at our facility in Port Neches, Texas. We own or
license all technology, know-how and patents developed and utilized at this
facility. Technology is a significant requirement for entry into the PO market.
Our process reacts isobutane and oxygen in proprietary oxidation (peroxidation)
reactors, thereby forming tertiary butyl hydroperoxide ("TBHP") and tertiary
butyl alcohol ("TBA"). The TBHP is separated from the TBA using fractionation
techniques. The separated TBHP is further reacted with propylene in the
presence of a proprietary catalyst in epoxidation reactors to form PO and TBA
as a by-product. The PO is separated from the TBA via fractionation and is then
purified for final processing. The TBA produced as a PO by-product is combined
with the TBA from peroxidation and purified by fractionation. We produce MTBE
by reacting the purified TBA with methanol over a catalyst in the MTBE reaction
section of our Port Neches facility. This is a patented one-step reaction which
is unique in the industry because it allows for the direct conversion of the
TBA to MTBE without going through expensive dehydration steps that our
competitors utilize.
While all PO technologies create significant volumes of co-product which
affect the overall profitability of the process, we believe that our technology
possesses several distinct advantages over its alternatives. For example, the
reactors for our PO production process are less expensive relative to other
technologies, and our feedstock and overall investment costs are lower than for
the PO/styrene monomer technology. As compared to the chlorohydrin technology,
our process produces significantly less waste effluent and avoids the disposal
of chlorinated waste products which must be incinerated or used in the
manufacture of chlorinated solvents. Finally, all of our PO co-products can be
processed into saleable materials or used as fuels in our production process.
Raw Materials. The primary raw materials used in our PO production process
are isobutane, propylene, methanol and oxygen, which accounted for 60%, 21%,
15% and 4%, respectively, of total raw material costs in 1998. We purchase our
raw materials primarily under long-term contracts. While
69
<PAGE>
most of these feedstocks are commodity materials generally available to us from
a wide variety of suppliers at competitive prices in the spot market, we
purchase all of the propylene used in the production of our PO from Huntsman
Petrochemical Corporation, through Huntsman Petrochemical Corporation's
pipeline, which is the only propylene pipeline connected to our PO facility.
Recent Developments
The presence of MTBE in some groundwater supplies in California and other
states (primarily due to gasoline leaking from underground storage tanks) and
in surface water (primarily from recreational watercraft) has led to public
concern about MTBE's potential to contaminate drinking water supplies.
Heightened public awareness regarding this issue has resulted in state and
federal initiatives to rescind the federal oxygenate requirements for
reformulated gasoline or restrict or prohibit the use of MTBE in particular.
For example, the State of California has requested that the U.S. Environmental
Protection Agency waive the federal oxygenated fuels requirements for gasoline
sold in California. Separately, in September 1999, the California legislature
passed a bill directing certain state agencies to develop a timetable for
removing MTBE from gasoline at the earliest possible date. Several bills have
been introduced in the U.S. Congress to accomplish similar goals of curtailing
or eliminating the oxygenated fuels requirements in the Clean Air Act, or of
curtailing MTBE use in particular. In November 1998, the EPA established a
committee to review and provide recommendations concerning the requirements for
oxygenated fuels in the Clean Air Act. The committee's findings were released
to the public in July 1999, and include, among other things, recommendations
that (1) MTBE use be reduced substantially, (2) the U.S. Congress clarify
federal and state authority to regulate or eliminate gasoline additives that
threaten water supplies and (3) the U.S. Congress amend the Clean Air Act to
remove certain of the oxygenated fuels requirements for reformulated gasoline.
In a statement issued in response to these recommendations, the administrator
of the EPA stated that the EPA would work with the U.S. Congress to craft a
legislative solution that would allow for a significant reduction in MTBE use,
while maintaining air quality. On August 4, 1999, the U.S. Senate passed a
resolution calling for a phase out of MTBE. While this resolution has no
binding legislative effect, there can be no assurance that future Congressional
action will not result in a ban or other restrictions on MTBE use. Ongoing
debate regarding this issue is continuing at all levels of federal and state
government. Any phase-out of or prohibition against the use of MTBE in
California (in which a significant amount of MTBE is consumed), in other
states, or nationally could result in a significant reduction in demand for our
MTBE.
While the environmental benefits of the inclusion of MTBE in gasoline are
widely debated, we believe that there is no reasonable replacement for MTBE as
an octane enhancer and, while its use may no longer be mandated, we believe
that it will continue to be used as an octane enhancer as long as its use is
not prohibited. If demand for MTBE does decline, we believe that our low
production costs will put us in a favorable position relative to other higher
cost sources of MTBE (primarily imports and on-purpose manufacturing
facilities). In the event that there should be a phase-out, however, we believe
we will be able to modify our PO production process to use our co-product TBA
stream to produce saleable products other than MTBE, though the necessary
modifications may require significant capital expenditures. See "Risk Factors--
Pending or future litigation or future legislative initiatives related to MTBE
may subject us to products or environmental liability or materially adversely
affect our sales".
Competition
Total North American PO production capacity was approximately 5.0 billion
pounds per year as of December 31, 1998, according to Chem Systems. Nearly all
of this capacity is located in the U.S. and controlled by three producers:
Lyondell with a capacity of approximately 2.5 billion pounds per year, Dow with
a capacity of approximately 2.0 billion pounds per year and our company with a
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capacity of 525 million pounds per year. We compete based on price, product
performance and service.
Petrochemicals
General
We are a highly-integrated European olefins and aromatics producer.
Olefins, principally ethylene and propylene, are the largest volume basic
petrochemicals and are the key building blocks from which many other chemicals
are made. For example, olefins are used to manufacture most plastics, resins,
adhesives, synthetic rubber and surfactants which are used in a variety of end-
use applications. Aromatics are basic petrochemicals used in the manufacture of
polyurethane chemicals, nylon, polyester fiber and a variety of plastics.
Our olefins facility at Wilton, U.K. is one of Europe's largest single-site
and lowest cost olefins facilities. Our Wilton facility has the capacity to
produce approximately 1.9 billion pounds of ethylene, 880 million pounds of
propylene and 200 million pounds of butadiene per year. We sell over 84% of our
olefins volume through long-term contracts with Union Carbide, European Vinyls
Corporation (through contractual arrangements with ICI), ICI, Targor, BASF, BP
Chemicals and others and over 80% of our total volume is transported via direct
pipelines to our customers or consumed internally. The Wilton olefins facility
benefits from its feedstock flexibility and superior logistics, which allows
for the processing of naphthas, condensates and LPGs.
We produce aromatics at our two integrated manufacturing facilities located
in Wilton, U.K. and North Tees, U.K. We are Europe's largest cyclohexane
producer with 605 million pounds of annual capacity, Europe's second largest
paraxylene producer with 730 million pounds of annual capacity and Europe's
third largest benzene producer with 990 million pounds of annual capacity.
Additionally, we have the annual capacity to produce 275 million pounds of
cumene. We use all of the benzene produced by our aromatics business internally
in the production of nitrobenzene for our polyurethane chemicals business and
for the production of cyclohexane and cumene. The balance of our aromatics
products are sold to several key customers, including DuPont, BASF and
Phenolchemie. Our aromatics business has recently entered into a contract to
purchase reformate feedstock from Shell Trading International Limited which
will allow us to shut down a portion of our aromatics facilities and
permanently reduce fixed production costs while maintaining production of key
products. We believe that this contract will improve the future profitability
of our aromatics business.
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<PAGE>
Industry Overview
Petrochemical markets are essentially global commodity markets. However,
the olefins market is subject to some regional price differences due to the
limited inter-regional trade resulting from the high costs of product
transportation. The global petrochemicals market is cyclical and is subject to
pricing swings due to supply and demand imbalances, feedstock prices (primarily
driven by crude oil prices) and general economic conditions.
As shown in the following table, both globally and in Western Europe, our
primary market, ethylene is the largest petrochemicals market and paraxylene
has been the fastest growing:
<TABLE>
<CAPTION>
1998 Global Historic
Market size W. Europe as Growth,
(billions of a % of Global W. Europe
Product pounds) Market (1992-1998) Markets Applications
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Polyethylene, Packaging
ethylene materials,
oxide, plastics,
Ethylene 177 23% 3.3% polyvinyl housewares,
chloride, beverage
alpha olefins containers,
personal care
- ---------------------------------------------------------------------------------------
Polypropylene, Clothing fibers,
propylene plastics,
Propylene 101 28% 4.5% oxide, automotive parts,
acrylonitrile, foams for bedding &
isopropanol furniture
- ---------------------------------------------------------------------------------------
Polyurethanes, Appliances,
polystyrene, automotive
cyclohexane, components,
Benzene 64 24% 4.2% cumene detergents,
personal care,
packaging
materials, carpet
- ---------------------------------------------------------------------------------------
Polyester, Fibers, textiles,
Paraxylene 29 11% 5.2% purified beverage containers
terephthalic
acid ("PTA")
- ---------------------------------------------------------------------------------------
</TABLE>
Source: Chem Systems
In Western Europe, there are 22 producers of ethylene who collectively
operate 55 plants with an annual production capacity of approximately 44.5
billion pounds. No single Western European ethylene producer has a capacity
share greater than 10%. The top three Western European producers of ethylene
are Dow, Enichem and Elf Atochem. Western European ethylene consumption in 1998
is estimated at 42.0 billion pounds, representing an average industry operating
rate of 93%. Propylene capacity in Western Europe is approximately 30 billion
pounds per year. Western European propylene consumption in 1998 is estimated at
28.5 billion pounds, representing an average industry operating rate of 95%.
Olefins capacity in Western Europe has expanded moderately in recent years
primarily through implementation of low-cost process improvement projects at
existing units. No greenfield olefins capacity has been constructed in Western
Europe since 1994. Based upon the three to five year development and
construction cycle for a new olefins plant and the fact that no new olefins
plants have been announced, capacity additions in Western Europe over the next
few years are expected to be limited.
Since 1997, olefins margins have fallen, primarily due to lower economic
growth in Asia and industry overcapacity. Although olefins prices in Western
Europe have risen in recent months as a
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<PAGE>
result of the recovery in crude oil and other raw material feedstock prices
from 1998 lows, margins have yet to recover. According to Chem Systems the
petrochemical industry is at or near its cyclical trough following a period of
oversupply in the last few years and supply and demand characteristics are
expected to improve in coming years, resulting in improved profitability.
The aromatics market in Western Europe has 27 producers of benzene and 10
producers of paraxylene. Annual Western European benzene production capacity is
approximately 17 billion pounds and consumption was estimated at 15.5 billion
pounds in 1998. The five largest Western European producers of benzene are Dow,
Shell, Huntsman ICI Chemicals, Enichem and Exxon. Paraxylene production
capacity in Western Europe in 1998 was approximately 3.9 billion pounds and
consumption was estimated at 3.1 billion pounds. Demand for paraxylene in
Western Europe is expected to increase as producers of PTA, for which
paraxylene is primarily used, have added capacity in Spain, the Netherlands and
Belgium in the last three years.
Both the benzene and paraxylene markets are currently in a period of
overcapacity. The increasing restrictions imposed by regulatory authorities on
the aromatics content of gasoline in general, and the benzene content in
particular, have affected the supply side of the aromatics industry in recent
years. In 1998, global paraxylene demand fell by 1.2% largely as a result of
the recent Asian economic downturn, while global capacity rose by 15%. As a
result of these dynamics, according Chem Systems, margins in the aromatics
industry, particularly those in paraxylene, are expected to continue to exhibit
characteristic cyclicality and recover from currently depressed cyclical lows
early in the next decade as polyester growth drives a rebalancing of supply and
demand.
Key Strengths
Our petrochemicals business is characterized by the following strengths:
. Raw Material Supply and Integration--Our petrochemicals facilities are
strategically located in northeastern England with pipeline and
waterborne access to the vast hydrocarbon supplies from the North Sea.
The dramatic rise in gas processing in the Teesside area is expected to
provide a growing availability of LPGs and other liquid feedstocks at
favorable prices. We also benefit from internal integration whereby a
local third party refinery and our olefins facility provide a
significant amount of feedstock for our aromatics facilities, which in
turn provides a significant amount of feedstock for our olefins
facility, all of which are transferred via pipeline to minimize
transportation and handling costs.
. Distribution & Storage Infrastructure--We have a unique supporting
infrastructure comprising liquefied ethylene terminals at both
Teesside, U.K. (principally for export) and Wilhelmshaven, Germany (for
import); a propylene terminal at Teesside (principally for export);
extensive cavern storage facilities in the Teesside area for storage of
naphtha and LPG feedstocks, ethylene, propylene, crude butadiene and
hydrogen; extensive above ground storage and jetty facilities to allow
both import and export of feedstocks and products; and an ethylene
pipeline grid linking our facilities to customers in northwestern
England, northeastern England and Grangemouth, Scotland. We believe
such infrastructure assets provide us with a competitive advantage and
will allow us to be creative in the sourcing of raw materials and in
the development and maintenance of strategic customers.
. Low Cost Producer--According to Chem Systems, we are one of the lowest
cost olefins producers in Europe. Our scale of olefins production, the
location of our olefins facility within the larger chemical
manufacturing complex at Wilton and the proximity of all of our
petrochemical facilities to abundant supplies of raw materials provide
significant cost advantages over other European olefins producers.
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<PAGE>
. Strong Customer Relationships--We have several strong customer
relationships in diverse markets which create attractive outlets for
our products, many of which are linked via direct pipeline to our
facilities. The primary customers for our ethylene business are
European Vinyls Corporation (through contractual arrangements with
ICI), Union Carbide, BP Chemicals and ICI. A large majority of our
propylene is sold via pipeline and waterborne delivery to Targor for
the production of polypropylene both at Wilton and in continental
Europe. Nearly all of our paraxylene production is sold via pipeline to
DuPont for the production of PTA, an intermediate chemical used in the
production of polyester.
Strategy
The strategy of our petrochemicals business is based on the following
initiatives:
. Improve Asset Utilization and Reduce Costs--We plan to continue to
reduce costs and improve production processes through focused
improvement programs. The most recent such program was initiated in
late 1998, with a target of reducing annual costs by $20 million. We
also intend to aggressively pursue additional improvements to operating
efficiencies, thereby increasing asset utilization and further reducing
costs.
. Further Develop Our Customer Base--We intend to leverage Huntsman
Corporation's customer and supplier relationships to further develop
our Western European customer base. Moreover, the olefins and aromatics
businesses have been held for sale by ICI for a significant period of
time and, as a result, we believe new marketing opportunities relative
to these businesses have been limited. We believe that under Huntsman
Corporation management, these opportunities will be created and
captured.
. Reposition the Aromatics Business--We intend to reduce our operating
costs and improve cash flows by repositioning our aromatics business as
an extractor of aromatics as opposed to an on-purpose manufacturer of
aromatics. We have recently formed a strategic alliance with Shell to
purchase substantial volumes of their refinery by-product streams which
are rich in aromatics, and will enable us to close the high cost
reformer unit at our aromatics complex at the North Tees site. The
benefits of this alliance will begin in the fourth quarter of 1999 and
we believe that this will significantly improve the profitability of
our aromatics business.
Sales and Marketing
In recent years, our sales and marketing efforts have focused on developing
long-term contracts with customers to minimize our selling expenses and
administration costs. In 1998, over 80% of our primary petrochemicals sales
were made under long-term contracts. We delivered over 75% of our petrochemical
products in 1998 by pipeline, and we delivered the balance of our products by
road and ship to either the U.K. or export markets, primarily in continental
Western Europe.
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<PAGE>
Manufacturing and Operations
We produce olefins at our facility in Wilton, U.K. In addition, we own and
operate two integrated aromatics manufacturing facilities at our Wilton and
North Tees sites at Teesside, U.K. Information regarding these facilities is
set forth in the following chart:
<TABLE>
<CAPTION>
Location Product Annual Capacity
-------- ------------- --------------------
(millions of pounds)
<S> <C> <C>
Wilton, U.K. ............................. Ethylene 1,900
Propylene 880
Butadiene 200
Paraxylene 730
North Tees, U.K. ......................... Benzene 990
Mixed xylenes 870
Cyclohexane 605
Cumene 275
Ethylbenzene 90
</TABLE>
The Wilton olefins facility's flexible feedstock capability, which permits
it to process naphtha, condensates and LPG feedstocks, allows us to take
advantage of favorable feedstock prices arising from seasonal fluctuations or
local availability. According to Chem Systems, the Wilton olefins facility is
one of Europe's most cost efficient olefins manufacturing facilities on a cash
cost of production basis. In addition to our manufacturing operations, we also
operate an extensive logistics operations infrastructure in North Tees. This
infrastructure includes both above and below ground storage facilities, jetties
and logistics services on the River Tees. These operations reduce our raw
material costs by providing greater access and flexibility for obtaining
feedstocks.
In order to reduce costs and improve the cash performance of our aromatics
business, we have recently entered into a supply contract with Shell to
purchase large volumes of refinery by-product streams which are rich in
aromatics. Beginning in the fourth quarter of 1999, we intend to cease
production at our existing aromatics reformer unit and utilize the remaining
assets to extract aromatics from purchased by-product streams and by-product
streams produced at the Wilton olefins facility. As a result of this
arrangement, we expect to realize a significant improvement in the cash
performance of our aromatics business in the near term.
Raw Materials. Teesside, situated on the northeast coast of England, is one
of the most cost effective locations in Europe due to its proximity to the
local supply of oil, gas and chemical feedstocks. Due to our strategic
location, we have the option to purchase feedstocks from a variety of sources.
However, we have elected to procure the majority of our naphtha, condensates
and LPGs from local producers, as they have been the most economical sources.
In order to secure the optimal mix of the required quality and type of
feedstock for our petrochemical operations at fully competitive prices, we
regularly engage in the purchase and sale of feedstocks.
Competition
The markets in which our petrochemicals business operates are highly
competitive. Our competitors in the olefins and aromatics business are
frequently some of the world's largest chemical companies such as BP Amoco,
Dow, Exxon and Shell. The primary factors for competition in this business are
price, service and reliability of supply. The technology used in these
businesses is widely available and licensed, though new entrants must make
significant capital expenditures in order to participate in this market.
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<PAGE>
Titanium Dioxide
General
Our TiO\\2\\ business, which operates under the tradename "Tioxide", has
the largest production capacity for TiO\\2\\ in Europe, with an estimated 21%
market share, and the third largest production capacity in the world, with an
estimated market share of 14%. TiO\\2\\ is a white pigment used to impart
whiteness, brightness and opacity to products such as paints, plastics, paper,
printing inks, synthetic fibers and ceramics. In addition to its optical
properties, TiO\\2\\ possesses traits such as stability, durability and non-
toxicity, making it superior to other white pigments. According to
International Business Management Associates, global consumption of TiO\\2\\
was approximately 3.5 million tonnes in 1998, growing from 3.0 million tonnes
in 1992, representing a 2.8% compound annual growth rate which approximates
global GDP growth.
We offer an extensive range of products that are sold worldwide to over
3,000 customers in all major TiO\\2\\ end markets and geographic regions. The
geographic diversity of our manufacturing facilities allows our TiO\\2\\
business to service local customers, as well as global customers that require
delivery to more than one location. Our major customers include Akzo Nobel,
Cabot, Schulman, ICI Paints and General Electric. Our TiO\\2\\ business has an
aggregate annual capacity of approximately 570,000 tonnes (approximately
515,000 tonnes of effective capacity in 1998) at our nine production
facilities. Five of our TiO\\2\\ manufacturing plants are located in Europe,
two are in North America, including a 50% interest in a manufacturing joint
venture with NL Industries, one is in Asia, and one is in South Africa (a 60%
owned subsidiary).
We are the second lowest cost TiO\\2\\ producer worldwide, according to
International Business Management Associates. To further enhance our low
production cost position, we have embarked on a comprehensive cost reduction
program which has eliminated approximately $50 million of annualized cash costs
since 1996, with an additional $30 million of annualized savings expected to be
achieved by the end of 2001. As part of this program, we have reduced the
number of product grades we produce, focusing on those with wider applications.
This program has resulted in reduced total plant set-up times and further
improved product quality, product consistency, customer service and
profitability.
Industry Overview
Global consumption of TiO\\2\\ was 3.5 million tonnes in 1998 according to
International Business Management Associates. The historical long-term growth
rate for global TiO\\2\\ consumption has been generally consistent with global
GDP growth. Although short-term influences such as customer and producer
stocking and de-stocking activities in response to changes in capacity
utilization and price may distort this trend, over the long-term, GDP growth is
the primary underlying factor influencing growth in TiO\\2\\ demand. The
TiO\\2\\ industry experiences some seasonality in its sales because paint sales
generally peak during the spring and summer months in the northern hemisphere,
resulting in greater sales volumes during the first half of the year.
The global TiO\\2\\ market is characterized by a small number of large
global producers. The TiO\\2\\ industry has six major producers, the top four
of which (DuPont, Millennium Chemicals, Huntsman ICI Chemicals and NL
Industries) account for 64% of the global market share. There has been recent
industry consolidation as large global producers have acquired smaller, local
producers. The TiO\\2\\ industry has substantial requirements for entry,
including proprietary production technology and world scale assets requiring
significant capital investment. No greenfield TiO\\2\\ capacity has been
announced in the last few years. Based upon current price levels and the long
lead times for planning, governmental approvals and construction, additional
greenfield capacity is not expected in the near future. According to
International Business Management Associates, prices of TiO\\2\\ are expected
to be positively affected by limited investment in new capacity.
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<PAGE>
There are two manufacturing processes for the production of TiO\\2\\, the
sulfate process and the chloride process. Most recent capacity additions have
employed the chloride process technology and, currently, the chloride process
accounts for approximately 58% of global production capacity according to
International Business Management Associates. However, the global distribution
of sulfate and chloride-based TiO\\2\\ capacity varies by region, with the
sulfate process being predominant in Europe, our primary market. The chloride
process is the predominant process used in North America and both processes are
used in Asia. According to International Business Management Associates,
approximately 50% of end-use applications can use pigments produced by either
process.
Key Strengths
Our TiO\\2\\ business is characterized by the following strengths:
. Leading Market Position in an Attractive Industry--We are the largest
TiO\\2\\ producer in Europe, with an estimated 21% market share, and
the third largest producer worldwide, with an estimated 14% market
share. We believe that we are well positioned in an attractive industry
which has high technological and capital requirements for entry,
limited expectations for new greenfield capacity in the near term and
growth rates generally consistent with global GDP.
. Low Cost Producer--According to International Business Management
Associates, our TiO\\2\\ business is the second lowest cost producer in
the world. We achieved this position through our pursuit of process
efficiencies and managed cost reductions, which have resulted in an 11%
decline in our average manufacturing cash costs since 1995.
. Strong Global Reach Through Local Presence--We have a leading market
share in the U.K., France, South Africa, Spain, Malaysia and Italy. The
global reach of our TiO\\2\\ business allows us to service both
globally-oriented customers requiring the capacity and reach to meet
their needs on a worldwide basis and local customers who value local
presence.
. Strong Customer Relationships--Through our extensive global sales force
we have a local presence in each of the markets in which we
participate, which contributes to our strong links with major
customers. We have long-term relationships with major customers such as
Akzo Nobel, ICI Paints, PPG and General Electric, who we believe value
our product offerings, local presence and our ability to meet their
worldwide needs.
. Competitive Product Range and Continuing Product Development--Through
incremental improvements to existing products and new product
innovations, we offer a full range of competitive products, including
the leading coatings grade in Europe. Our successful development and
marketing of new grades of TiO\\2\\ has long-term benefits because of
the long life cycle of our products. We also continue to develop new
products to capitalize on market opportunities. For example, we
recently introduced a product grade that we believe has the potential
to be a world leader in the plastics segment, the fastest growing
TiO\\2\\ market.
Strategy
The strategy of our TiO\\2\\ business is based on the following
initiatives:
. Leverage Customer Relationships for Growth--We intend to leverage our
association with Huntsman Corporation, our leading market positions and
our strong customer relationships to expand our customer base. We
believe that our TiO\\2\\ business will also be able to improve the
utilization of our assets by taking advantage of opportunities to
expand
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<PAGE>
our customer base through increasing sales to manufacturers of paints
and coatings, some of whom may have been previously reluctant to
purchase products from our TiO\\2\\ business when it was solely owned
by ICI, a significant competitor in the paints and coatings industry.
. Improve Asset Utilization and Reliability--We intend to improve our
asset utilization and product quality by continuing to align our
product range with our production capabilities. We will continue to
optimize our number of product lines and emphasize newer "universal"
product lines which can be used across a greater number of
applications. We will also attempt to identify further opportunities
for low cost capacity expansion as justified by market conditions.
. Continue to Improve Cost Structure--We will continue our comprehensive
cost improvement program which concentrates on permanent cost
reduction, improved product quality and increased productivity. This
four year program, currently in its third year, has achieved total
annualized savings of approximately $50 million and has targeted
additional annual savings totaling $30 million. We intend to further
improve our cost competitiveness by aggressively developing and
marketing the co-products of our operations.
Sales and Marketing
Approximately 95% of our TiO\\2\\ sales are made through our direct sales
and technical services network, enabling us to cooperate more closely with our
customers and to respond to our increasingly global customer base. Our
concentrated sales effort and local manufacturing presence have allowed us to
achieve our leading market shares in a number of the countries where we
manufacture TiO\\2\\, including the U.K., France, South Africa, Spain,
Malaysia and Italy.
In addition, we have focused on marketing products to higher growth
industries. For example, we believe that our TiO\\2\\ business is well-
positioned to benefit from the projected growth in the plastics sector, which,
according to International Business Management Associates, is expected to grow
faster than the overall TiO\\2\\ market over the next several years. The table
below summarizes the major end markets for our TiO\\2\\ products and our
representative customers:
<TABLE>
<CAPTION>
% of 1998
End Markets Sales Volume Major Customers
--------------------- ------------ ---------------------------------------
<C> <C> <S>
Paints and Coatings.. 58% ICI Paints, Akzo Nobel, PPG, Kalon
Plastics............. 26% Cabot, Schulman, General Electric, Geon
Paper................ 5% Arjo Wiggins, Munskjo
Inks................. 5% BASF/Inmont, Sun/DIC, Converters Ink
</TABLE>
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<PAGE>
Manufacturing and Operations
Our TiO\\2\\ business has nine manufacturing sites in eight countries with
a total estimated capacity of 570,000 tonnes per year (approximately 515,000
tonnes of effective capacity in 1998). Approximately 75% of our TiO\\2\\
capacity is located in Western Europe. Our manufacturing plant in Tracy, Canada
is a "finishing" plant, which finishes products from certain of our other
plants to specific customer requirements. The following table presents
information regarding our TiO\\2\\ facilities:
<TABLE>
<CAPTION>
Region Site Annual Capacity Process
- ------------------------ ----------------------------- --------------- ---------
(tonnes)
<S> <C> <C> <C>
Western Europe.......... Calais, France 100,000 Sulfate
Greatham, U.K. 80,000 Chloride
Grimsby, U.K. 80,000 Sulfate
Huelva, Spain 80,000 Sulfate
Scarlino, Italy 80,000 Sulfate
North America........... Lake Charles, Louisiana(1) 60,000(1) Chloride
Tracy, Canada N/A Finishing
Asia.................... Teluk Kalung, Malaysia 50,000 Sulfate
Southern Africa......... Umbogintwini, South Africa(2) 40,000(2) Sulfate
-------
570,000
=======
</TABLE>
- --------
(1) This facility is owned and operated by Louisiana Pigment Company, L.P., a
manufacturing joint venture that is owned 50% by us and 50% by Kronos
Louisiana, Inc., a subsidiary of NL Industries, Inc. The capacity shown
reflects our 50% interest in Louisiana Pigment Company.
(2) This facility is owned by Tioxide Southern Africa (Pty) Limited, a company
that is owned 60% by us and 40% by AECI. We operate this facility and are
responsible for marketing 100% of the production.
In recent years, we have invested significant capital to optimize and
modernize our facilities, enhance our production capabilities and maintain
compliance with evolving environmental regulations. We have rationalized our
product range in order to concentrate on product grades that can be used in
multiple applications, yielding benefits in product quality and consistency. As
a result of these programs, our facilities are modern and highly cost-
effective.
Joint Ventures. We own a 50% interest in a manufacturing joint venture
located in Lake Charles, Louisiana. The remaining 50% interest is held by our
joint venture partner Kronos Louisiana, Inc., a wholly-owned subsidiary of NL
Industries, Inc. We share production offtake and operating costs of the plant
equally with Kronos, though we market our share of the production
independently. The operations of the joint venture are under the direction of a
supervisory committee on which each partner has equal representation.
We also own a 60% interest in Tioxide Southern Africa (Pty) Limited, based
in Umbogintwini, near Durban, South Africa. The remaining 40% interest is owned
by AECI, a major South African chemicals and minerals company. We operate this
facility and are responsible for marketing 100% of the production.
Raw Materials. The primary raw materials used to produce TiO\\2\\ are
titanium-bearing ores. There are a limited number of ore suppliers and we
purchase ore under long-term supply contracts. The cost of titanium-bearing
ores has been relatively stable in comparison to TiO\\2\\ prices. Titanium-
bearing ore represents approximately 40% of TiO\\2\\ pigment production costs.
TiO\\2\\ producers extract titanium from ores and process it into
pigmentary TiO\\2\\ using either the chloride or sulfate process. Once an
intermediate TiO\\2\\ pigment has been produced, it is "finished" into a
product with specific performance characteristics for particular end-use
applications. The
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finishing process is common to both the sulfate and chloride processes and is a
major determinant of the final product's performance characteristics. The vast
majority of end-use applications can use product from either process.
The sulfate process generally uses less-refined ores which are cheaper to
purchase but produce more co-product than the chloride process. Co-products
from both processes require treatment prior to disposal in order to comply with
environmental regulations. In order to reduce our disposal costs and to
increase our cost competitiveness, we have aggressively developed and marketed
the co-products of our TiO\\2\\ business.
Competition
The global markets in which our TiO\\2\\ business operates are highly
competitive. The primary factors of competition are price, product quality and
service. The TiO\\2\\ industry has recently undergone a consolidation process,
where larger global producers have acquired smaller, regional producers. The
major producers against whom we compete are DuPont, Millennium Chemicals and NL
Industries. Our low production costs, combined with our presence in numerous
local markets, give us a competitive advantage, particularly with respect to
those global customers demanding presence in the various regions in which they
conduct business.
Significant Customer
In 1998, sales to ICI and its affiliates by our polyurethane,
petrochemicals and TiO\\2\\ businesses accounted for approximately 14% of our
pro forma consolidated revenues. As a result of our transaction with ICI and
Huntsman Specialty on June 30, 1999, ICI now indirectly owns 30% of our common
equity interests. See "The Transaction" and "Certain Relationships and Related
Transactions" for a further discussion of our relationship with ICI.
Research and Development
Our PO business spent approximately $4 million, $3 million and $3 million
on research and development for our products in 1996, 1997 and 1998,
respectively. In 1996, 1997 and 1998, an aggregate of approximately (Pounds)51
million, (Pounds)49 million and (Pounds)39 million, respectively, was spent by
our polyurethane chemicals, petrochemicals and TiO\\2\\ businesses for research
and development. We expect to spend a total of $67 million in 1999 and $68
million in 2000 on research and development for all our businesses combined. We
principally conduct our research and development at Huntsman Corporation's
research facilities located in Austin, Texas for our PO business; at our
facilities located in Billingham, England for our TiO\\2\\ business; at our
facilities located in Everberg, Belgium, West Deptford, New Jersey and Sterling
Heights, Michigan for our polyurethane chemicals business and at our facilities
located in Wilton, U.K. for our petrochemicals business. We are engaged at
these research facilities in discovering and developing new processes and test
methods, and applications for existing products to meet the needs of the
marketplace.
Intellectual Property Rights
Proprietary protection of our processes, apparatuses, and other technology
and inventions is important to our businesses. For our PO business, we own
approximately 150 U.S. patents, approximately 10 patent applications (including
provisionals) currently pending at the United States Patent and Trademark
Office, and approximately 525 foreign counterparts, including both issued
patents and pending patent applications. For our TiO\\2\\ business, we have
approximately 50 U.S. patents and pending patent applications, and
approximately 700 foreign counterparts. For our polyurethane chemicals
business, we own approximately 200 U.S. patents and pending patent
applications, and approximately 1,900 foreign counterparts. For our
petrochemicals business, we own five patents and pending applications (both
U.S. and foreign). We also rely upon unpatented
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<PAGE>
proprietary know-how and continuing technological innovation and other trade
secrets to develop and maintain our competitive position.
In addition to our own patents and patent applications and proprietary
trade secrets and know-how, we have entered into certain licensing arrangements
which authorize us to use certain trade secrets, know-how and related
technology and/or operate within the scope of certain patents owned by other
entities. Our petrochemicals business primarily uses technology licensed from a
number of suppliers. We have operated several generations of petrochemicals
plants and have accumulated well developed proprietary know-how, some of which
is patented, and technology which we apply to maintain and improve the
performance of our existing asset base. We also license and sub-license certain
intellectual property rights to affiliates and to third parties. In connection
with our transaction with ICI and Huntsman Specialty (under the terms of a
technology transfer agreement and a PO/MTBE technology transfer agreement), we
have licensed back to ICI and Huntsman Corporation (on a non-exclusive basis)
certain intellectual property rights for use in their respective retained
businesses, and ICI and Huntsman Corporation have each licensed certain
retained intellectual property to us.
For our polyurethane chemicals business, we have brand names for a number
of our products, and we own approximately 25 U.S. trademark registrations and
applications for registration currently pending at the United States Patent and
Trademark Office, and approximately 1,200 foreign counterparts, including both
registrations and applications for registration. For our TiO\\2\\ business, we
have approximately 200 trademark registrations and pending applications,
approximately 150 of which relate to the trademark "Tioxide". Our PO business
and petrochemicals business are not dependent on the use of trademarks. We have
entered into a trademark license agreement with each of Huntsman Corporation
and ICI under which we have obtained, respectively, the rights to use the
trademark "Huntsman" and the trademark "ICI", subject to certain restrictions,
including, in the case of the "ICI" mark, that it will only be used as part of
the combination "Huntsman ICI". The license to use the trademark "ICI" expires
on June 30, 2000.
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Properties
We own or lease chemical manufacturing and research facilities in the
locations indicated in the list below, which we currently believe are adequate
for our short-term and anticipated long-term needs. We own or lease office
space and storage facilities throughout the U.S. and many foreign countries.
Our principal executive offices, which are leased from Huntsman Corporation,
are located at 500 Huntsman Way, Salt Lake City, Utah 84108. The following is a
list of our material owned or leased properties where manufacturing, blending,
research and main office facilities are located.
<TABLE>
<CAPTION>
Location Description of Facility
-------- -----------------------
<S> <C>
Geismar, Louisiana................ MDI, TDI, Nitrobenzene(1), Aniline(1) and
Polyols Manufacturing Facilities
Rozenburg, Netherlands(2)......... MDI Manufacturing Facility, Polyols
Manufacturing Facilities and Systems House
Wilton, U.K. ..................... Aniline and Nitrobenzene Manufacturing
Facilities
Shepton Mallet, U.K. ............. Polyester Polyols Manufacturing Facility
Peel, Canada(2)................... Polyurethane Systems House
West Deptford, New Jersey......... Polyurethane Systems House, Research
Facility and U.S. Regional Headquarters
Sterling Heights, Michigan(2)..... Polyurethane Research Facility
Auburn Hills, Michigan(2)......... Polyurethane Office Space and Research
Facility
Cartagena, Colombia............... Polyurethane Systems House
Deggendorf, Germany............... Polyurethane Systems House
Ternate, Italy.................... Polyurethane Systems House
Shanghai, China(2)................ Polyurethane Systems House
Samuprakam, Thailand(2)........... Polyurethane Systems House
Kuan Yin, Taiwan(2)............... Polyurethane Systems House
Tlalnepantla, Mexico.............. Polyurethane Systems House
Everberg, Belgium................. Polyurethane Research Facility, Global
Headquarters and European Headquarters
Gateway West, Singapore........... Polyurethane Regional Headquarters
Port Neches, Texas................ PO Manufacturing Facility
Austin, Texas(2).................. PO/TBA Pilot Plant Facility
Wilton, U.K. ..................... Olefins and Aromatics Manufacturing
Facilities
North Tees, U.K.(2)............... Aromatics Manufacturing Facility
Teesport, U.K.(2)................. Logistics/Storage Facility
Saltholme, U.K. .................. Brine Reservoirs for Cavity Operations
Teesside, U.K..................... Brinefields Cavity Operation and Development
Saltholme, U.K.(2)................ Salt Mines
North Tees, U.K.(2)............... Shipping and Logistics Facility
Grimsby, U.K. .................... TiO\\2\\ Manufacturing Facility
Greatham, U.K. ................... TiO\\2\\ Manufacturing Facility
Calais, France.................... TiO\\2\\ Manufacturing Facility
Huelva, Spain..................... TiO\\2\\ Manufacturing Facility
Scarlino, Italy................... TiO\\2\\ Manufacturing Facility
Teluk Kalung, Malaysia............ TiO\\2\\ Manufacturing Facility
Lake Charles, Louisiana(3)........ TiO\\2\\ Manufacturing Facility
Umbogintwini, South Africa(4)..... TiO\\2\\ Manufacturing Facility
Tracy, Canada..................... TiO\\2\\ Finishing Plant
Billingham, U.K................... TiO\\2\\ Research and Technical Facility
</TABLE>
- --------
(1) 50% owned manufacturing joint venture with Uniroyal, Inc.
(2) Leased property.
(3) 50% owned manufacturing joint venture with Kronos Louisiana, Inc., a
subsidiary of NL Industries, Inc.
(4) 60% owned subsidiary.
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Employees
We employ over 6,000 people. Approximately 85% of our employees work
outside the U.S. We have over 950 employees located in the U.S., approximately
2,100 employees in the U.K., 229 of whom are subject to collective bargaining
agreements, and 3,200 employees elsewhere most of whom are subject to
collective bargaining agreements. A collective bargaining agreement for our
facility at Scarlino, Italy will be negotiated this year, with a second
collective bargaining agreement at Scarlino to be renegotiated next year.
Overall, we believe that our relations with our employees are good. In
addition, Huntsman Corporation and Huntsman Petrochemical Corporation are
providing operating, management and administrative services to us for our PO
business similar to the services that it provided to Huntsman Specialty with
respect to the PO business before it was transferred to us. See "Certain
Relationships and Related Transactions".
Environmental Regulations
We are subject to extensive environmental laws. In the ordinary course of
business, we are subject continually to environmental inspections and
monitoring by governmental enforcement authorities. We may incur substantial
costs, including fines, damages, and criminal or civil sanctions, for actual or
alleged violations arising under environmental laws. In addition, our
production facilities require operating permits that are subject to renewal,
modification, and, in certain circumstances, revocation. Our operations involve
the handling, transportation and use of numerous hazardous substances. From
time to time, these operations may result in violations under environmental
laws including spills or other releases of hazardous substances into the
environment. In the event of a catastrophic incident, we could incur material
costs or experience interruption in our operations as a result of addressing
and implementing measures to prevent such incidents in the future. In February
1999, hydrochloric acid was accidentally released from the Greatham facility
into a nearby marsh that includes a conservation area. We have an indemnity
from ICI which we believe will cover, in large measure, our liability for this
matter. In addition, certain notices of violation relating to air emissions and
wastewater issues have been issued to the Port Neches facility. While these
matters remain pending and could result in fines of over $100,000, we do not
believe any of these matters will be material to us. Given the nature of our
business, we cannot assure you, however, that violations of environmental laws
will not result in restrictions imposed on our activities, substantial fines,
penalties, damages or other costs.
Under some environmental laws, we may be jointly and severally liable for
the costs of environmental contamination on or from our properties and at off-
site locations where we disposed of or arranged for the disposal or treatment
of hazardous wastes. For example, in the United States under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, and
similar state laws, a current owner or operator of real property may be liable
for such costs regardless of whether the owner or operator owned or operated
the real property at the time of the release of the hazardous substances and
regardless of whether the release or disposal was in compliance with law at the
time it occurred. In addition, under the United States Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), and similar state laws, as the
holder of permits to treat or store hazardous wastes, we may, under some
circumstances, be required to remediate contamination at our properties
regardless of when the contamination occurred. Similar laws are being developed
or are in effect to varying degrees in other parts of the world, most notably
in the European Union. For example, in the U.K., a new contaminated land regime
is expected to come into effect shortly which will provide a detailed framework
for the identification, management and remediation of contaminated sites. This
law may increase governmental scrutiny of our U.K. facilities.
We are aware that there is or may be soil or groundwater contamination at
some of our facilities resulting from past operations at these or neighboring
facilities. Based on available information and the indemnification rights that
we possess (including indemnities provided by Huntsman Specialty
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and ICI for the facilities that each of them transferred to us), we believe
that the costs to investigate and remediate known contamination will not have a
material adverse effect on our business, financial condition, results of
operations or cash flows; however, we cannot give any assurance that such
indemnities will fully cover the costs of investigation and remediation, that
we will not be required to contribute to such costs or that such costs will not
be material.
We may also incur future costs for capital improvements and general
compliance under environmental laws, including costs to acquire, maintain and
repair pollution control equipment. Capital expenditures are planned, for
example, under national legislation implementing the Integrated Pollution
Prevention and Control Directive in the EU. Under this directive the majority
of our plants will, over the next few years, be required to obtain governmental
authorizations which will regulate air and water discharges, waste management
and other matters relating to the impact of operations on the environment, and
to conduct site assessments to evaluate environmental conditions. Although the
implementing legislation in most Member States is not yet in effect, it is
likely that additional expenditures may be necessary in some cases to meet the
requirements of authorizations under this directive. In particular, we believe
that related expenditures to upgrade our wastewater treatment facilities at
several sites may be necessary and associated costs may be material. Wastewater
treatment upgrades unrelated to this initiative also are planned at certain
facilities. In addition, we may also incur material expenditures in complying
with the EU Directive on Hazardous Waste Incineration beyond currently
anticipated expenditures, particularly in relation to our Wilton facility. It
is also possible that additional expenditures to reduce air emissions at two of
our U.K. facilities may be material. Capital expenditures and, to a lesser
extent, costs and operating expenses relating to environmental matters will be
subject to evolving regulatory requirements and will depend on the timing of
the promulgation and enforcement of specific standards which impose
requirements on our operations. Therefore, we cannot assure you that material
capital expenditures beyond those currently anticipated will not be required
under environmental laws. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Environmental Regulation".
Legal Matters
We are a party to various proceedings instituted by governmental
authorities and others arising under provisions of applicable laws, including
various environmental laws. Based in part on the indemnities provided to us by
ICI and Huntsman Specialty in connection with their transfer of businesses to
us and our insurance coverage, we do not believe that the outcome of any of
these matters will have a material adverse effect on our financial condition or
results of operations. See "Business--Environmental Regulations" for a
discussion of two environmental proceedings.
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MANAGEMENT
Managers and Executive Officers
Members of our current board of managers and executive officers are listed
below. The members of the board of managers are appointed by the owner of our
common equity interests and hold office until their successors are duly
appointed and qualified. All officers serve at the pleasure of our board of
managers.
Board of Managers and Executive Officers
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jon M. Huntsman*........ 62 Chairman of the Board of Managers, Chief
Executive Officer and Manager
Jon M. Huntsman, Jr.*... 39 Vice Chairman and Manager
Peter R. Huntsman*...... 36 President, Chief Operating Officer and Manager
Patrick W. Thomas....... 41 President--Polyurethane Chemicals Division
Douglas A. L. Coombs.... 59 President--Tioxide Division
J. Kimo Esplin.......... 38 Executive Vice President and Chief Financial
Officer
Thomas G. Fisher........ 51 Executive Vice President--Tioxide
Michael J. Kern......... 50 Executive Vice President--Manufacturing
Robert B. Lence......... 42 Executive Vice President, General Counsel and
Secretary
Donald J. Stanutz....... 49 Executive Vice President--Polyurethane Chemicals
L. Russell Healy........ 44 Senior Vice President and Financial Director
Karen H. Huntsman*...... 61 Vice President
William M. Chapman, 58
Jr. ................... Vice President--Human Resources
Curtis C. Dowd.......... 40 Vice President--Corporate Development
James A. Huffman*....... 31 Vice President--Strategic Planning
Kevin J. Ninow.......... 37 Vice President--Petrochemicals Manufacturing
Martin F. Petersen...... 38 Vice President and Treasurer
John B. Prows........... 45 Vice President--Petrochemicals
Samuel D. Scruggs....... 40 Vice President--Deputy General Counsel
Graham Thompson......... 48 Vice President and Controller
</TABLE>
- --------
* Such persons are related as follows: Karen H. Huntsman is the wife of Jon M.
Huntsman. Jon M. Huntsman and Karen H. Huntsman are the parents of Jon M.
Huntsman, Jr. and Peter R. Huntsman. James A. Huffman is a son-in-law of Jon
M. Huntsman and Karen H. Huntsman and brother-in-law of Jon M. Huntsman, Jr.
and Peter R. Huntsman.
Jon M. Huntsman is Chairman of the Board of Managers and Chief Executive
Officer of both Huntsman ICI Chemicals and Huntsman ICI Holdings. He has been
Chairman of the Board and Chief Executive Officer of Huntsman Corporation and
all Huntsman companies since he founded his first company in 1970. In
addition, Mr. Huntsman serves or has served on numerous corporate and industry
boards, the Chemical Manufacturers Association and the American Polymers
Council. Mr. Huntsman was selected in 1994 as the chemical industry's top CEO
for all businesses in Europe and North America. Mr. Huntsman formerly served
as Special Assistant to the President of the United States and as Vice
Chairman of the U.S. Chamber of Commerce.
Jon M. Huntsman, Jr. is Vice Chairman and a Manager of both Huntsman ICI
Chemicals and Huntsman ICI Holdings. Mr. Huntsman, Jr. serves as Vice Chairman
and Director of Huntsman Corporation. Mr. Huntsman serves on the board of
directors of Owens-Corning Corporation and on numerous corporate and not-for-
profit boards. Previously, Mr. Huntsman, Jr. was Senior Vice President and
General Manager of Huntsman Chemical Corporation. Later he served as U.S.
Deputy Assistant Secretary of Commerce in the International Trade
Administration, U.S. Deputy Assistant Secretary for East Asia and Pacific
Affairs and as the United States Ambassador to the Republic of Singapore. Mr.
Huntsman, Jr. also serves as President of the Huntsman Cancer Foundation.
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Peter R. Huntsman is President, Chief Operating Officer and a Manager of
both Huntsman ICI Chemicals and Huntsman ICI Holdings. He also serves as
President, Chief Operating Officer and a Director of Huntsman Corporation.
Previously, Mr. Huntsman was Senior Vice President of Huntsman Chemical
Corporation and a Senior Vice President of Huntsman Packaging Corporation. Mr.
Huntsman also served as Vice President-- Purchasing for Huntsman Polypropylene
Corporation, and Senior Vice President and General Manager of Huntsman
Polypropylene Corporation.
Patrick W. Thomas is President--Polyurethane Chemicals Division. Since
joining ICI in 1982, Mr. Thomas has held numerous management positions with
ICI, including Polyurethanes Business Director, Europe from 1993 to 1997,
Polyurethanes International Marketing and Planning Manager from 1991 to 1993
and Polyurethanes Business Engineering & Investment Manager from 1989 to 1991.
Douglas A. L. Coombs is President--Tioxide Division. Mr. Coombs held the
post of Chairman & Chief Executive Officer of Tioxide Group from 1996 through
June 1999. Mr. Coombs has held a number of management positions with ICI over
the last 35 years.
J. Kimo Esplin is Executive Vice President and Chief Financial Officer. Mr.
Esplin also serves as Senior Vice President and Chief Financial Officer of
Huntsman Corporation. Previously, Mr. Esplin served as Treasurer of Huntsman
Corporation. Prior to joining Huntsman in 1994, Mr. Esplin was a Vice President
in the Investment Banking Division of Bankers Trust Company, where he worked
for seven years.
Thomas G. Fisher is Executive Vice President--Tioxide. Mr. Fisher also
serves as Senior Vice President of Huntsman Corporation. Mr. Fisher has held
several positions with Huntsman that have included the overall management for
Huntsman's PO, maleic anhydride, ethylene oxide, ethylene glycol and butadiene
businesses. Prior to joining Huntsman in 1994, Mr. Fisher served in a variety
of management positions with Texaco Chemical Company.
Michael J. Kern is Executive Vice President--Manufacturing. Mr. Kern also
serves as Senior Vice President--Manufacturing for Huntsman Corporation. Prior
to joining Huntsman, Mr. Kern held a variety of positions within Texaco
Chemical Company, including Area Manager--Jefferson County Operations from
April 1993 until joining the Company, Plant Manager of Port Neches facility
from August 1992 to March 1993, Manager of the PO/MTBE project from October
1989 to July 1992, and Manager of Oxides and Olefins from April 1988 to
September 1989.
Robert B. Lence is Executive Vice President, General Counsel and Secretary.
Mr. Lence also serves as Senior Vice President and General Counsel of Huntsman
Corporation. Mr. Lence joined Huntsman in December 1991 from Van Cott, Bagley,
Cornwall & McCarthy, a Salt Lake City law firm, where he was a partner.
Donald J. Stanutz is Executive Vice President--Polyurethane Chemicals. Mr.
Stanutz also serves as Senior Vice President of Huntsman Corporation. Mr.
Stanutz has held several positions with Huntsman that have included the overall
management for Huntsman's performance chemicals business, specialty polymers
business and olefins, oxides and glycols business. Prior to joining Huntsman in
1994, Mr. Stanutz served in a variety of senior positions with Texaco Chemical
Company.
L. Russell Healy is Senior Vice President and Financial Director. Mr. Healy
also serves as Vice President--Finance for Huntsman Corporation. Previously,
Mr. Healy served as Vice President--Taxation for Huntsman Corporation. Prior to
joining Huntsman in 1995, Mr. Healy was a partner in the tax department of
Deloitte and Touche, LLP. Mr. Healy is a CPA and holds a masters degree in
accounting.
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Karen H. Huntsman is Vice President. Mrs. Huntsman performs an active role
in all the Huntsman Corporation businesses and currently serves as an officer
and/or board member for many of the Huntsman companies. By appointment of the
Governor of the State of Utah, Mrs. Huntsman serves as a member of the Utah
State Board of Regents. She also serves on the boards of directors of various
corporate and not-for-profit entities, including First Security Corporation.
William M. Chapman, Jr. is Vice President--Human Resources. Mr. Chapman
also serves as Vice President--Human Resources for Huntsman Corporation.
Previously, Mr. Chapman has served as Vice President--Human Resources for
Huntsman Petrochemical Corporation and as Director--Human Resources for
Huntsman's Jefferson County, Texas operations. Prior to joining Huntsman in
1994, Mr. Chapman was Assistant General Manager--Services for Texaco Chemical
Company.
Curtis C. Dowd is Vice President--Corporate Development. Mr. Dowd also
serves as Vice President--Corporate Development for Huntsman Corporation. Mr.
Dowd previously served as Vice President and General Counsel of Huntsman
Petrochemical Corporation from 1994 to 1998. From 1991 to 1994, Mr. Dowd was an
associate with the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Prior
to attending law school, Mr. Dowd was a CPA with the accounting firm of Price
Waterhouse for over six years.
James A. Huffman is Vice President--Strategic Planning. Mr. Huffman also
serves as Vice President--Strategic Planning for Huntsman Corporation, a
position which he has held since 1998. Prior to joining Huntsman in 1998, Mr.
Huffman worked for the global management consulting firm of McKinsey & Company
as an engagement manager. Mr. Huffman also worked for Huntsman in a variety of
positions from 1991 to 1994, including Director--New Business Development and
Manager--Credit for Huntsman Packaging.
Kevin J. Ninow is Vice President--Petrochemicals Manufacturing. Since
joining Huntsman in 1989, Mr. Ninow has served in a variety of manufacturing
and engineering positions including Vice President of Manufacturing, Plant
Manager--Oxides and Olefins, Plant Manager--C4's, Operations Manager--C4's,
Manager of Technology, Process Control Group Leader, and Project Engineer.
Martin F. Petersen is Vice President and Treasurer. Mr. Petersen also
serves as Vice President and Treasurer of Huntsman Corporation. Prior to
joining Huntsman in 1997, Mr. Petersen was a Vice President in the Investment
Banking Division of Merrill Lynch & Co., where he worked for seven years.
John B. Prows is Vice President--Petrochemicals. Since joining Huntsman in
1994, Mr. Prows has served as Plant Manager--Polypropylene, Plant Manager--
Polystyrene, and Operations Manager--Styrene Monomer. Previously, Mr. Prows
worked for Dupont for 13 years in a number of management and engineering roles
in polyethylene, PVC and other manufacturing processes.
Samuel D. Scruggs is Vice President--Deputy General Counsel. Mr. Scruggs
also serves as Vice President--Associate General Counsel for Huntsman
Corporation. Prior to joining Huntsman in 1995, Mr. Scruggs was an associate
with the law firm of Skadden, Arps, Slate, Meagher & Flom LLP.
Graham Thomson is Vice President and Controller. Mr. Thomson joined ICI in
1978 in its Organics Division (now Zeneca PLC) and served in a number of
positions, including Business Accountant for the Fine Chemicals Manufacturing
Division and Controller of ICI Francolor in Paris. In 1986, Mr. Thomson joined
the polyurethanes business of ICI and until 1999 has served as Business
Controller.
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Executive Compensation
Summary of Compensation
The following Summary Compensation Table sets forth information concerning
compensation earned in the fiscal year ended December 31,1998, by our chief
executive officer and our remaining four most highly compensated executive
officers as of the end of the last fiscal year.
All compensation of the executive officers listed below was paid entirely
by Huntsman Corporation, our ultimate parent company, and no charge with
respect to this compensation was made to our company. Compensation figures for
the executive officers listed below represent a prorated percentage of Huntsman
Corporation compensation attributable to services rendered to our company and
Huntsman Specialty, the predecessor of our parent company. Because they are
executive officers for both our company and our direct parent, Huntsman ICI
Holdings, we expect that future compensation received by the officers from
these two companies will be primarily attributable to the services rendered to
our company. Perquisites and other personnel benefits, securities or property
are less than either $50,000 or 10% of the total annual salary and bonus
reported for each of the executive officers listed below.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Options
(Number All Other
Name and Principal Position Year Salary Bonus of Shares) Compensation
--------------------------- ---- -------------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jon M. Huntsman,
Chairman of the Board,
Director and Chief Executive
Officer..................... 1998 $ 66,000 $ 375,000 -- $44,227(1)
Peter R. Huntsman,
President and Director...... 1998 $ 40,170 $ 75,000 -- $11,595(2)
Jon M. Huntsman, Jr.,
Vice Chairman and Director.. 1998 $ 32,156 $ 60,000 -- $ 9,216(3)
J. Kimo Esplin,
Senior Vice President and
Chief Financial Officer..... 1998 $ 18,938 $ 30,000 -- $ 1,233(4)
Robert B. Lence,
Senior Vice President and
General Counsel............. 1998 $ 14,479 $ 18,750 -- $ 3,325(5)
</TABLE>
- --------
(1) Consists of $8,845 employer's 401(k) contribution for 1998, and employer's
money purchase contribution of $35,382 for 1998.
(2) Consists of $2,319 employer's 401(k) contribution for 1998, and employer's
money purchase contribution of $9,276 for 1998.
(3) Consists of $1,843 employer's 401(k) contribution for 1998, and employer's
money purchase contribution of $7,373 for 1998.
(4) Consists of $986 employer's 401(k) contribution for 1998, and employer's
money purchase contribution of $247 for 1998.
(5) Consists of $665 employer's 401(k) contribution for 1998, and employer's
money purchase contribution of $2,660 for 1998.
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The following table shows the estimated annual benefits payable under the
Huntsman Corporation's tax-qualified defined benefit pension plan (the
"Huntsman Corporation Pension Plan") and supplemental pension plan ("SERP") in
specified final average earnings and years-of-service classifications.
Huntsman Corporation Pension Plan Table
<TABLE>
<CAPTION>
Years of Benefit Service at Retirement
Final Average -------------------------------------------------------------
Compensation 5 10 15 20 25 30 35 40
- ------------- ------ ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 25,000 1,800 3,500 5,300 7,000 8,800 10,500 12,300 14,000
$ 50,000 3,500 7,000 10,500 14,000 17,500 21,000 24,500 28,000
$ 75,000 5,300 10,500 15,800 21,000 26,300 31,500 36,800 42,000
$100,000 7,000 14,000 21,000 28,000 35,000 42,000 49,000 56,000
$125,000 8,800 17,500 26,300 35,000 43,800 52,500 61,300 70,000
$150,000 10,500 21,000 31,500 42,000 52,500 63,000 73,500 84,000
$175,000 12,300 24,500 36,800 49,000 61,300 73,500 85,800 98,000
$200,000 14,000 28,000 42,000 56,000 70,000 84,000 98,000 112,000
$300,000 21,000 42,000 63,000 84,000 105,000 126,000 147,000 168,000
$400,000 28,000 56,000 84,000 112,000 140,000 168,000 196,000 224,000
$500,000 35,000 70,000 105,000 140,000 175,000 210,000 245,000 280,000
$600,000 42,000 84,000 126,000 168,000 210,000 252,000 294,000 336,000
</TABLE>
The current Huntsman Corporation Pension Plan benefit is based on the
following formula: 1.4% of final average compensation multiplied by years of
credited service, minus 1.4% of estimated Social Security benefits multiplied
by years of credited service (with a maximum of 50% of Social Security
benefits). Final Average compensation is based on the highest average of three
consecutive years of compensation. Messrs. Jon M. Huntsman, Peter R. Huntsman,
Jon M. Huntsman, Jr., J. Kimo Esplin and Robert B. Lence were participants in
the Huntsman Corporation Pension Plan in 1998. For the foregoing named
executive officers, covered compensation consists of base salary and is
reflected in the "Salary" column of the Summary Compensation Table. Federal
regulations require that for the 1998 plan year, no more than $160,000 in
compensation be considered for the calculation of retirement benefits under the
Huntsman Corporation Pension Plan, and the maximum annual benefit paid from a
qualified defined benefit plan cannot exceed $125,000. Benefits are calculated
on a straight life annuity basis. The benefit amounts under the Huntsman
Corporation Pension Plan are offset for Social Security as described above.
The SERP is a nonqualified supplemental pension plan for designated
executive officers, that provides benefits based on certain compensation
amounts not included in the calculation of benefits payable under the Huntsman
Corporation Pension Plan. Messrs. Jon. M. Huntsman, Peter R. Huntsman, Jon M.
Huntsman, Jr., J. Kimo Esplin and Robert B. Lence were participants in the SERP
in 1998. The compensation amounts taken into account for these named executive
officers under the SERP include bonuses (as reflected in the "Bonus" columns of
the summary compensation Table) and base salary in excess of the qualified plan
limitations. The SERP benefit is calculated as the difference between (1) the
benefit determined using the Huntsman Corporation Pension Plan formula with
unlimited base salary plus bonus, and (2) the benefit determined using base
salary as limited by federal regulations.
The number of completed years of credited service as of December 31, 1998
under the Huntsman Corporation Pension Plan and SERP for the named executive
officers participating in the plans were 28, 15, 15, 4 and 13 years for each of
Messrs. Jon. M. Huntsman, Peter R. Huntsman, Jon M. Huntsman, Jr., J. Kimo
Esplin and Robert B. Lence, respectively.
Compensation of Managers
The managers do not receive any additional compensation for their service
as managers.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We share numerous services and resources with Huntsman Corporation and ICI.
We also rely on Huntsman Corporation and ICI to supply some of our raw
materials and to purchase a significant portion of our products.
General
We expect to enter into several agreements with Huntsman Corporation under
which Huntsman Corporation will provide us with administrative support and a
range of services, including treasury and risk management, human resources,
technical and legal services for our businesses in the U.S. and elsewhere. In
connection with these arrangements, we participate in Huntsman Corporation's
worldwide insurance program. Furthermore, we expect to enter into one or more
agreements under which we will provide to Huntsman Corporation and its
subsidiaries a range of support services, including treasury, human resources,
technical and legal services for Huntsman Corporation's businesses in Europe
and elsewhere. These agreements will provide for fees based on an equitable
allocation of the general and administrative costs and expenses. In addition,
we have paid an aggregate fee of $10 million to cover non-reimbursed expenses
incurred in connection with our transaction with ICI and Huntsman Specialty to
Huntsman Specialty, ICI and the institutional investors in proportion to their
common equity interests in Huntsman ICI Holdings.
Polyurethane Chemicals Business
Supply Contracts
We intend to enter into one or more agreements with ICI or its affiliates
for the supply of caustic soda, chlorine and sulphuric acid to us. We expect
the terms and conditions of these agreements to be substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's businesses to us, which generally reflect market prices.
Utilities Contracts
We intend to enter into several agreements with ICI or its affiliates
relating to our supply of general utilities, including steam, electricity and
water to ICI at our Rozenburg, Netherlands facility. We will also enter into
reciprocal agreements relating to the supply by ICI or its affiliates to us of
certain utilities. The terms and conditions of these agreements to be
substantially the same as agreements or non-contractual arrangements existing
prior to the closing of the transfer of ICI's businesses to us, which generally
reflect either market prices or prices based upon cost plus a reasonable fee,
which we believe, taken together, reflect market or below market rates.
Services Contracts
We intend to enter into one or more agreements with ICI or its affiliates
relating to a wide range of operational services both to and from ICI or its
affiliates. These operational services include the operation and maintenance of
various infrastructure, effluent disposal, storage and distribution assets. We
expect the terms of these agreements to be substantially the same as agreements
or non-contractual arrangements existing prior to the closing of the transfer
of ICI's businesses to us, which generally reflect either market prices or
prices based upon cost plus a reasonable fee, which we believe, taken together,
reflect market or below market rates.
In addition, we expect to enter into agreements relating to the provision
both to and from ICI or its affiliates of a range of support services for the
efficient transition of business ownership. These services may include various
human resource, occupational health, analytical, engineering or purchasing
services. We expect the terms of these agreements to be substantially the same
as existing agreements or non-contractual arrangements existing prior to the
closing of the transfer of ICI's businesses to us, which generally reflect
either market price or prices based upon cost plus a reasonable fee, which we
believe, taken together, reflect market or below market rates.
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PO Business
PO Supply Agreement
Pursuant to an existing agreement with Huntsman Petrochemical Corporation
that expires in 2012, we are obligated to sell, and Huntsman Petrochemical
Corporation is obligated to buy, all PO produced at our PO facility in Port
Neches, Texas which is not purchased by our other customers. We are entitled to
receive market prices for the PO purchased by Huntsman Petrochemical
Corporation. In 1998, Huntsman Petrochemical Corporation spent $27 million
under this agreement. Based on current market price and the current commitments
of our other customers to purchase our PO, we anticipate that Huntsman
Petrochemical Corporation will spend at least $33 million per year under this
agreement.
Propylene Supply Agreement
Pursuant to an existing agreement that expires in 2012, Huntsman
Petrochemical Corporation is obligated to provide 100% of the propylene
required by us for operation of our PO facility, up to a maximum of 350 million
pounds per year. We pay market prices for the propylene supplied by Huntsman
Petrochemical Corporation. These agreements each have terms of 15 years. In
1998, we spent $30 million under this agreement. Based on current market
prices, we anticipate that we will spend approximately $44 million per year
under these agreements.
Supply Contracts
We are interdependent with Huntsman Petrochemical Corporation with respect
to the supply of certain other feedstock, utilities and products. Under a
supply agreement that expires in 2012, we are required to sell, and Huntsman
Petrochemical Corporation is required to purchase, all of the steam that we
generate at our PO facility. Huntsman Petrochemical Corporation reimburses us
for the cost of the steam that it purchases from us. Under separate supply
agreements, we have agreed to purchase our requirements of mono-ethylene glycol
and tri-ethylene glycol from Huntsman Petrochemical Corporation at market
prices for use in our PO operations. Furthermore, in exchange for Huntsman
Petrochemical Corporation's PG tolling services, we pay Huntsman Petrochemical
Corporation a reservation fee, adjusted annually for inflation, plus a variable
toll fee equal to Huntsman Petrochemical Corporation's cost of operating the PG
plant. In 1998, we paid Huntsman Petrochemical Corporation $4.5 million in fees
under these contracts and received $6.2 million in reimbursements from Huntsman
Petrochemical Corporation. Based on current market prices, we anticipate that
we will spend approximately $5 million per year, and that Huntsman
Petrochemical Corporation will spend approximately $6 million per year, under
these agreements.
Services Contracts
In order to operate the PO business, we have entered into a series of
contracts with Huntsman Petrochemical Corporation that expire in 2012 under
which Huntsman Petrochemical Corporation operates and maintains the PO
facility, including the provision of management, personnel, transportation,
information systems, accounting, tax and legal services, and research and
development to our PO business. Generally, under these agreements, we pay
Huntsman Petrochemical Corporation an amount equal to its actual costs for
providing us with each of these services plus. In 1998, we paid Huntsman
Petrochemical Corporation $56 million under these agreements, which we believe
to be equivalent to that which would be paid under arm's length negotiations.
Based on current market prices, we anticipate that we will spend approximately
$38 million per year under these agreements.
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Petrochemicals Business
Naphtha Supply Agreement
We entered into a product supply agreement with ICI, which requires ICI to
supply and us to buy the entire naphtha output (up to 2.98 billion pounds per
year) of the Phillips Imperial Petroleum Limited refinery at Teesside and
specified amounts of other feedstock available to ICI from operations at
Teesside. This naphtha supply agreement will continue until ICI is no longer a
shareholder in Phillips Imperial Petroleum Limited or until the refinery is
permanently shut down. We purchase these products on terms and conditions which
reflect market prices. Based on current market prices, we anticipate that we
will spend approximately $240 million per year under this agreement.
Supply Contracts
We intend to enter into one or more agreements with ICI or its affiliates
for the supply of ethylene to ICI or its affiliates and the supply of hydrogen
to and from ICI or its affiliates. We expect the terms and conditions of these
agreements to be substantially the same as agreements or non-contractual
arrangements existing prior to the closing of the transfer of ICI's businesses
to us, which generally reflect market prices.
Utilities Contracts
We intend to enter into one or more agreements with ICI or its affiliates
relating to the provision of certain utilities, including steam, fuel gas,
potable water, electricity, water and compressed air by us to ICI or its
affiliates. We will also enter into reciprocal agreements relating to the
supply by ICI or its affiliates to us of certain utilities. We expect the terms
and conditions of these agreements to be substantially the same as agreements
or non-contractual arrangements existing prior to the closing of the transfer
of ICI's businesses to us, which generally reflect either market prices or
prices based upon cost plus a reasonable fee, which we believe, taken together,
reflect market or below market rates.
Services Contracts
We expect to enter into several agreements with ICI or its affiliates
relating to a wide range of operational services both to and from ICI or its
affiliates, primarily at Teesside. These operational services will include the
operation and maintenance of various infrastructure, effluent disposal,
storage, jetty, and distribution assets. We expect the terms and conditions of
these agreements to be substantially the same as agreements or non-contractual
arrangements existing prior to the closing of the transfer of ICI's businesses
to us, which generally reflect either market prices or prices based upon cost
plus a reasonable fee, which we believe, taken together, reflect market or
below market rates.
In addition, we expect to enter into agreements relating to the provision
by ICI or its affiliates to us of a range of support services for the efficient
transition of the change of business ownership. These services may include
various human resources, occupational health, analytical, engineering or
purchasing services. We expect the terms and conditions of these agreements to
be substantially the same as agreements or non-contractual arrangements
existing prior to the closing of the transfer of ICI's businesses to us, which
generally reflect either market prices or prices based on cost plus a
reasonable fee, which we believe, taken together, reflect market or below
market rates.
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Tioxide Business
Supply Agreement with ICI Paints
We have extended an existing agreement with the paints business of ICI to
supply TiO\\2\\. At the current level of commitment, we supply approximately
60,000 tonnes of TiO\\2\\ per year at market prices. The extended agreement
expires no earlier than June 30, 2001 upon at least twelve months' notice. In
addition, we have entered into a separate agreement to supply ICI with further
quantities of TiO\\2\\ up to a maximum amount of 15,000 tonnes per year at
market prices. Based on current market prices, we anticipate that ICI will
spend approximately $100 million per year under these agreements.
Feedstock Supply Contracts
We expect to enter into several agreements with ICI for the supply of
sulphur, sulphuric acid, caustic soda and chlorine to us. We also expect to
enter into reciprocal agreements with ICI relating to the supply of certain
products to ICI, including sodium hypochlorite. We expect the terms and
conditions of the proposed agreements with ICI to be, substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's businesses to us, which generally reflect market prices.
Utilities Contracts
We intend to enter into one or more agreements with ICI or its affiliates
relating to the supply of certain utilities including steam, water and
electricity by ICI or its affiliates to us at Billingham. We also expect to
enter into reciprocal agreements relating to the provision of certain utilities
by us to ICI or its affiliates. We expect that the terms and conditions of
these agreements to be substantially the same as agreements or non-contractual
arrangements existing prior to the closing of the transfer of ICI's businesses
to us, which generally reflect either market prices or prices based upon cost
plus a reasonable fee, which we believe, taken together, reflect market or
below market rates.
Services Contracts
We intend to enter into one or more agreements with ICI or its affiliates
relating to a wide range of operational services both to and from ICI or its
affiliates. These operational services will include the operation and
maintenance of various infrastructure, effluent disposal, storage and
distribution assets. We expect the terms and conditions of these agreements to
be substantially the same as agreements or non-contractual arrangements
existing prior to the closing of the transfer of ICI's businesses to us, which
generally reflect either market prices or prices based upon cost plus a
reasonable fee, which we believe, taken together, reflect market or below
market rates.
In addition, we intend to enter into agreements relating to the provision
by ICI or its affiliates to us of a range of support services for the efficient
transition of business ownership. These services may include various human
resources, occupational health, analytical, engineering or purchasing services.
We expect the terms and conditions of these agreements to be substantially the
same as agreements or non-contractual arrangements existing prior to the
closing of the transfer of ICI's businesses to us, which generally reflect
either market prices or prices based upon cost plus a reasonable fee, which we
believe, taken together, reflect market or below market rates.
Continuing Arrangements Not Yet Entered Into
Under the contribution agreement, until we are able to agree upon the terms
of the product, supply or utilities agreements described above:
. with respect to
(1) the existing supply of any product or utility, or
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(2) the supply of any existing service which is material to the
continuing operation of our or ICI's business after closing,
we or ICI may, if we fail to agree on the relevant terms before January
1, 2000, refer the matter for dispute resolution. Until resolution, the
provider of products, utilities or services will provide the relevant
product, utility or service until June 30, 2001, with the option to
terminate with twelve months' notice at any time after closing. A
further twelve month extension is possible in limited circumstances;
and
. with respect to all other existing provisions of product, utilities and
services, we or ICI may, if we fail to agree on the relevant terms
before October 1, 1999, refer the matter for dispute resolution. Until
resolution, the provider of products, utilities or services will
provide the relevant product, utility or service until June 30, 2000,
with the option to terminate with three months' notice at any time
after closing. A further six month extension is possible in limited
circumstances. As of the date of this prospectus, neither we nor ICI
have referred these matters to dispute resolution.
If we are unable to agree on the pricing of any product, utility or service
for the period from June 30, 1999 until December 31, 1999, it will be supplied
at the price prevailing at December 31, 1998. For the subsequent twelve month
period an arms-length market price is to be agreed upon, with a price review to
be conducted after each successive twelve month period.
Tax Sharing Arrangement
Pursuant to our Limited Liability Company Agreement and the Limited
Liability Company Agreement of Huntsman ICI Holdings, we have a tax sharing
arrangement with all of our and Huntsman ICI Holdings' common equity holders.
Under the arrangement, because we are treated as a partnership for U.S. income
tax purposes, we will make quarterly payments (with appropriate annual
adjustments) to our parent, Huntsman ICI Holdings, which will in turn make
payments to its common equity holders, in an amount equal to the U.S. federal
and state income taxes we and Huntsman ICI Holdings would have paid had
Huntsman ICI Holdings been a consolidated or unitary group for federal tax
purposes. The arrangement also provides that we will receive cash payments from
the common equity holders (through Huntsman ICI Holdings) in amounts equal to
the amount of U.S. federal and state income tax refunds or benefit against
future tax liabilities equal to the amount we would have received from the use
of net operating losses or tax credits generated by us.
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DESCRIPTION OF CREDIT FACILITIES
Senior Credit Facilities. In order to fund the closing of the transfer of
ICI's and Huntsman Specialty's businesses to us, we borrowed funds under a
senior secured credit agreement (the "Credit Agreement") with Bankers Trust
Company, as Administrative Agent, Goldman Sachs Credit Partners L.P., The Chase
Manhattan Bank and Warburg Dillon Read, and a group of lenders (the "Lenders").
Under the Credit Agreement, the Lenders have provided an aggregate of $2.07
billion of senior secured credit facilities (the "Senior Secured Credit
Facilities"), comprised of:
. a $400 million revolving loan facility,
. a $240 million term A loan facility,
. a $300 million term A loan facility in the euro equivalent of $300
million,
. a $565 million term B loan facility, and
. a $565 million term C loan facility.
In addition, a letter of credit facility of $75 million and a swing line
loan facility of $25 million are available to us as subfacilities under the
revolving loan facility. At the close of business on June 30, 1999, we borrowed
$1.67 billion under the Senior Secured Credit Facilities. The revolving loan
facility is available to us for working capital and general corporate purposes.
Our obligations under the Senior Secured Credit Facilities are supported by
guarantees of Huntsman ICI Holdings LLC, which is our direct parent, our
domestic subsidiaries (other than unrestricted subsidiaries under the Credit
Agreement) and of Tioxide Group and Tioxide Americas Inc., both of which are
non-U.S. subsidiaries that are disregarded as entities for U.S. tax purposes.
We have secured our obligations under the Senior Secured Credit Facilities with
the pledge of substantially all of our assets, including the stock of our
domestic subsidiaries and of Tioxide Group. Our obligations under the Senior
Secured Credit Facilities are also secured by the pledge by Huntsman ICI
Holdings LLC of its membership interests in us, the pledge by the domestic
subsidiary guarantors of their assets, the pledge by Tioxide Group of 65% of
the voting stock of Huntsman ICI (Holdings) U.K. and the pledge by Tioxide
Americas Inc. of its assets, in each case, with specified exceptions. The
Senior Secured Credit Facilities also require that certain intercompany notes
by foreign subsidiaries in favor of Huntsman ICI (Holdings) U.K. be secured.
Both the term A dollar loan facility and the term A euro loan facility
mature on June 30, 2005 and are payable in semi-annual installments commencing
December 31, 2000 with the amortization increasing over time. The term B loan
facility matures on June 30, 2007 and is payable in annual installments of
$5,650,000 commencing June 30, 2000 with the remaining unpaid balance due on
final maturity. The term C loan facility matures on June 30, 2008 and is
payable in annual installments of $5,650,000 commencing June 30, 2000 with the
remaining unpaid balance due on final maturity. The revolving loan facilities
mature on June 30, 2005 with no scheduled commitment reductions.
Interest rates for the Senior Secured Credit Facilities are based upon, at
our option, either the applicable eurocurrency rate (for dollars or euros, as
applicable) adjusted for reserves or the applicable base rate. The applicable
spreads vary based on a pricing grid, in the case of adjusted eurocurrency
based loans, from 1.25% to 3.50% per annum depending on the loan facility and
whether specified conditions have been satisfied and, in the case of the
applicable base rate based loans, from 0.25% to 2.25% per annum.
The Senior Secured Credit Facilities require mandatory prepayments in
specified circumstances involving the incurrence of indebtedness, asset
dispositions where the net cash proceeds are not
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reinvested in additional assets, a specified percentage of excess cash flow,
specified capital stock offerings, additional specified subordinated
indebtedness and specified purchase price adjustments under the contribution
agreement.
The Senior Secured Credit Facilities contain representations and
warranties, affirmative covenants, financial covenants, negative covenants and
events of default that are usual and customary for facilities similar to the
Senior Secured Credit Facilities. The negative covenants include restrictions,
among others, on the incurrence of indebtedness and liens, dividends and other
distributions, consolidations and mergers, the purchase and sale of assets,
issuance of stock, loans and investments, voluntary payments and modifications
of indebtedness, and affiliate transactions. The financial covenants require us
to maintain financial ratios, including a leverage ratio and an interest
coverage ratio, and minimum consolidated net worth and require us to limit the
amount of our capital expenditures.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions". In this description, the phrase
"Huntsman ICI Chemicals" refers only to Huntsman ICI Chemicals LLC and not to
any of its subsidiaries. Additionally, the word "guarantors" refers to Tioxide
Group, Huntsman ICI Financial LLC, Tioxide Americas Inc., and any other
Restricted Subsidiary of Huntsman ICI Chemicals that in the future agrees to
become a guarantor.
The terms of the notes to be issued in the exchange offer are identical in
all material respects to the terms of the outstanding notes, except:
(1) the notes issued in the exchange offer will have been registered under
the Securities Act;
(2) the notes issued in the exchange offer will not contain transfer
restrictions and registration rights that relate to the outstanding
notes; and
(3) the notes issued in the exchange offer will not contain provisions
relating to the payment of liquidated damages to be made to the
holders of the outstanding notes under circumstances related to the
timing of the exchange offer.
Any outstanding notes that remain outstanding after the exchange offer,
together with notes issued in the exchange offer, will be treated as a single
class of securities under the indenture for voting purposes. When we refer to
the term "note" or "notes", we are referring to both the outstanding notes and
the notes to be issued in the exchange offer. When we refer to "holders" of the
notes, we are referring to those persons who are the registered holders of
notes on the books of the registrar appointed under the indenture.
The notes were issued under an indenture, dated June 30, 1999, among
Huntsman ICI Chemicals, the guarantors and Bank One, N.A., as trustee, in a
private transaction that was not subject to the registration requirements of
the Securities Act. See "Notice to Investors." The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
indenture and the registration rights agreement dated June 30, 1999. It does
not restate those agreements in their entirety. We urge you to read the
indenture and the registration rights agreement because they, and not this
description, define your rights as holders of these notes. A copy of the
indenture and registration rights agreement has been filed as an exhibit to the
registration statement which includes this prospectus and is available to you
upon request. See "Where You Can Find More Information".
Brief Description of the Notes and the Guarantees
The Notes
The notes are:
. general unsecured senior subordinated obligations of Huntsman ICI
Chemicals;
. subordinated in right of payment to all existing and future Senior Debt
of Huntsman ICI Chemicals and to all liabilities (including trade
payables) of Huntsman ICI Chemicals's subsidiaries which are not
guarantors (except to the extent of indebtedness owed to Huntsman ICI
Chemicals or guarantors);
. equal in right of payment to all existing and senior subordinated
Indebtedness of Huntsman ICI Chemicals;
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. senior in right of payment to any subordinated Indebtedness of Huntsman
ICI Chemicals; and
. unconditionally guaranteed by the guarantors on a senior subordinated
basis.
The Guarantees
As of the date of this prospectus, Tioxide Group, Tioxide Americas Inc. and
Huntsman ICI Financial LLC are our only subsidiaries that guarantee Huntsman
ICI Chemicals's obligations under these notes. The obligations of the
guarantors under their guarantees are limited as necessary to minimize the risk
that such guarantees would constitute a fraudulent conveyance under applicable
law. See "Risk Factors--The notes and guarantees may be void, avoided or
subordinated under laws governing fraudulent transfers, insolvency and
financial assistance."
The guarantees of the notes:
. are general unsecured senior subordinated obligations of the
guarantors;
. are effectively subordinated in right of payment to all existing and
future Senior Debt of the guarantors,
. are equal in right of payment to all existing and future senior
subordinated Indebtedness of the guarantors, and
. are senior in right of payment to any subordinated Indebtedness of the
guarantors.
As of September 30, 1999, Huntsman ICI Chemicals and the guarantors had
$1,677 million of Senior Debt outstanding, and Huntsman ICI Chemicals's
subsidiaries which are not guarantors had approximately $17 million of
Indebtedness outstanding.
Tioxide Group, Tioxide America Inc. and Huntsman ICI Financial LLC were
incorporated on July 26, 1930, August 11, 1971, and May 19, 1999, respectively.
The address of each of the guarantors is: c/o Huntsman ICI Chemicals LLC, 500
Huntsman Way, Salt Lake City, Utah 84108, and their phone number is (801) 584-
5700.
As of the date of this prospectus, all the subsidiaries of Huntsman ICI
Chemicals are "Restricted Subsidiaries." However, under certain circumstances
we will be permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to the restrictive
covenants in the indenture.
We and our Domestic Subsidiaries will make investments in our Foreign
Subsidiaries either directly or by advancing funds to Huntsman ICI Financial
LLC or Tioxide Group, each of whom will in turn advance the funds to the
Foreign Subsidiaries, either as a capital contribution or as an intercompany
loan. At September 30, 1999, Huntsman ICI Financial held approximately $1.6
billion of unsecured indebtedness from our Foreign Subsidiaries. In addition,
Huntsman ICI Holdings (UK) ("Holdings U.K."), a direct wholly owned Restricted
Subsidiary of Tioxide Group, held approximately $1.1 billion of secured
Indebtedness from our Foreign Subsidiaries. However, in the event of a
bankruptcy, liquidation or reorganization of a Foreign Subsidiary, there can be
no assurance that the intercompany loans it owes to Holdings U.K. or Tioxide
Group will not be declared unenforceable, equitably subordinated to other
obligations of such Foreign Subsidiary or recharacterized as equity. In such an
event, creditors of such Foreign Subsidiary will have a prior claim to all
assets of such Foreign Subsidiary.
Subordination
The payment of principal, premium and interest, if any, on these notes is
subordinated to the prior payment in full in cash of all Senior Debt of
Huntsman ICI Chemicals.
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The holders of Senior Debt are entitled to receive payment in full in cash
of Obligations due in respect of Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the holders of notes are entitled to receive any payment
with respect to the notes (except that holders of notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance"), in the event of any distribution
to creditors of Huntsman ICI Chemicals:
(1) in a liquidation or dissolution of Huntsman ICI Chemicals;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Huntsman ICI Chemicals or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Huntsman ICI Chemicals' assets and liabilities.
Huntsman ICI Chemicals also may not make any payment in respect of the
notes (except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from Huntsman ICI Chemicals or the holders of any
Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 180 days.
Huntsman ICI Chemicals must promptly notify holders of Senior Debt if
payment of the notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Huntsman ICI Chemicals,
holders of these notes may recover less ratably than creditors of Huntsman ICI
Chemicals who are holders of Senior Debt. See "Risk Factors--The notes are
subordinated to senior debt".
Principal, Maturity and Interest of Notes
The notes denominated in dollars are limited in aggregate principal amount
to $600,000,000 and were issued by Huntsman ICI Chemicals in denominations of
$1,000 and integral multiples of $1,000. The notes denominated in euros are
limited in aggregate principal amount to (Euro)200,000,000
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and were issued by Huntsman ICI Chemicals in denominations of (Euro)1,000 and
integral multiples of (Euro)1,000. The notes will mature on July 1, 2009 at the
principal amount, plus accrued and unpaid interest to the maturity date.
Interest on the notes will accrue at the rate of 10.125% per annum and will
be payable semi-annually in arrears on January 1 and July 1, commencing on
January 1, 2000. Huntsman ICI Chemicals will make each interest payment to the
holders of record of the notes on the immediately preceding December 15 and
June 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Optional Redemption
At any time prior to July 1, 2002, Huntsman ICI Chemicals may on any one or
more occasions redeem up to 35% of the aggregate principal amount of the notes
denominated in dollars and/or notes denominated in euros originally issued, at
a redemption price of 110.125% of the principal amount thereof, plus accrued
and unpaid interest to the redemption date, with the net cash proceeds of one
or more Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount of each of the notes
denominated in dollars and notes denominated in euros originally
issued remains outstanding immediately after the occurrence of such
redemption (excluding notes held by Huntsman ICI Chemicals and its
subsidiaries); and
(2) the redemption must occur within 120 days of the date of the closing
of such Equity Offering.
Notice of any such redemption must be given within 90 days after the date
of such Equity Offering. Huntsman ICI Chemicals will publish a copy of such
notice in accordance with the procedures described under "--Notices".
As used in the preceding paragraph, "Equity Offering" means any sale of
Qualified Capital Stock of Huntsman ICI Chemicals or any capital contribution
to the equity of Huntsman ICI Chemicals.
On or prior to July 1, 2004, Huntsman ICI Chemicals may redeem all or a
part of the notes upon not less than 30 nor more than 60 days' notice, at a
redemption price (the "Make-Whole Price") equal to the greater of
(1) 100% of the principal amount thereof or
(2) the present value, as determined by an Independent Investment Banker,
of
(A) 105.063% of the principal amount of the notes being redeemed as of
July 1, 2004 plus
(B) all required interest payments due on such notes through July 1,
2004 (excluding accrued interest), discounted to the redemption
date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at
. in the case of the notes denominated in dollars, the Adjusted
Treasury Rate, and
. in the case of notes denominated in euros, the Adjusted Bund
Rate
plus in each case accrued interest to the redemption date.
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After July 1, 2004, Huntsman ICI Chemicals may redeem all or a part of the
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 1 of the
years indicated below:
<TABLE>
<CAPTION>
Redemption Redemption
price of notes price of notes
Year denominated in dollars denominated in euros
---- ---------------------- --------------------
<S> <C> <C>
2004............................. 105.063% 105.063%
2005............................. 103.375% 103.375%
2006............................. 101.688% 101.688%
2007 and thereafter.............. 100.000% 100.000%
</TABLE>
Huntsman ICI Chemicals will publish a redemption notice in accordance with
the procedures described under "--Notices".
Repurchase at the Option of Holders upon Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Huntsman ICI Chemicals to repurchase all or any part (equal to $1,000
or (Euro)1,000, as the case may be, or an integral multiple thereof) of that
holder's notes pursuant to the Change of Control Offer. In the Change of
Control Offer, Huntsman ICI Chemicals will offer a Change of Control Payment
in cash equal to 101% of the aggregate principal amount of notes repurchased
plus accrued and unpaid interest thereon, if any, to the date of purchase.
Within 30 days following any Change of Control, Huntsman ICI Chemicals will
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the
Change of Control Payment Date specified in such notice, pursuant to the
procedures required by the indenture and described in such notice. Huntsman
ICI Chemicals will also publish a notice of the offer repurchase in accordance
with the procedures described under "--Notices". Huntsman ICI Chemicals will
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control.
On the Change of Control Payment Date, Huntsman ICI Chemicals will, to the
extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Principal Paying Agent an amount equal to the Change
of Control Payment in respect of all notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Huntsman ICI
Chemicals.
The Principal Paying Agent will promptly mail to each holder of notes so
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each such new note will be in the
same currency as the tendered note and in a principal amount of $1,000 or
(Euro)1,000, as the case may be, or an integral multiple thereof.
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Prior to complying with any provisions of this "Change of Control"
covenant, but in any event within 30 days following a Change of Control,
Huntsman ICI Chemicals must either
. repay in full and terminate all commitments under Indebtedness under
the Credit Facilities and all other Senior Debt, if required under the
terms of the Credit Facilities or such Senior Debt,
. offer to repay all commitments under all Indebtedness under the Credit
Facilities and all other such Senior Debt and repay each lender that
has accepted the offer, or
. obtain the requisite consents, if any, under the Credit Facilities and
all other Senior Debt to permit the repurchase of the notes as provided
below.
The provisions described above that require Huntsman ICI Chemicals to make
a Change of Control Offer following a Change of Control are applicable
regardless of whether or not any other provisions of the indenture are
applicable. Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the holders of the notes to
require that Huntsman ICI Chemicals repurchase or redeem the notes in the event
of a takeover, recapitalization or similar transaction.
Huntsman ICI Chemicals is required to make a Change of Control Offer upon a
Change of Control if a third party (1) makes the Change of Control Offer in the
manner, at the times and in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Huntsman ICI
Chemicals and (2) purchases all notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of "Change of Control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of Huntsman ICI Chemicals and its subsidiaries taken as a
whole. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
Huntsman ICI Chemicals to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
Huntsman ICI Chemicals and its subsidiaries taken as a whole to another person
or group may be uncertain.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
. if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
. if the notes are not so listed, on a pro rata basis, by lot or by such
method as the trustee shall deem fair and appropriate.
No notes of $1,000 or (Euro)1,000, as the case may be, or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
notes to be redeemed at its registered address. Huntsman ICI Chemicals will
also publish a notice of redemption in accordance with the procedures described
under "--Notices".
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder
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thereof upon cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Set forth below are summaries of certain covenants contained in the
indenture.
Limitation on Incurrence of Additional Indebtedness. Huntsman ICI Chemicals
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness other than Permitted
Indebtedness; provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, Huntsman ICI Chemicals and its Restricted
Subsidiaries which are guarantors may incur Indebtedness (including Acquired
Indebtedness), and Restricted Subsidiaries which are not guarantors may incur
Acquired Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of Huntsman ICI Chemicals is greater than 2.0 to
1.0.
Limitation on Restricted Payments. Huntsman ICI Chemicals will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment if at the time of such Restricted
Payment or immediately after giving effect thereto,
(A) a Default or an Event of Default shall have occurred and be
continuing
(B) Huntsman ICI Chemicals is not able to incur at least $1.00 of
additional Indebtedness other than Permitted Indebtedness in
compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant or
(C) the aggregate amount of Restricted Payments, including the proposed
Restricted Payment, made after June 30, 1999, including the fair
market value as determined reasonably and in good faith by the board
of managers of Huntsman ICI Chemicals of non-cash amounts
constituting Restricted Payments, shall exceed the sum of:
(1) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss)
of Huntsman ICI Chemicals earned from June 30, 1999 through the
last day of the last full fiscal quarter immediately preceding
the date the Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus
(2) 100% of the aggregate net cash proceeds received by Huntsman ICI
Chemicals from any person (other than a subsidiary of Huntsman
ICI Chemicals) from the issuance and sale subsequent to June 30,
1999 and on or prior to the Reference Date of Qualified Capital
Stock of Huntsman ICI Chemicals (other than Specified Venture
Capital Stock); plus
(3) without duplication of any amounts included in clause (2) above,
100% of the aggregate net cash proceeds of any equity
contribution received by Huntsman ICI Chemicals from a holder of
Huntsman ICI Chemicals' Capital Stock.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted
on the date of declaration;
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(2) the acquisition of any shares of Capital Stock of Huntsman ICI
Chemicals, either (A) solely in exchange for shares of Qualified
Capital Stock of Huntsman ICI Chemicals or (B) if no Default or Event
of Default shall have occurred and be continuing, through the
application of net proceeds of a substantially concurrent sale for
cash (other than to a subsidiary of Huntsman ICI Chemicals) of shares
of Qualified Capital Stock of Huntsman ICI Chemicals;
(3) the acquisition of any Indebtedness of Huntsman ICI Chemicals that is
subordinate or junior in right of payment to the notes either (A)
solely in exchange for shares of Qualified Capital Stock of Huntsman
ICI Chemicals, or (B) if no Default or Event of Default shall have
occurred and be continuing, through the application of net proceeds of
a substantially concurrent sale or incurrence for cash (other than to
a subsidiary of Huntsman ICI Chemicals) of (x) shares of Qualified
Capital Stock of Huntsman ICI Chemicals or (y) Refinancing
Indebtedness;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by Huntsman ICI Chemicals of, or dividends to
Huntsman ICI Holdings to permit repurchases by Huntsman ICI Holdings
of, Common Stock of Huntsman ICI Chemicals or Huntsman ICI Holdings
from employees of Huntsman ICI Chemicals or any of its subsidiaries or
their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount
not to exceed $4 million in any calendar year;
(5) the redemption or repurchase of any Common Stock of Huntsman ICI
Chemicals held by a Restricted Subsidiary of Huntsman ICI Chemicals
which obtained such Common Stock directly from Huntsman ICI Chemicals;
(6) distributions to the members of Huntsman ICI Chemicals in accordance
with the Tax Sharing Agreement;
(7) payments to Huntsman ICI Holdings for legal, audit, and other expenses
directly relating to the administration of Huntsman ICI Holdings
(including fees and expenses relating to the Huntsman ICI Holdings
Zero Coupon Notes) which when aggregated with loans made to Huntsman
ICI Holdings in accordance with clause (xvii) under the definition of
"Permitted Investments", will not exceed $3.0 million in any fiscal
year;
(8) the payment of consideration by a third party to equity holders of
Huntsman ICI Chemicals;
(9) additional Restricted Payments in an aggregate amount not to exceed
$10 million since June 30, 1999;
(10) payments of dividends on Disqualified Capital Stock issued in
accordance with "Limitation on Incurrence of Additional Indebtedness"
above and
(11) distributions and Investments in connection with our transaction with
ICI and Huntsman Specialty and the financing thereof.
In determining the aggregate amount of Restricted Payments made subsequent to
June 30, 1999 in accordance with clause (C) of the immediately preceding
paragraph, cash amounts expended pursuant to clauses (1), (2) and (4) of this
paragraph shall be included in such calculation.
Not later than the date of making any Restricted Payment pursuant to clause
(C) of the second preceding paragraph or clause (9) of the immediately
preceding paragraph, Huntsman ICI Chemicals shall deliver to the trustee an
officers' certificate stating that such Restricted Payment complies with the
indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon
Huntsman ICI Chemicals' quarterly financial statements last provided to the
trustee pursuant to "--Reports to Holders".
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Limitation on Asset Sales. Huntsman ICI Chemicals will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(1) Huntsman ICI Chemicals or the applicable Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets that are sold or otherwise
disposed of, as determined in good faith by Huntsman ICI Chemicals'
board of managers;
(2) at least 75% of the consideration received by Huntsman ICI Chemicals
or the applicable Restricted Subsidiary from the Asset Sale is in the
form of cash or Cash Equivalents, and is received at the time of the
Asset Sale. For the purposes of this provision, the amount of any
liabilities shown on the most recent applicable balance sheet of
Huntsman ICI Chemicals or the applicable Restricted Subsidiary, other
than liabilities that are by their terms subordinated to the notes,
that are assumed by the transferee of any such assets will be deemed
to be cash for purposes of this provision; and
(3) upon the consummation of an Asset Sale, Huntsman ICI Chemicals
applies, or causes the applicable Restricted Subsidiary to apply, the
Net Cash Proceeds relating to the Asset Sale within 365 days of having
received the Net Cash Proceeds.
Additionally, Huntsman ICI Chemicals must apply the Net Cash Proceeds
either
(A) to prepay any Senior Debt, guarantor Senior Debt or Indebtedness of a
Restricted Subsidiary that is not a guarantor and, in the case of any
such Indebtedness under any revolving credit facility, effect a
permanent reduction in the availability under such revolving credit
facility,
(B) to make an investment in or expenditures for properties and assets
(including Capital Stock of any entity) that replace the properties
and assets that were the subject of the Asset Sale or in properties
and assets (including Capital Stock of any entity) that will be used
in the business of Huntsman ICI Chemicals and its subsidiaries as
existing on June 30, 1999 or in businesses reasonably related thereto
("Replacement Assets"), and/or
(C) to make an acquisition of all of the capital stock or assets of any
person or division conducting a business reasonably related to that of
Huntsman ICI Chemicals or its subsidiaries.
With respect to clauses (B) and (C) above, Huntsman ICI Chemicals only may
apply Net Cash Proceeds in excess of $30 million in the aggregate since June
30, 1999 from Asset Sales involving assets of Huntsman ICI Chemicals or a
guarantor (other than the Capital Stock of a Foreign Subsidiary) towards
. assets which will be owned by Huntsman ICI Chemicals or a guarantor and
not constituting an Investment or
. the capital stock of a person that becomes a guarantor.
Any Net Proceeds that Huntsman ICI Chemicals does not apply, or decides not
to apply, in accordance with the preceding paragraph will constitute a "Net
Proceeds Offer Amount". The 366th day after an Asset Sale or any earlier date
on which the board of Huntsman ICI Chemicals or board of the applicable
Restricted Subsidiary determines not to apply the Net Cash Proceeds in
accordance with the preceding paragraph is a "Net Proceeds Offer Trigger Date".
When the aggregate amount of the Net Proceeds Offer Amount is equal to or
exceeds $30 million, Huntsman ICI Chemicals or such
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Restricted Subsidiary must make an offer to purchase (the "Net Proceeds Offer")
on a date that is not less than 30 nor more than 45 days following the
applicable Net Proceeds Offer Trigger Date, from
. all holders of notes and
. all holders of other Indebtedness that
-- is equal in right of payment with the notes and
-- contains provisions requiring that an offer to purchase such other
Indebtedness be made with the proceeds from the Asset Sale,
on a pro rata basis, the maximum principal amount of notes and other
Indebtedness that may be purchased with the Net Proceeds Offer Amount. The
offer price in any Net Proceeds Offer will be equal to 100% of the principal
value of the notes to be purchased, plus any accrued and unpaid interest to the
date of purchase.
The following events will be deemed to constitute an Asset Sale and the Net
Proceeds for such Asset Sale must be applied in accordance with this covenant:
. in the event any non-cash consideration received by Huntsman ICI
Chemicals or any Restricted Subsidiary of Huntsman ICI Chemicals in
connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any
such non-cash consideration), or
. in the event of the transfer of substantially all, but not all, of the
property and assets of Huntsman ICI Chemicals and its Restricted
Subsidiaries as an entirety to a person in a transaction permitted
under "--Merger, Consolidation and Sale of Assets," and as a result
thereof Huntsman ICI Chemicals is no longer an obligor on the notes,
the successor corporation shall be deemed to have sold the properties
and assets of Huntsman ICI Chemicals and its Restricted Subsidiaries
not so transferred for purposes of this covenant, and shall comply with
the provisions of this covenant with respect to such deemed sale as if
it were an Asset Sale. In addition, the fair market value of such
properties and assets of Huntsman ICI Chemicals or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds
for purposes of this covenant.
Notwithstanding the provisions described in the immediately preceding
paragraphs, Huntsman ICI Chemicals and its Restricted Subsidiaries may
consummate an Asset Sale without complying with such provisions to the extent
(1) at least 80% of the consideration for such Asset Sale constitutes
Replacement Assets and
(2) such Asset Sale is for fair market value.
Any consideration that does not constitute Replacement Assets that is received
by Huntsman ICI Chemicals or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted under this paragraph will constitute Net Cash
Proceeds and will be subject to the provisions described in the preceding
paragraphs.
Each Net Proceeds Offer will be mailed to the record holders as shown on
the register of holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the trustee, and shall comply with the procedures set
forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 or (Euro)1,000, as the case may be, in exchange for cash.
To the extent holders properly tender notes in an amount exceeding the Net
Proceeds Offer Amount, notes of tendering holders will be purchased on a pro
rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law.
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Huntsman ICI Chemicals will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Limitation
on Asset Sale" provisions of the indenture, Huntsman ICI Chemicals shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Limitation on Asset Sale" provisions
of the indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. Huntsman ICI Chemicals will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary of
Huntsman ICI Chemicals to (A) pay dividends or make any other distributions on
or in respect of its Capital Stock; (B) make loans or advances or to pay any
Indebtedness or other obligation owed to Huntsman ICI Chemicals or any other
Restricted Subsidiary of Huntsman ICI Chemicals; or (C) transfer any of its
property or assets to Huntsman ICI Chemicals or any other Restricted Subsidiary
of Huntsman ICI Chemicals, except for such encumbrances or restrictions
existing under or by reason of:
(1) applicable law;
(2) the indenture relating to these notes;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of Huntsman ICI Chemicals or any
Restricted Subsidiary of Huntsman ICI Chemicals;
(4) any agreements existing at the time of acquisition of any person or
the properties or assets of the person so acquired (including
agreements governing Acquired Indebtedness), which encumbrance or
restriction is not applicable to any person, or the properties or
assets of any person, other than the person or the properties or
assets of the person so acquired;
(5) agreements existing on June 30, 1999 to the extent and in the manner
such agreements are in effect on June 30, 1999;
(6) restrictions imposed by any agreement to sell assets or Capital Stock
permitted under the indenture to any person pending the closing of
such sale;
(7) any agreement or instrument governing Capital Stock of any person that
is acquired;
(8) Indebtedness or other contractual requirements of a Securitization
Entity in connection with a Qualified Securitization Transaction;
provided that such restrictions apply only to such Securitization
Entity;
(9) Liens incurred in accordance with the covenant described under "--
Limitation on Liens";
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(11) the Credit Facilities;
(12) any restriction under an agreement governing Indebtedness of a
Foreign Subsidiary permitted under "--Limitation on Incurrence of
Additional Indebtedness";
(13) customary restrictions in Capitalized Lease Obligations, security
agreements or mortgages securing Indebtedness of Huntsman ICI
Chemicals or a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such Capitalized
Lease Obligations, security agreements or mortgages;
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(14) customary provisions in joint venture agreements and other similar
agreements (in each case relating solely to the respective joint
venture or similar entity or the equity interests therein) entered
into in the ordinary course of business;
(15) contracts entered into in the ordinary course of business, not
relating to Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of Huntsman
ICI Chemicals or any Restricted Subsidiary in any manner material to
Huntsman ICI Chemicals or any Restricted Subsidiary; and
(16) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4), (5), (8), (11), (12) or (13), above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to
Huntsman ICI Chemicals in any material respect as determined by the board of
managers of Huntsman ICI Chemicals in their reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4), (5), (8), (11), (12) or (13).
Limitation on Preferred Stock of Restricted Subsidiaries. Huntsman ICI
Chemicals will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to Huntsman ICI Chemicals or to a Restricted
Subsidiary of Huntsman ICI Chemicals) or permit any person (other than Huntsman
ICI Chemicals or a Restricted Subsidiary of Huntsman ICI Chemicals) to own any
Preferred Stock of any Restricted Subsidiary of Huntsman ICI Chemicals;
provided, however, that
. Class A Shares and Class B Shares may be issued pursuant to the terms
of the Contribution Agreement;
. any person that is not a Restricted Subsidiary of Huntsman ICI
Chemicals may issue Preferred Stock to equity holders of such person in
exchange for equity interests if after such issuance such person
becomes a Restricted Subsidiary and
. Tioxide Southern Africa (Pty) Limited may issue Preferred Stock to its
equity holders in exchange for its equity interests.
Limitation on Liens. Huntsman ICI Chemicals shall not, and shall not
permit any of its Restricted Subsidiaries to, create, incur or otherwise cause
or suffer to exist or become effective any Liens of any kind upon any property
or assets of Huntsman ICI Chemicals or any Restricted Subsidiary, now owned or
hereafter acquired, which secures Indebtedness pari passu with or subordinated
to the notes unless
. if such Lien secures Indebtedness which is pari passu with the notes,
then the notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer
secured by a Lien or
. if such Lien secures Indebtedness which is subordinated to the notes,
any such Lien shall be subordinated to a Lien granted to the holders of
the notes in the same collateral as that securing such Lien to the same
extent as such subordinated Indebtedness is subordinated to the notes.
Prohibition on Incurrence of Senior Subordinated Debt. Huntsman ICI
Chemicals will not incur or suffer to exist Indebtedness that is senior in
right of payment to the notes and subordinate in right of payment to any other
Indebtedness of Huntsman ICI Chemicals.
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Merger, Consolidation and Sale of Assets. Huntsman ICI Chemicals will not,
in a single transaction or series of related transactions, consolidate or merge
with or into any person, or sell, transfer, or otherwise dispose of (or permit
any Restricted Subsidiary of Huntsman ICI Chemicals to sell, assign, transfer,
lease, convey or otherwise dispose of) all or substantially all of Huntsman ICI
Chemicals's assets (determined on a consolidated basis for Huntsman ICI
Chemicals and Huntsman ICI Chemicals's Restricted Subsidiaries) unless:
(1) either (A) Huntsman ICI Chemicals shall be the surviving or continuing
corporation or (B) the person (if other than Huntsman ICI Chemicals)
formed by such consolidation is an entity organized and validly
existing under the laws of the United States or any State thereof or
the District of Columbia (the "Surviving Entity"),
(2) the Surviving Entity, if any, expressly assumes by a supplemental
indenture that is in form and substance satisfactory to the trustee
all rights and obligations of Huntsman ICI Chemicals under the notes
and the indenture;
(3) immediately after giving effect to such transaction, including the
assumption of the notes, Huntsman ICI Chemicals or the Surviving
Entity is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "--Limitation on
Incurrence of Additional Indebtedness" covenant;
(4) immediately before and after giving effect to such transaction,
including the assumption of the notes, no default or Event of Default
occurred or exists; and
(5) Huntsman ICI Chemicals or the Surviving Entity shall have delivered to
the trustee an officers' certificate and an opinion of counsel,
stating that all requirements under the indenture for such a
transaction have been satisfied.
Each guarantor (other than any guarantor whose guarantee is to be released
in accordance with the terms of the guarantee and the indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and Huntsman ICI Chemicals will not cause or permit any
guarantor to, consolidate with or merge with or into any person other than
Huntsman ICI Chemicals or any other guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger (if
other than the guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made assumes by supplemental
indenture all of the obligations of the guarantor on the guarantee;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(3) immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a pro forma basis, Huntsman ICI Chemicals
could satisfy the provisions of clause (2) of the first paragraph of
this covenant.
Any merger or consolidation of a guarantor with and into Huntsman ICI
Chemicals (with Huntsman ICI Chemicals being the surviving entity) or another
guarantor need not comply with the first paragraph of this covenant.
Notwithstanding anything in this section to the contrary,
(1) Huntsman ICI Chemicals may merge with an Affiliate that has no
material assets or liabilities and that is incorporated or organized
solely for the purpose of reincorporating or reorganizing Huntsman ICI
Chemicals in another state of the United States or the District of
Columbia without complying with clause (3) of the first paragraph of
this covenant and
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(2) any transaction characterized as a merger under applicable state law
where each of the constituent entities survives, will not be treated
as a merger for purposes of this covenant, but instead will be treated
as
. an Asset Sale, if the result of such transaction is the transfer of
assets by Huntsman ICI Chemicals or a Restricted Subsidiary, or
. an Investment, if the result of such transaction is the acquisition
of assets by Huntsman ICI Chemicals or a Restricted Subsidiary.
Limitations on Transactions with Affiliates. Huntsman ICI Chemicals will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions with, or for the benefit of, any of its Affiliates (each an
"Affiliate Transaction"), other than
(1) Affiliate Transactions permitted under the provision described in the
last paragraph of this covenant and
(2) Affiliate Transactions on terms that are no less favorable to Huntsman
ICI Chemicals or the relevant Restricted Subsidiary than those terms
that might reasonably have been obtained in a comparable transaction
by Huntsman ICI Chemicals or the relevant Restricted Subsidiary and an
unrelated person.
The board of managers of Huntsman ICI Chemicals and the board of the
relevant Restricted Subsidiary must approve each Affiliate Transaction to which
they are a party that involves aggregate payments or other property with a fair
market value in excess of $5.0 million. This approval must be evidenced by a
board resolution that states that the board has determined that the transaction
complies with the foregoing provisions.
If Huntsman ICI Chemicals or any Restricted Subsidiary of Huntsman ICI
Chemicals enters into an Affiliate Transaction that involves an aggregate fair
market value of more than $10.0 million, then prior to the consummation of the
Affiliate Transaction, the parties to such Affiliate Transaction must obtain a
favorable opinion as to the fairness of such transaction or series of related
transactions to Huntsman ICI Chemicals or the relevant Restricted Subsidiary,
as the case may be, from a financial point of view, from an Independent
Financial Advisor and file the same with the trustee.
The restrictions described in the preceding paragraphs of this covenant do
not apply to:
. reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, manager, employees or consultants of
Huntsman ICI Chemicals or any Restricted Subsidiary of Huntsman ICI
Chemicals as determined in good faith by Huntsman ICI Chemicals' board
of managers or senior management;
. transactions exclusively between or among Huntsman ICI Chemicals and
any of its Restricted Subsidiaries or exclusively between or among such
Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the indenture;
. any agreement as in effect as of June 30, 1999 or contemplated under
the contribution agreement or any amendment thereto or any transaction
contemplated thereby in any replacement agreement thereto so long as
any such amendment or replacement agreement is not more disadvantageous
to the holders in any material respect than the original agreement;
. Permitted Investments and Restricted Payments made in compliance with
"--Limitation on Restricted Payments";
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. transactions between any of Huntsman ICI Chemicals, any of its
subsidiaries and any Securitization Entity in connection with a
Qualified Securitization Transaction, in each case provided that such
transactions are not otherwise prohibited by the indenture; and
. transactions with distributors or other purchases or sales of goods or
services, in each case in the ordinary course of business and otherwise
in compliance with the terms of the indenture which when taken together
are fair to Huntsman ICI Chemicals or the Restricted Subsidiaries as
applicable, in the reasonable determination of the board of managers of
Huntsman ICI Chemicals or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at
such time from an unaffiliated party.
Limitation of Guarantees by Restricted Subsidiaries. Huntsman ICI Chemicals
will not permit any of its Restricted Subsidiaries, directly or indirectly, by
way of the pledge of any intercompany note or otherwise, to assume, guarantee
or in any other manner become liable with respect to any Indebtedness of
Huntsman ICI Chemicals or any other Restricted Subsidiary other than:
(A) Indebtedness under Currency Agreements in reliance on clause (5) of
the definition of "Permitted Indebtedness",
(B) Interest Swap Obligations and Commodity Agreements incurred in
reliance on clause (4) of the definition of "Permitted Indebtedness"
or
(C) any guarantee by a Foreign Subsidiary of Indebtedness of another
Foreign Subsidiary permitted under "--Limitation on Incurrence of
Additional Indebtedness",
unless, in any such case:
(1) such Restricted Subsidiary that is not a guarantor guarantees payment
of the notes;
(2) any such assumption, guarantee or other liability by such Restricted
Subsidiary that is provided in respect of Senior Debt does not contain
subordination provisions that are no less favorable in any material
respect to the holders of the notes than the subordination provisions
contained in the indenture and
(3) any such assumption, guarantee or other liability by such Restricted
Subsidiary that is provided in respect of Indebtedness that is
expressly subordinated to the notes is subordinated to the guarantee
of the notes pursuant to subordination provisions no less favorable in
any material respect to the holders of the notes than the
subordination provisions contained in the indenture.
In addition, any Restricted Subsidiary that enters into a guarantee of the
notes under clause (1) above will be automatically and unconditionally released
and discharged from its obligations under such guarantee when any of the
following occur:
. such Restricted Subsidiary is unconditionally released from its
liability with respect to the Indebtedness in connection with which
such guarantee of the notes was executed,
. all of the Capital Stock in, or all or substantially all of the assets
of, such Restricted Subsidiary, or the parent of such Restricted
Subsidiary, is transferred to a person that is not a Restricted
Subsidiary in accordance with the indenture and such Restricted
Subsidiary has been released of its obligations with respect to the
Indebtedness in connection with which such guarantee of the notes was
executed, or
. such Restricted Subsidiary becomes an Unrestricted Subsidiary.
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Capital Stock of Certain Subsidiaries. Huntsman ICI Chemicals will at all
times hold directly, or indirectly through a wholly owned Restricted
Subsidiary,
(1) all issued and outstanding Capital Stock of Tioxide Group, other than
shares of Class A Shares issued pursuant to the terms of the
contribution agreement, which will be held by an ICI Affiliate and
(2) all issued and outstanding Capital Stock of Holdings U.K., other than
shares of Class B Shares issued pursuant to the terms of the
Contribution Agreement, which will be held by a Huntsman Affiliate.
Neither Tioxide Group nor Holdings U.K. will issue any Capital Stock (or any
direct or indirect rights, options or warrants to acquire such Capital Stock)
to any person other than Huntsman ICI Chemicals or a wholly owned Restricted
Subsidiary of Huntsman ICI Chemicals except to qualify directors if required by
applicable law or other similar legal requirements and the Class A Shares and
Class B Shares described in the preceding sentence.
Tioxide Group will not make any direct or indirect distribution with
respect to its Capital Stock to any person other than Huntsman ICI Chemicals or
a wholly owned Restricted Subsidiary of Huntsman ICI Chemicals except that
after Holdings U.K. has repaid its promissory note to Huntsman ICI Financial,
Tioxide Group may pay dividends on its Class A Shares in an amount not to
exceed 1% of the dividends paid by Tioxide Group on its other Capital Stock.
Holdings U.K. will not make any direct or indirect distribution with respect to
its Capital Stock to any person other than Huntsman ICI Chemicals or a wholly
owned Restricted Subsidiary of Huntsman ICI Chemicals and other than nominal
dividends on the Class B Shares.
Conduct of Business. Huntsman ICI Chemicals and its Restricted Subsidiaries
(other than a Securitization Entity) will not engage in any businesses which
are not the same, similar or related to the businesses in which Huntsman ICI
Chemicals and its Restricted Subsidiaries were engaged on June 30, 1999, except
to the extent that after engaging in any new business, Huntsman ICI Chemicals
and its Restricted Subsidiaries, taken as a whole, remain substantially engaged
in similar lines of business as were conducted by them on June 30, 1999.
Huntsman ICI Financial shall only conduct the business of holding Indebtedness
of Restricted Subsidiaries of Huntsman ICI Chemicals and will not incur or be
liable for any Indebtedness other than guarantees otherwise permitted under the
indenture. Tioxide Group will only conduct the business of holding the equity
interests in Restricted Subsidiaries and will not incur or be liable for any
Indebtedness other than guarantees otherwise permitted under the indenture.
Holdings U.K. will only conduct the business of holding equity interests and
Indebtedness of Restricted Subsidiaries and will not incur or be liable for any
Indebtedness other than Indebtedness owing to Huntsman ICI Chemicals or
Huntsman ICI Financial.
Huntsman ICI Chemicals and its Domestic Subsidiaries may advance funds to
any Foreign Subsidiary only if such Funds are either:
(1) advanced directly by Huntsman ICI Chemicals or a Domestic Subsidiary,
(2) contributed to Huntsman ICI Financial as common equity and Huntsman
ICI Financial loans such funds, directly or indirectly through wholly
owned Restricted Subsidiaries, to such Foreign Subsidiary or
(3) contributed to Tioxide Group as common equity and Tioxide Group
invests such funds in such Foreign Subsidiary.
Reports to Holders. Whether or not required by the SEC, so long as any
notes are outstanding, after the date that this exchange offer is required to
be consummated, Huntsman ICI
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Chemicals will furnish to the holders of notes, within the time periods
specified in the SEC's rules and regulations and make available to securities
analysts and potential investors upon request:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Huntsman ICI Chemicals were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by Huntsman ICI
Chemicals' certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if Huntsman ICI Chemicals were required to file such reports.
If Huntsman ICI Chemicals has designated any of its subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the
footnotes or schedules thereto, and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, of the financial condition and
results of operations of Huntsman ICI Chemicals and its Restricted Subsidiaries
separate from the financial condition and results of operations of the
Unrestricted Subsidiaries of Huntsman ICI Chemicals.
Events of Default
Each of the following events is an "Event of Default" under the indenture:
(1) the failure to pay interest on any notes when the same becomes due and
payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions
of the indenture);
(2) the failure to pay the principal on any notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(whether or not such payment shall be prohibited by the subordination
provisions of the indenture);
(3) the failure of Huntsman ICI Chemicals or any guarantor to comply with
any covenant or agreement contained in the indenture for a period of
60 days after Huntsman ICI Chemicals receives written notice
specifying the default (and demanding that such default be remedied)
from the trustee or the holders of at least 25% of the outstanding
principal amount of the notes (except in the case of a default with
respect to the "Merger, Consolidation and Sale of Assets" covenant,
which will constitute an Event of Default with such notice requirement
but without such passage of time requirement);
(4) the occurrence of any default under any agreement governing
Indebtedness of Huntsman ICI Chemicals or any of its Restricted
Subsidiaries if that default:
(A) is caused by the failure to pay at final maturity the principal
amount of any Indebtedness after giving effect to any applicable
grace periods and any extensions of time for payment of such
Indebtedness or
(B) the acceleration of the final stated maturity of any such
Indebtedness
and in each case, the aggregate principal amount of such Indebtedness
unpaid or accelerated aggregates $25 million or more and has not been
discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such final maturity or acceleration;
(5) the failure of Huntsman ICI Chemicals or its Restricted Subsidiaries
to pay or otherwise discharge or stay one or more judgments in an
aggregate amount in excess of $25 million, which are not covered by
indemnities or third party insurance as to which the person giving
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such indemnity or such insurer has not disclaimed coverage, for a
period of 60 days after such judgments become final and non-appealable;
(6) certain events of bankruptcy affecting Huntsman ICI Chemicals or any
of its Significant Subsidiaries; or
(7) the failure of any guarantee of any Significant Subsidiary to be in
full force and effect or any of the guarantors denies its liability
under its guarantee.
If an Event of Default arising from certain events of bankruptcy with
respect to Huntsman ICI Chemicals occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of
the outstanding notes will become immediately due and payable without further
action or notice. If any other Event of Default occurs and is continuing, then
the trustee or the holders of at least 25% in principal amount of outstanding
notes may declare the principal of and accrued interest on all the notes to be
due and payable by notice in writing (the "Acceleration Notice") to Huntsman
ICI Chemicals and the trustee, which notice must also specify that it is a
"notice of acceleration". In that event, the notes will become immediately due
and payable unless, if there are any amounts outstanding under the Designated
Senior Debt, then the notes will become immediately due and payable only upon
the first to occur of:
. an acceleration under the Designated Senior Debt or
. five business days after receipt by Huntsman ICI Chemicals and the
Representative under the Designated Senior Debt of such Acceleration
Notice.
At any time after a declaration of acceleration with respect to the notes
as described in the preceding paragraph, the holders of a majority in
principal amount of the notes may rescind and cancel such declaration and its
consequences
(1) if the rescission would not conflict with any judgment or decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely
because of the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid,
(4) if Huntsman ICI Chemicals has paid the trustee its reasonable
compensation and reimbursed the trustee for its expenses,
disbursements and advances and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the above description of Events of
Default, the trustee shall have received an officers' certificate and
an opinion of counsel that such Event of Default has been cured or
waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
At any time after a declaration of acceleration with respect to the notes
as described in the preceding paragraph, the holders of a majority in
principal amount of the notes may rescind and cancel such declaration and its
consequences
(1) if the rescission would not conflict with any judgment or decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely
because of the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid,
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(4) if Huntsman ICI Chemicals has paid the trustee its reasonable
compensation and reimbursed the trustee for its expenses,
disbursements and advances and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default,
the trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or
waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The holders of a majority in principal amount of the notes may waive any
existing default or Event of Default under the indenture, and its consequences,
except a default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, the holders of a
majority in aggregate principal amount of the then outstanding notes may direct
the trustee in its exercise of any trust or power or may exercise any of the
trustee's powers. Subject to the provisions of the indenture relating to the
duties of the trustee, the trustee is under no obligation to exercise any of
its rights or powers under the indenture at the request, order or direction of
any of the holders, unless such holders have offered to the trustee reasonable
indemnity. The trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium or interest) if it determines
that withholding notice is in their interest.
Under the indenture, Huntsman ICI Chemicals is required to provide an
officers' certificate to the trustee promptly upon any such officer obtaining
knowledge of any Default or Event of Default, and will provide such
certification at least annually as to whether or not they know of any Default
or Event of Default, that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
Huntsman ICI Chemicals may, at its option and at any time, elect to have
its obligations and the obligations of the guarantors discharged with respect
to the outstanding notes ("Legal Defeasance"). Legal Defeasance means that
Huntsman ICI Chemicals will be deemed to have paid and discharged the entire
indebtedness represented by the outstanding notes, except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are
due from the trust fund described below,
(2) Huntsman ICI Chemicals' obligations with respect to the notes
concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or
agency for payments,
(3) the rights, powers, trust, duties and immunities of the trustee and
Huntsman ICI Chemicals' obligations in connection therewith and
(4)the Legal Defeasance provisions of the indenture.
In addition, Huntsman ICI Chemicals may, at its option and at any time,
elect to have the obligations of Huntsman ICI Chemicals released with respect
to certain covenants that are described in the indenture ("Covenant
Defeasance") and will be absolved from liability thereafter for failing to
comply with such obligations with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Huntsman ICI Chemicals must irrevocably deposit with the trustee, in
trust, for the benefit of the holders,
(A) with respect to notes denominated in dollars, cash in U.S. dollars
or non-callable U.S. government obligations, and
(B) with respect to notes denominated in euros, euros or non-callable
government obligations of any member nation of the European Union
whose official currency is the euro, rated AAA or better by S&P and
Aaa or better by Moody's,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the notes on the stated date for
payment thereof or on the applicable redemption date;
(2) in the case of Legal Defeasance, Huntsman ICI Chemicals shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that
(A) Huntsman ICI Chemicals has received from, or there has been
published by, the Internal Revenue Service a ruling or
(B) since June 30, 1999, there has been a change in the applicable
federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
provided, however, such opinion of counsel shall not be required if all
the notes will become due and payable on the maturity date within one
year or are to be called for redemption within one year under
arrangements satisfactory to the trustee);
(3) in the case of Covenant Defeasance, Huntsman ICI Chemicals shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that the holders of
the then outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture or
any other material agreement or instrument to which Huntsman ICI
Chemicals or any of its subsidiaries is a party or by which Huntsman
ICI Chemicals or any of its subsidiaries is bound;
(6) Huntsman ICI Chemicals shall have delivered to the trustee an
officers' certificate stating that the deposit was not made by
Huntsman ICI Chemicals with the intent of preferring the holders over
any other creditors of Huntsman ICI Chemicals or with the intent of
defeating, hindering, delaying or defrauding any other creditors of
Huntsman ICI Chemicals or others;
(7) Huntsman ICI Chemicals shall have delivered to the trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; and
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(8) Huntsman ICI Chemicals shall have delivered to the trustee an opinion
of counsel to the effect that
(A) either
(a) Huntsman ICI Chemicals has assigned all its ownership interest
in the trust funds to the trustee or
(b) the trustee has a valid perfected security interest in the
trust funds and
(B) assuming no intervening bankruptcy of Huntsman ICI Chemicals
between the date of the deposit and the 124th day following the
perfection of a security interest in the deposit and that no holder
is an insider of Huntsman ICI Chemicals, after the 124th day
following the perfection of a security interest in the deposit, the
trust funds will not be subject to avoidance as a preference under
Section 547 of the Federal Bankruptcy Code.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when
(1) either
(A) all the existing authenticated and delivered notes (except lost,
stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has been deposited in trust or
segregated and held in trust by Huntsman ICI Chemicals and repaid
to Huntsman ICI Chemicals or discharged from such trust) have been
delivered to the trustee for cancellation or
(B) all notes not previously delivered to the trustee for cancellation
have become due and payable and Huntsman ICI Chemicals has
irrevocably deposited or caused to be deposited with the trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the trustee
for cancellation, for principal of, premium, if any, and interest
on the notes to the date of deposit together with irrevocable
instructions from Huntsman ICI Chemicals directing the trustee to
apply such funds to the payment thereof at maturity or redemption,
as the case may be;
(2) Huntsman ICI Chemicals has paid all other sums payable under the
indenture by Huntsman ICI Chemicals; and
(3) Huntsman ICI Chemicals has delivered to the trustee an officers'
certificate and an opinion of counsel stating that all conditions
precedent under the indenture relating to the satisfaction and
discharge of the indenture have been complied with.
All funds that remain unclaimed for one year will be paid to Huntsman ICI
Chemicals, and thereafter holders of notes must look to Huntsman ICI Chemicals
for payment as general creditors.
Cancellation
All notes which are redeemed by or on behalf of Huntsman ICI Chemicals will
be cancelled and, accordingly, may not be reissued or resold. If Huntsman ICI
Chemicals purchases any notes, such acquisition shall not operate as a
redemption unless such notes are surrendered for cancellation.
Withholding Taxes
Under certain circumstances, a holder of notes may be subject to
withholding taxes and Huntsman ICI Chemicals will not be required to pay any
additional amounts to cover such withholding taxes.
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Modification of the Indenture
Without the consent of each holder of an outstanding note affected, no
amendment may:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or change or the time for payment of interest,
including defaulted interest, on any notes;
(3) reduce the principal of or change or the fixed maturity of any notes,
or change the date on which any notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price for such
notes;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the indenture relating to the rights
of each holder of notes to receive payment of principal of and
interest on the notes, or permitting holders of a majority in
principal amount of notes to waive defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Huntsman ICI Chemicals to make and complete a Change of Control Offer
in the event of a Change of Control or make and complete a Net
Proceeds Offer with respect to any Asset Sale that has been
consummated;
(7) modify or change any provision of the indenture affecting the
subordination or ranking of the notes or any guarantee in a manner
which adversely affects the holders; or
(8) release any guarantor from any of its obligations under its guarantee
or the indenture otherwise than in accordance with the terms of the
indenture.
Other modifications and amendments of the indenture may be made with the
consent of the holders of a majority in principal amount of the then
outstanding notes issued under the indenture.
Without the consent of any holders of notes, Huntsman ICI Chemicals, the
guarantors and the trustee also may amend the indenture to:
(1) cure any ambiguities, defect or inconsistency;
(2) provide for the assumption of Huntsman ICI Chemicals's obligations to
holders of notes in the case of a merger or consolidation or sale of
all or substantially all of Huntsman ICI Chemicals's assets;
(3) provide for uncertificated notes in addition to or in place of
certificated notes;
(4) make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any such holder; or
(5) comply with requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
Governing Law
The indenture will provide that it, the notes and the guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
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The Trustee
The indenture will provide that, except during the continuance of an Event
of Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
trustee will exercise such rights and powers vested in it by the indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the trustee, should it become a creditor of
Huntsman ICI Chemicals, to obtain payments of claims in certain cases or to
realize on certain property received in respect of any such claim as security
or otherwise. Subject to the Trust Indenture Act, the trustee will be permitted
to engage in other transactions; provided that if the trustee acquires any
conflicting interest as described in the Trust Indenture Act, it must eliminate
such conflict or resign.
Notices
All notices shall be deemed to have been given (1) the mailing by first
class mail, postage prepaid, of such notices to holders of the notes at their
registered addresses as recorded in the Register; and (2) so long as the notes
are listed on the Luxembourg Stock Exchange and it is required by the rules of
the Luxembourg Stock Exchange, publication of such notice to the holders of the
notes in English in a leading newspaper having general circulation in
Luxembourg (which is expected to be the Luxemburger Wort) or, if such
publication is not practicable, in one other leading English language daily
newspaper with general circulation in Europe, such newspaper being published on
each business day in morning editions, whether or not it shall be published on
Saturday, Sunday or holiday editions.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a person or any of its
subsidiaries existing at the time such person becomes a Restricted Subsidiary
of Huntsman ICI Chemicals or at the time it merges or consolidates with
Huntsman ICI Chemicals or any of its Restricted Subsidiaries or assumed in
connection with the acquisition of assets from such person and in each case not
incurred by such person in connection with, or in anticipation or contemplation
of, such person becoming a Restricted Subsidiary of Huntsman ICI Chemicals or
such acquisition, merger or consolidation, except for Indebtedness of a person
or any of its subsidiaries that is repaid at the time such person becomes a
Restricted Subsidiary of Huntsman ICI Chemicals or at the time it merges or
consolidates with Huntsman ICI Chemicals or any of its Restricted Subsidiaries.
"Adjusted Bund Rate" means with respect to any redemption date, the mid-
market yield, under the heading which represents the average for the
immediately prior week, appearing on Reuters page AABBUND01, or its successor,
for the maturity corresponding to July 1, 2009 (if no maturity date is within
three months before or after July 1, 2009, yields for the two published
maturities most closely corresponding to July 1, 2009 shall be determined and
the Bund yield shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), plus 0.50%. The Bund Rate
shall be calculated on the third Business Day preceding such redemption date.
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"Adjusted Treasury Rate" means with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
"Affiliate" means, with respect to any specified person, any other person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing; provided however that none of the Initial Purchasers or their
Affiliates shall be deemed to be an Affiliate of Huntsman ICI Chemicals.
"Asset Acquisition" means:
. an Investment by Huntsman ICI Chemicals or any Restricted Subsidiary of
Huntsman ICI Chemicals in any other person pursuant to which such
person shall become a Restricted Subsidiary of Huntsman ICI Chemicals
or of any Restricted Subsidiary of Huntsman ICI Chemicals, or shall be
merged with or into Huntsman ICI Chemicals or of any Restricted
Subsidiary of Huntsman ICI Chemicals, or
. the acquisition by Huntsman ICI Chemicals or any Restricted Subsidiary
of Huntsman ICI Chemicals of the assets of any person (other than a
Restricted Subsidiary of Huntsman ICI Chemicals) which constitute all
or substantially all of the assets of such person or comprises any
division or line of business of such person or any other properties or
assets of such person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by Huntsman ICI
Chemicals or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any person other than Huntsman ICI Chemicals or a
Restricted Subsidiary of Huntsman ICI Chemicals of (A) any Capital Stock of any
Restricted Subsidiary of Huntsman ICI Chemicals; or (B) any other property or
assets of Huntsman ICI Chemicals or any Restricted Subsidiary of Huntsman ICI
Chemicals other than in the ordinary course of business; provided, however,
that Asset Sales shall not include
(1) a transaction or series of related transactions for which Huntsman ICI
Chemicals or its Restricted Subsidiaries receive aggregate
consideration of less than $5 million,
(2) sales of accounts receivable and related assets (including contract
rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair
market value thereof,
(3) sales or grants of licenses to use the patents, trade secrets, know-how
and other intellectual property of Huntsman ICI Chemicals or any of its
Restricted Subsidiaries to the extent that such license does not
prohibit Huntsman ICI Chemicals or any of its Restricted Subsidiaries
from using the technologies licensed or require Huntsman ICI Chemicals
or any of its Restricted Subsidiaries to pay any fees for any such use,
(4) the sale, lease, conveyance, disposition or other transfer
. of all or substantially all of the assets of Huntsman ICI Chemicals
as permitted under "Merger, Consolidation and Sale of Assets",
. of any Capital Stock or other ownership interest in or assets or
property of an Unrestricted Subsidiary or a person which is not a
subsidiary,
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. pursuant to any foreclosure of assets or other remedy provided by
applicable law to a creditor of Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals with a Lien on such assets,
which Lien is permitted under the indenture; provided that such
foreclosure or other remedy is conducted in a commercially
reasonable manner or in accordance with any bankruptcy law,
. involving only Cash Equivalents, Foreign Cash Equivalents or
inventory in the ordinary course of business or obsolete equipment
in the ordinary course of business consistent with past practices
of Huntsman ICI Chemicals or
. including only the lease or sublease of any real or personal
property in the ordinary course of business,
(5) the consummation of any transaction in accordance with the terms of
"--Limitation on Restricted Payments", and
(6) Permitted Investments.
"Capital Stock" means:
. with respect to any person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such person and
. with respect to any person that is not a corporation, any and all
partnership, membership or other equity interests of such person.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) a marketable obligation, maturing within two years after issuance
thereof, issued or guaranteed by the United States of America or an
instrumentality or agency thereof,
(2) a certificate of deposit or banker's acceptance, maturing within one
year after issuance thereof, issued by any lender under the Credit
Facilities, or a national or state bank or trust company or a
European, Canadian or Japanese bank, in each case having capital,
surplus and undivided profits of at least $100,000,000 and whose long-
term unsecured debt has a rating of "A" or better by S&P or A2 or
better by Moody's or the equivalent rating by any other nationally
recognized rating agency (provided that the aggregate face amount of
all Investments in certificates of deposit or bankers' acceptances
issued by the principal offices of or branches of such European or
Japanese banks located outside the United States shall not at any time
exceed 33 1/3% of all Investments described in this definition),
(3) open market commercial paper, maturing within 270 days after issuance
thereof, which has a rating of A1 or better by S&P or P1 or better by
Moody's, or the equivalent rating by any other nationally recognized
rating agency,
(4) repurchase agreements and reverse repurchase agreements with a term
not in excess of one year with any financial institution which has
been elected primary government securities dealers by the Federal
Reserve Board or whose securities are rated AA- or better by S&P or
Aa3 or better by Moody's or the equivalent rating by any other
nationally recognized rating agency relating to marketable direct
obligations issued or unconditionally guaranteed by the United States
of America or any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America,
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(5) "Money Market" preferred stock maturing within six months after
issuance thereof or municipal bonds issued by a corporation organized
under the laws of any state of the United States, which has a rating
of "A" or better by S&P or Moody's or the equivalent rating by any
other nationally recognized rating agency,
(6) tax exempt floating rate option tender bonds backed by letters of
credit issued by a national or state bank whose long-term unsecured
debt has a rating of AA or better by S&P or Aa2 or better by Moody's
or the equivalent rating by any other nationally recognized rating
agency, and
(7) shares of any money market mutual fund rated at least AAA or the
equivalent thereof by S&P or at least Aaa or the equivalent thereof by
Moody's or any other mutual fund holding assets consisting (except for
de minimus amounts) of the type specified in clauses (1) through (6)
above.
"Change of Control" means
(1) prior to the initial public equity offering of Huntsman ICI Chemicals,
the failure by Mr. Jon M. Huntsman, his spouse, direct descendants, an
entity controlled by any of the foregoing and/or by a trust of the
type described hereafter, and/or a trust for the benefit of any of the
foregoing (the "Huntsman Group"), collectively to have the power,
directly or indirectly, to vote or direct the voting of securities
having at least a majority of the ordinary voting power for the
election of directors (or the equivalent) of Huntsman ICI Chemicals or
(2) after the initial public equity offering, the occurrence of the
following:
(A) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than one or more members of
the Huntsman Group, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of
time), directly or indirectly, of 35% or more of the then
outstanding voting capital stock of Huntsman ICI Chemicals other
than in a transaction having the approval of the board of managers
of Huntsman ICI Chemicals at least a majority of which members are
Continuing Managers; or
(B) Continuing Managers shall cease to constitute at least a majority
of the managers constituting the board of managers of Huntsman ICI
Chemicals.
"Class A Shares" means the Class A Shares of Tioxide Group which have
voting rights but no rights to dividends and a nominal liquidation preference.
"Class B Shares" means the Class B Shares of Holdings U.K. which have
voting rights, a rights to nominal dividends and a nominal liquidation
preference.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by Huntsman ICI
Chemicals or any of its Restricted Subsidiaries designed to protect Huntsman
ICI Chemicals or any of its Restricted Subsidiaries against fluctuations in the
price of commodities actually at that time used in the ordinary course of
Huntsman ICI Chemicals or its Restricted Subsidiaries.
"Common Stock" of any person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such person's common stock, whether outstanding on June 30,
1999 or issued after June 30, 1999, and includes, without limitation, all
series and classes of such common stock.
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"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the trustee obtains fewer than three such Reference Treasury Dealer Quotations,
the average of all such Quotations.
"Consolidated EBITDA" means, with respect to any person, for any period,
the sum (without duplication) of
(1) Consolidated Net Income,
(2) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of such person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business) and Permitted Tax
Distributions paid during such period,
(B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period.
All as determined on a consolidated basis for such person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters for which financial statements are available under "--Reports
to Holders" (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such
person for the Four Quarter Period.
In addition to the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated
after giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such person or any
of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of
the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the
Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and prior to June 30, 1999, as if such incurrence
or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and
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(2) any Asset Sales or Asset Acquisitions (including, any Asset
Acquisition giving rise to the need to make such calculation)
occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
If such person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a person other than Huntsman ICI Chemicals or a
Restricted Subsidiary, the preceding paragraph will give effect to the
incurrence of such guaranteed Indebtedness as if such person or any Restricted
Subsidiary of such person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four
Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum, without duplication, of
(1) Consolidated Interest Expense, plus
(2) the product of
(A) the amount of all dividend payments on any series of Preferred
Stock of such person and its Restricted Subsidiaries (other than
dividends paid in Qualified Capital Stock and other than
dividends paid to such person or to a Restricted Subsidiary of
such person) paid, accrued or scheduled to be paid or accrued
during such period times
(B) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated
federal, state and local tax rate of such person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such person and its
Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including without limitation,
(A) any amortization of debt discount and amortization or write-off
of deferred financing costs,
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(B) the net costs under Interest Swap Obligations,
(C) all capitalized interest and
(D) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such person and its
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any
period, the sum of
(1) aggregate net income (or loss) of such person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP plus
(2) cash dividends or distributions paid to such person by any other
person (the "Payor") other than a Restricted Subsidiary of the
referent person, to the extent not otherwise included in Consolidated
Net Income, which have been derived from operating cash flow of the
Payor; provided that there shall be excluded therefrom
(A) after-tax gains from Asset Sales or abandonments or reserves
relating thereto,
(B) after-tax items classified as extraordinary or nonrecurring
gains,
(C) the net income of any person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of the person or is merged or consolidated with the
person or any Restricted Subsidiary of the person,
(D) the net income (but not loss) of any Restricted Subsidiary of the
person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is
restricted; provided, however, that the net income of Foreign
Subsidiaries shall only be excluded in any calculation of
Consolidated Net Income of Huntsman ICI Chemicals as a result of
application of this clause (D) if the restriction on dividends or
similar distributions results from consensual restrictions,
(E) the net income or loss of any person, other than a Restricted
Subsidiary of the person, except to the extent of cash dividends
or distributions paid to the person or to a wholly owned
Restricted Subsidiary of the person by such person,
(F) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following June 30,
1999,
(G) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during
such period whether or not such operations were classified as
discontinued),
(H) in the case of a successor to the person by consolidation or
merger or as a transferee of the referent person's assets, any
earnings of the successor corporation prior to such
consolidation, merger or transfer of assets,
(I) all gains or losses from the cumulative effect of any change in
accounting principles and
(J) the net amount of all Permitted Tax Distributions made during
such period.
"Consolidated Net Worth" of any person means the consolidated
stockholders' equity (or equivalent) of such person, determined on a
consolidated basis in accordance with GAAP, less (without duplication) amounts
attributable to Disqualified Capital Stock of such person.
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"Consolidated Non-cash Charges" means, with respect to any person, for any
period, the aggregate depreciation, amortization and other non-cash charges of
such person and its Restricted Subsidiaries reducing Consolidated Net Income of
such person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Continuing Managers" means, as of any date, the collective reference to:
. all members of the board of managers of Huntsman ICI Chemicals who have
held office continuously since a date no later than twelve months prior
to Huntsman ICI Chemicals's initial public equity offering, and
. all members of the board of managers of Huntsman ICI Chemicals who
assumed office after such date and whose appointment or nomination for
election by Huntsman ICI Chemicals's shareholders was approved by a
vote of at least 50% of the Continuing Managers in office immediately
prior to such appointment or nomination or by the Huntsman Group.
"Contribution Agreement" means the Contribution Agreement, dated April 15,
1999, among Huntsman Specialty, ICI and Huntsman ICI Holdings, as such
agreement is in effect on June 30, 1999.
"Credit Facilities" means:
. the senior secured Credit Agreement, dated as of April 15, 1999 among
Huntsman ICI Chemicals and the financial institutions party thereto,
together with the related documents thereto (including any guarantee
agreements and security documents), in each case as such agreements may
be amended, supplemented, extended or otherwise modified from time to
time, and
. any one or more debt facilities, indentures or other agreements that
refinances, replaces or otherwise restructures, including increasing
the amount of available borrowings thereunder in accordance with the
"--Limitation on Incurrence of Additional Indebtedness" covenant
described above or making Restricted Subsidiaries of Huntsman ICI
Chemicals a borrower or guarantor thereunder, all or any portion of the
Indebtedness under such agreement or any successor or replacement
agreement and whether including any additional obligors or with the
same or any other agent, lender or group of lenders or with other
financial institutions or lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
Huntsman ICI Chemicals or any Restricted Subsidiary of Huntsman ICI Chemicals
against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means:
. Indebtedness under or in respect of the Credit Facilities and
. any other Indebtedness constituting Senior Debt which, at the time of
determination, has an aggregate principal amount of at least
$100,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by Huntsman ICI
Chemicals.
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"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the sole option of the holder thereof on or prior to the
final maturity date of the notes.
"Domestic Subsidiary" means any subsidiary other than a Foreign Subsidiary.
"Environmental Lien" means a Lien in favor of any governmental authority
arising in connection with any environmental laws.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the board of managers of Huntsman ICI Chemicals
acting reasonably and in good faith and shall be evidenced by a board
resolution of the board of managers of Huntsman ICI Chemicals delivered to the
trustee.
"Foreign Cash Equivalents" means:
. debt securities with a maturity of 365 days or less issued by any
member nation of the European Union, Switzerland or any other country
whose debt securities are rated by S&P and Moody's A-1 or P-1, or the
equivalent thereof (if a short-term debt rating is provided by either)
or at least AA or AA2, or the equivalent thereof (if a long-term
unsecured debt rating is provided by either) (each such jurisdiction,
an "Approved Jurisdiction") or any agency or instrumentality of an
Approved Jurisdiction, provided that the full faith and credit of the
Approved Jurisdiction is pledged in support of such debt securities or
such debt securities constitute a general obligation of the Approved
Jurisdiction and
. debt securities in an aggregate principal amount not to exceed $25
million with a maturity of 365 days or less issued by any nation in
which Huntsman ICI Chemicals or its Restricted Subsidiaries has cash
which is the subject of restrictions on export or any agency or
instrumentality of such nation, provided that the full faith and credit
of such nation is pledged in support of such debt securities or such
debt securities constitute a general obligation of such nation.
"Foreign Subsidiary" means any subsidiary of Huntsman ICI Chemicals (other
than a guarantor) organized under the laws of, and conducting a substantial
portion of its business in, any jurisdiction other than the United States of
America or any state thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which were in effect as of June 30, 1999.
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"Guarantor Senior Debt" means with respect to any guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a guarantor, whether
outstanding on June 30, 1999 or thereafter created, incurred or assumed, except
for any such Indebtedness that is expressly subordinated or equal in right of
payment to the guarantee of such guarantor. "Guarantor Senior Debt" also
includes the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of,
(A) all monetary obligations of every nature of a guarantor in respect of
the Credit Facilities, including obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities,
(B) all monetary obligations of every nature of a guarantor evidenced by a
promissory note and which is, directly or indirectly, pledged as
security for the obligations of Huntsman ICI Chemicals under the
Credit Facilities,
(C) all Interest Swap Obligations and
(D) all obligations under Currency Agreements, in each case whether
outstanding on June 30, 1999 or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" does not include
(1) any Indebtedness of such guarantor to its Restricted Subsidiaries or
Affiliates or any of such Affiliate's subsidiaries other than as
described in clause (B),
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such guarantor or any of its
Restricted Subsidiaries,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services,
(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by such guarantor,
(6) Indebtedness incurred in violation of the indenture provisions set
forth under "--Limitation on Incurrence of Additional Indebtedness,"
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to Huntsman ICI Chemicals and
(8) any Indebtedness that is expressly subordinated in right of payment to
any other Indebtedness of such guarantor.
"Holdings U.K." means, Huntsman ICI Holdings (UK), a private unlimited
company incorporated under the laws of England and Wales.
"Huntsman Affiliate" means Huntsman Corporation or any of its Affiliates
(other than Huntsman ICI Holdings and its subsidiaries).
"Huntsman Corporation" means Huntsman Corporation, a Utah corporation.
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"Huntsman ICI Holdings Zero Coupon Notes" means, collectively, the Senior
Discount Notes due 2009 and the Subordinated Discount Notes due 2009 issued by
Huntsman ICI Holdings, and any notes into which any such Huntsman ICI Holdings
Zero Coupon Notes may be exchanged or replaced pursuant to the terms of the
indenture pursuant to which such Huntsman ICI Holdings Zero Coupon Notes are
issued.
"Huntsman Specialty" means Huntsman Specialty Chemicals Corporation, a
Utah corporation.
"ICI Affiliate" means ICI or any Affiliate of ICI.
"Indebtedness" means with respect to any person, without duplication,
(1) all Obligations of such person for borrowed money,
(2) all Obligations of such person evidenced by bonds, debentures, notes
or other similar instruments,
(3) all Capitalized Lease Obligations of such person,
(4) all Obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted),
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction,
(6) guarantees in respect of Indebtedness referred to in clauses (1)
through (5) above and clause (8) below,
(7) all Obligations of any other person of the type referred to in clauses
(1) through (6) which are secured by any lien on any property or asset
of such person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the
amount of the Obligation so secured,
(8) all Obligations under Currency Agreements and Interest Swap Agreements
of such person and
(9) all Disqualified Capital Stock issued by such person with the amount
of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such
price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the board of directors of the issuer of such
Disqualified Capital Stock. Notwithstanding the foregoing, "Indebtedness"
shall not include:
(A) advances paid by customers in the ordinary course of business for
services or products to be provided or delivered in the future,
(B) deferred taxes or
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(C) unsecured indebtedness of Huntsman ICI Chemicals and/or its Restricted
Subsidiaries incurred to finance insurance premiums in a principal
amount not in excess of the insurance premiums to be paid by Huntsman
ICI Chemicals and/or its Restricted Subsidiaries for a three year
period beginning on the date of any incurrence of such indebtedness.
"Independent Financial Advisor" means a firm:
. which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in
Huntsman ICI Chemicals and
. which, in the judgment of the board of managers of Huntsman ICI
Chemicals, is otherwise independent and qualified to perform the task
for which it is to be engaged.
"Independent Investment Banker" means any Reference Treasury Dealer
appointed by the trustee after consultation with Huntsman ICI Chemicals.
"Interest Swap Obligations" means the obligations of any person pursuant to
any arrangement with any other person, whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for payments made by such other person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any person.
"Investment" excludes extensions of trade credit by Huntsman ICI Chemicals
and its Restricted Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of Huntsman ICI Chemicals or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant,
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary and
(2) the amount of any Investment is the original cost of such Investment
plus the cost of all additional Investments by Huntsman ICI Chemicals
or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-
offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment;
provided that no such payment of dividends or distributions or receipt of any
such other amounts shall reduce the amount of any Investment if such payment of
dividends or distributions or receipt of any such amounts would be included in
Consolidated Net Income.
If Huntsman ICI Chemicals or any Restricted Subsidiary of Huntsman ICI
Chemicals sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of Huntsman ICI Chemicals such that, after
giving effect to any such sale or disposition, Huntsman ICI Chemicals no longer
owns, directly or indirectly, greater than 50% of the outstanding Common Stock
of such Restricted Subsidiary, Huntsman ICI Chemicals will be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
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"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest), but not including any interests in accounts
receivable and related assets conveyed by Huntsman ICI Chemicals or any of its
subsidiaries in connection with any Qualified Securitization Transaction.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by Huntsman ICI Chemicals or any of its Restricted Subsidiaries from
such Asset Sale net of
(A) all out-of-pocket expenses and fees relating to such Asset Sale
(including legal, accounting and investment banking fees and sales
commissions),
(B) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements,
(C) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale,
(D) the decrease in proceeds from Qualified Securitization Transactions
which results from such Asset Sale and
(E) appropriate amounts to be provided by Huntsman ICI Chemicals or any
Restricted Subsidiary, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by,
Huntsman ICI Chemicals or any Restricted Subsidiary, after such Asset
Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Organizational Documents" means, with respect to any person, such person's
memorandum, articles or certificate of incorporation, bylaws, partnership
agreement, joint venture agreement, limited liability company agreement or
other similar governing documents and any document setting forth the
designation, amount and/or relative rights, limitations and preferences of any
class or series of such person's Capital Stock.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the notes, the indenture and the guarantees;
(2) Indebtedness incurred pursuant to the Credit Facilities in an
aggregate principal amount not exceeding $2.4 billion at any one time
outstanding less the amount of any payments made by Huntsman ICI
Chemicals under the Credit Facilities with the Net Cash Proceeds of
any Asset Sale (which are accompanied by a corresponding permanent
commitment reduction) pursuant to clause (A) of the second sentence of
"--Limitation on Asset Sales";
(3) other Indebtedness of Huntsman ICI Chemicals and its Restricted
Subsidiaries outstanding on June 30, 1999 reduced by the amount of any
prepayments with Net Cash Proceeds of any Asset Sale (which are
accompanied by a corresponding permanent commitment reduction)
pursuant to "--Limitation on Asset Sales";
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(4) Interest Swap Obligations of Huntsman ICI Chemicals relating to:
. Indebtedness of Huntsman ICI Chemicals or any of its Restricted
Subsidiaries or
. Indebtedness that Huntsman ICI Chemicals or any of its Restricted
Subsidiaries reasonably intends to incur within six months and
Interest Swap Obligations of any Restricted Subsidiary of Huntsman ICI
Chemicals relating to:
. Indebtedness of such Restricted Subsidiary
. Indebtedness that such Restricted Subsidiary reasonably intends to
incur within six months;
Any such Interest Swap Obligations will constitute "Permitted
Indebtedness" only if they are entered into to protect Huntsman ICI
Chemicals and its Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness permitted under with the indenture to the extent
the notional principal amount of such Interest Swap Obligations, when
incurred, do not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligations relate.
(5) Indebtedness under Commodity Agreements and Currency Agreements;
provided that in the case of Currency Agreements which relate to
Indebtedness, such Currency Agreements do not increase the
Indebtedness of Huntsman ICI Chemicals and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of Huntsman ICI Chemicals to
Huntsman ICI Chemicals or to a Restricted Subsidiary of Huntsman ICI
Chemicals for so long as such Indebtedness is held by Huntsman ICI
Chemicals or a Restricted Subsidiary of Huntsman ICI Chemicals, in
each case subject to no Lien held by a person other than Huntsman ICI
Chemicals or a Restricted Subsidiary of Huntsman ICI Chemicals (other
than the pledge of intercompany notes under the Credit Facilities);
provided that if as of any date any person other than Huntsman ICI
Chemicals or a Restricted Subsidiary of Huntsman ICI Chemicals owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness (other than the pledge of intercompany notes under the
Credit Facilities), such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
(7) Indebtedness of Huntsman ICI Chemicals to a Restricted Subsidiary for
so long as such Indebtedness is held by a Restricted Subsidiary, in
each case subject to no Lien (other than Liens securing intercompany
notes pledged under the Credit Facilities); provided that (A) any
Indebtedness of Huntsman ICI Chemicals to any Restricted Subsidiary
(other than pursuant to notes pledged under the Credit Facilities) is
unsecured and subordinated, pursuant to a written agreement, to
Huntsman ICI Chemicals' obligations under the indenture and the notes
and (B) if as of any date any person other than a Restricted
Subsidiary owns or holds any such Indebtedness or any person holds a
Lien in respect of such Indebtedness (other than pledges securing the
Credit Facilities), such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by Huntsman ICI
Chemicals;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(9) Indebtedness of Huntsman ICI Chemicals or any of its Restricted
Subsidiaries represented by letters of credit for the account of
Huntsman ICI Chemicals or such Restricted Subsidiary, as the case may
be, in order to provide security for workers' compensation
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claims, payment obligations in connection with self-insurance or
similar requirements in the ordinary course of business;
(10) Refinancing Indebtedness;
(11) Indebtedness arising from agreements of Huntsman ICI Chemicals or a
subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred in connection
with the disposition of any business, assets or subsidiary, other
than guarantees of Indebtedness incurred by any person acquiring all
or any portion of such business, assets or subsidiary for the purpose
of financing such acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed
the gross proceeds actually received by Huntsman ICI Chemicals and
the subsidiary in connection with such disposition;
(12) Obligations in respect of performance bonds and completion,
guarantee, surety and similar bonds provided by Huntsman ICI
Chemicals or any subsidiary in the ordinary course of business;
(13) Guarantees by Huntsman ICI Chemicals or a Restricted Subsidiary of
Indebtedness incurred by Huntsman ICI Chemicals or a Restricted
Subsidiary so long as the incurrence of such Indebtedness by Huntsman
ICI Chemicals or any such Restricted Subsidiary is otherwise
permitted by the terms of the indenture;
(14) Indebtedness of Huntsman ICI Chemicals or any subsidiary incurred in
the ordinary course of business not to exceed $35 million at any time
outstanding
(A) representing Capitalized Lease Obligations or
(B) constituting purchase money Indebtedness incurred to finance
property or assets of Huntsman ICI Chemicals or any Restricted
Subsidiary of Huntsman ICI Chemicals acquired in the ordinary
course of business;
provided, however, that such purchase money Indebtedness shall not
exceed the cost of such property or assets and shall not be secured by
any property or assets of Huntsman ICI Chemicals or any Restricted
Subsidiary of Huntsman ICI Chemicals other than the property and assets
so acquired;
(15) Indebtedness of Foreign Subsidiaries that are Restricted Subsidiaries
to the extent that the aggregate outstanding amount of Indebtedness
incurred by such Foreign Subsidiaries under this clause (15) does not
exceed at any one time an amount equal to the sum of
(A) 80% of the consolidated book value of the accounts receivable of
all Foreign Subsidiaries and
(B) 60% of the consolidated book value of the inventory of all Foreign
Subsidiaries;
provided, however, that notwithstanding the foregoing limitation,
Foreign Subsidiaries may incur in the aggregate up to $50 million of
Indebtedness outstanding at any one time;
(16) Indebtedness of Huntsman ICI Chemicals and its Domestic Subsidiaries
pursuant to overdraft lines or similar extensions of credit in an
aggregate amount not to exceed $20 million at any one time
outstanding and Indebtedness of Foreign Subsidiaries pursuant to
over-draft lines or similar extensions of credit in an aggregate
principal amount not to exceed $60 million at any one time
outstanding;
(17) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to Huntsman
ICI Chemicals or any subsidiary of Huntsman ICI Chemicals (except for
Standard Securitization Undertakings);
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(18) So long as no Event of Default or Potential Event of Default exists,
Indebtedness of Huntsman ICI Chemicals to BASF or its Affiliates in
an aggregate outstanding amount not in excess of $50 million for the
purpose of financing up to 50% of the cost of installation,
construction or improvement of property relating to the manufacture
of PO/MTBE;
(19) Indebtedness of Huntsman ICI Chemicals to a Huntsman Affiliate or an
ICI Affiliate constituting Subordinated Indebtedness;
(20) Indebtedness consisting of take-or-pay obligations contained in
supply agreements entered into in the ordinary course of business;
(21) Indebtedness of Huntsman ICI Chemicals to any to any of its
subsidiaries incurred in connection with the purchase of accounts
receivable and related assets by Huntsman ICI Chemicals from any such
subsidiary which assets are subsequently conveyed by Huntsman ICI
Chemicals to a Securitization Entity in a Qualified Securitization
Transaction; and
(22) additional Indebtedness of Huntsman ICI Chemicals and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25
million at any one time outstanding.
"Permitted Investments" means:
(1) Investments by Huntsman ICI Chemicals or any Restricted Subsidiary of
Huntsman ICI Chemicals in any person that is or will become
immediately after such Investment a Restricted Subsidiary of Huntsman
ICI Chemicals or that will merge or consolidate into Huntsman ICI
Chemicals or a Restricted Subsidiary of Huntsman ICI Chemicals;
provided that this clause (1) shall not permit any Investment by
Huntsman ICI Chemicals or a Domestic Restricted Subsidiary in a
Foreign Subsidiary consisting of a capital contribution by means of a
transfer of property other than cash, Cash Equivalents or Foreign Cash
Equivalents other than transfers of property of nominal value in the
ordinary course of business;
(2) Investments in Huntsman ICI Chemicals by any Restricted Subsidiary of
Huntsman ICI Chemicals; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated (other than pursuant to
intercompany notes pledged under the Credit Facilities), pursuant to a
written agreement, to Huntsman ICI Chemicals' obligations under the
notes and the indenture;
(3) investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of Huntsman ICI Chemicals
and its Restricted Subsidiaries in the ordinary course of business for
travel, relocation and related expenses;
(5) Investments in Unrestricted Subsidiaries or joint ventures not to
exceed $75 million, plus
(A) the aggregate net after-tax amount returned in cash on or with
respect to any Investments made in Unrestricted Subsidiaries and
joint ventures whether through interest payments, principal
payments, dividends or other distributions or payments,
(B) the net after-tax cash proceeds received by Huntsman ICI Chemicals
or any Restricted Subsidiary from the disposition of all or any
portion of such Investments (other than to a Restricted Subsidiary
of Huntsman ICI Chemicals),
(C) upon redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the fair market value of such subsidiary and
(D) the net cash proceeds received by Huntsman ICI Chemicals from the
issuance of Specified Venture Capital Stock;
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(6) Investments in securities received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of any debtors of Huntsman ICI Chemicals or its Restricted
Subsidiaries;
(7) Investments made by Huntsman ICI Chemicals or its Restricted
Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant;
(8) Investments existing on June 30, 1999;
(9) any Investment by Huntsman ICI Chemicals or a wholly owned subsidiary
of Huntsman ICI Chemicals, or by Tioxide Group or Holdings U.K., in a
Securitization Entity or any Investment by a Securitization Entity in
any other person in connection with a Qualified Securitization
Transaction; provided that any Investment in a Securitization Entity
is in the form of a Purchase Money Note or an equity interest;
(10) Investments by Huntsman ICI Chemicals in Rubicon, Inc. and Louisiana
Pigment Company (each a "Joint Venture"), so long as:
(A) such Joint Venture does not have any Indebtedness for borrowed
money at any time on or after the date of such Investment (other
than Indebtedness owing to the equity holders of such Joint
Venture),
(B) the documentation governing such Joint Venture does not contain a
restriction on distributions to Huntsman ICI Chemicals, and
(C) such Joint Venture is engaged only in the business of
manufacturing product used or marketed by Huntsman ICI Chemicals
and its Restricted Subsidiaries and/or the joint venture partner,
and businesses reasonably related thereto;
(11) Investments by Foreign Subsidiaries in Foreign Cash Equivalents;
(12) loans to Huntsman ICI Holdings for the purposes described in clause
(7) of the second paragraph of "Certain Covenants--Limitation on
Restricted Payments") which, when aggregated with the payment made
under such clause, will not exceed $3 million in any fiscal year;
(13) any Indebtedness of Huntsman ICI Chemicals to any of its subsidiaries
incurred in connection with the purchase of accounts receivable and
related assets by Huntsman ICI Chemicals from any such subsidiary
which assets are subsequently conveyed by Huntsman ICI Chemicals to a
Securitization Entity in a Qualified Securitization Transaction; and
(14) additional Investments in an aggregate amount not exceeding $25
million at any one time outstanding.
"Permitted Junior Securities" means:
(1) Capital Stock in Huntsman ICI Chemicals or any guarantor; or
(2) debt securities of Huntsman ICI Chemicals or any guarantor that
(A) are subordinated to all Senior Debt and any debt securities issued
in exchange for Senior Debt to substantially the same extent as,
or to a greater extent than, the notes and the related guarantees
are subordinated to Senior Debt pursuant to the terms of the
indenture and
(B) have a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the notes.
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"Permitted Tax Distribution" for any fiscal year means any payments made in
compliance with clause (6) of the second paragraph under "Certain Covenants--
Limitation on Restricted Payments."
"Preferred Stock" of any person means any Capital Stock of such person that
has preferential rights to any other Capital Stock of such person with respect
to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by Huntsman ICI Chemicals or any of its
subsidiaries pursuant to which Huntsman ICI Chemicals or any of its
subsidiaries may sell, convey or otherwise transfer pursuant to customary terms
to
(1) a Securitization Entity or to Huntsman ICI Chemicals which
subsequently transfers to a Securitization Entity (in the case of a
transfer by Huntsman ICI Chemicals or any of its subsidiaries) and
(2) any other person (in the case of transfer by a Securitization Entity),
or may grant a security interest in any accounts receivable (whether
now existing or arising or acquired in the future) of Huntsman ICI
Chemicals or any of its subsidiaries, and any assets related thereto
including, without limitation, all collateral securing such accounts
receivable, all contracts and contract rights and all guarantees or
other obligations in respect of such accounts receivable, proceeds of
such accounts receivable and other assets (including contract rights)
which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., Deutsche
Bank Securities Inc., Chase Securities Inc. and Warburg Dillon Read LLC and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), Huntsman ICI Chemicals shall substitute therefor
another Reference Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Huntsman ICI Chemicals
or any Restricted Subsidiary of Huntsman ICI Chemicals of Indebtedness incurred
in accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or Indebtedness described in clause (3) of the definition of
"Permitted Indebtedness", in each case that does not
(1) result in an increase in the aggregate principal amount of
Indebtedness of such person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by Huntsman ICI Chemicals in
connection with such Refinancing) or
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(2) create Indebtedness with
(A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or
(B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced;
provided that if such Indebtedness being Refinanced
. is Indebtedness of Huntsman ICI Chemicals, then such Refinancing
Indebtedness shall be Indebtedness solely of Huntsman ICI Chemicals or
. is subordinate or junior to the notes, then such Refinancing
Indebtedness shall be subordinate to the notes at least to the same
extent and in the same manner as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Payment" means to
(1) declare or pay any dividend or make any distribution, other than
dividends or distributions payable in Qualified Capital Stock of
Huntsman ICI Chemicals, on or in respect of shares of Huntsman ICI
Chemicals's Capital Stock to holders of such Capital Stock,
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of Huntsman ICI Chemicals or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock,
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of Huntsman ICI Chemicals that is
subordinate or junior in right of payment to the notes or
(4) make any Investment other than Permitted Investments.
"Restricted Subsidiary" of any person means any subsidiary of such person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any person or to which any such person is a party, providing for the
leasing to Huntsman ICI Chemicals or a Restricted Subsidiary of any property,
whether owned by Huntsman ICI Chemicals or any Restricted Subsidiary on June
30, 1999 or later acquired, which has been or is to be sold or transferred by
Huntsman ICI Chemicals or such Restricted Subsidiary to such person or to any
other person from whom funds have been or are to be advanced by such person on
the security of such Property.
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"Securitization Entity" means a wholly owned subsidiary of Huntsman ICI
Chemicals (or Tioxide Group, Holdings U.K. another person in which Huntsman ICI
Chemicals or any subsidiary of Huntsman ICI Chemicals makes an Investment and
to which Huntsman ICI Chemicals or any subsidiary of Huntsman ICI Chemicals
transfers accounts receivable or equipment and related assets) which engages in
no activities other than in connection with the financing of accounts
receivable or equipment and which is designated by the board of managers of
Huntsman ICI Chemicals (as provided below) as a Securitization Entity
(1) no portion of the Indebtedness or any other Obligations (contingent or
otherwise) of which
. is guaranteed by Huntsman ICI Chemicals or any subsidiary of
Huntsman ICI Chemicals (other than the Securitization Entity)
(excluding guarantees of Obligations (other than the principal of,
and interest on, Indebtedness)) pursuant to Standard Securitization
Undertakings,
. is recourse to or obligates Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals (other than the Securitization
Entity) in any way other than pursuant to Standard Securitization
Undertakings or
. subjects any property or asset of Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals (other than the Securitization
Entity), directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard
Securitization Undertakings and other than any interest in the
accounts receivable or equipment and related assets being financed
(whether in the form of an equity interest in such assets or
subordinated indebtedness payable primarily from such financed
assets) retained or acquired by Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals,
(2) with which neither Huntsman ICI Chemicals nor any subsidiary of
Huntsman ICI Chemicals has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to
Huntsman ICI Chemicals or such subsidiary than those that might be
obtained at the time from persons that are not Affiliates of Huntsman
ICI Chemicals, other than fees payable in the ordinary course of
business in connection with servicing receivables of such entity, and
(3) to which neither Huntsman ICI Chemicals nor any subsidiary of Huntsman
ICI Chemicals has any obligation to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of
operating results. Any such designation by the board of managers of
Huntsman ICI Chemicals shall be evidenced to the trustee by filing
with the trustee a certified copy of the resolution of the board of
managers of Huntsman ICI Chemicals giving effect to such designation
and an officers' certificate certifying that such designation complied
with the foregoing conditions.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Huntsman ICI Chemicals, whether outstanding on June 30, 1999 or
thereafter created, incurred or assumed, except for any such Indebtedness that
is expressly subordinated or equal in right of payment to the guarantee of such
guarantor. "Senior Debt" also includes the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of,
(1) all monetary obligations of every nature of Huntsman ICI Chemicals
under the Credit
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Facilities, including obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities,
(2) all Interest Swap Obligations and
(3) all Obligations under Currency Agreements and Commodity Agreements, in
each case whether outstanding on June 30, 1999 or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" does not include
(1) any Indebtedness of Huntsman ICI Chemicals to a Restricted Subsidiary
of Huntsman ICI Chemicals or any Affiliate of Huntsman ICI Chemicals
or any of such Affiliate's subsidiaries,
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services,
(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by Huntsman ICI Chemicals,
(6) Indebtedness incurred in violation of the indenture provisions set
forth under "--Limitation on Incurrence of Additional Indebtedness,"
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to Huntsman ICI Chemicals and
(8) any Indebtedness that is expressly subordinated in right of payment to
any other Indebtedness of Huntsman ICI Chemicals.
"Significant Subsidiary" means any Restricted Subsidiary of Huntsman ICI
Chemicals which, at the date of determination, is a "Significant Subsidiary" as
such term is defined in Regulation S-X under the Exchange Act.
"Specified Venture Capital Stock" means Qualified Capital Stock of Huntsman
ICI Chemicals or holdings issued to a person who is not an Affiliate of
Huntsman ICI Chemicals and the proceeds from the issuance of which are applied
within 180 days after the issuance thereof to an Investment in an Unrestricted
Subsidiary or joint venture.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Huntsman ICI Chemicals or any
subsidiary of Huntsman ICI Chemicals which are reasonably customary in an
accounts receivable securitization transaction.
"Subordinated Indebtedness" means Indebtedness of Huntsman ICI Chemicals or
any guarantor which is expressly subordinated in right of payment to the notes
or the guarantee of such guarantor, as the case may be.
"Tax Sharing Agreement" means the provisions contained in the Limited
Liability Company Agreements of Huntsman ICI Chemicals and Huntsman ICI
Holdings as in existence on June 30, 1999 relating to distributions to be made
to the members thereof with respect to such members' income tax liabilities.
"UK Holdco Note" means that certain unsecured promissory note issued by
Holdings U.K. in favor of Huntsman ICI Financial.
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"Unrestricted Subsidiary" of any person means:
(1) any subsidiary of such person that at the time of determination will
be or continue to be designated an Unrestricted Subsidiary and
(2) any subsidiary of an Unrestricted Subsidiary.
The board of managers of Huntsman ICI Chemicals may designate any subsidiary
(including any newly acquired or newly formed subsidiary) to be an Unrestricted
Subsidiary if:
. such subsidiary does not own any Capital Stock of, or does not own or
hold any Lien on any property of, Huntsman ICI Chemicals or any other
subsidiary of Huntsman ICI Chemicals that is a subsidiary of the
subsidiary to be so designated;
. Huntsman ICI Chemicals certifies to the trustee that such designation
complies with the "Limitation on Restricted Payments" covenant and
. each subsidiary to be designated as an Unrestricted Subsidiary and each
of its subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness under
which the lender has recourse to any of the assets of Huntsman ICI
Chemicals or any of its Restricted subsidiaries.
The board of managers of Huntsman ICI Chemicals may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if:
. immediately after giving effect to such designation, Huntsman ICI
Chemicals is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation
on Incurrence of Additional Indebtedness" covenant and
. immediately before and immediately after giving effect to such
designation, no default or Event of Default will have occurred and be
continuing.
Any such designation by the board of managers of Huntsman ICI Chemicals will be
evidenced to the trustee by promptly filing with the trustee a copy of the
board resolution approving the designation and an officers' certificate
certifying that the designation complied with the indenture.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness
into
(2) the sum of the total of the products obtained by multiplying
. the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment
at final maturity, in respect thereof, by
. the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment.
Listing
The outstanding notes are listed on the Luxembourg Stock Exchange and we
have applied to list the exchange notes on the Luxembourg Stock Exchange. The
legal notice relating to the issue of the exchange notes and our limited
liability company agreement will be registered prior to the listing with the
Registrar of the District Court in Luxembourg, where such documents are
available for inspection and where copies thereof can be obtained upon request.
As long as any notes are listed on the Luxembourg Stock Exchange and as long as
the rules of such exchange so require, an agent
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for making payments on, and transfer of, notes will be maintained in
Luxembourg. We have initially designated Banque Generale du Luxembourg as our
agent for such purposes.
Form, Denomination, Book-Entry Procedures and Transfer
Except as set forth below, the notes issued in the exchange offer will be
issued in registered, global form in minimum denominations of $1,000 or
(Euro)1,000 and integral multiples of $1,000 or (Euro)1,000.
The notes which are denominated in dollars to be issued in the exchange
offer will be represented by one or more global notes in definitive, fully
registered form without interest coupons (collectively, the "Dollar Global
Note") and will be deposited with the trustee as custodian for the Depository
Trust Company ("DTC") and registered in the name of a nominee of DTC. The notes
denominated in euros to be issued in the exchange offer will be represented by
one global note in fully registered form without interest coupons (the "Euro
Global Note") and will be deposited with The First National Bank of Chicago,
London Branch as common depositary for Euroclear (the "Common Depositary") and
registered in the name of a nominee of the Common Depositary. All holders of
notes denominated in euros who exchange their outstanding notes denominated in
euros in the exchange offer will hold their interests through the Euro Global
Note, regardless of whether they purchased their interests pursuant to Rule
144A or Regulation S.
Except in the limited circumstances described below, owners of beneficial
interests in global notes will not be entitled to receive physical delivery of
certificated notes. Transfers of beneficial interests in the global notes will
be subject to the applicable rules and procedures of DTC, Euroclear and
Cedelbank and their respective direct or indirect participants which rules and
procedures may change from time to time.
Global Notes. The following description of the operations and procedures of
DTC, Euroclear and Cedelbank are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time.
Huntsman ICI Chemicals takes no responsibility for these operations and
procedures and urges investors to contact the system or their participants
directly to discuss these matters.
Upon the issuance of the Dollar Global Note, DTC will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by such global note to the accounts of persons who have
accounts with such depositary. Such accounts initially will be designated by or
on behalf of the exchange agent. Ownership of beneficial interests in a Dollar
Global Note will be limited to its participants or persons who hold interests
through its participants. Ownership of beneficial interests in the Dollar
Global Notes will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
Upon the issuance of the Euro Global Note, the Common Depositary will
credit, on its internal system, the respective principal amount of the
beneficial interests represented by such global note to the accounts of
Euroclear. Euroclear will credit, on its internal systems, the respective
principal amounts of the individual beneficial interests in such global notes
to the accounts of persons who have accounts with Euroclear. Such accounts
initially will be designated by or on behalf of the Initial Purchasers.
Ownership of beneficial interests in the Euro Global Note will be limited to
participants or persons who hold interests through participants in Euroclear.
Ownership of beneficial interests in Euro Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
Euroclear or its nominees (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants).
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As long as DTC or the Common Depositary, or its respective nominee, is the
registered holder of a global note, DTC or the Common Depositary or such
nominee, as the case may be, will be considered the sole owner and holder of
the notes represented by such global notes for all purposes under the indenture
and the notes. Unless (1) in the case of a Dollar Global Note, DTC notifies
Huntsman ICI Chemicals that it is unwilling or unable to continue as depositary
for a global note or ceases to be a "Clearing Agency" registered under the
Exchange Act, (2) in the case of a Euro Global Note, Euroclear notifies
Huntsman ICI Chemicals it is unwilling or unable to continue as clearing
agency, (3) in the case of a Euro Global Note, the Common Depositary notifies
Huntsman ICI Chemicals that it is unwilling or unable to continue as Common
Depositary and a successor Common Depositary is not appointed within 120 days
of such notice or (4) in the case of any note, an event of default has occurred
and is continuing with respect to such note, described below under "--Form,
Denomination, Book-Entry Procedures and Transfer--Certificated Notes", owners
of beneficial interests in a global note will not be entitled to have any
portions of such global note registered in their names, will not receive or be
entitled to receive physical delivery of notes in certificated form and will
not be considered the owners or holders of the global note (or any notes
represented thereby) under the indenture or the notes. In addition, no
beneficial owner of an interest in a global note will be able to transfer that
interest except in accordance with DTC's and/or Euroclear's and Cedelbank's
applicable procedures (in addition to those under the indenture referred to
herein).
Investors may hold their interests in the Dollar Global Note through
Euroclear or Cedelbank and the Euro Global Note through Euroclear, if they are
participants in such systems, or indirectly through organizations which are
participants in such systems. Cedelbank and Euroclear will hold interests in
the Dollar Global Note on behalf of their participants through customers'
securities accounts in their respective names on the books of the Common
Depositary. Investors may hold their interests in the Dollar Global Note
directly through DTC, if they are participants in such system, or indirectly
through organizations (including Euroclear and Cedelbank) which are
participants in such system. All interests in a global note may be subject to
the procedures and requirements of DTC and/or Euroclear and Cedelbank.
Payments of the principal of and interest on Dollar Global Notes will be
made to DTC or its nominee as the registered owner thereof. Payments of the
principal of and interest on the Euro Global Note will be made to the order of
the Common Depositary or its nominee as the registered owner thereof. Neither
Huntsman ICI Chemicals, the trustee, the Common Depositary nor any of their
respective agents will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the global notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Huntsman ICI Chemicals expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a global note representing any
notes held by it or its nominee, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such global note for such notes as shown on the
records of DTC or its nominee. Huntsman ICI Chemicals expects that the Common
Depositary, in its capacity as paying agent, upon receipt of any payment or
principal or interest in respect of a global note representing any notes held
by it or its nominee, will immediately credit the accounts of Euroclear which
in turn will immediately credit accounts of participants in Euroclear with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such global note for such notes as shown on the records
of Euroclear and Cedelbank. Huntsman ICI Chemicals also expects that payments
by participants to owners of beneficial interests in such global note held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in "street name". Such payments will be the
responsibility of such participants.
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Because DTC, Euroclear and Cedelbank can only act on behalf of their
respective participants, who in turn act on behalf of indirect participants and
certain banks, the ability of a holder of a beneficial interest in global notes
to pledge such interest to persons or entities that do not participate in the
DTC, Euroclear or Cedelbank systems, or otherwise take actions in respect of
such interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some countries and some U.S. states require that certain
persons take physical delivery of securities in certificated form.
Consequently, the ability to transfer beneficial interests in a global note to
such persons may be limited. Because DTC, Euroclear and Cedelbank can act only
on behalf of participants, which, in turn, act on behalf of indirect
participants and certain banks, the ability of a person having a beneficial
interest in a global note to pledge such interest to persons or entities that
do not participate in the DTC system or in Euroclear and Cedelbank, as the case
may be, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Except for trades involving only Euroclear and Cedelbank participants,
interests in the Dollar Global Note will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers of interests in
Dollar Global Notes between participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers of
interests in Euro Global Notes and Dollar Global Notes between participants in
Euroclear and Cedelbank will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described above, cross-market transfers of dollar notes between DTC
participants, on the one hand, and Euroclear or Cedelbank participants, on the
other hand, will be effected in DTC in accordance with DTC's rules on behalf of
Euroclear or Cedelbank, as the case may be by its respective depositary;
however, such crossmarket transactions will require delivery of instructions to
Euroclear or Cedelbank, as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or Cedelbank, as the case
may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
global note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Cedelbank participants may not deliver instructions directly
to the depositories for Euroclear or Cedelbank.
Because of time zone differences, the securities account of a Euroclear or
Cedelbank participant purchasing an interest in the Dollar Global Note from a
DTC participant will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedelbank participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Cedelbank immediately following the DTC settlement date). Cash received in
Euroclear or Cedelbank as a result of sales of interests in a global note by or
through a Euroclear or Cedelbank participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Euroclear or Cedelbank cash account only as of the business day for
Euroclear or Cedelbank following the DTC settlement date.
DTC, Euroclear and Cedelbank have advised Huntsman ICI Chemicals that they
will take any action permitted to be taken by a holder of notes (including the
presentation of notes for exchange as described below) only at the direction of
one or more participants to whose account with DTC or Euroclear or Cedelbank,
as the case may be, interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of the notes as to
which such participant or participants has or have given such direction.
However, if there is an event of default under the
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notes, DTC, Euroclear and Cedelbank reserve the right to exchange the global
notes for legended notes in certificated form, and to distribute such notes to
their respective participants.
DTC has advised Huntsman ICI Chemicals as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve system, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
Euroclear and Cedelbank have advised Huntsman ICI Chemicals as follows:
Euroclear and Cedelbank each hold securities for their account holders and
facilitate the clearance and settlement of securities transactions by
electronic book-entry transfer between their respective account holders,
thereby eliminating the need for physical movements of certificates and any
risk from lack of simultaneous transfers of securities.
Euroclear and Cedelbank each provide various services including
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Euroclear and Cedelbank each
also deal with domestic securities markets in several countries through
established depository and custodial relationships. The respective systems of
Euroclear and Cedelbank have established an electronic bridge between their two
systems across which their respective account holders may settle trades with
each other.
Account holders in both Euroclear and Cedelbank are world-wide financial
institutions including underwriters, securities brokers and dealers, trust
companies and clearing corporations. Indirect access of both Euroclear and
Cedelbank is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
An account holder's overall contractual relations with either Euroclear or
Cedelbank are governed by the respective rules and operating procedures of
Euroclear or Cedelbank and any applicable laws. Both Euroclear and Cedelbank
act under such rules and operating procedures only on behalf of their
respective account holders, and have no record of or relationship with persons
holding through their respective account holders.
Although DTC, Euroclear and Cedelbank currently follow the foregoing
procedures to facilitate transfers of interests in global notes among
participants of DTC, Euroclear and Cedelbank, they are under no obligation to
do so, and such procedures may be discontinued or modified at any time. Neither
Huntsman ICI Chemicals nor the trustee will have any responsibility for the
performance by DTC, Euroclear or Cedelbank or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes. If any depositary is at any time unwilling or unable to
continue as a depositary for notes for the reasons set forth above under "--
Form, Denomination, Book-Entry Procedures and Transfer--Global Notes", Huntsman
ICI Chemicals will issue certificates for such notes in definitive, fully
registered, non-global form without interest coupons in exchange for the Dollar
Global Note or the Euro Global Note, as the case may be. Certificates for notes
delivered in exchange for any global note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by DTC, Euroclear, Cedelbank or the Common Depositary (in accordance with their
customary procedures).
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The holder of a non-global note may transfer such note by surrendering it
at the office or agency maintained by Huntsman ICI Chemicals for such purpose
in the Borough of Manhattan, The City of New York, which initially will be the
office of the trustee or of the Transfer Agent in Luxembourg. Upon transfer or
partial redemption of any note, new certificates may be obtained from the
Transfer Agent in Luxembourg.
Notwithstanding any statement herein, Huntsman ICI Chemicals and the
trustee reserve the right to impose such transfer, certification, exchange or
other requirements, and to require such restrictive legends on certificates
evidencing notes, as they may determine are necessary to ensure compliance with
the securities laws of the United States and the states therein and any other
applicable laws or as DTC, Euroclear or Cedelbank may require.
Same-Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes, including principal, premium, if any, interest and liquidated
damages, if any, be made by wire transfer of immediately available funds to the
accounts specified by the global note holder. With respect to notes in
certificated form, Huntsman ICI Chemicals will make all payments of principal,
premium, if any, interest and liquidated damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. Certificated notes may be surrendered for payment at the
offices of the trustee or, so long as the notes are listed on the Luxembourg
Stock Exchange, the Paying Agent in Luxembourg on the maturity date of the
notes. The notes represented by the global notes are expected to be eligible to
trade in DTC's, Same-Day Firm Settlement System, and any permitted secondary
market trading activity in such notes will, therefore, be required by DTC to be
settled in immediately available funds. Huntsman ICI Chemicals expects that
secondary trading in any certificated notes will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedelbank participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedelbank participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Cedelbank) immediately following the settlement date of DTC. Cash received in
Euroclear or Cedelbank as a result of sales of interests in a global note by or
through a Euroclear or Cedelbank participant to a participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedelbank cash account only as of the business day for
Euroclear or Cedelbank following DTC's settlement date.
Registration Covenant; Exchange Offer
Huntsman ICI Chemicals has agreed to commence the exchange offer promptly
after the exchange offer registration statement has become effective, hold the
offer open for at least 30 days, and exchange notes for all notes validly
tendered and not withdrawn before the expiration of the offer.
Under existing SEC interpretations, the exchange notes would in general be
freely transferable after the exchange offer without further registration under
the Securities Act, except that broker-dealers ("Participating Broker-Dealers")
receiving exchange notes in the exchange offer will be subject to a prospectus
delivery requirement with respect to resales of those exchange notes. The SEC
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the exchange notes (other than
a resale of an unsold allotment from the original sale of the notes) by
delivery of the prospectus contained in the exchange offer registration
statement. Under the exchange and registration rights agreement, Huntsman ICI
Chemicals is
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required to allow Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use the prospectus
contained in the exchange offer registration statement in connection with the
resale of such exchange notes. Each holder of notes (other than certain
specified holders of notes) who wishes to exchange such notes for exchange
notes in the exchange offer will be required to represent that any exchange
notes to be received by it will be acquired in the ordinary course of its
business, that at the time of the commencement of the exchange offer it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the exchange notes and that it is not an
Affiliate of Huntsman ICI Chemicals.
However, if:
. on or before the date of consummation of the exchange offer, the
existing SEC interpretations are changed such that the exchange notes
would not in general be freely transferable in such manner on such
date; or
. the exchange offer has not been consummated on or before March 12,
2000; or
. the exchange offer is not available by any holder of the notes,
Huntsman ICI Chemicals will, in lieu of (or, in the case of the third bullet
above, in addition to) effecting registration of exchange notes, use its
reasonable best efforts to cause a registration statement under the Securities
Act relating to a shelf registration of the notes for resale by holders or, in
the case of clause (3), of the notes held by the initial purchasers of the
notes for resale by the initial purchasers (the "Resale Registration") to
become effective and to remain effective until two years following the
effective date of such registration statement or such shorter period that will
terminate when all the securities covered by the shelf registration statement
have been sold pursuant to the shelf registration statement.
Huntsman ICI Chemicals will, in the event of the Resale Registration,
provide to the holder or holders of the applicable notes copies of the
prospectus that is a part of the registration statement filed in connection
with the Resale Registration, notify such holder or holders when the Resale
Registration for the applicable notes has become effective and take certain
other actions as are required to permit unrestricted resales of the applicable
notes. A holder of notes that sells such notes pursuant to the Resale
Registration generally would be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the exchange and registration rights agreement that are
applicable to such holder (including certain indemnification obligations).
In the event that:
(1) the exchange offer has not been consummated within 45 business days
after the effective date of the exchange offer registration statement;
or
(2) any registration statement required by the exchange and registration
rights agreement is filed and declared effective but shall thereafter
cease to be effective (except as specifically permitted therein)
without being succeeded immediately by an additional registration
statement filed and declared effective (any such event referred to in
clauses (1) or (2), the "Registration Default"),
then the per annum interest rate on the applicable notes will increase, for the
period from the occurrence of the Registration Default until such time as no
Registration Default is in effect (at which time the interest rate will be
reduced to its initial rate) by 0.25% during the first 90-day period following
the occurrence of such Registration Default, which rate shall increase by an
additional 0.25% during each subsequent 90-day period, up to a maximum of 1.0%.
146
<PAGE>
The summary herein of certain provisions of the exchange and registration
rights agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the exchange
and registration rights agreement, a copy of which will be available upon
request to Huntsman ICI Chemicals.
We have filed an application to list the exchange notes on the Luxembourg
Stock Exchange. Huntsman ICI Chemicals will publish, in accordance with the
procedures described under "Notices," a notice of the commencement of the
exchange offer and any increase in the rate of interest on the notes, as well
as the results of the exchange offer and the new identifying numbers of the
securities (the common codes and ISINs). All documents prepared in connection
with the exchange offer will be available for inspection at the office of the
paying and transfer agent in Luxembourg and all necessary actions and services
in respect of the exchange offer may be done at the office of the paying and
transfer agent in Luxembourg.
The notes and the exchange notes will be considered collectively to be a
single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase.
147
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account in the exchange
offer must acknowledge that it acquired such notes as a result of market-making
or other trading activities and that it will deliver a prospectus in connection
with any resale of those notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes received in the exchange offer where the outstanding
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the
consummation of the exchange offer, we will make this prospectus, as amended
and supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 2000, all broker-dealers effecting
transactions in the notes issued in the exchange offer may be required to
deliver a prospectus.
Neither Huntsman ICI Chemicals nor any of the guarantors will receive any
proceeds from any sale of notes by broker-dealers. Notes received by broker-
dealers for their own account in the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the notes or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or though brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such notes. Any broker-
dealer that resells notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
such notes
(1) may be deemed to be an "underwriter" within the meaning of the
Securities Act,
(2) must acknowledge that it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with the resale transaction, including the delivery of a prospectus
that contains information with respect to any selling holder required
by the Securities Act in connection with any resale of the notes
issued in the exchange offer, and
(3) may not rely on the applicable interpretation of the staff of the
SEC's position contained in Exxon Capital Holdings Corporation, SEC
No-Action Letter (May 13, 1988), Morgan, Stanley & Co., Incorporated,
SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-
Action Letter (July 2, 1993).
Profit on any resale of the notes issued in the exchange and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer,
Huntsman ICI Chemicals will promptly send additional copies of this prospectus
and any amendment or supplement to this prospectus to any broker-dealer that
requests such documents in the letter of transmittal. Huntsman ICI Chemicals
has agreed to pay all expenses incident to the exchange offer, including the
expenses of one counsel for the holders of the notes, other than the
commissions or concessions of any broker-dealers and will indemnify the holders
of the notes, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act. We note, however, that, in the
opinion of the SEC, indemnification against liabilities arising under federal
securities laws is against public policy and may be unenforceable.
148
<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the anticipated material U.S. federal
income consequences relating to the exchange of the notes to a holder of a
note.
This discussion is based on laws, regulations, rulings and decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
Huntsman ICI Chemicals has obtained an opinion of counsel with respect to the
anticipated material U.S. federal income tax consequences of the exchange,
which are summarized below. There can be no assurance that the IRS will not
challenge one or more of the tax consequences described herein, and Huntsman
ICI Chemicals has not obtained, nor does it intend to obtain, a ruling from the
IRS as to any U.S. federal income tax consequences relating to the notes.
This discussion deals only with holders of notes who hold the notes as
capital assets and acquire the notes pursuant to this exchange offer. This
discussion does not address tax consequences arising under the laws of any
foreign, state or local jurisdiction and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as rules
relating to financial institutions and banks; tax-exempt organizations;
insurance companies; dealers in securities; persons who own directly, or by
attribution, 10% or more of the capital or profits interests in Huntsman ICI
Chemicals; persons having a functional currency other than the U.S. dollar;
persons treated as related to Huntsman ICI Chemicals; and persons who hold
notes as part of hedge, conversion or constructive sale transaction, or
straddle or other risk reduction transaction.
Furthermore, this discussion generally does not address the tax
consequences applicable to holders that hold their notes through partnerships
or other passthrough entitles for U.S. federal income tax purposes. Propsective
investors are urged to consult their tax advisors regarding the U.S. federal
tax consequences of acquiring, holding and disposing of the notes, as well as
any tax consequences that may arise under the laws of any foreign, state, local
or other taxing jurisdiction.
The Exchange Offer
An exchange of the notes for the exchange notes pursuant to the exchange
offer will be ignored for U.S. federal income tax purposes, assuming, as
expected, that the terms of the exchange notes are substantially identical to
the terms of the notes. Consequently, a holder of the notes will not recognize
taxable gain or loss as a result of exchanging notes pursuant to the exchange
offer. The holding period of the exchange notes will be the same as the holding
period of the notes and the tax basis in the exchange notes will be the same as
the basis in the notes immediately before the exchange.
149
<PAGE>
LEGAL MATTERS
Certain legal matters as to the validity of the notes and guarantees
offered hereby will be passed upon for Huntsman ICI Chemicals, Huntsman ICI
Financial and Tioxide Group by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Certain legal matters as to the validity of the guarantee of
the notes by Tioxide Group will be passed upon for Tioxide Group by Slaughter
and May, London, England. Certain legal matters as to the validity of guarantee
of the notes by Tioxide Americas will be passed upon for Tioxide Americas by
Walkers, Cayman Islands.
EXPERTS
The financial statements of (1) Huntsman ICI Chemicals included in this
prospectus as of June 30, 1999 and (2) Huntsman Specialty Chemicals Corporation
included in this prospectus as of December 31, 1997 and 1998 and for the two
months ended February 28, 1997, the ten months ended December 31, 1997 and for
the year end December 31, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of Texaco Chemical Inc. included in this
prospectus to the extent and for the period indicated in their report have been
audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of such firm as experts in
giving such reports.
The combined financial statements of the polyurethane chemicals, TiO\\2\\
and selected petrochemicals businesses included in this prospectus for the
years ended December 31, 1996, 1997 and 1998 have been audited by KPMG Audit
Plc, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm as experts in accounting and
auditing.
GENERAL LISTING INFORMATION
Listing
We have applied to list the exchange notes on the Luxembourg Stock
Exchange. Our limited liability company agreement and the legal notice relating
to the issue of the exchange notes will be deposited prior to any listing with
the Registrar of the District Court in Luxembourg (Greffier en Chef du Tribunal
d'Arrondissement a Luxembourg), where such documents are available for
inspection and where copies thereof can be obtained upon request. As long as
the notes are listed on the Luxembourg Stock Exchange, an agent for making
payments on, and transfers of, notes will be maintained in Luxembourg.
The notes denominated in euros have been accepted for clearance by
Euroclear under the common code . The ISIN for the notes denominated in
euros is .
The CUSIP number for the notes denominated in dollars is .
The issuance of the notes was authorized by the Managers of Huntsman ICI
Chemicals by unanimous written consent on June 22, 1999.
Documents
For so long as the notes are listed on the Luxembourg Stock Exchange and
the rules of such exchange so require, copies of the following documents may be
inspected at the specified office of the Paying Agent and Registrar in
Luxembourg:
. Limited Liability Company Agreement of Huntsman ICI Chemicals LLC;
. the indenture relating to the notes, which includes the forms of the
note certificates; and
150
<PAGE>
. the exchange and registration rights agreement.
In addition, copies of the most recent consolidated financial statements of
Huntsman ICI Chemicals for the preceding financial year, and any interim
quarterly financial statements published by Huntsman ICI Chemicals will be
available at the specified office of the Paying Agent in Luxembourg for so long
as the notes are listed on the Luxembourg Stock Exchange and the rules of such
exchange so require. The guarantors do not and will not publish separate
reports.
Responsibility Statement
Having made all reasonable inquiries, we confirm that this prospectus
contains all information with respect to Huntsman ICI Chemicals and the notes
which is material in the context of the issue and offering of the notes, that
such information is true and accurate in every material respect and is not
misleading in any material respect and that this prospectus does not omit to
state any material fact necessary to make such information not misleading. The
opinions, assumptions and intentions expressed in this prospectus with regard
to Huntsman ICI Chemicals are honestly held, have been reached after
considering all relevant circumstances and are based on reasonable assumptions.
We accept responsibility for the information contained in this prospectus
accordingly. We represent that, other than as contemplated by the pro forma
financial information presented in this prospectus, there has been no material
adverse change in our financial position since September 30, 1999.
151
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Huntsman ICI Holdings LLC and Subsidiaries:
Independent Auditors' Report--Deloitte & Touche LLP ..................... F-2
Consolidated Balance Sheet as of June 30, 1999 (Date of Initial
Capitalization)......................................................... F-3
Notes to Consolidated Balance Sheet...................................... F-4
Consolidated Balance Sheets as of December 31, 1998 and September 30,
1999 (Unaudited) ....................................................... F-6
Consolidated Statements of Comprehensive Income for the nine months ended
September 30, 1998, the six months ended June 30, 1999, and the three
months
ended September 30, 1999 (Unaudited).................................... F-7
Consolidated Statements of Members' Equity for the nine months ended
September 30, 1999 (Unaudited).......................................... F-8
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998, the six months ended June 30, 1999, and the three
months ended September 30, 1999 (Unaudited)............................. F-9
Notes to Consolidated Financial Statements (Unaudited) .................. F-10
Huntsman Specialty Chemicals Corporation and its Predecessor:
Independent Auditors' Report--Deloitte & Touche LLP...................... F-26
Report of Independent Public Accountants--Arthur Andersen LLP............ F-27
Balance Sheets as of December 31, 1997 and 1998.......................... F-28
Statements of Operations for the year ended December 31, 1996 and the two
months ended February 28, 1997 and the ten months ended December 31,
1997 and the year ended December 31, 1998............................... F-30
Statements of Stockholders' Equity for the year ended December 31, 1996,
the two months ended February 28, 1997, the ten months ended December
31, 1997 and the year ended December 31, 1998 .......................... F-31
Statements of Cash Flows for the year ended December 31, 1996, the two
months ended February 28, 1997, the ten months ended December 31, 1997
and the year ended December 31, 1998.................................... F-32
Notes to Financial Statements............................................ F-33
ICI Businesses:
Independent Auditors Report--KPMG Audit Plc.............................. F-46
Combined Profit and Loss Accounts for the years ended December 31, 1996,
1997
and 1998................................................................ F-47
Combined Statements of Total Recognised Gains and Losses for the years
ended
December 31, 1996, 1997 and 1998........................................ F-47
Combined Balance Sheets as at December 31, 1997 and 1998................. F-48
Combined Cash Flow Statements for the years ended December 31, 1996,
1997 and 1998........................................................... F-49
Reconciliation of Movements in Combined Net Investment for the years
ended
December 31, 1996, 1997 and 1998........................................ F-49
Notes to the Combined Financial Statements............................... F-50
Unaudited Condensed Combined Profit and Loss Accounts for the six months
ended
June 30, 1998 and June 30, 1999......................................... F-80
Unaudited Condensed Combined Balance Sheets as at December 31, 1998 and
June 30, 1999........................................................... F-81
Unaudited Condensed Combined Cash Flow Statements for the six months
ended June 30, 1998 and 1999............................................ F-82
Notes to the Unaudited Condensed Combined Financial Statements........... F-83
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman ICI Chemicals LLC
We have audited the accompanying balance sheet of Huntsman ICI Chemicals
LLC (the "Company") (a wholly-owned subsidiary of Huntsman ICI Holdings LLC) as
of June 30, 1999 (date of initial capitalization). This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company at June 30, 1999 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
August 12, 1999
F-2
<PAGE>
HUNTSMAN ICI CHEMICALS LLC
(a wholly-owned subsidiary of Huntsman ICI Holdings LLC)
BALANCE SHEET
June 30, 1999 (Date of Initial Capitalization)
<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $1,000
------
TOTAL.................................................................... $1,000
======
MEMBER'S EQUITY
Member's Equity.......................................................... $1,000
------
TOTAL.................................................................... $1,000
======
</TABLE>
See notes to balance sheet.
F-3
<PAGE>
HUNTSMAN ICI CHEMICALS LLC
(a wholly-owned subsidiary of Huntsman ICI Holdings LLC)
NOTES TO BALANCE SHEET
As of June 30, 1999 (Date of Initial Capitalization)
1. GENERAL
The accompanying balance sheet includes the accounts of Huntsman ICI
Chemicals LLC (the Company), a wholly owned subsidiary of Huntsman ICI
Holdings LLC (Holdings). The Company was incorporated on April 12, 1999
for the purpose of entering into a Contribution Agreement to acquire
certain businesses of Imperial Chemical Industries PLC (ICI) discussed in
Note 2 and the propylene oxide (PO) business of Huntsman Specialty
Chemical Company (HSCC). Holdings and HSCC are majority-owned subsidiaries
of Huntsman Corporation. The Company was initially funded on
June 30, 1999.
Use of Estimates in Preparing Financial Statements--The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. SUBSEQUENT EVENTS
Effective July 1, 1999, pursuant to a contribution agreement and ancillary
agreements between the Company, HSCC, ICI, and Holdings, the Company
acquired assets and stock representing ICI's polyurethene chemicals,
selected petrochemicals, (including ICI's 80% interest in the Wilton
olefins facility), and TiO\\2\\ businesses and HSCC's PO business. In
addition, at the close of business on June 30, 1999, the Company also
acquired the remaining 20% ownership interest in the Wilton olefins
facility from BP Chemicals, Limited (BP Chemicals) for approximately $117
million.
In exchange for transferring its business to the Company, HSCC (1)
retained a 60% common equity interest in Holdings and (2) received
approximately $360 million in cash. In exchange for transferring its
business to the Company, ICI received (1) a 30% common equity interest in
Holdings, (2) approximately $2 billion in cash that was paid in a
combination of U.S. dollars and euros, and (3) discount notes of Holdings
with approximately $508 million of accreted value at issuance. The
obligations of the discount notes from Holdings are non-recourse to the
Company. BT Capital Investors, L.P., Chase Equity Associates, L.P., and
the Goldman Sachs Group acquired the remaining 10% common equity interest
in Holdings for approximately $90 million cash.
The sources to finance the above transactions are summarized as follows
(in millions):
<TABLE>
<S> <C>
Senior secured credit facilities...................................... $1,683
Senior subordinated notes............................................. 807
Cash equity contributed by Holdings................................... 508
Cash equity from institutional investors.............................. 90
------
Total sources......................................................... $3,088
======
</TABLE>
F-4
<PAGE>
HSCC is considered the acquiror of the businesses transferred to the
Company in connection with the transaction with ICI and HSCC because the
shareholders of HSCC acquired majority control of the businesses
transferred to the Company. The transactions with ICI and BP Chemicals
will be accounted for as purchase transactions, and accordingly, the
financial statements of the Company effective July 1, 1999 will reflect
the purchase price (including transaction costs and liabilities assumed)
based upon the estimated fair values.
3. BORROWING ARRANGEMENTS
The Senior Secured Credit Facilities will allow the Company to borrow up
to an aggregate of $2,070 million comprised of as follows (in millions):
<TABLE>
<S> <C>
Revolving loan....................................................... $ 400
Term A dollar loan................................................... 240
Term A euro loan (in U.S. dollar equivalent)......................... 300
Term B loan.......................................................... 565
Term C loan.......................................................... 565
------
Total................................................................ $2,070
======
</TABLE>
Both the term A dollar loan facility and the term A euro loan facility
mature on June 30, 2005 and are payable in semi-annual installments
commencing December 31, 2000 with the amortization increasing over time.
The term B loan facility matures on June 30, 2007 and the term C loan
facility matures on June 30, 2008. Both the term B and term C loan
facilities require repayments in annual installments of $5.65 million
each, commencing June 30, 2000, with the remaining unpaid balance due on
final maturity. The revolving loan facility matures on June 30, 2005 with
no scheduled commitment reductions.
Interest rates for the Senior Secured Credit Facilities are based upon, at
the Company's option, either a eurocurrency rate or a base rate plus a
spread. The applicable spreads vary based on a pricing grid, in the case
of eurocurrency based loans, from 1.25% to 3.50% per annum depending on
the loan facility and whether specified conditions have been satisfied
and, in the case of base rate loans, from 0% to 2.25% per annum.
The obligations under the Senior Secured Credit Facilities are supported
by guarantees of certain other subsidiaries (Tioxide Group Limited,
Tioxide America, Inc., and Huntsman ICI Financial LLC) and Holdings as
well as pledges of 65% of the voting stock of certain non-U.S.
subsidiaries. The Senior Secured Credit Facilities contain covenants
relating to incurrence of debt, purchase and sale of assets, limitations
on investments, affiliate transactions and maintenance of certain
financial ratios. The Senior Secured Credit Facilities limit the payment
of dividends generally to the amount required by the members to pay income
taxes.
The Company issued $600 million and (Euro) 200 million 10 1/8% Senior
Subordinated Notes (the Notes). Interest on the Notes is payable semi-
annually and the Notes mature on July 1, 2009. The Notes will be
guaranteed by the Company's domestic subsidiaries and certain non-U.S.
subsidiaries. The Notes may be redeemed, in whole or in part, at any time
by the Company on or after July 1, 2004, at percentages ranging from 105%
to 100% at July 1, 2007 of their face amount, plus accrued and unpaid
interest. The Notes contain covenants relating to the incurrence of debt,
limitations on distributions, asset sales and affiliate transactions,
among other things. The Notes also contain a change in control provision
requiring the Company to offer to repurchase the Notes upon a change in
control.
F-5
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 31, 1998 September 30, 1999
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 2.6 $ 67.4
Accounts and notes receivables, net... 50.4 597.5
Inventories........................... 19.7 377.6
Other current assets.................. 0.9 86.4
------ --------
Total current assets................ 73.6 1,128.9
Property, plant and equipment, net...... 385.1 2,707.2
Investment in unconsolidated
affiliates............................. 0.0 242.9
Intangible assets, net.................. 103.6 332.5
Other noncurrent assets................. 15.3 202.7
------ --------
Total assets........................ $577.6 $4,614.2
====== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable...................... $ 26.0 $ 387.0
Accrued liabilities................... 13.8 201.0
Deferred income taxes................. 3.4 0.0
Current portion of long-term debt..... 0.0 11.3
Other current liabilities............. 0.0 28.4
------ --------
Total current liabilities........... 43.2 627.7
Long-term debt.......................... 427.6 2,495.0
Deferred income taxes................... 4.3 281.4
Other noncurrent liabilities............ 0.0 96.0
------ --------
Total liabilities................... 475.1 3,500.1
Minority interests...................... 0.0 6.7
Mandatorily redeemable preferred stock.. 71.9 0.0
------ --------
Equity:
Members' equity, 1,000 units.......... 0.0 1,031.6
Common stock.......................... 0.0 0.0
Additional paid-in capital............ 25.0 0.0
Retained earnings..................... 5.6 53.3
Accumulated other comprehensive
income............................... 0.0 22.5
------ --------
Total equity........................ 30.6 1,107.4
------ --------
Total liabilities and equity........ $577.6 $4,614.2
====== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor Company
------------------------
Nine Months Six Months Three Months
Ended Ended Ended
September 30, June 30, September 30,
1998 1999 1999
------------- ---------- -------------
<S> <C> <C> <C>
Revenues:
Trade sales and services............. $224.6 $163.0 $793.6
Related party sales.................. 25.6 29.0 167.6
------ ------ ------
250.2 192.0 961.2
Cost of goods sold..................... 210.3 134.1 763.0
------ ------ ------
Gross profit........................... 39.9 57.9 198.2
Expenses:
Selling, general and administrative.. 3.9 3.3 65.0
Research and development............. 2.2 2.0 19.3
------ ------ ------
Operating income ...................... 33.8 52.6 113.9
Interest expense....................... 31.2 18.3 53.2
Interest income........................ 0.8 0.3 0.8
Other income........................... 0.0 0.0 0.5
------ ------ ------
Income before income taxes............. 3.4 34.6 62.0
Income tax expense..................... 1.3 13.1 7.9
Minority interests in subsidiaries..... 0.0 0.0 0.8
------ ------ ------
Net income............................. 2.1 21.5 53.2
Preferred stock dividends.............. 3.2 2.2 0.0
------ ------ ------
Net income (loss) available to common
equity holders........................ (1.1) 19.3 53.2
Other comprehensive income--foreign
currency translation adjustments...... 0.0 0.0 22.5
------ ------ ------
Comprehensive income (loss)............ $ (1.1) $ 19.3 $ 75.8
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
Consolidated Statements of Members' Equity (Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Common stock/ Accumulated
Members' equity Additional Other
-------------------- Paid-in Retained Comprehensive
Shares/Units Amount Capital Earnings Income Total
------------------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company:
Balance, January 1,
1999................... 2,500 $ 0.0 $25.0 $ 5.6 $ 0.0 $ 30.6
Net income.............. 21.5 21.5
Dividends accrued on
mandatorily redeemable
preferred stock........ (2.2) (2.2)
-------- ----------- ----- ----- ----- --------
2,500 $ 0.0 $25.0 $24.9 $ 0.0 $ 49.9
======== =========== ===== ===== ===== ========
Successor:
Capital contribution
from Huntsman ICI
Holdings LLC
("Holdings")........... 1,000 $1,651.6 1,651.6
Distributions to
members................ (620.0) (620.0)
Net income.............. 53.3 53.3
Foreign currency
translation
adjustments............ 22.5 22.5
-------- ----------- ----- ----- ----- --------
Balance, September 30,
1999................... 1,000 $ 1,031.6 $ 0.0 $53.3 $22.5 $1,107.4
======== =========== ===== ===== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor
Company
------------------------
Nine months Six months Three months
Ended Ended Ended
September 30, June 30, September 30,
1998 1999 1999
------------- ---------- -------------
<S> <C> <C> <C>
Net Cash Provided by Operating
Activities............................. $ 15.5 $ 40.5 $ 134.9
Investing Activities:
Purchase of businesses from ICI, net
of cash acquired..................... 0.0 0.0 2,284.8
Purchase of business from BP
Chemicals, Limited................... 0.0 0.0 116.6
Capital expenditures.................. 9.6 4.0 59.9
------ ------ --------
Net cash used in investing
activities......................... 9.6 4.0 2,461.3
Financing Activities:
Borrowings under senior credit
facilities........................... 0.0 0.0 1,670.0
Repayments of senior credit
facilities........................... (16.0) (35.0) 0.0
Issuance of senior subordinated
notes................................ 0.0 0.0 807.0
Debt issuance costs................... 0.0 0.0 (74.3)
Cash contributions by parent.......... 0.0 0.0 598.0
Cash distribution to members.......... 0.0 0.0 (620.0)
------ ------ --------
Net cash provided by (used in)
financing activities............... (16.0) (35.0) 2,380.7
------ ------ --------
Effect of exchange rate changes on
cash................................... 0.0 0.0 13.1
------ ------ --------
Increase (decrease) in cash and cash
equivalents............................ (10.1) 1.5 67.4
Cash and cash equivalents at beginning
of period.............................. 10.1 2.6 0.0
------ ------ --------
Cash and cash equivalents at end of
period................................. $ 0.0 $ 4.1 $ 67.4
====== ====== ========
Non-Cash Financing and Investing
Activities:
Non-cash capital contribution by
members.............................. $ 0.0 $ 0.0 $1,053.0
====== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
Effective at the close of business on June 30, 1999, pursuant to a
contribution agreement and ancillary agreements between Huntsman ICI Holdings
LLC ("Holdings" or the "Company"), Huntsman Specialty Chemical Corporation
("HSCC"), Imperial Chemical Industries PLC ("ICI") and Huntsman ICI Chemicals
LLC ("Chemicals"), the Company acquired assets and stock representing ICI's
polyurethane chemicals, selected petrochemicals (including ICI's 80% interest
in the Wilton olefins facility,) and titanium dioxide businesses and HSCC's
propylene oxide business. In addition, the Company also acquired the remaining
20% ownership interest in the Wilton olefins facility from BP Chemicals Limited
("BP Chemicals") for approximately $117 million.
The Company, through its wholly-owned subsidiary Chemicals, manufactures
products used in a wide variety of industrial and consumer-related
applications. The Company's principal products are methylene diphenyl
discocyanate ("MDI"), propylene oxide ("PO"), ethylene, propylene, and titanium
dioxide ("TiO\\2\\").
In exchange for transferring its business, HSCC retained a 60% common
equity interest in Holdings and received approximately $360 million in cash. In
exchange for transferring its businesses, ICI received a 30% common equity
interest in Holdings, approximately $2 billion in cash that was paid in a
combination of U.S. dollars and euros, and discount notes of Holdings with
approximately $508 million of accreted value at issuance. The cash proceeds of
the Holdings discount notes issued to ICI were contributed by the Company as
equity to Chemicals. The obligations of the discount notes from Holdings are
non-recourse to Chemicals. BT Capital Investors, LP, Chase Equity Associates,
LP, and the Goldman Sachs Group acquired the remaining 10% common equity
interest in Holdings for $90 million in cash.
The sources to finance the above transactions are summarized as follows (in
millions):
<TABLE>
<S> <C>
Senior secured credit facilities at Chemicals...................... $ 1,683
Senior subordinated notes of Chemicals............................. 807
Cash equity contributed by Holdings................................ 598
--------
Total sources.................................................. $ 3,088
========
</TABLE>
HSCC is considered the acquirer and predecessor of the businesses
transferred to the Company in connection with the transaction because the
shareholders of HSCC acquired majority control of the businesses transferred to
the Company. The transactions with ICI and BP Chemicals are accounted for as
purchase transactions. Accordingly, the balance sheet as of September 30, 1999
is not comparable to the historical HSCC balance sheet as of December 31, 1998.
Operating results prior to July 1, 1999 are not comparable to the operating
results subsequent to such date due to the transaction.
The total consideration to ICI of cash and the value of common equity
interest in Holdings was approximately $2.9 billion, including expenses and
liabilities assumed. The excess of the purchase price over the estimated fair
value of net tangible assets acquired has been recorded as identifiable
intangibles ($127 million) and goodwill ($41.6 million) which are being
amortized over 5 to 15 years and 20 years, respectively.
The total consideration paid to BP Chemicals was allocated to tangible
assets.
F-10
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets..................................................... $ 997
Plant and equipment................................................ 2,248
Investments in unconsolidated affiliates .......................... 246
Intangible assets (patents, know-how, non-compete agreements and
goodwill)......................................................... 169
Other assets....................................................... 168
Liabilities assumed................................................ (932)
------
Total............................................................ $2,896
======
</TABLE>
The allocation of the purchase price for ICI and BP Chemicals is
preliminary as valuation and other studies have not been finalized. It is not
expected that the final allocation will produce materially different results
from those presented therein.
The following unaudited pro forma data (in millions) has been prepared
assuming that the transaction (excluding the acquisition of 20% of the Wilton
olefins facility from BP Chemicals) and related financing were consummated at
the beginning of each period presented.
<TABLE>
<CAPTION>
Nine months
Ended
September 30,
-------------
1998 1999
<S> <C> <C>
Revenues.................................................... $2,786 $2,832
Net income ................................................. 21 96
</TABLE>
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include its majority
owned subsidiaries. Intercompany transactions and balances are eliminated. HSCC
is considered the accounting acquirer and, accordingly, the balance sheet as of
December 31, 1998 and operating results prior to July 1, 1999 reflect the
historical financial position and results of operations of HSCC. The
consolidated balance sheet and operating results as of September 30, 1999 and
for the three months ended September 30, 1999 are not comparable as such
amounts include the businesses transferred to the Company from ICI and
purchased from BP Chemicals.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Flow Information
Highly liquid investments with an original maturity of three months or less
when purchased are considered to be cash equivalents. For the nine months ended
September 30, 1998, the Company paid $0.0 million in income taxes and paid
$25.2 million in interest expense. For the six months ended June 30, 1999, the
Company paid $12.7 million in interest expense. For the three months ended
September 30, 1999, the Company paid $4.0 million in income taxes and $47.9
million in interest expense.
Inventories
Inventories are stated at the lower of cost or market using the weighted
average method.
F-11
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided
utilizing the straight-line method over the estimated useful lives of the
assets, ranging from 3 to 20 years. Upon disposal of assets, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in income. Approximately $441.9 million in
plant and equipment are depreciated using the straight-line method on a group
basis at a 5.0% composite rate. When capital assets representing complete
groups of property are disposed of, the difference between the disposal
proceeds and net book value is credited or charged to income. When
miscellaneous assets are disposed of, the difference between asset costs and
salvage value is charged or credited to accumulated depreciation.
Periodic maintenance and repairs applicable to major units of manufacturing
facilities are accounted for on the prepaid basis by capitalizing the costs of
the turnaround and amortizing the costs over the estimated period until the
next turnaround. Normal maintenance and repairs of all other plant and
equipment are charged to expense as incurred. Renewals, betterments and major
repairs that materially extend the useful life of the assets are capitalized,
and the assets replaced, if any, are retired. Interest costs are capitalized as
part of major construction projects.
Interest expense capitalized as part of plant and equipment was $0.3
million and $5.7 million for nine months ended September 30, 1998 and 1999.
Investment in Unconsolidated Affiliates
Investments in companies in which the Company's ownership interest ranges
from 20% to 50% are accounted for using the equity method.
Intangible Assets
Debt issuance costs are amortized over the term of the related debt,
ranging from six to ten years. Goodwill is amortized over a period of 20 years.
Other intangible assets are stated at their fair market values at the time of
acquisition, and are amortized using the straight-line method over their
estimated useful lives. The useful lives of patents, trademarks and technology
are amortized over 15 years. Non-compete agreements are amortized over five
years and the useful lives of other agreements average 10 years.
Carrying Value of Long-Term Assets
The Company evaluates the carrying value of long-term assets based upon
current and anticipated undiscounted cash flows, and recognizes an impairment
when such estimated cash flows will be less than the carrying value of the
asset. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
Financial Instruments
The carrying amount reported in the balance sheet for cash and cash
equivalents, accounts receivable, and accounts payable approximates fair value
because of the immediate or short-term maturity of these financial instruments.
The carrying value of the senior credit facilities approximate fair value since
they bear interest at a floating rate plus an applicable margin. The fair value
of the Senior Subordinated Notes approximates book value.
F-12
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The Company uses derivative financial instruments as part of its interest
rate risk management. Interest rate swaps, caps, collars and floors are
classified as matched transactions. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment to interest
expense. The related amount payable to or receivable from counterparties is
included in accounts receivable or accrued liabilities. Gains and losses on
terminations of interest rate agreements are deferred and amortized over the
lesser of the remaining term of the original contract or the life of debt. The
premiums paid for the interest rate agreements are included as other assets and
are amortized to expense over the term of the agreements.
The Company also uses financial instruments to hedge financial risk caused
by fluctuating currency rates. Forward points on foreign exchange forward
contracts designated as hedges of foreign exchange risk are amortized over the
lives of the contracts. Realized and unrealized gains and losses on foreign
exchange transactions that are designated and effective as hedges are
recognized in the same period as the hedged transaction. The carrying amounts
of foreign currency options and option combinations are adjusted for changes in
fair value at each balance sheet date. Foreign exchange contracts not
designated as hedges are marked-to-market at the end of each accounting period.
As of September 30, 1999, the Company had approximately $39.2 million
equivalent notional amount of short term forward contracts to sell various
currencies.
The Company enters into various commodity contracts, including future,
options and swap agreements to hedge its purchase of commodity products used in
the Company's business. These contracts are predominantly settled in cash. For
those contracts that are designated and effective as hedges, gains and losses
are accounted for as part of the basis of the related commodity purchases. For
contracts accounted for as hedges that are terminated before their maturity
date, gains and losses are deferred and included in the basis of the related
commodity purchases. Commodity contracts not accounted for as hedges are
marked-to-market at the end of each accounting period with the related gains
and losses recognized in cost of goods sold.
At September 30, 1999, the Company had forward purchase contracts for
92,000 metric tons of naptha and propane, which qualify for hedge accounting.
Accordingly, unrealized gains on these contracts of $0.4 million were deferred
at September 30, 1999. In addition at September 30, 1999, the Company had
forward purchase and sales contracts for 520,000 and 304,000 metric tons
(primarily naptha and other hydrocarbons), respectively, which do not qualify
for hedge accounting. Unrealized gains and losses on these purchase and sale
contracts amounted to $21.0 million and $12.3 million, respectively. During the
three months ended September 30, 1999, the Company recorded $24.7 million as a
reduction to costs of goods sold related to net gains from settled forward
purchase contracts and unrealized gains and losses for contracts which do not
qualify as hedges. At September 30, 1999, included in other assets and accrued
liabilities for all contracts, were $21.4 million and $12.3 million,
respectively, related to these contracts.
The fair values of financial instruments are the amounts at which they
could be settled. The Company calculates the fair value of financial
instruments using quoted market prices whenever available. When quoted market
prices are not available estimates are obtained from dealers or calculated
using the present value of estimated future cash flows.
The Company is exposed to credit losses in the event of nonperformance by a
counterparty to the financial instruments. The Company anticipates, however,
that the counterparties will be able to fully satisfy obligations under the
contracts.
F-13
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Income Taxes
The Company and its U.S. subsidiaries are organized as Limited Liability
Corporations. The Company is treated similar to a partnership for U.S. income
tax purposes, and therefore is not subject to U.S. federal tax on its income.
Subsidiaries outside the U.S. are generally taxed on the income generated in
the local country.
Deferred income taxes are provided for temporary differences between
financial statement income and taxable income using the asset and liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes". Provision is made for taxes on
undistributed earnings of foreign subsidiaries to the extent that such earnings
are not considered to be permanently invested.
Environmental Expenditures
Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation
and clean-up obligations are either known or considered probable and the
related costs can be reasonably estimated. Other environmental expenditures,
which are principally maintenance or preventative in nature, are recorded when
expended and are expensed or capitalized as appropriate.
Foreign Currency Translation
Generally, the accounts of the Company's subsidiaries outside of the United
States consider local currency to be functional currency. Accordingly, assets
and liabilities are translated at rates prevailing at the balance sheet date.
Revenues, expenses, gains, and losses are translated at a weighted average rate
for the period. Cumulative translation adjustments are recorded to equity as a
component of accumulated other comprehensive income. Transaction gains and
losses are recorded in the statement of operations and were $(2.6) million for
the three months ended September 30, 1999. Gains and losses in other periods
presented were $0.0 million.
Revenue Recognition
The Company generates revenues through sales in the open market, raw
material conversion agreements and long-term supply contracts. The Company
recognizes revenues as the product is shipped.
Research and Development
Research and development costs are expensed as incurred.
Income per Share
Income per share is not presented because it is not considered meaningful
information due to the Company's non-public, closely held ownership structure.
Reclassifications
Certain amounts in the consolidated financial statements for prior periods
have been reclassified to conform with the current presentation.
F-14
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Interim Financial Information
The accompanying financial statements of the Company are unaudited;
however, in management's opinion, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of results of
operations, financial position and cash flows for the periods shown, have been
made. Results for interim periods are not necessarily indicative of those to be
expected for the full year.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
established accounting and reporting standards for derivatives and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company is currently in the
process of evaluating the impact of this statement on its financial statements.
3. Inventories
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 31, 1998 September 30, 1999
------------------- ------------------
<S> <C> <C>
Raw materials...................... $ 5.2 $ 78.1
Work in progress................... 1.0 18.1
Finished goods..................... 12.9 246.4
------ ------
19.1 342.6
Materials and supplies............. 0.6 35.0
------ ------
Total.......................... $ 19.7 $377.6
====== ======
</TABLE>
In the normal course of operations, the Company exchanges raw materials
with other companies. No gains or losses are recognized on these exchanges, and
the net open exchange positions are valued at the Company's cost. Net amounts
deducted from inventory under open exchange agreements owed by the Company at
September 30, 1998 and 1999 were $0.4 million (0.9 million pounds of feedstock
and products) and $2.8 million (5.5 million pounds of feedstock and products),
respectively, which present the net amounts payable by the Company under open
exchange agreements.
F-15
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
4. Property, Plant and Equipment
The cost and accumulated depreciation of property, plant and equipment are
as follows (in millions):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 31, 1998 September 30, 1999
------------------- ------------------
<S> <C> <C>
Land.............................. $ 3.6 $ 50.2
Buildings......................... 1.7 109.0
Plant and equipment............... 413.5 2,370.3
Construction in progress.......... 3.8 266.0
------ --------
Total......................... 422.6 2,795.5
Less accumulated depreciation..... 37.5 88.3
------ --------
Net........................... $385.1 $2,707.2
====== ========
</TABLE>
5. Intangible Assets
Intangible assets, net of accumulated amortization are (in millions):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 31, 1998 September 30, 1999
------------------- ------------------
<S> <C> <C>
Patents, trademarks, and
technology..................... $ 90.2 $190.1
Debt issuance costs............. 11.8 79.8
Non-compete agreements.......... 1.5 28.5
Other agreements................ 17.8 17.8
Goodwill........................ 41.6
------ ------
Total intangibles........... 121.3 357.8
Less accumulated amortization... 17.7 25.3
------ ------
Net intangibles............. $103.6 $332.5
====== ======
</TABLE>
6. Other Noncurrent Assets
Other assets consisted of the following (in millions):
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 31, 1998 September 30, 1999
------------------- ------------------
<S> <C> <C>
Prepaid pension assets............ $ 0.0 $172.8
Capitalized turnaround expense.... 14.0 11.4
Spare parts inventory............. 0.6 18.5
Other noncurrent assets........... 0.7 0.0
----- ------
Total......................... $15.3 $202.7
===== ======
</TABLE>
F-16
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. Long-Term Debt
Long-term debt outstanding as of September 30, 1999 is as follows (in
millions):
<TABLE>
<S> <C>
Senior Secured Credit Facilities:
Revolving loan facility....................................... $ 0.0
Term A dollar loan............................................ 240.0
Term A euro loan (in U.S. dollar equivalent).................. 306.9
Term B loan................................................... 565.0
Term C loan................................................... 565.0
Senior Subordinated Notes....................................... 812.2
Other long-term debt............................................ 17.2
--------
Subtotal.................................................... 2,506.3
Less Current Portion............................................ 11.3
--------
Total....................................................... $2,495.0
========
</TABLE>
The Senior Secured Credit Facilities will allow the Company to borrow up to
an aggregate of $2,077 million comprised as follows (in millions):
<TABLE>
<S> <C>
Revolving loan facility......................................... $ 400.0
Term A dollar loan.............................................. 240.0
Term A euro loan (in U.S. dollar equivalent).................... 307.0
Term B loan..................................................... 565.0
Term C loan..................................................... 565.0
--------
Total....................................................... $2,077.0
========
</TABLE>
The revolving loan facility matures on June 30, 2005 with no scheduled
commitment reductions. Both the term A dollar loan facility and the term A euro
loan facility mature on June 30, 2005 and are payable in semi-annual
installments commencing December 31, 2000 with the amortization increasing over
time. The term B loan facility matures on June 30, 2007 and the term C loan
facility matures on June 30, 2008. Both the term B and term C loan facilities
require payments in annual installments of $5.65 million each, commencing June
30, 2000, with the remaining unpaid balance due on final maturity.
The scheduled maturities of long-term debt are as follow (in millions):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 36.3
2001 86.3
2002 121.3
2003 136.3
2004 146.3
Later Years 1,979.8
</TABLE>
Interest rates for the Senior Secured Credit Facilities are based upon, at
the Company's option, either a eurocurrency rate or a base rate plus a spread.
The applicable spreads vary based on a
F-17
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
pricing grid, in the case of eurocurrency based loans, from 1.25% to 3.50% per
annum depending on the loan facility and whether specified conditions have been
satisfied and, in the case of base rate loans, from zero to 2.25% per annum.
The obligations under the Senior Secured Credit Facilities are supported by
guarantees of certain subsidiaries of Chemicals (Tioxide Group, Tioxide
America, Inc., and Huntsman ICI Financial LLC) and Holdings as well as pledges
of 65% of the voting stock of certain non-U.S. subsidiaries. The Senior Secured
Credit Facilities contain covenants relating to incurrence of debt, purchase
and sale of assets, limitations on investments, affiliate transactions and
maintenance of certain financial ratios. The Senior Secured Credit Facilities
limit the payment of dividends generally to the amount required by the members
to pay income taxes.
The Company issued $600 million and (Euro)200 million of 10.125% Senior
Subordinated Notes (the "Notes"). Interest on the Notes is payable semi-
annually and the Notes mature on July 1, 2009. The Notes will be guaranteed by
certain of the Company's subsidiaries (Tioxide Group, Tioxide Americas, Inc.
and Huntsman ICI Financial LLC). The Notes may be redeemed, in whole or in
part, at any time by the Company on or after July 1, 2004, at percentages
ranging from 105% to 100% at July 1, 2007 of their face amount, plus accrued
and unpaid interest. The Notes contain covenants relating to the incurrence of
debt, limitations on distributions, asset sales and affiliate transactions,
among other things. The Notes also contain a change in control provision
requiring Chemicals to offer to repurchase the Notes upon a change in control.
The Company enters into various types of interest rate contracts to manage
interest rate risks on long-term debt. The Company has the following
outstanding at September 30, 1999:
. Pay Fixed Swaps--$390 million notional amount, weighted average pay
rate of 6.16%, maturing 2000 through 2004.
. Interest Rate Collars--$275 million notional amount, weighted average
cap rate of 6.99%, weighted average floor rate of 5.35%, maturing 2002
through 2004.
. Forward Rate Agreements--$675 million notional amount, weighted average
rate of 5.97%, effective for the quarter ending March 31, 2000.
8. Income taxes
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------------
Nine months Ended Six months Ended Three months Ended
September 30, 1998 June 30, 1999 September 30, 1999
------------------ ---------------- ------------------
<S> <C> <C> <C>
U.S.:
Current................ $0.7 $ 9.5 $0.2
Deferred............... 0.6 3.6 0.0
Foreign :
Current................ 0.0 0.0 5.2
Deferred............... 0.0 0.0 2.5
---- ----- ----
Total................ $1.3 $13.1 $7.9
==== ===== ====
</TABLE>
F-18
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following schedule reconciles the differences between the United States
federal income taxes at the United States statutory rate to the Company's
provision for income taxes, in millions of dollars:
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------------
Nine months Ended Six months Ended Three months Ended
September 30, 1998 June 30, 1999 September 30, 1999
------------------ ---------------- ------------------
<S> <C> <C> <C>
Income taxes at U.S.
federal statutory
rate................... $ 1.2 $12.1 $ 21.7
Income not subject to
U.S. federal income
tax.................... 0.0 (0.0) (10.7)
State income taxes...... 0.1 1.0 0.2
Foreign country
incentive tax
benefits............... 0.0 0.0 (3.5)
Foreign income taxes.... 0.0 0.0 0.2
----- ----- ------
Total provision
(benefit) income
taxes................ $ 1.3 $13.1 $ 7.9
----- ----- ------
Effective income tax
rate................... 38.2% 37.9% 12.7%
===== ===== ======
</TABLE>
The primary components of deferred tax assets and liabilities at September
30, 1999 are differences in book and tax basis in property, plant and
equipment, intangible assets and net operating loss carry forwards. The Company
has deferred tax assets of $43.0 million, against which valuation allowances of
$41.7 million have been recorded.
The Company does not provide for income taxes or benefits on the
undistributed earnings of its international subsidiaries as earnings are
reinvested and, in the opinion of management, will continue to be reinvested
indefinitely. In consideration of the Company's corporate structure, upon
distribution of these earnings, certain of the Company's subsidiaries would be
subject to both U.K. income taxes and withholding taxes in the various
international jurisdictions. It is not practicable to estimate the amount of
taxes that might be payable upon distribution.
9. Employee Benefit Plans
Defined Benefit and Other Postretirement Benefit Plans
The Company sponsors various contributory and non-contributory defined
benefit pension plans covering employees in the U.S., the U.K., Netherlands,
Belgium, Canada and a number of other countries. The Company funds the material
plans through trust arrangements (or local equivalents) where the assets of the
fund are held separately from the employer. The level of funding is in line
with local practice and in observance of the local tax and supervisory
requirements. The plan assets consist primarily of equity and fixed income
securities of both U.S. and non-U.S. issuers.
The Company also sponsors unfunded post-retirement benefit plans other than
pensions which provide medical and life insurance benefits covering certain
employees in the U.S. and Canada. In 1999, the healthcare trend rate used to
measure the expected increase in the cost of benefits was assumed to be 7% per
annum decreasing to 4.5% per annum after 5 years.
The Predecessor company sponsored no employee benefit plans.
F-19
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following table sets forth the funded status of the plans and the
amounts recognized in the consolidated balance sheets at June 30, 1999 (in
millions):
<TABLE>
<CAPTION>
Other Postretirement
Defined Benefit Plans Benefit Plans
--------------------- --------------------
<S> <C> <C>
Benefit obligation at June 30..... $(819.8) $(9.3)
Fair value of plan assets at June
30............................... 955.9 0.0
------- -----
Funded status..................... $ 136.1 $(9.3)
======= =====
Net prepaid pension assets
(liability) recognized in the
consolidated balance sheets...... $ 136.1 $(9.3)
======= =====
</TABLE>
The following assumptions were used in the above calculations:
<TABLE>
<CAPTION>
Other Postretirement
Defined Benefit Plans Benefit Plans
--------------------- --------------------
<S> <C> <C>
Weighted-average assumptions as
of June 30:
Discount rate.................. 5.96% 6.45%
Expected return on plan
assets........................ 7.22% 0.00%
Rate of compensation increase.. 3.70% 5.60%
The consolidated net periodic benefit cost for the three months ended
September 30, 1999 included the following components (in millions):
<CAPTION>
Other Postretirement
Defined Benefit Plans Benefit Plans
--------------------- --------------------
<S> <C> <C>
Benefit cost..................... $2.3 $0.3
Employer contribution cash....... 4.7 0.0
Benefits paid, unfunded plans.... 7.1 0.4
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the defined benefit plans with accumulated benefit
obligations in excess of plan assets were $36.0 million, $32.0 million and $5.0
million, respectively, as of June 30, 1999.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the defined benefit plans with plan assets in excess
of accumulated benefit obligations were $783.8 million, $728.6 million and
$950.9 million, respectively, as of June 30, 1999.
Defined Contribution Plans
The Company has defined contribution plans covering its domestic employees
and employees in some foreign subsidiaries who have completed applicable plan
service requirements.
The Company's total combined expense for the above defined contribution
plans for the three months ended September 30, 1999 was approximately $0.4
million.
10. Commitments and Contingencies
The Company has various purchase commitments for materials and supplies
entered into in the ordinary course of business. These agreements extend from
three to ten years and the purchase price is generally based on market prices
subject to certain minimum price provisions.
F-20
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, none of such litigation is
material to the Company's financial condition or results of operations.
11. Environmental Matters
The operation of any chemical manufacturing plant, the distribution of
chemical products and the related production of by-products and wastes, entail
risk of adverse environmental effects. The Company is subject to extensive
federal, state, local and foreign laws, regulations, rules and ordinances
relating to pollution, the protection of the environment and the generation,
storage, handling, transportation, treatment, disposal and remediation of
hazardous substances and waste materials. In the ordinary course of business,
the Company is subject continually to environmental inspections and monitoring
by governmental enforcement authorities. The Company may incur substantial
costs, including fines, damages and criminal or civil sanctions, or experience
interruptions in our operations for actual or alleged violations arising under
any environmental laws. In addition, production facilities require operating
permits that are subject to renewal, modification and, in some circumstances,
revocation. Violations of permit requirements can also result in restrictions
or prohibitions on plant operations, substantial fines and civil or criminal
sanctions. The Company's operations involve the generation, handling,
transportation, use and disposal of numerous hazardous substances. Changes in
regulations regarding the generation, handling, transportation, use and
disposal of hazardous substances could inhibit or interrupt operations and have
a material adverse effect on business. From time to time, these operations may
result in violations under environmental laws, including spills or other
releases of hazardous substances to the environment. In the event of a
catastrophic incident, the Company could incur material costs as a result of
addressing and implementing measures to prevent such incidents. Given the
nature of the Company's business, there can be no assurance that violations of
environmental laws will not result in restrictions imposed on the Company's
operating activities, substantial fines, penalties, damages or other costs. In
addition, potentially significant expenditures could be necessary in order to
comply with existing or future environmental laws.
12. Related Party Transactions
The Company shares numerous services and resources with Huntsman
Corporation ("HC", parent of HSCC), ICI, and subsidiaries of both companies. In
accordance with various agreements HC and ICI provide management, operating,
maintenance, steam, electricity, water and other services to the Company. The
Company also relies on HC, ICI and their subsidiaries to supply certain raw
materials and to purchase a significant portion of the facility's product.
Rubicon, Inc., Louisiana Pigment Company and Oligo SA are non-consolidated 50%
owned affiliates of the Company. The amounts, in millions of dollars, which the
Company purchased from or sold to related parties are as follows:
<TABLE>
<CAPTION>
Predecessor Company
-----------------------
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1999
----------------------- -----------------------
Purchases from Sales to Purchases from Sales to
-------------- -------- -------------- --------
<S> <C> <C> <C> <C>
HC and subsidiaries............ $19.9 $25.6 $ 34.3 $ 66.6
ICI and subsidiaries........... 0.0 0.0 146.6 100.8
Unconsolidated subsidiaries.... 0.0 0.0 100.6 0.2
</TABLE>
F-21
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The amounts which the Company is owed or owes to related parties are as
follows, in millions of dollars:
<TABLE>
<CAPTION>
Predecessor Company
----------------------------
September 30, 1998 September 30, 1999
---------------------------- ----------------------------
Receivables from Payables to Receivables from Payables to
---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Related parties...... $ 7.7 $ 4.8 $ 80.7 $ 117.3
</TABLE>
13. Lease Commitments and Rental Expense
The Company leases a number of assets which are accounted for as operating
leases. The lease obligation reflected in the Company's statements of income as
rental expense, included in "Cost of Goods Sold", totaled $10.0 million and
$2.7 million for the nine months ended September 30, 1998 and 1999
respectively. The minimum future rental payments due under existing agreements
are by year, in millions of dollars:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000............................................................... $ 10.8
2001............................................................... 7.3
2002............................................................... 4.6
2003............................................................... 3.1
2004............................................................... 2.8
Later years........................................................ 29.4
</TABLE>
14. Description of Put and Call Options
Under the terms of the limited liability company agreement for Holdings,
HSCC has the option to purchase, and ICI has the right to require HSCC to
purchase, ICI's 30% interest in Holdings between June 30, 2002 and June 30,
2003. The exercise price for each of these put and call options will be based
partially upon an agreed formula and the parties' agreed value of the Company's
businesses or based upon a third party valuation at the time of the exercise of
a put or a call option. If the put or call option is exercised and HSCC does
not purchase ICI's interests in accordance with the terms of the put or call
option, then ICI has the right to sell its interest in Holdings in a public
offering or a private sale and, if the proceeds of the sale are less than the
put or call option exercise price, ICI has the right to require HSCC to sell,
for the benefit of ICI, sufficient equity interests in Holdings owned by HSCC
as are necessary to provide ICI with proceeds equal to the shortfall.
Under the terms of an agreement between HSCC and BT Capital Investors,
L.P., Chase Equity Associates, L.P. and The Goldman Sachs Group, Inc., each of
these institutional investors has the right to require HSCC to purchase its
interest in Holdings contemporaneously with any exercise of the HSCC and ICI
put and call arrangements described above. In addition, each institutional
investor has the right to require HSCC to purchase its equity interest in
Holdings at any time after June 30, 2004. Each institutional investor also has
an option to require HSCC to purchase its equity interest in Holdings following
the occurrence of a change of control of Holdings or HC. HSCC has the option to
purchase all outstanding interests owned by the institutional investors at any
time after June 30, 2006. The exercise price for each of these put and call
options will be the value of the Company's business as agreed between HSCC and
the institutional investors or as determined by a third party at the time of
the exercise of the put or call option. If HSCC, having used commercially
reasonable
F-22
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
efforts, does not purchase such interests, the selling institutional investor
will have the right to require Holdings to register such interests for resale
under the Securities Act.
15. Industry Segment Information
The Company derives its revenues, earnings and cash flows from the
manufacture and sale of a wide variety of specialty and commodity chemical
products. Currently, the Company manages its businesses in three segments,
Specialty Chemicals (the former ICI polyurethanes business and HSCC's propylene
oxide business); Petrochemicals (businesses acquired from ICI and BP
Chemicals); and Tioxide (acquired from ICI). The Company has previously
reported four segments in its bond offering documents consistent with former
ownership. For ease of comparability, the Company has summarized the two
formerly separate segments' information in the table shown below. Future
presentations will disclose a combined Specialty Chemicals segment only.
<TABLE>
<CAPTION>
(Millions of
Dollars)
Three Months Ended
September 30
------------------
1999 Actual
<S> <C>
Net Sales:
Polyurethanes....................................... $336.2
Propylene oxide..................................... 132.1
------
Specialty Chemicals................................. 468.3
Petrochemicals...................................... 238.1
Tioxide............................................. 254.8
------
Total............................................. $961.2
======
Operating Income:
Polyurethanes....................................... $ 38.9
Propylene oxide..................................... 32.1
------
Specialty Chemicals................................. 71.0
Petrochemicals...................................... 7.4
Tioxide............................................. 35.5
------
Total............................................. $113.9
======
EBITDA(/1/):
Polyurethanes....................................... $ 58.6
Propylene oxide..................................... 39.8
------
Specialty Chemicals................................. 98.4
Petrochemicals...................................... 17.2
Tioxide............................................. 46.9
------
Total............................................. $162.5
======
Depreciation and Amortization:
Polyurethanes....................................... $ 19.7
Propylene oxide..................................... 7.7
------
Specialty Chemicals................................. 27.4
Petrochemicals...................................... 9.9
Tioxide............................................. 11.3
------
Total............................................. $ 48.6
======
</TABLE>
- --------
(/1/) EBITDA is defined as operating income plus depreciation and amortization
expense.
F-23
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
16. Consolidating Condensed Financial Statements
The following are consolidating condensed financial statements which
present, in separate columns, Chemicals carrying its investment in subsidiaries
under the equity method, the guarantors on a combined basis of the senior
subordinated notes of Chemicals, and on a combined basis the non-guarantors of
Chemicals with additional columns reflecting eliminating adjustments and
consolidated total as of September 30, 1999 and for the three months ended
September 30, 1999. There are no restrictions limiting transfers of cash from
guarantor and non-guarantor subsidiaries to the Company. The consolidating
condensed financial statements are included herein because management has
concluded that separate financial statements relating to the guarantors are not
material to investors.
<TABLE>
<CAPTION>
Company Combined
(Parent Combined Non-
Only) Guarantors Guarantors Eliminations Total
-------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 9.6 $ 0.0 $ 57.8 $ 0.0 $ 67.4
Receivables............ 109.4 31.1 737.1 (280.1) 597.5
Due from affiliates.... 25.5 -- (25.5) -- --
Inventories............ 55.0 19.1 310.8 (7.3) 377.6
Other assets........... -- 10.2 86.9 (10.7) 86.4
-------- -------- -------- --------- --------
Total Current Assets.. 199.5 60.4 1,167.1 (298.1) 1,128.9
Plant & equipment--net... 885.9 -- 1,821.3 -- 2,707.2
Investment in
subsidiaries............ 51.0 1,001.5 2,319.3 (3,128.9) 242.9
Intangible assets--net... 226.4 0.1 106.0 -- 332.5
Investment in
unconsolidated
affiliates.............. 2,357.6 -- -- (2,357.6) --
Due from affiliates...... 81.0 1,558.6 (81.0) (1,558.6) --
Other assets............. 21.4 1.6 181.1 (1.4) 202.7
-------- -------- -------- --------- --------
Total.................... $3,822.8 $2,622.2 $5,513.8 $(7,344.6) $4,614.2
======== ======== ======== ========= ========
LIABILITIES AND MEMBERS'
EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities... $ 170.7 $ 31.3 $ 666.1 $ (280.1) $ 588.0
Due to affiliates...... 91.3 21.0 1,446.3 (1,558.6) --
Current portion of long
term debt............. 11.3 -- -- -- 11.3
Other current
liabilities........... 0.9 11.1 27.1 (10.7) 28.4
-------- -------- -------- --------- --------
Total Current
Liabilities.......... 274.2 63.4 2,139.5 (1,849.4) 627.7
Long-term Debt........... 2,477.8 -- 17.2 -- 2,495.0
Deferred income taxes.... -- -- 281.4 -- 281.4
Other noncurrent
liabilities............. 10.5 4.1 82.8 (1.4) 96.0
-------- -------- -------- --------- --------
Total Liabilities..... 2,762.5 67.5 2,520.9 (1,850.8) 3,500.1
Minority interest........ -- -- 6.7 -- 6.7
-------- -------- -------- --------- --------
Members' Equity:
Members' equity........ 1,031.6 -- -- -- 1,031.6
Common stock........... -- 2,486.6 2,942.2 (5,428.8) --
Retained earnings...... 53.3 35.5 29.5 (65.0) 53.3
Accumulated other
comprehensive income,
net of tax............ (24.6) 32.6 14.5 -- 22.5
-------- -------- -------- --------- --------
Total Members'
Equity............... 1,060.3 2,554.7 2,986.2 (5,493.8) 1,107.4
-------- -------- -------- --------- --------
Total.................... $3,822.8 $2,622.2 $5,513.8 $(7,344.6) $4,614.2
======== ======== ======== ========= ========
</TABLE>
F-24
<PAGE>
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Company Combined
(Parent Combined Non
Only) Guarantors Guarantors Eliminations Total
--------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 293.1 $ 58.3 $ 807.2 $ (197.4) $ 961.2
Cost of goods sold...... 190.0 52.5 716.8 (196.3) 763.0
--------- --------- -------- --------- --------
Gross profit............ 103.1 5.8 90.4 (1.1) 198.2
Total operating
expenses............... 54.3 0.1 29.9 -- 84.3
--------- --------- -------- --------- --------
Operating income
(loss)................. 48.8 5.7 60.5 (1.1) 113.9
Interest (income)
expense--net........... 53.2 (31.0) 30.3 (0.1) 52.4
Equity in earnings of
consolidated
subsidiaries........... 57.7 -- -- (57.7) --
Other income (expense)--
net.................... -- (0.6) (0.8) 1.9 0.5
--------- --------- -------- --------- --------
Income (loss) before
income taxes........... 53.3 36.1 29.4 (56.8) 62.0
Income tax expense...... -- 0.6 7.3 -- 7.9
Minority interests in
subsidiaries........... -- -- 0.8 -- 0.8
--------- --------- -------- --------- --------
Net income (loss)....... $ 53.3 $ 35.5 $ 21.3 $ (56.8) $ 53.3
========= ========= ======== ========= ========
Net Cash Provided by
Operating Activities... $ 55.7 $ 4.5 $ 222.0 $ (147.3) $ 134.9
--------- --------- -------- --------- --------
Investing Activities:
Purchase of businesses
from ICI, net of cash
acquired............... 551.7 322.2 1,410.9 -- 2,284.8
Purchase of business
from BP Chemicals...... 116.6 -- -- -- 116.6
Capital expenditures.... 33.1 -- 26.8 -- 59.9
--------- --------- -------- --------- --------
Net cash used in
investing activities... 701.4 322.2 1,437.7 -- 2,461.3
--------- --------- -------- --------- --------
Financing Activities:
Borrowings under senior
credit facilities...... 1,670.0 -- -- -- 1,670.0
Issuance of senior
subordinated notes..... 807.0 -- -- -- 807.0
Debt issuance costs..... (74.3) -- -- -- (74.3)
Cash contributions by
parent................. 598.0 1,710.0 0.7 (1,710.7) 598.0
Cash distributions to
members................ (620.0) -- -- -- (620.0)
Cash distribution to
subsidiary............. (1,710.7) (147.3) -- 1,858.0 --
Intercompany advances--
net of repayments...... (14.7) (1,245.0) 1,259.7 -- --
--------- --------- -------- --------- --------
Net cash provided by
financing activities... 655.3 317.7 1,260.4 147.3 2,380.7
Effect of exchange rate
changes on cash........ -- -- 13.1 -- 13.1
--------- --------- -------- --------- --------
Increase in cash and
cash equivalents....... 9.6 -- 57.8 -- 67.4
Cash and cash
equivalents at
beginning of period.... -- -- -- -- --
--------- --------- -------- --------- --------
Cash and cash
equivalents at end of
period................. $ 9.6 $ -- $ 57.8 $ -- $ 67.4
========= ========= ======== ========= ========
Non-Cash Financing and
Investing Activities:
Non-cash capital
contribution by
parent............... $ 1,053.0 $ 0.0 $ 0.0 $ 0.0 $1,053.0
========= ========= ======== ========= ========
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Huntsman Specialty Chemicals Corporation
We have audited the accompanying balance sheets of Huntsman Specialty
Chemicals Corporation (the "Company"), formerly Texaco Chemical, Inc. (the
"Predecessor Company"), as of December 31, 1997 and 1998, and the related
statements of operations, stockholder's equity, and cash flows for the two
months ended February 28, 1997 (Predecessor Company operations), the period
from March 1, 1997 (commencement of operations) to December 31, 1997 and the
year ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Huntsman Specialty Chemicals Corporation at
December 31, 1997 and 1998 and the results of the Predecessor Company
operations and its cash flows for the two months ended February 28, 1997 and
the results of the Company operations and cash flows for the period March 1,
1997 to December 31, 1997 and the year ended December 31, 1998, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 1999 (July 1, 1999 as to Note 14)
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texaco Chemical Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Texaco Chemical Inc. (a Delaware corporation) (the
"Predecessor Company") for the year ended December 31, 1996. These financial
statements are the responsibility of Texaco Chemical Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the operations and cash flows of
Texaco Chemical Inc. for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 14, 1997
F-27
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)...................... $ 10,093 $ 2,574
Accounts receivable..................................... 43,894 45,787
Related party accounts receivable (Note 8).............. 5,144 4,710
Inventories (Notes 2 and 3)............................. 23,102 19,687
Deferred tax asset (Note 7)............................. 655
Other current assets.................................... 974 862
--------- ---------
Total current assets.................................. 83,862 73,620
--------- ---------
PLANT AND EQUIPMENT (Notes 1 and 2):
Land and improvements................................... 3,575 3,575
Buildings and equipment................................. 404,013 415,268
Construction-in-progress................................ 4,600 3,753
--------- ---------
Total plant and equipment............................. 412,188 422,596
Less accumulated depreciation and amortization.......... (16,920) (37,505)
--------- ---------
Plant and equipment, net.............................. 395,268 385,091
--------- ---------
OTHER ASSETS (Notes 2 and 4).............................. 114,542 118,922
--------- ---------
TOTAL..................................................... $ 593,672 $ 577,633
========= =========
</TABLE>
See notes to financial statements.
F-28
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of December 31,
-------------------
1997 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable (Note 2)................................ $ 15,207 $ 9,394
Related party accounts payable (Note 8).................. 8,797 16,588
Accrued liabilities (Note 5)............................. 10,236 13,835
Deferred income taxes (Note 7)........................... 3,436
Current portion of long-term debt........................ 9,209
--------- ---------
Total current liabilities.............................. 43,449 43,253
--------- ---------
LONG-TERM DEBT (Notes 1, 2 and 6)
Senior Credit Facilities................................. 256,100 221,987
Term Loan................................................ 135,000 135,000
BASF note................................................ 63,473 70,575
--------- ---------
Total long-term debt................................... 454,573 427,562
--------- ---------
DEFERRED INCOME TAXES (Notes 2 and 7)...................... 2,572 4,264
MANDATORILY REDEEMABLE PREFERRED STOCK
($1 par value; 65,000 shares authorized, issued and
outstanding-stated at liquidation value of $1,000 per
share, including $2,682 and $6,909 in unpaid dividends,
respectively)........................................... 67,682 71,909
--------- ---------
Total liabilities...................................... 568,276 546,988
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9, 11 and 12)
STOCKHOLDER'S EQUITY:
Common stock ($.01 par value; 2,500 shares authorized,
issued and outstanding).................................
Additional paid-in capital............................... 25,000 25,000
Retained earnings........................................ 396 5,645
--------- ---------
Total stockholder's equity............................. 25,396 30,645
--------- ---------
TOTAL...................................................... $ 593,672 $ 577,633
========= =========
</TABLE>
See notes to financial statements.
F-29
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------------
Two Months Ten Months
Year Ended Ended Ended Year Ended
December 31, February 28, December 31, December 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Sales (Note 13)......... $358,071 $42,800 $283,808 $253,161
Related party sales
(Note 8)............... 46,582 9,657 24,053 32,999
Tolling fees............ 8,552 40,666 52,509
Other revenue........... 10,424 -- -- --
-------- ------- -------- --------
Total revenue......... 415,077 61,009 348,527 338,669
COST OF SALES (Note 8).... 377,173 64,935 300,051 276,538
-------- ------- -------- --------
GROSS PROFIT (LOSS)....... 37,904 (3,926) 48,476 62,131
EXPENSES (Notes 8 and 9):
Sales, general &
administrative......... 15,256 1,103 5,499 4,830
Research and
development............ 3,695 694 2,578 3,030
-------- ------- -------- --------
Total expenses........ 18,951 1,797 8,077 7,860
-------- ------- -------- --------
OPERATING INCOME (LOSS)... 18,953 (5,723) 40,399 54,271
INTEREST EXPENSE (Note
6)....................... 35,985 40,925
INTEREST INCOME........... (581) (1,050)
OTHER INCOME.............. (863)
-------- ------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES............. 18,953 (5,723) 4,995 15,259
INCOME TAX EXPENSE
(BENEFIT) (Notes 2 and
7)....................... 6,643 (2,035) 1,917 5,783
-------- ------- -------- --------
NET INCOME (LOSS)......... 12,310 (3,688) 3,078 9,476
Preferred Stock
Dividends................ 2,582 4,227
-------- ------- -------- --------
Net Income (Loss)
Available to Common
Stockholders............. $ 12,310 $ 3,688 $ 396 $ 5,249
======== ======= ======== ========
</TABLE>
See notes to financial statements.
F-30
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
------ ---------- --------- -------
<S> <C> <C> <C> <C>
Predecessor Company:
BALANCE, JANUARY 1, 1996................ $ 1 $ $(7,338) $(7,337)
Net income.............................. 12,310 12,310
---- ------- ------- -------
BALANCE, DECEMBER 31, 1996.............. 1 4,972 4,973
---- ------- ------- -------
Net loss................................ (3,688) (3,688)
---- ------- ------- -------
BALANCE, FEBRUARY 28, 1997.............. $ 1 $ $ 1,284 $ 1,285
==== ======= ======= =======
Post Acquisition:
Issuance of stock at formation, March
21, 1997............................... 25,000 25,000
Dividends accrued on mandatorily
redeemable preferred stock............. (2,682) (2,682)
Net income.............................. 3,078 3,078
---- ------- ------- -------
BALANCE, DECEMBER 31, 1997.............. -- 25,000 396 25,396
---- ------- ------- -------
Dividends accrued on mandatorily
redeemable preferred stock............. (4,227) (4,227)
Net income.............................. 9,476 9,476
---- ------- ------- -------
BALANCE, DECEMBER 31, 1998.............. $-- $25,000 $ 5,645 $30,645
==== ======= ======= =======
</TABLE>
See notes to financial statements.
F-31
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
-------------------------
Two Months Ten Months
Year Ended Ended Ended Year Ended
December 31, February 28, December 31, December 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)....... $12,310 $(3,688) $ 3,078 $ 9,476
Reconciliation to net
cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 465 1,092 25,733 30,482
Deferred income
taxes................ 37,575 4,102 1,917 5,783
Interest on
subordinated note.... 5,272 7,102
Changes in operating
working capital:
Accounts receivable... (3,660) 8,399 (11,766) (1,459)
Inventories........... (7,453) (1,561) 10,763 3,415
Other current assets.. (2,092) 603 (974) 112
Accounts payable...... 7,995 (12,619) (85) 1,978
Other current
liabilities.......... 2,635 1,328 4,861 3,599
Other assets............ 235 (2,709) (1,949) (14,277)
------- ------- -------- -------
Net cash provided by
(used in) operating
activities......... 48,010 (5,053) 36,850 46,211
------- ------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of PO/MTBE
facility............... (508,200)
Capital expenditures.... (1,445) (1,090) (2,067) (10,408)
------- ------- -------- -------
Net cash used in
investing
activities......... (1,445) (1,090) (510,267) (10,408)
------- ------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance
of long-term debt...... 483,200
Repayment of long-term
debt................... (24,690) (43,322)
Issuance of common
stock.................. 25,000
Intercompany investments
and advances from (to)
Texaco (net)........... (46,565) 6,143
------- ------- -------- -------
Net cash provided by
(used in) financing
activities......... (46,565) 6,143 483,510 (43,322)
------- ------- -------- -------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS.............. -- -- 10,093 (7,519)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD... -- -- 10,093
------- ------- -------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD......... $ -- $ -- $ 10,093 $ 2,574
======= ======= ======== =======
SUPPLEMENTAL SCHEDULE OF
NONCASH FINANCING
ACTIVITIES:
In conjunction with the
purchase of the
facilities, the Company
issued preferred stock
to Texaco.............. $ 65,000
========
</TABLE>
See notes to financial statements.
F-32
<PAGE>
HUNTSMAN SPECIALTY CHEMICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ACQUISITIONS
General--The accompanying financial statements include the accounts of
Huntsman Specialty Chemicals Corporation (the "Company" or "Huntsman"),
which was formed on December 26, 1996. Effective March 1, 1997 (the
"Effective Date") for financial accounting purposes, the Company purchased
from Texaco, Inc. its propylene oxide ("PO") and methyl tertiary butyl
ether ("MTBE") business, known as the "PO/MTBE business" for $573.2
million, subject to a working capital adjustment (the "Acquisition"). The
Acquisition closed on March 21, 1997.
The financial statements for the year ended December 31, 1996 and the two
months ended February 28, 1997 present on a historical cost basis the
assets, liabilities, revenues and expenses related to Texaco Chemical Inc.
("TCI" or the "Predecessor Company"), a wholly-owned subsidiary of Texaco
Inc., which includes the PO/MTBE business that was included in the
Acquisition. These Predecessor Company financial statements exclude
certain assets held under the Citibank lease (see Note 12).
To finance the Acquisition, the Company entered into a $350 million Credit
Agreement with a group of financial institutions, a $135 million Term Loan
Agreement and issued a $75 million Subordinated Note to BASF. The Company
also issued preferred stock to Texaco with an aggregate liquidation
preference of $65 million at the date of issuance. Cumulative dividends of
5.5% to 6.5% of the liquidation preference (which equals redemption price)
will accrue and be payable commencing July 15, 2002. The Company may
redeem the preferred stock at any time, subject to restrictions, and is
required to redeem the stock prior to April 15, 2008. Additionally, prior
to the Acquisition, the Company received an equity contribution from its
parent company, Huntsman Specialty Chemicals Holdings Corporation, in the
amount of $25 million.
The sources and applications of funds required to consummate the
Acquisition are summarized below in thousands of dollars.
<TABLE>
<S> <C>
Sources of Funds:
Senior Credit Facilities:
Revolving Credit Facility(1)................................... $ --
Term Loan A.................................................... 150,000
Term Loan B.................................................... 70,000
Term Loan C.................................................... 70,000
Term Loan........................................................ 135,000
BASF Subordinated Note(2)........................................ 58,200
Equity contribution.............................................. 25,000
Seller Preferred Stock........................................... 65,000
--------
Total.......................................................... $573,200
========
Uses of Funds:
Payment of the Acquisition Price................................. $560,700
Transaction fees and expenses(3)................................. 12,500
--------
Total.......................................................... $573,200
========
</TABLE>
F-33
<PAGE>
--------
(1) The Revolving Credit Facility provided for maximum borrowings of up to
$60 million.
(2) The BASF Subordinated Note had an original principal amount of $75
million, for financial reporting purposes, the note was recorded at
its estimated fair value of $58.2 million.
(3) Total transaction fees and expenses totaled $15.0 million, of which
$9.6 million was paid on March 21, 1997. The remainder was paid using
the excess funds obtained by the notes, the equity contribution and
funds provided by operations.
The Acquisition has been accounted for as a purchase transaction, and,
accordingly, the financial statements subsequent to the Effective Date
reflect the purchase price, including transaction costs allocated to
tangible and intangible assets acquired and liabilities assumed based on
their estimated fair values as of the Effective Date.
The allocation of the $572.5 million purchase price (after working capital
adjustment and including fees and expenses) is summarized as follows in
thousands of dollars:
<TABLE>
<S> <C>
Current assets..................................................... $ 68,569
Plant and equipment................................................ 410,122
Other noncurrent assets............................................ 121,405
Liabilities assumed................................................ (27,547)
--------
Total............................................................ $572,549
========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--The Company markets and sells products: (1) PO,
(2) Glycols, and (3) MTBE, which it manufactures at its facility in Port
Neches, Texas (the "Facility").
Revenue Recognition--The Company generates revenues through sales in the
open market, raw material conversion agreements and long-term supply
contracts. The Company recognizes revenues as the products are shipped.
Cash Flow Information--Highly liquid investments with an original maturity
of three months or less when purchased are considered to be cash
equivalents. The Company paid $31 million and $33 million in interest
expense for the period and the year ended December 31, 1997 and 1998,
respectively. The Company paid $10 thousand in state taxes during 1998.
Supplemental Non-cash Information--In 1996, TCI had an MTBE sales
agreement with Huntsman in which it purchased MTBE from Huntsman at a
price which may have been greater than market. Texaco Inc. absorbed any
additional costs and reimbursed TCI through intercompany investments and
advances.
Financial Instruments--The carrying amount reported in the balance sheet
for cash and cash equivalents, accounts receivable, and accounts payable
approximates fair value because of the immediate or short-term maturity of
these financial instruments. The carrying value of the Revolving Credit
Facility and the Term Loans approximate fair value since they bear
interest at a floating rate plus an applicable margin. The fair value of
the Subordinated Note, $64 million and $75 million at December 31, 1997
and 1998, respectively, was derived based on rates currently available to
the Company for debt instruments of similar terms.
The Company enters into certain derivative financial instruments as part
of its interest rate risk management. Interest rate swaps, caps, collars
and floors are classified as matched transactions. The differential to be
paid or received as interest rates change is accrued and
F-34
<PAGE>
recognized as an adjustment to interest expense. The related amount
payable to or receivable from counterparties is included in accounts
receivable or accrued liabilities. Gains and losses on terminations of
interest rate agreements are deferred and amortized over the lesser of the
remaining term of the original contract or the life of the debt. The
premiums paid for the interest rate agreements are included as other
assets and are amortized to expense over the term of the agreements.
The fair values of derivative financial instruments are the amounts at
which they could be settled, based on estimates obtained from dealers.
Such amounts as of December 31, 1997 and 1998 were as follows in
thousands:
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Pay fixed swaps..................... $(840) $(2,182)
Interest rate caps purchased........ $ 736 221 $641 61
Interest rate collars purchased..... 1,139 124 927 (3,610)
</TABLE>
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Carrying Value of Long-Term Assets--The Company evaluates the carrying
value of long-term assets based upon current and anticipated undiscounted
cash flows, and recognizes an impairment when such estimated cash flows
will be less than the carrying value of the asset. Measurement of the
amount of impairment, if any, is based upon the difference between
carrying value and fair value.
Inventories--Inventories of petrochemical products are stated at cost,
determined on the weighted average method. Inventories are valued at the
lower of cost or market. Materials and supplies are stated at average
cost. Prior to March 1, 1997, MTBE was valued at market price as of the
date produced.
Plant and Equipment and Depreciation and Amortization--Depreciation of
plant and equipment is provided generally on the group plan, using the
straight-line method, with depreciation based on a 5% composite rate for
all classes of property.
Effective March 1, 1997, periodic maintenance and repairs applicable to
manufacturing facilities are accounted for on the prepaid basis by
capitalizing the cost of the turnaround and amortizing the costs over the
estimated period until the next turnaround. Normal maintenance and repairs
of all other plant and equipment are charged to expense as incurred.
Renewals, betterments and major repairs that materially extend the useful
life of the assets are capitalized, and the assets replaced, if any, are
retired.
Prior to March 1, 1997, periodic maintenance and repairs applicable to
manufacturing facilities were accounted for on an accrual basis.
When capital assets representing complete groups of property are disposed
of, the difference between the disposal proceeds and net book value is
credited or charged to income. When miscellaneous assets are disposed of,
the difference between asset cost and salvage value is charged or credited
to accumulated depreciation.
F-35
<PAGE>
Interest expense capitalized as part of plant and equipment was $77
thousand and $441 thousand for the period and the year ended December 31,
1997 and 1998, respectively
Intangible assets--Intangible assets are stated at their fair market
values at the time of the Acquisition and are amortized using the
straight-line method over the life of the related agreement or over their
estimated useful lives of five years (non-compete agreements), ten years
(other agreements), and fifteen years (patents, licenses, and technology)
to fifteen years and are included in "Other assets."
Preferred Stock--In conjunction with the Acquisition, the Company issued
preferred stock to Texaco with an aggregate liquidation preference of $65
million. The preferred stock has a cumulative dividend rate of 5.5%, 6.5%
or a combination thereof of the liquidation preference per year, which is
adjusted on April 15th of each year, based on the Company's cash flow in
the previous year. During 1998, $35 million of the preferred stock accrued
dividends at the rate of 6.5% and the remainder at 5.5%. Unpaid cumulative
dividends will compound at a rate of 5.5% or 6.5% and are payable
commencing July 15, 2002. The Company may redeem the preferred stock at
any time, subject to restrictions, and is required to redeem the stock
prior to April 15, 2008.
Environmental Expenditures--Environmental related restoration and
remediation costs are recorded as liabilities and expensed when site
restoration and environmental remediation and clean-up obligations are
either known or considered probable and the related costs can be
reasonably estimated. Other environmental expenditures, which are
principally maintenance or preventative in nature, are recorded when
expended and are expensed or capitalized as appropriate.
Income Taxes--The Company files a consolidated federal income tax return
with its ultimate parent. The Company has entered into a tax allocation
agreement with its ultimate parent whereby the Company is charged or
credited for an amount that would have been applicable had the Company
filed a separate consolidated federal income tax return.
Deferred income taxes are provided for temporary differences between
financial statement income and taxable income using the asset and
liability method in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."
See Note 8--For Predecessor Company Income Tax Policy.
Research and Development Expenses--Research and development costs are
expensed as incurred.
Earnings per Share--Earnings per share have been omitted from the
statement of operations since such information is not meaningful.
Recently Issued Financial Accounting Standards--In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments
at fair value. SFAS No. 133 is effective for the Company's financial
statements for the year ending December 31, 2000. The Company is currently
evaluating the effects of SFAS No. 133 on its financial statements.
F-36
<PAGE>
3. INVENTORIES
Inventories as of December 31, 1997 and 1998 consisted of the following in
thousands of dollars:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Feedstocks.................................................. $ 7,471 $ 5,175
Unfinished products......................................... 224 1,032
Finished products........................................... 15,127 12,915
------- -------
22,822 19,122
Materials and supplies...................................... 280 565
------- -------
Total....................................................... $23,102 $19,687
======= =======
</TABLE>
In the normal course of operations, the Company exchanges raw materials
with other companies for the purpose of reducing transportation costs. No
gains or losses are recognized on these exchanges, and the net open
exchange positions are valued at the Company's cost. Net amounts deducted
from inventory under open exchange agreements owed by the Company at
December 31, 1997 and 1998 were $90 thousand (477,688 pounds of feedstock
and products) and $412 thousand (927,529 pounds of feedstock and products)
respectively, which represent the net amounts payable by the Company under
open exchange agreements.
4. OTHER ASSETS
Other assets at December 31, 1997 and 1998 consisted of the following in
thousands of dollars:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Patents, licenses, and technology........................ $ 90,180 $ 90,180
Other agreements......................................... 17,823 17,823
Non-compete agreements................................... 1,520 1,520
-------- --------
Total intangibles........................................ 109,523 109,523
Accumulated amortization................................. (6,736) (14,820)
-------- --------
Net intangibles.......................................... 102,787 94,703
Capitalized turnaround expense........................... 14,009
Other noncurrent assets.................................. 11,296 9,557
Spare parts inventory.................................... 459 653
-------- --------
Total.................................................... $114,542 $118,922
======== ========
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1998 consisted of the
following in thousands of dollars:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Ad valorem taxes............................................ $ 4,532 $ 6,974
Product rebate accruals..................................... 2,367 4,110
Other miscellaneous accruals................................ 3,337 2,751
------- -------
Total....................................................... $10,236 $13,835
======= =======
</TABLE>
F-37
<PAGE>
6. LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1998 consisted of the following
in thousands of dollars:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Senior Credit Facilities:
Revolving Credit Facility
Term Loan A........................................... $126,709 $ 87,935
Term Loan B........................................... 69,300 67,026
Term Loan C........................................... 69,300 67,026
Term Loan............................................... 135,000 135,000
BASF Subordinated Note, face value $75 million,
discounted to a 9.3% effective rate.................... 59,257 60,632
Accrued Interest on BASF Subordinated Note.............. 4,216 9,943
-------- --------
Total................................................... 463,782 427,562
Less current maturities................................. (9,209)
-------- --------
Total long-term debt.................................... $454,573 $427,562
======== ========
</TABLE>
The scheduled maturities of long-term debt by year as of December 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31:
-----------------------
<S> <C>
1999............................................................... $ --
2000............................................................... 30,435
2001............................................................... 37,500
2002............................................................... 20,000
2003............................................................... 1,400
Thereafter......................................................... 352,595
--------
Total.............................................................. 441,930
Less discount on BASF note......................................... (14,368)
--------
Total long-term debt............................................... $427,562
========
</TABLE>
Senior Credit Facilities--In March 1997, the Company entered into a Bank
Credit Agreement with Bankers Trust Company related to Senior Credit
Facilities in an aggregate principal amount of $350 million. These
facilities consisted of (i) a five-year $60 million revolving credit
facility (the "Revolving Credit Facility"), (ii) a five-year $150 million
aggregate principal amount Term Loan A, a seven-year $70 million aggregate
principal amount Term Loan B and an eight-year $70 million aggregate
principal amount Term Loan C (the "Term Loan A", the "Term Loan B" and the
"Term Loan C" are referred to collectively as the "Senior Term Loans").
The Senior Credit Facilities bear interest at a rate equal to, at the
Company's option, (i) the Reserve adjusted Eurodollar Rate plus an
applicable margin which ranges from 0.625% to 2.0% for the Revolving
Credit Facility and the Term Loan A, 2.00 to 2.50% for the Term Loan B and
2.25 to 2.75% for the Term Loan C, ("Eurodollar Loans") or (ii) the Base
Rate (defined in the Senior Credit Facilities as the higher of the prime
rates of Bankers Trust Company or the sum of the overnight rate on the
federal funds transactions plus 0.5% ) plus the applicable margin, equal
to 1.25% less than the applicable borrowing margin for Eurodollar loans,
but in no event less than 0% ("Prime Rate Loans").
The Revolving Credit Facility requires a commitment fee ranging from
0.225% to 0.5% per annum on the total unused balance. This rate is
determined based on the Company's most recent financial ratios. The rate
during 1997 and 1998 was 0.5%.
F-38
<PAGE>
The obligations of the Company under the Senior Credit Facilities are
secured by a first-priority interest in substantially all of the assets of
the Company.
Term Loan--In March 1997, the Company entered into a Term Loan Agreement
with Bankers Trust Company and various lending institutions in the
aggregate principal amount of $135 million (the "Term Loan"). The Term
Loan bears interest at a rate equal to, at the Company's option, (i) the
Eurodollar Rate plus an applicable margin of 3.5% per annum ("Eurodollar
Loans") or (ii) the Base Rate plus the applicable margin, equal to 2.25%
per annum ("Prime Rate Loans").
Interest on Prime Rate Loans is due quarterly and on the date of
conversion of any such Prime Rate Loan to a Eurodollar Loan. Interest on
Eurodollar Loans will be due at the end of the interest period applicable
thereto, and if such interest period is in excess of three months, each
three months.
BASF Subordinated Note--The Company issued to BASF a subordinated note in
the aggregate principal amount of $75 million. Until April 15, 2002,
interest is accrued on the Subordinated Note at 7% per annum and is
included in "Long-term Debt." On April 15, 2002, all accrued interest will
be added to the principal of the Subordinated Note. Such principal balance
will be payable in a single installment on April 15, 2008. Interest
accrued after April 15, 2002 will be payable quarterly, commencing July
15, 2002. For financial reporting purposes, the note was recorded at its
fair value of $58.2 million based on prevailing market rates as of the
Effective Date.
The Senior Credit Facility, the Term Loan and the Subordinated Note
contain restrictive covenants that, among other things and under certain
conditions, restrict the Company's indebtedness, liens, sales/leaseback
transactions, assets sales, capital expenditures, acquisitions,
investments and transactions with affiliates, dividends and other
restricted payments. Additionally, these covenants require that certain
financial ratios be maintained. Management believes the Company was in
compliance as of December 31, 1998.
Interest Rate Contracts--The Company enters into various types of interest
rate contracts in managing interest rate risk on its long-term debt as
indicated below as of December 31, 1998:
. Pay Fixed Swaps--$65 million notional amount, weighted average pay
rate of 6.03%, maturing in 2000.
. Interest Rate Caps--$60 million notional amount, weighted average
cap rate of 8%, maturing in 2002.
. Interest Rate Collars--$125 million notional amount, weighted
average cap rate of 6.99%, weighted average floor rate of 5.67%,
maturing in 2002.
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed
notional principal amount.
The Company purchases interest rate cap and sells interest rate floor
agreements to reduce the impact of changes in interest rates on its
floating-rate long-term debt. The cap agreements entitle the Company to
receive from counterparties (major banks) the amounts, if any, by which
the Company's interest payments on certain of its floating-rate borrowings
exceed 6.6% to 8.0%. The floor agreement requires the Company to pay to
the counterparty (a major bank) the amount, if any, by which the Company's
interest payments on certain of its floating-rate borrowings are less than
6.0% to 5.26%.
F-39
<PAGE>
The Company is exposed to credit losses in the event of nonperformance by
a counterparty to the derivative financial instruments. The Company
anticipates, however, that the counterparties will be able to fully
satisfy obligations under the contracts. Market risk arises from changes
in interest rates.
Predecessor Company--In February 1986, Texaco Inc. and various
subsidiaries entered into a Master Credit Agreement ("Credit Agreement"),
whereby Texaco Inc. and such subsidiaries may, from time to time, be
borrowers or lenders pursuant to the Credit Agreement. The Credit
Agreement was subsequently amended for minor revisions in June 1986,
January 1987 and April 1987. While TCI is not a party to the Credit
Agreement, the financial statements are prepared as if TCI had been a
party to the Credit Agreement with Texaco. As a result, interest is
calculated based on the Short-Term Applicable Federal Rate as published by
the Internal Revenue Service in its Internal Revenue Bulletin. The average
annual interest rates utilized ranged from 5.1% to 6.2% for the periods
presented. Interest accrued during the year and outstanding at year-end
was added to the principal balance of the intercompany account and itself
became interest bearing. Interest income totaled $4,182,000 for the year
ended December 31, 1996. No interest was charged or credited during the
two months ended February 28, 1997.
7. INCOME TAXES
<TABLE>
<CAPTION>
Predecessor Company
-------------------------
Two Months Ten Months
Year Ended Ended Ended Year Ended
December 31, February 28, December 31, December 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current................. $(30,932) $(6,137) $ $
Deferred................ 37,575 4,102 1,917 5,783
-------- ------- ------ ------
Total................. $ 6,643 $(2,035) $1,917 $5,783
======== ======= ====== ======
</TABLE>
The following schedule reconciles the differences between the United
States federal income taxes at the United State statutory rate to the
Company's provision for income taxes, in thousands of dollars:
<TABLE>
<CAPTION>
Predecessor Company
-------------------------
Two Months Ten Months
Year Ended Ended Ended Year Ended
December 31, February 28, December 31, December 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
United States federal
income taxes at
statutory rate......... $6,634 $(2,003) $1,748 $5,341
State income taxes, net
of federal benefit..... 97 82
Other................... 9 (32) 72 360
------ ------- ------ ------
Total provision
(benefit) income
taxes.................. $6,643 $(2,035) $1,917 $5,783
====== ======= ====== ======
Effective income tax
rate................... 35% 36% 38% 38%
====== ======= ====== ======
</TABLE>
F-40
<PAGE>
Components of deferred tax assets and liabilities at December 31, 1997 and
1998 are as follows in thousands of dollars:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment................................... $(44,919) $(78,602)
Capitalized turnaround costs.......................... (5,323)
Interest.............................................. (5,460)
Other deferred tax liability.......................... (27) (27)
-------- --------
Total deferred tax liability............................ (44,946) (89,412)
-------- --------
Deferred tax assets:
Intangible assets..................................... 29,081 27,765
Inventories........................................... 655 1,887
Net operating loss carryforward....................... 13,293 52,060
-------- --------
Total deferred tax assets............................... 43,029 81,712
-------- --------
Net deferred tax liability.............................. $ (1,917) $ (7,700)
======== ========
</TABLE>
8. RELATED-PARTY TRANSACTIONS
The Company has no employees and relies entirely on third parties to
provide all goods and services necessary to operate the Company's
business. Certain of such goods and services are provided by Huntsman
Petrochemical Corporation ("HPC"), an affiliate of the Company.
Service Agreements--In accordance with various service agreements, the
terms of which range from 10 to 29 years, HPC provides management,
operating, maintenance and other services to the Company. In connection
with those service agreements, the Company paid $27 and $61 million of
fees and expense reimbursements to HPC during the period and year ended
December 31, 1997 and 1998, respectively. Management fees charged by HPC
are recorded as sales, general, and administrative expenses in the
statements of operations. Operating, maintenance, and other service fees
and expenses charged by HPC are recorded as cost of sales in the statement
of operations. Additionally, the Company was reimbursed $6 million in the
period and year ended December 31, 1997 and 1998 by HPC for steam
purchased by the Company on HPC's behalf.
Supply Agreements--Additionally, the Company relies on HPC to supply
certain raw materials and to purchase a significant portion of the
facility's output pursuant to various agreements. The Company sold $24 and
$33 million of product to HPC and purchased $43 and $38 million of raw
materials from HPC during the period and year ended December 31, 1997 and
1998, respectively.
Other Related Party Sales--During 1998, the Company purchased $5 million
of raw materials from Huntsman Polymers Corporation.
Receivables and Payables--As of December 31, 1997 and 1998, the Company
had $5 and $3 million, respectively, in trade receivables from HPC and $5
and $11 million, respectively in trade payables to HPC. In addition, the
Company had $2 million in miscellaneous receivables from HPC as of
December 31, 1998, as well as $4 and $6 million in miscellaneous payables
to HPC as of December 31, 1997 and 1998, respectively.
F-41
<PAGE>
Predecessor Company--Transactions with the Texaco entities include the
purchase and sale of raw materials and products, and activities involving
administrative support and financing. A summary of transactions between
the Predecessor Company and the Texaco entities and Star Enterprise
(Star), a joint venture partnership of Texaco follows:
<TABLE>
<CAPTION>
Year Ended Two Months Ended
December 31, February 28,
1996 1997
------------ ----------------
<S> <C> <C>
Sales and services to:
Texaco entities............ $ 16,792 $ 2,385
Star....................... 29,790 7,272
-------- -------
Total.................... $ 46,582 $ 9,657
======== =======
Cost of goods sold from:
Texaco entities............ $ 97,717 $16,642
Star....................... 22,571 1,800
-------- -------
Total.................... $120,288 $18,442
======== =======
The management, professional, technical and administrative services billed
to the Predecessor Company by Texaco entities are summarized below in
thousands of dollars:
<CAPTION>
Year Ended Two Months Ended
December 31, February 28,
1996 1997
------------ ----------------
<S> <C> <C>
Management and
Professional(a)............. $ 986 $ 58
Technical(b)................. 33 3
Administrative(c)............ 367 62
Research and development..... 1,564 264
-------- -------
Total...................... $ 2,950 $ 387
======== =======
</TABLE>
--------
(a) Primarily Legal, Employee Relations, Finance, Tax and other
Corporate Management.
(b) Primarily Computer and Communications costs.
(c) Primarily Accounting Services.
Insurance coverage for the Predecessor Company was provided by Texaco's
worldwide risk management program arranged through Heddington Insurance
Limited ("Heddington"), an indirect wholly owned captive insurance
subsidiary of Texaco Inc. Texaco Inc. charges the participating companies
for their proportionate share of the premiums charged by Heddington to
Texaco Inc. based upon various risk factors and other estimates determined
by Texaco's management. Accordingly, the Company's cost for insurance
premiums is charged to expense as incurred, and is included in the above
table in cost of goods sold. Such premiums totaled $1,817,000 in 1996 and
$307,000 for the two months ended February 28, 1997.
The Predecessor Company is a member of the Texaco Inc. consolidated United
States income tax return group. The income tax return group operates under
a formal agreement whereby each member of this group is allocated its
share of the consolidated United States income tax provision or benefit
based on what the member's income tax provision or benefit would have been
had the member filed a separate return and made the same tax elections.
Excluded from such allocation, and therefore from the Company's financial
statements, are any Federal alternative minimum tax payments made by
Texaco Inc. in excess of regular tax, which are recorded by Texaco Inc.,
offset by a reduction of deferred income taxes, and are available to
reduce future regular income tax payments. In any event, as the
Predecessor Company assets and liabilities, rather than stock, were sold
to Huntsman, the Federal alternative minimum tax
F-42
<PAGE>
credits will remain with Texaco Inc. Current taxes are charged or credited
to expense and are reflected as related party payables or receivables
until settled after the applicable tax returns have been filed.
9. ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive environmental laws and
regulations concerning emissions to air, discharges to surface and
subsurface waters and the generation, storage, handling, transportation,
treatment, disposal and remediation of hazardous substances and other
waste materials ("Environmental Laws"). The Company's production
facilities require operating permits that are subject to revocation,
modification and renewal. Violations of Environmental Laws or permit
requirements can result in substantial fines and civil or criminal
sanctions. The operation of any chemical manufacturing plant entails risk
of adverse environmental effects, including exposure to chemical products,
by-products and waste from the Company's operations, and there can be no
assurance that material costs or liabilities will not be incurred to
rectify any such damage. In addition, potentially significant expenditures
could be required in order to comply with Environmental Laws and permit
requirements that may be adopted or imposed in the future.
The Company believes that there is existing contamination under the
property resulting from the operation from about 1920 to 1950 of the
unlined earthen crude oil storage tanks on the property and from
contaminated groundwater emanating from adjacent property formerly owned
by Texaco and now owned by HPC. The Purchase Agreement provides that
Texaco will generally be responsible, for a period of eleven years
following the Closing Date for up to $40 million of costs incurred with
respect to all other conditions related to the property that existed on
the Closing Date related to air, land, soil surface, subsurface strata or
groundwater that were not in compliance with Environmental Laws as in
effect as of the Closing Date. The Company, however, is generally
responsible for the first $3 million of such costs as well as for the
first $50,000 of such costs incurred per claim. The Purchase Agreement
further provides that, subject to certain limitations, the Company will be
responsible for such conditions to the extent (i) that Texaco is not
responsible, or (ii) such conditions were caused or arose after the
Closing Date.
It is the Company's belief that the total cost of remediation of all
contamination existing on the property will be less than the $40 million
cap on Texaco's indemnity obligations. However, there can be no assurance
that the cost of remediation will not exceed this amount, that the cost of
remediation will not be covered by Texaco indemnity obligations which
contain certain specified limitations, that Texaco will have the financial
resources to fully perform its responsibilities under the Purchase
Agreement or that the Company will not be required to incur expenses for
liabilities under environmental laws or for environmental remediation
before such time as Texaco pays any liability for which it is ultimately
held responsible. In any such event, the Company may be required to incur
significant liabilities. In addition, no assurance can be given that
Texaco will not seek to challenge its liability under the Purchase
Agreement, that the eleven year period of limitation with respect to
certain costs incurred for the remediation of contamination will not
expire before remediation costs are incurred pursuant to an Environmental
Law in effect as of the Closing Date or that remediation will not be
required pursuant to an Environmental Law enacted after the Closing Date.
10. EMPLOYEE BENEFIT PLANS
Active employees of the Predecessor Company participated in various
Texaco-sponsored benefit plans. The costs of the savings, health care and
life insurance plans relative to employees' active services were shared by
the Predecessor Company and its employees. Texaco Inc. charges the
participating companies for their proportionate share of these costs, and
accordingly, the Predecessor Company's costs for these plans were charged
to expense as incurred.
F-43
<PAGE>
Employee Stock Ownership Plans--Texaco sponsors a Thrift Plan for the
benefit of its salaried employees. Amendments to the thrift Plan in 1988
created an Employee Stock Ownership Plan ("ESOP") feature. The ESOP
purchased 833,333 1/3 shares of Series B ESOP Convertible Preferred Stock
("Series B") from Texaco Inc. for $600 per share, or an aggregate purchase
price of $500 million, Texaco Inc. guaranteed the loan made to the ESOP,
which was used to acquire the shares of Series B.
The Thrift Plan is designed to provide a participant with a maximum
benefit of approximately 6% of base pay, which is payable in shares of
Series B. Participants may partially convert their Series B into common
stock of Texaco Inc. beginning at age 55, or may elect full conversion
upon retirement or separation from service with Texaco Inc. or a
participating company.
The Predecessor Company recorded ESOP expense of $46,000 in 1996 and
$8,000 for the two months ended February 28, 1997.
Pension Plans--The Predecessor Company employees participated in Texaco
Inc. and other subsidiary-sponsored pension plans. Generally, these plans
provided defined pension benefits based on final average pay. However, the
level of benefits and terms of vesting vary among plans. Amounts charged
to pension expense, as well as amounts funded, were generally based on
actuarial studies. Pension plan assets were administered by trustees and
are principally invested in equity and fixed income securities and
deposits with insurance companies.
The total expense for the Predecessor Company's participation in these
pension plans was $122,000 in 1996 and $19,000 for the two months ended
February 28, 1997.
Other Postretirement Benefits--The Predecessor Company employees
participated in Texaco Inc. sponsored postretirement plans that provide
health care and life insurance for retirees and eligible dependents. The
Predecessor Company's U.S. health insurance obligation is its fixed dollar
contribution. The plans were unfunded, and the costs are shared by the
Predecessor Company and its employees.
The total expense for postretirement plans other than pensions of the
Predecessor Company was $136,000 in 1996 and $20,000 for the two months
ended February 28, 1997.
Effective with the acquisition, substantially all Predecessor Company
employees became employees of HPC.
11. COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments for materials and supplies
entered into in the ordinary course of business. These agreements extend
from three to ten years and the purchase price is generally based on
market prices subject to certain minimum price provisions.
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, none of such litigation
is material to the Company's financial condition or results of operations.
Contingent Liabilities
There were various legal proceedings and claims against TCI which arose in
the ordinary course of business, none of which are material to TCI. Texaco
Inc. subject to terms of the Acquisition, will remain liable for any and
all of TCI's contingent liabilities that arise prior to the date of sale.
F-44
<PAGE>
Internal Revenue Service Claims
The Internal Revenue Service ("IRS") has asserted a number of claims
against Texaco Inc. for periods prior to the effective date of the PO/MTBE
operations sale. Notwithstanding the tax sharing agreement, TCI, and each
of the members of the consolidated U.S. income tax return group, is
jointly and severally liable for any potential liability to the IRS.
However, Texaco Inc. will remain primarily liable for the Company's tax
liabilities that arise prior to the date of sale.
12. LEASE COMMITMENTS AND RENTAL EXPENSE
The Predecessor's Company's principal operating asset was a PO/MTBE plant
under lease from Citibank, N.A. and other financial institutions, dated
August 14, 1992. The lease was accounted for as an operating lease. Terms
of the lease include an option for TCI or Texaco to purchase the lease.
The purchase option was exercised prior to the acquisition. The lease
obligation is reflected in the Predecessor Company's statement of income
as rental expense, included in "Cost of Sales", and totaled $34,436,000 in
1996 and $5,523,000 for the two months ended February 28, 1997.
As of December 31, 1996, the Predecessor Company had estimated minimum
commitments of $20,725,000 for the year 1997 for payment of rentals (net
of noncancelable sublease rentals) under the above-mentioned lease which,
at inception, had a noncancelable term of more than one year. Also at
December 31, 1996, TCI had a minimum commitment under this lease of
$489,033,000 for the year 1997 as a residual value guarantee.
13. CUSTOMER INFORMATION
Sales to three non-related customers account for 17%, 18%, and 36% of
sales for the year ended December 31, 1998. Sales to three non-related
customers account for 15%, 20%, and 32% of sales for the period from March
1, 1997 to December 31, 1997. Sales to four non-related customers' account
for 13%, 13%, 18%, and 23% of sales for the period from January 1, 1997 to
February 28, 1997. Sales to four non-related customers account for 12%,
12%, 17%, and 19% of sales for the year ended December 31, 1996.
14. SUBSEQUENT EVENT
Effective July 1, 1999, pursuant to a contribution agreement and ancillary
agreements between the Company, Imperial Chemical Industries Plc (ICI),
and Huntsman ICI Holdings LLC (Holdings) and Huntsman ICI Chemicals LLC
(Huntsman ICI), a wholly owned subsidiary of Holdings, acquired certain
assets and stock representing ICI's polyurethene chemicals, selected
petrochemicals (including ICI's 80% interest in the Wilton olefins
facility) and titanium dioxide businesses and the business of the Company.
In exchange for transferring its business to Holdings, the Company (1)
retained a 60% common equity interest in Holdings and (2) received $360
million in cash. The Company will use the cash and any additional funds
from Huntsman Corporation to repay the existing debt and acquire the
preferred stock. In exchange for transferring its businesses to Holdings,
ICI received (1) a 30% equity interest in Holdings, (2) an aggregate of
approximately $2 billion in cash paid in a combination of U.S. dollars and
euros, and (3) approximately $508 million of accreted value at issuance
from the discount notes of Holdings. In addition, BT Capital Investors,
L.P., Chase Equity Associates, L.P. and The Goldman Sachs Group, Inc. will
acquire the remaining 10% interest in Holdings for $90 million in cash.
The Company and ICI have agreed to indemnify each other for specific
claims and losses with respect to the transaction. Between the third and
fourth anniversary of the closing of the transaction, the Company has the
option to purchase, and ICI has the right to require the Company to
purchase, ICI's 30% interest in Holdings.
Huntsman ICI borrowed approximately $2.9 billion to fund the transaction.
F-45
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors
Imperial Chemical Industries PLC
We have audited the accompanying combined balance sheets representing an
aggregation of financial information from the individual companies and
operations of the businesses of Imperial Chemical Industries PLC ("ICI")
relating to polyurethane chemicals, titanium dioxide and selected
petrochemicals ("the Businesses") as at 31 December 1997 and 1998 and their
related combined profit and loss accounts, cash flow statements and statements
of total recognised gains and losses for each of the years in the three year
period ended 31 December 1998. These combined financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and the United States. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Businesses as of
31 December 1997 and 1998, and the results of their operations and their cash
flows for each of the years in the three year period ended 31 December 1998, in
conformity with generally accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for each of the years
in the three year period ended 31 December 1998 and net investment as of 31
December 1997 and 1998, to the extent summarised in Note 30 of the combined
financial statements.
KPMG Audit Plc
Chartered Accountants
London, England
2 June 1999
F-46
<PAGE>
COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
Years ended 31 December
-------------------------
Notes 1996 1997 1998
----- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Turnover.................................. 3 2,534 2,337 2,011
Operating costs........................... 5 (2,368) (2,288) (1,888)
Other operating income.................... 5 6 5 8
------ ------ ------
Trading profit before operating
exceptional items........................ 3,5 172 54 131
Operating exceptional items............... 4 (11) (56) (10)
------ ------ ------
Trading profit/(loss) after operating
exceptional items........................ 5 161 (2) 121
Income from fixed asset investment--
dividends................................ 2 1 1
Exceptional items--profit/(loss) on sale
or closure of operations................. 4 -- 23 (4)
------ ------ ------
Profit on ordinary activities before
interest................................. 163 22 118
Net interest payable...................... 8 (78) (69) (71)
------ ------ ------
Profit/(loss) on ordinary activities
before taxation.......................... 85 (47) 47
Taxation on profit/(loss) on ordinary
activities............................... 9 (29) (15) 12
------ ------ ------
Profit/(loss) on ordinary activities after
taxation................................. 56 (62) 59
Attributable to minorities................ (3) (1) (1)
------ ------ ------
Net profit/(loss) for the financial year.. 53 (63) 58
====== ====== ======
</TABLE>
COMBINED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Net profit/(loss) for the financial year........ 53 (63) 58
Currency translation differences on foreign
currency net investments....................... (88) (51) --
Other movements................................. -- (2) 7
--- ---- ---
(88) (53) 7
--- ---- ---
Total recognised gains/(losses) relating to the
year........................................... (35) (116) 65
=== ==== ===
</TABLE>
The accompanying notes form an integral part of these combined financial
statements.
F-47
<PAGE>
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
At 31 December
-------------------
Notes 1997 1998
----- --------- ---------
(Pounds)m (Pounds)m
<S> <C> <C> <C>
Fixed assets
Tangible assets...................................... 10 958 1,041
Investments--Participating and other interests....... 11 7 6
----- ------
965 1,047
Current assets
Stocks............................................... 12 236 250
Debtors.............................................. 13 340 296
Investments and short-term deposits--unlisted........ 2 2
Cash at bank......................................... 24 53 51
----- ------
631 599
----- ------
Total assets......................................... 1,596 1,646
----- ------
Creditors due within one year
Short-term borrowings................................ 14 (20) (12)
Current instalments of loans......................... 16 (9) (4)
Financing due to ICI................................. 16 -- (866)
Other creditors...................................... 15 (408) (345)
----- ------
(437) (1,227)
----- ------
Net current assets/(liabilities)..................... 194 (628)
----- ------
Total assets less current liabilities................ 1,159 419
----- ------
Creditors due after more than one year
Loans................................................ 16 (10) (8)
Financing due to ICI................................. 16 (866) --
Other creditors...................................... 15 (7) (9)
----- ------
(883) (17)
Provisions for liabilities and charges............... 17 (77) (72)
Deferred income...................................... (11) (11)
----- ------
(971) (100)
----- ------
Net assets........................................... 188 319
===== ======
Net investment....................................... 184 316
Minority interests--equity........................... 4 3
----- ------
188 319
===== ======
</TABLE>
The accompanying notes form anintegral part of these combined financial
statements.
F-48
<PAGE>
COMBINED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
Notes 1996 1997 1998
----- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Net cash inflow from operating
activities............................... 18 292 111 200
Returns on investments and servicing of
finance.................................. 19 (13) (12) (12)
Taxation.................................. (41) (22) (56)
---- ---- ----
238 77 132
Capital expenditure and financial
investment............................... 20 (187) (169) (130)
Disposals................................. 21 -- 31 --
---- ---- ----
Cashflow before financing................. 51 (61) 2
Net movement in financing................. 22 (57) 67 (4)
---- ---- ----
Increase/(decrease) in cash............... 24 (6) 6 (2)
==== ==== ====
</TABLE>
RECONCILIATION OF MOVEMENTS IN COMBINED NET INVESTMENT
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Net profit/(loss) for the financial year......... 53 (63) 58
Distributions and transfers (to)/from ICI, net of
tax............................................. (3) 10 21
--- --- ---
Profit/(loss) retained for year.................. 50 (53) 79
Other recognised gains/(losses) related to the
year--exchange differences on translation of
opening investment and other non cash
movements....................................... (42) 2 53
--- --- ---
Increase/(decrease) in net investment............ 8 (51) 132
Combined net investment at beginning of year..... 227 235 184
--- --- ---
Combined net investment at end of year........... 235 184 316
=== === ===
</TABLE>
The net assets above have been reduced as of 31 December, in each year by a
cumulative amount of goodwill written off of (Pounds)35m.
There are no significant statutory or contractual restrictions on the
distribution of current year income of subsidiary undertakings. Undistributed
profits are, in the main, employed in the businesses of these companies. The
undistributed income of the Businesses overseas may be liable to overseas taxes
and/or United Kingdom taxation (after allowing for double taxation relief) if
they were to be distributed as dividends.
The cumulative exchange gains and losses on the translation of foreign
currency financial statements into pounds sterling are taken into account in
the above reconciliation of movements in combined net investment.
The accompanying notes form anintegral part of these combined financial
statements.
F-49
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1 Basis of preparation
The accompanying Combined Financial Statements for the three years ended 31
December 1998 have been prepared in connection with the disposal of ICI's
Tioxide, Polyurethanes and selected petrochemicals businesses (the
"Businesses") in order to show the financial position, results of operations,
total recognised gains and losses and cash flows of the Businesses. They have
been prepared on a carve-out basis by aggregating the historical financial
information of the Businesses as if they had formed a discrete operation under
common management for the entire three year period. The Businesses are not
separate legal entities and have not been separately financed. Distributions
and transfers out of retained income made by the Businesses have been treated
as reductions in net investment (i.e. as if they were dividends).
Management overheads
Certain management overheads and other similar costs amounting to
(Pounds)13m in 1996, (Pounds)23 million in 1997 and (Pounds)15 million in 1998
have been attributed to the Businesses. Allocations were based on a combination
of the sales of the Businesses as a percentage of ICI's sales and the net
assets of the Businesses as a percentage of ICI's net assets. In all cases
management believes the method used was reasonable. The expenses allocated to
the Businesses are not necessarily indicative of the expenses that would have
been incurred if the Businesses had been a separate, independent entity and had
otherwise managed its functions. The allocated costs are included in operating
costs in the Combined Profit and Loss Accounts and have been treated as non-
cash movements through net investment.
Indebtedness and interest
The Combined Financial Statements include interest on the indebtedness
between ICI and the Businesses of (Pounds)866 million as if such indebtedness
had been in place for all periods presented. This debt has been determined by
management to be an appropriate amount to include in the Combined Financial
Statements because it is the amount of long-term debt that is expected to be
outstanding on the date the transaction is completed. The charge for interest
on such indebtedness is based on the weighted average interest rates of
selected, representative long-term borrowings of ICI in each year. The interest
charge was (Pounds)73 million in 1996, (Pounds)66 million in 1997 and
(Pounds)69 million in 1998, reflecting interest rates of 8.5% in 1996, 7.6% in
1997 and 8.0% in 1998. For cash flow purposes, interest on such indebtedness
and associated tax relief to the extent that it exceeds the actual interest
paid to ICI in the relevant period has been treated as a non-cash movement
through net investment.
Taxation
The tax charge attributable to the Businesses is based on the charge
recorded by individual legal entities and an appropriate allocation of the tax
charge incurred by ICI where activities of both the Businesses and ICI were
carried out within a single legal entity. There are no material differences
between the tax charge allocated and that which would have arisen on a stand
alone basis. Only actual tax payments by individual legal entities of the
Businesses have been included in the Combined Cash Flow Statements; payments by
ICI legal entities in respect of tax attributable to activities of the
Businesses have been treated as non-cash movements through net investment.
2 Principal accounting policies
These Combined Financial Statements have been prepared under the historical
cost convention and UK accounting standards applicable for those periods
presented. Accordingly, the provisions of Financial Reporting Standard (FRS) 12
and FRS 14 and all of the disclosure requirements of FRS 13 have not been
applied. Accounting policies conform with UK Generally Accepted Accounting
Principles (UK GAAP). The principal accounting policies which have been applied
are set out below.
F-50
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
Turnover
Turnover excludes intra-Business turnover and value added taxes. Revenue
is recognised at the point at which title passes.
Depreciation
The book value of each tangible fixed asset is written off to its residual
value evenly over its estimated remaining life. Reviews are made annually of
the estimated remaining lives of individual productive assets, taking account
of commercial and technological obsolescence as well as normal wear and tear.
Under this policy it becomes impracticable to calculate average asset lives
exactly; however, the total lives approximate to 28 years for buildings and 20
years for plant and equipment. Depreciation of assets qualifying for grants is
calculated on their full cost.
Pension costs
The pension costs relating to UK retirement plans are assessed in
accordance with the advice of independent qualified actuaries. The amounts so
determined include the regular cost of providing the benefits under the plans
which should be a level percentage of current and expected future earnings of
the employees covered under the plans. Variations from the regular pension
cost are spread on a systematic basis over the estimated average remaining
service lives of current employees in the plans. With minor exceptions, non-UK
subsidiaries recognise the expected cost of providing pensions on a systematic
basis over the average remaining service lives of employees in accordance with
the advice of independent qualified actuaries.
Research and development
Research and development expenditure is charged to profit in the year in
which it is incurred.
Government grants
Grants related to expenditure on tangible fixed assets are credited to
profit over a period approximating to the lives of qualifying assets. The
grants shown in the balance sheets consist of the total grants receivable to
date less the amounts so far credited to profit.
Foreign currencies
Profit and loss accounts in foreign currencies are translated into
sterling at average rates for the relevant accounting periods. Assets and
liabilities are translated at exchange rates ruling at the date of the
Businesses' balance sheet. Exchange differences on short-term foreign currency
borrowings and deposits are included with net interest payable. Exchange
differences on all other transactions, except relevant foreign currency loans,
are taken to trading profit. In the Businesses' accounts, exchange differences
arising on consolidation of the net investments in overseas subsidiary
undertakings and associated undertakings are taken to net investment in the
balance sheet. Differences on relevant foreign currency loans are taken to net
investment and offset against the differences on net investment in the balance
sheet.
Stock valuation
Finished goods are stated at the lower of cost and net realisable value,
raw materials and other stocks at the lower of cost and replacement price; the
first in, first out or an average method of valuation is used. In determining
cost for stock valuation purposes, depreciation is included but selling
expenses and certain overhead expenses are excluded.
F-51
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
Environmental liabilities
The Businesses are exposed to environmental liabilities relating to past
operations, principally in respect of soil and groundwater remediation costs.
Provisions for these costs are made when expenditure on remedial work is
probable and the cost can be estimated within a reasonable range of possible
outcomes.
Associated undertakings and joint ventures
Associated undertakings and joint ventures are undertakings in which the
Businesses hold a long-term interest and over which they actually exercise
significant influence. Interests in joint arrangements that are not entitles
are included proportionately in the accounts of the investing entity.
Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items, including post-retirement benefits, for taxation and for
accounting purposes. However, no provision is made for taxation deferred by
reliefs unless there is reasonable evidence that such deferred taxation will be
payable in the future.
Goodwill
On the acquisition of a business, fair values are attributed to the net
assets acquired. Goodwill arises where the fair value of the consideration
given for a business exceeds such net assets. For purchased goodwill arising on
acquisitions after 31 December 1997 goodwill is capitalised and amortised
through the profit and loss acount over a period of 20 years unless it is
considered that it has a materially different useful life. For goodwill arising
on acquisitions prior to 31 December 1997 purchased goodwill was charged
directly to net investment in the year of acquisition. On subsequent disposal
or termination of a previously acquired business, the profit or loss recognised
on disposal or termination is calculated after charging the amount of any
related goodwill previously taken to net investment.
F-52
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3 Segmental information
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Turnover
By business
Polyurethanes.................................... 907 860 816
Tioxide.......................................... 618 547 574
Petrochemicals................................... 1,047 980 659
----- ----- -----
2,572 2,387 2,049
Inter-business................................... (38) (50) (38)
----- ----- -----
2,534 2,337 2,011
===== ===== =====
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
By geographical location of operating units
United Kingdom................................... 1,511 1,214 818
Continental Europe............................... 845 781 751
USA.............................................. 481 494 509
Other Americas................................... 101 97 83
Asia Pacific..................................... 224 184 143
Other countries.................................. 42 37 42
----- ----- -----
3,204 2,807 2,346
Inter-area eliminations.......................... (670) (470) (335)
----- ----- -----
2,534 2,337 2,011
===== ===== =====
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
By geographical location of customer
United Kingdom................................... 900 760 560
Continental Europe............................... 772 755 638
USA.............................................. 377 386 408
Other Americas................................... 118 117 118
Asia Pacific..................................... 266 236 204
Other countries.................................. 101 83 83
----- ----- -----
2,534 2,337 2,011
===== ===== =====
</TABLE>
F-53
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3. Segmental information (continued)
<TABLE>
<CAPTION>
Profit/(loss) before interest
Trading profit/(loss) and taxation after
before exceptional items exceptional items
----------------------------- -----------------------------
Years ended 31 December Years ended 31 December
----------------------------- -----------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C>
By business
Polyurethanes........... 113 77 90 115 101 87
Tioxide................. -- (23) 68 (11) (54) 58
Petrochemicals.......... 59 -- (27) 59 (25) (27)
--- --- --- --- --- ---
172 54 131 163 22 118
=== === === === === ===
<CAPTION>
Profit/(loss) before interest
Trading profit/(loss) and taxation after
before exceptional items exceptional items
----------------------------- -----------------------------
Years ended 31 December Years ended 31 December
----------------------------- -----------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C>
By geographical location
of operating units
United Kingdom.......... 85 36 13 80 13 11
Continental Europe...... 31 (19) 56 30 (22) 48
USA..................... 49 30 44 47 30 44
Other Americas.......... 9 5 6 7 4 5
Asia Pacific............ (8) (1) 7 (8) (6) 5
Other countries......... 6 3 5 7 3 5
--- --- --- --- --- ---
172 54 131 163 22 118
=== === === === === ===
</TABLE>
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Total assets less current liabilities
By business
Net operating assets
Polyurethanes.............................................. 480 523
Tioxide.................................................... 629 661
Petrochemicals............................................. 100 102
----- -----
1,209 1,286
Net non-operating liabilities............................... (50) (867)
----- -----
1,159 419
===== =====
</TABLE>
F-54
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3. Segmental information (continued)
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
By geographical location of operating units
Net operating assets
United Kingdom............................................. 438 420
Continental Europe......................................... 371 439
USA........................................................ 263 290
Other Americas............................................. 15 19
Asia Pacific............................................... 105 100
Other...................................................... 17 18
----- -----
1,209 1,286
Net non-operating liabilities............................... (50) (867)
----- -----
1,159 419
===== =====
</TABLE>
Net operating assets comprise tangible fixed assets, stocks and total
operating debtors(note 13) less current operating creditors (note 15).
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Employees--average number of people employed
By business
Polyurethanes........................................... 2,139 2,225 2,172
Tioxide................................................. 3,611 3,383 3,243
Petrochemicals.......................................... 946 947 952
------- ------- -------
6,696 6,555 6,367
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
By geographical location of operating units
United Kingdom.......................................... 2,517 2,421 2,261
Continental Europe...................................... 2,515 2,595 2,614
USA..................................................... 545 436 444
Other Americas.......................................... 76 153 161
Asia Pacific............................................ 712 628 558
Other countries......................................... 331 322 329
------- ------- -------
6,696 6,555 6,367
======= ======= =======
</TABLE>
F-55
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
4 Exceptional items before taxation
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Operating exceptional items
Tioxide:
Rationalisation of operations, including
severance (1996 (Pounds)4m; 1997 (Pounds)10m;
1998 (Pounds)7m).............................. (11) (14) (10)
Settlement of dispute with supplier............ -- (17) --
Petrochemicals:
Asset impairment............................... -- (25) --
--- --- ---
(11) (56) (10)
--- --- ---
Credited/(charged) after trading profit
Profit/(loss) on sale or closure of operations:
Disposal of Polyurethanes business in Australia.. -- 25 --
Other disposals.................................. -- (2) (4)
--- --- ---
-- 23 (4)
--- --- ---
Exceptional items within profit on ordinary
activities before taxation...................... (11) (33) (14)
=== === ===
</TABLE>
F-56
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
5 Trading profit
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Trading profit before exceptional items
Turnover......................................... 2,534 2,337 2,011
------ ------ ------
Operating costs
Cost of sales.................................. (1,989) (1,911) (1,535)
Distribution costs............................. (100) (128) (143)
Research and development....................... (51) (49) (39)
Administration and other expenses.............. (228) (200) (171)
------ ------ ------
(2,368) (2,288) (1,888)
Other operating income
Government grants.............................. 1 2 2
Royalty income................................. 1 -- 3
Other income................................... 4 3 3
------ ------ ------
6 5 8
------ ------ ------
Trading profit................................... 172 54 131
====== ====== ======
Operating costs include:
Depreciation................................... 93 88 76
------ ------ ------
Gross profit, as defined by UK Companies Act
1985.......................................... 545 426 476
------ ------ ------
Trading profit after exceptional items
Turnover......................................... 2,534 2,337 2,011
------ ------ ------
Operating costs
Cost of sales.................................. (1,996) (1,965) (1,544)
Distribution costs............................. (102) (128) (143)
Research and development....................... (51) (49) (39)
Administration and other expenses.............. (230) (202) (172)
------ ------ ------
(2,379) (2,344) (1,898)
Other operating income
Government grants.............................. 1 2 2
Royalty income................................. 1 -- 3
Other income................................... 4 3 3
------ ------ ------
6 5 8
------ ------ ------
Trading profit/(loss)............................ 161 (2) 121
====== ====== ======
Operating costs include:
Depreciation................................... 93 113 76
------ ------ ------
Gross profit, as defined by UK Companies Act
1985.......................................... 538 372 467
------ ------ ------
</TABLE>
6 Note of historical cost profits and losses
There were no material differences between reported profits and losses on
ordinary activities before tax in 1996, 1997 and 1998.
F-57
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
7 Staff costs
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Staff costs:
Salaries...................................... 181 166 163
Social security costs......................... 28 24 27
Pension costs................................. 13 15 15
Other employment costs........................ 3 3 2
--- --- ---
225 208 207
Less amounts allocated to capital and to
provisions set up in previous years............ (2) (3) --
Severance costs charged in arriving at profit
before tax..................................... 5 10 8
--- --- ---
Employee costs charged in arriving at profit
before tax..................................... 228 215 215
=== === ===
</TABLE>
8 Net interest payable
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Interest payable and similar charges
Interest on loans
External........................................ 3 3 1
Other ICI businesses............................ 73 66 69
--- --- ---
76 69 70
Interest on short-term borrowings................. 3 2 2
--- --- ---
79 71 72
Interest receivable and similar income
External........................................ (1) (2) (1)
--- --- ---
78 69 71
=== === ===
</TABLE>
9 Taxation on profit on ordinary activities
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------- --------------------------------- ---------------------------------
Before Before Before
exceptional Exceptional exceptional Exceptional exceptional Exceptional
items items Total items items Total items items Total
----------- ----------- --------- ----------- ----------- --------- ----------- ----------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom
taxation
Corporation
tax............ (11) (3) (14) 17 -- 17 (30) -- (30)
Deferred
taxation....... 4 -- 4 -- -- -- 2 -- 2
--- --- --- --- --- --- --- --- ---
(7) (3) (10) 17 -- 17 (28) -- (28)
--- --- --- --- --- --- --- --- ---
Overseas taxation
Overseas taxes.. 33 -- 33 31 (10) 21 24 (4) 20
Deferred
taxation....... 6 -- 6 (23) -- (23) (4) -- (4)
--- --- --- --- --- --- --- --- ---
39 -- 39 8 (10) (2) 20 (4) 16
--- --- --- --- --- --- --- --- ---
32 (3) 29 25 (10) 15 (8) (4) (12)
=== === === === === === === === ===
</TABLE>
UK and overseas taxation has been provided on the profit/(loss) earned for
the periods covered by the accounts, UK corporation tax has been provided at
the rate of 31% (1997 31.5%; 1996 33%).
F-58
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
Deferred taxation
The amounts of deferred taxation accounted for as the balance sheet data
and the potential amounts of deferred taxation are disclosed below.
<TABLE>
<CAPTION>
Year ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Accounted for at balance sheet date
Timing differences on UK capital allowances and
depreciation................................... 70 63 83
Miscellaneous timing differences................ (3) (22) (43)
--- --- ---
67 41 40
--- --- ---
Not accounted for at balance sheet data
Timing differences on UK capital allowances and
depreciation................................... 64 82 81
Miscellaneous timing differences................ (11) (49) (36)
--- --- ---
53 33 45
--- --- ---
Full potential deferred taxation................ 120 74 85
=== === ===
</TABLE>
F-59
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
10 Tangible fixed assets
<TABLE>
<CAPTION>
Payments
to account
and assets
Land and Plant and in course of
buildings equipment construction Total
--------- --------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Cost
At 1 January 1997 ...... 191 1,396 188 1,775
Capital expenditure..... -- -- 171 171
Transfer of assets into
use.................... 2 77 (79)
Exchange adjustments.... (20) (80) (14) (114)
Disposals and other
movements.............. (2) (28) (1) (31)
--- ----- ---- -----
At 31 December 1997..... 171 1,365 265 1,801
Capital expenditure..... -- -- 135 135
Transfer of assets into
use.................... 4 261 (265)
Exchange adjustments.... 4 27 2 33
Disposals and other
movements.............. (1) (36) -- (37)
--- ----- ---- -----
At 31 December 1998 178 1,617 137 1,932
--- ----- ---- -----
Depreciation
At 1 January 1997 ...... 59 726 785
Charge for year......... 7 106 113
Exchange adjustments.... (5) (28) (33)
Disposals and other
movements.............. (1) (21) (22)
--- ----- -----
At 31 December 1997..... 60 783 843
Charge for year......... 5 71 76
Exchange adjustments.... 2 9 11
Disposals and other
movements.............. (1) (38) (39)
--- ----- -----
At 31 December 1998..... 66 825 891
=== ===== =====
Net book value at 31
December 1997.......... 111 582 265 958
=== ===== ==== =====
Net book value at 31
December 1998.......... 112 792 137 1,041
=== ===== ==== =====
</TABLE>
The depreciation charge of (Pounds)113m in 1997, shown above, includes
(Pounds)25m charged to exceptional items relating to provisions for impairment.
Included in land and buildings is (Pounds)22m (1997 (Pounds)22m) in respect
of the cost of land which is not subject to depreciation.
F-60
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
The net book value of land and buildings comprises:
Freeholds................................................. 84 86
Long leases (over 50 years unexpired)..................... 27 26
--- ---
111 112
=== ===
11 Investments in participating and other interests
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Associated undertakings--non equity accounted shares
Cost
At beginning of year........................................ 7 7
Exchange adjustments........................................ -- (1)
--- ---
At 31 December.............................................. 7 6
=== ===
12 Stocks
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Raw materials and consumables............................... 91 106
Stocks in process........................................... 9 11
Finished goods and good for resale.......................... 136 133
--- ---
236 250
=== ===
13 Debtors
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Amounts due within one year
Trade debtors--external..................................... 122 97
Trade debtors--other ICI businesses......................... 182 158
Taxation recoverable........................................ 6 10
Other prepayments and accrued income........................ 6 10
Other debtors--external..................................... 20 19
--- ---
336 294
=== ===
Amounts due after one year
Other debtors--external..................................... 4 2
--- ---
340 296
=== ===
</TABLE>
F-61
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
Non operating debtors included in the above
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Amounts due within one year
Taxation recoverable........................................ 3 3
Other debtors............................................... 2 --
--- ---
5 3
Amounts due after one year
Taxation recoverable........................................ 3 7
--- ---
8 10
=== ===
14 Short-term borrowings
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Bank borrowings--Unsecured.................................. 20 12
=== ===
15 Other creditors
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
Amounts due within one year
<S> <C> <C>
Trade creditors--external................................... 158 184
Trade creditors--other ICI businesses....................... 60 26
Corporate taxation.......................................... 91 53
Value added and payroll taxes and social security........... 17 8
Accruals.................................................... 43 42
Other creditors............................................. 39 32
--- ---
408 345
=== ===
Amounts due after one year
Pension liabilities......................................... 2 3
Other creditors............................................. 5 6
--- ---
7 9
=== ===
Non-operating creditors included in the above
Amounts due within one year
Corporate taxation.......................................... 91 53
Other creditors............................................. -- 1
--- ---
91 54
=== ===
Amounts due after one year
Pension liabilities......................................... 2 3
Other creditors............................................. 3 --
--- ---
5 3
=== ===
</TABLE>
F-62
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
16 Loans
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Creditors due within one year
Current instalment of loans................................. 9 4
Financing due to ICI........................................ -- 866
--- ---
9 870
=== ===
Creditors due after more than one year
Loans....................................................... 10 8
Financing due to ICI........................................ 866 --
--- ---
876 8
--- ---
885 878
=== ===
Secured loans
US dollars.................................................. 4 --
Other currencies............................................ 1 --
--- ---
Total secured............................................... 5 --
--- ---
Secured by fixed charge................................... 4 --
Secured by floating charge................................ 1 --
--- ---
Unsecured loans
US dollars.................................................. -- --
Other foreign currencies.................................... 14 12
--- ---
14 12
Financing due to ICI (see note below)....................... 866 866
--- ---
Total unsecured............................................. 880 878
--- ---
Total loans................................................. 885 878
=== ===
Loan maturities
Bank loans
Loans or instalments thereof are repayable:
From 2 to 5 years from balance sheet date................. 7 5
From 1 to 2 years......................................... 3 3
--- ---
Total due after more than one year.......................... 10 8
Total due within one year................................... 9 4
--- ---
19 12
=== ===
Other loans
Loans or instalments thereof are repayable:
From 1 to 2 years from balance sheet date................. 866 --
=== ===
Within one year........................................... -- 866
=== ===
</TABLE>
Financing due to ICI includes the indebtedness assumed by the Businesses on
1 January 1999 as if it had been in place throughout the period.
F-63
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Total loans
Loans or instalments thereof are repayable:
From 2 to 5 years from balance sheet date................. 7 5
From 1 to 2 years......................................... 869 3
--- ---
Total due after more than one year.......................... 876 8
Total due within one year................................... 9 870
--- ---
Total loans................................................. 885 878
=== ===
</TABLE>
17 Provisions for liabilities and charges
<TABLE>
<CAPTION>
Deferred Unfunded Employee Other
taxation pensions benefits provisions Total
--------- --------- --------- ---------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C>
At 1 January 1997.......... 67 13 17 14 111
Profit and loss account.... (23) -- 1 1 (21)
Net amounts paid or
becoming current.......... -- (2) (1) (8) (11)
Exchange and other
movements................. (3) -- -- 1 (2)
--- --- --- --- ---
At 31 December 1997........ 41 11 17 8 77
Profit and loss account.... (2) (5) 2 3 (2)
Net amounts paid or
becoming current.......... -- (1) (1) (2) (4)
Exchange and other
movements................. 1 -- -- -- 1
--- --- --- --- ---
At 31 December 1998........ 40 5 18 9 72
=== === === === ===
</TABLE>
18 Net cash inflow from operating activities
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Trading profit/(loss)............................. 161 (2) 121
Exceptional items within trading profit........... 11 56 10
--- --- ---
Trading profit before exceptional items .......... 172 54 131
Depreciation...................................... 93 88 76
Stocks decrease/(increase) ....................... (18) 56 (11)
Debtors decrease.................................. 28 9 52
Creditors increase/(decrease)..................... 45 (62) (36)
Other movements, including exchange............... (4) (2) (1)
--- --- ---
316 143 211
Outflow relating to exceptional items............. (24) (32) (11)
--- --- ---
292 111 200
=== === ===
</TABLE>
Outflow related to exceptional items includes expenditure charged to
exceptional provisions relating to business rationalisation, settlement of a
dispute with a supplier and for sale or closure of operations, including
severance and other employee costs.
F-64
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
19 Returns on investments and servicing of finance
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Dividends received from associated
undertakings................................... 1 -- --
Interest received............................... 32 8 10
Interest paid................................... (45) (19) (21)
Dividends paid by subsidiary undertakings to
minority shareholders.......................... (1) (1) (1)
--- --- ---
(13) (12) (12)
=== === ===
</TABLE>
20 Capital expenditure and financial investment
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Purchase of tangible fixed assets............... (188) (173) (130)
Purchase of fixed asset investments other than
associated undertakings or joint ventures ..... (1) -- --
Sale of tangible fixed assets................... 2 4 --
---- ---- ----
(187) (169) (130)
==== ==== ====
</TABLE>
21 Disposals
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Cash inflow from disposal of Polyurethanes
business in Australia.......................... -- 31 --
=== === ===
</TABLE>
The Polyurethanes business in Australia contributed (Pounds)3m and
(Pounds)2m to the trading profit of the Businesses in 1996 and 1997,
respectively.
F-65
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
22 Financing
<TABLE>
<CAPTION>
Short-term
Distributions Financing borrowings
and transfers due to other than
to ICI * ICI Sub Total Loans overdrafts Sub Total Total
------------- --------- --------- --------- ---------- --------- ---------
Notes 16 16 24
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C> <C>
At 1 January 1997....... (1,101) 866 (235) (27) - (27) (262)
Exchange adjustments.... 53 - 53 - - - 53
Financing
------ --- ---- --- --- --- ----
New finance........... (69) - (69) - (7) (7) (76)
Finance repaid........ 1 - 1 8 8 9
------ --- ---- --- --- --- ----
Cash flow............... (68) - (68) 8 (7) 1 (67)
Acquisitions and
disposals.............. 3 - 3 - - - 3
Other non-cash changes.. 63 - 63 - - - 63
------ --- ---- --- --- --- ----
At 31 December 1997..... (1,050) 866 (184) (19) (7) (26) (210)
Exchange adjustments.... (7) - (7) - - - (7)
Financing
------ --- ---- --- --- --- ----
New finance........... (23) - (23) - - (23)
Finance repaid........ 14 - 14 7 6 13 27
------ --- ---- --- --- --- ----
Cash flow............... (9) - (9) 7 6 13 4
Other non-cash changes.. (116) - (116) - - - (116)
------ --- ---- --- --- --- ----
At 31 December 1998..... (1,182) 866 (316) (12) (1) (13) (329)
====== === ==== === === === ====
</TABLE>
- --------
* The distributions and transfers to ICI and related interest paid are not
indicative of the dividends and interest that the Businesses will pay as an
independent managed and financed entity.
The Businesses have not been charged with any financing costs in respect of
amounts included within Net investment during the period covered by the
Combined Financial Statements.
23 Analysis of net debt
<TABLE>
<CAPTION>
Current
asset
Cash Financing -- debt investments Net debt
--------- ----------------------------------------- ----------- ---------
Short-term
borrowings
Financing other than
due to ICI Loans overdrafts Total
---------- --------- ---------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C> <C>
At 1 January 1997....... 39 (866) (27) - (893) 3 (851)
Exchange adjustments.... (5) - - - - (1) (6)
Cash flow............... 6 - 8 (7) 1 - 7
--- ---- --- --- ---- --- ----
At 31 December 1997..... 40 (866) (19) (7) (892) 2 (850)
Exchange adjustments.... 2 - - - - - 2
Cash flow............... (2) - 7 6 13 - 11
--- ---- --- --- ---- --- ----
At 31 December 1998..... 40 (866) (12) (1) (879) 2 (837)
=== ==== === === ==== === ====
</TABLE>
F-66
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
24 Cash and short-term borrowings
<TABLE>
<CAPTION>
Short-term borrowings Cash
Cash at ------------------------------ (at bank and
bank Overdrafts Other Total Net total overdraft)
--------- ---------- --------- --------- --------- ------------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C>
At 1 January 1997....... 50 (11) -- (11) 39 39
Exchange adjustments.... (6) 1 -- 1 (5) (5)
Cash flow............... 9 (3) (7) (10) (1) 6
--- --- --- --- --- ---
At 31 December 1997..... 53 (13) (7) (20) 33 40
Exchange adjustments.... -- 2 -- 2 2 2
Cash flow............... (2) -- 6 6 4 (2)
--- --- --- --- --- ---
At 31 December 1998..... 51 (11) (1) (12) 39 40
=== === === === === ===
</TABLE>
25 Leases
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Rentals under operating leases, charged as an
expense in the profit and loss account
Hire of plant and machinery................... 7 4 3
Other......................................... 3 1 1
--- --- ---
10 5 4
=== === ===
</TABLE>
<TABLE>
<CAPTION>
Land and buildings Other assets
Years ended 31 December Years ended 31 December
----------------------------- -----------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C> <C> <C>
Commitments under
operating leases to pay
rentals during the year
following the year of
these accounts,
analysed according to
the period in which
each lease expires
Expiring within 1
year................. 1 1 1 -- -- 1
Expiring in years 2 to
5.................... 1 -- -- 2 2 1
Expiring thereafter... 1 1 1 -- -- --
--- --- --- --- --- ---
3 2 2 2 2 2
=== === === === === ===
</TABLE>
<TABLE>
<CAPTION>
Years ended 31 December
-----------------------------
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Obligations under operating leases comprise
Rentals due within 1 year...................... 5 4 4
--- --- ---
Rentals due after more than 1 year
From 1 to 2 years.............................. 4 4 3
From 2 to 3 years.............................. 3 3 3
From 3 to 4 years.............................. 3 2 2
From 4 to 5 years.............................. 2 2 2
After 5 years from balance sheet date.......... 14 11 8
--- --- ---
26 22 18
--- --- ---
31 26 22
=== === ===
</TABLE>
F-67
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
26 Pensions and other post retirement benefits
Pensions
The majority of the Businesses' employees are covered by retirement plans.
These plans are generally of the defined benefit type under which benefits are
based on employees' years of service and average final remuneration and are
funded through separate trustee-administered funds. Formal independent
actuarial valuations of ICI's main plans are undertaken regularly, normally at
least triennially and adopting the projected unit method.
The actuarial assumptions used to calculate the projected benefit
obligation of ICI's pension plans vary according to the economic conditions of
the country in which they are situated. It is usually assumed that, over the
long term, the annual rate of return on scheme investments will be higher than
the annual rate of increase in pensionable remuneration and in present and
future pension in payments.
The weighted average discount rate used in determining the actuarial
present values of the benefit obligations was 7.3% (1997 7.8%). The weighted
average expected long-term rate of return on investments was 7.9% (1997 8.0%).
The weighted average rate of increase of future earnings was 4.9% (1997 5.0%).
The actuarial value of the fund assets of these plans at the date of the
latest actuarial valuations was sufficient to cover 104% (1997 107%) of the
benefits that had accrued to members after allowing for expected future
increases in earnings; their market value was (Pounds)462m (1997 (Pounds)427m).
The total pension cost for the Businesses for 1998 was (Pounds)15m (1997
(Pounds)15m; 1996 (Pounds)13m). Accrued pension costs amounted to (Pounds)3m
(1997 (Pounds)2m) and are included in other creditors (note 15); provisions for
the benefit obligation of a small number of unfunded plans amounted to
(Pounds)5m (1997 (Pounds)11m) and are included in provisions for liabilities
and charges - unfunded pensions (note 17).
27 Related party transactions
The following information is provided in accordance with FRS No 8 - Related
Party Transactions, as being material transactions with related parties
during 1998.
Related party: Imperial Chemical Industries PLC and subsidiary
undertakings
Transactions: a) Sales of product (Pounds)124m
b) Sales of services (Pounds)3m
c) Purchases of product (Pounds)13m
d) Purchases of services (Pounds)35m
Related party: Phillips-Imperial Petroleum Ltd (PIP), disclosed as a
principal associated undertaking of Imperial Chemical
Industries PLC.
Transactions: a) Sales of refined products to PIP amounted to
(Pounds)98m.
b) Purchase of refined oil and refining costs from PIP
amounted to (Pounds)29m.
c) Site services and other charges to PIP amounted to
(Pounds)23m.
d) Amount owed to the Group related to the above
transactions amounted to (Pounds)5m.
Related party: ICHEM Insurance Company Limited, a subsidiary undertaking
of Imperial Chemical Industries PLC.
Transactions: Insurance premium paid by the Businesses (Pounds)11.7m.
Insurance claims settled by ICHEM Insurance Company
Limited (Pounds)22.4m.
F-68
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
28 Contingent liabilities and commitments
<TABLE>
<CAPTION>
At 31 December
-------------------
1997 1998
--------- ---------
(Pounds)m (Pounds)m
<S> <C> <C>
Commitments for capital expenditure not provided in these
accounts
Contracts placed for future expenditure................. 24 107
Expenditure authorized but not yet contracted........... 1 1
--- ---
25 108
=== ===
</TABLE>
The Businesses are involved in various legal proceedings arising out of the
normal course of business. It is not believed that the outcome of these
proceedings will have a material effect on the Businesses' financial position.
The Businesses are also subject to contingencies pursuant to environmental
laws and regulations that in the future may require it to take action to
correct the effects on the environment of prior disposal or release of chemical
substances by the Businesses or other parties. The ultimate requirement for
such actions, and their cost is inherently difficult to estimate, however
provisions have been established at 31 December 1998 in accordance with the
accounting policy in note 2.
Guarantees and contingencies arising in the ordinary course of business,
for which no security has been given, are not expected to result in any
material financial loss.
The Businesses have entered into a number of take-or-pay contracts in
respect of purchases of raw materials and services for varying periods up to
2013. The aggregate present value of significant commitments at 31 December
1998 was approximately (Pounds)420m.
29 Subsequent event
In April 1999 ICI, Huntsman Specialty Chemicals Corporation and Huntsman
ICI Holdings LLC (Holdings) entered into a Contribution Agreement under which
Holdings acquired the businesses of ICI relating to polyurethane chemicals,
titanium dioxide and selected petrochemicals (the "Businesses"). In exchange
for transferring the Businesses, ICI will receive a 30% equity interest in
Holdings and an aggregate of approximately $2,022 million in cash and
approximately $508 million in proceeds from discount notes of Holdings. The
transaction is expected to close on 30 June 1999.
F-69
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
30 Differences between UK and US accounting principles
The Combined Financial Statements are prepared in accordance with United
Kingdom Generally Accepted Accounting Principles (UK GAAP). The significant
differences between UK GAAP and US Generally Accepted Accounting Principles (US
GAAP) which affect net income and net assets are set out below:
(a) Accounting for pension costs
There are four significant differences between UK GAAP and US GAAP in
accounting for pension costs:
(i) SFAS No. 87, "Employers' Accounting for Pensions", requires that
pension plan assets are valued by reference to their fair or
market related values, whereas UK GAAP permits an alternative
measurement of assets, which, in the case of the main UK
retirement plans, is on the basis of the discounted present value
of expected future income streams from the pension plan assets.
(ii) SFAS No. 87, requires measurements of plan assets and
obligations to be made as at the date of financial statements or
a date not more than three months prior to that date. Under UK
GAAP, calculations may be based on the results of the latest
actuarial valuation.
(iii) SFAS No. 87, mandates a particular actuarial method--the
projected unit credit method--and requires that each
significant assumption necessary to determine annual pension
cost reflects best estimates solely with regard to that
individual assumption. UK GAAP does not mandate a particular
method, but requires that the method and assumptions, taken as
a whole, should be compatible and lead to the actuary's best
estimate of the cost of providing the benefits promised.
(iv) Under SFAS No. 87, a negative pension cost may arise where a
significant unrecognised net asset or gain exists at the time of
implementation. This is required to be amortised on a straight-
line basis over the average remaining service period of
employees. Under UK GAAP, the policy is not to recognise pension
credits in its financial statements unless a refund of, or
reduction in, contributions is likely.
(b) Purchase accounting adjustments, including the amortisation and
impairment of goodwill and intangibles
In the Combined Financial Statements, prepared in accordance with UK
GAAP, goodwill arising on acquisitions accounted for under the purchase
method after 1 January 1998, is capitalised and amortised, as it would
be in accordance with US GAAP. Prior to that date such goodwill arising
on acquisitions was and remains eliminated against net investment.
Values were not placed on intangible assets. Additionally, UK GAAP
requires that on subsequent disposal or closure of a previously
acquired asset, any goodwill previously taken directly to net
investment is then charged in the income statement against the income
or loss on disposal or closure. Under US GAAP all goodwill would be
capitalised in the combined balance sheet and amortised through the
profit and loss account over its estimated life not exceeding 40 years.
Also, under US GAAP, it is normal practice to ascribe fair values to
identifiable intangibles. For the purpose of the adjustments to US
GAAP, included below, identifiable intangible assets are amortised to
income over the lower of their estimated lives or 40 years. Provision
is made where there is a permanent impairment to the carrying value of
capitalised goodwill and intangible assets based on a projection of
future undiscounted cash flows.
F-70
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(c) Capitalisation of interest
There is no accounting standard in the UK regarding the capitalisation
of interest and the Businesses do not capitalise interest in the
Combined Financial Statements. Under US GAAP, SFAS No. 34
"Capitalization of Interest Cost", requires interest incurred as part
of the cost of constructing fixed assets to be capitalised and
amortised over the life of the asset.
(d) Restructuring costs
US GAAP requires a number of specific criteria to be met before
restructuring costs can be recognised as an expense. Among these
criteria is the requirement that all the significant actions arising
from the restructuring plan and their completion dates must be
identified by the balance sheet date. Under UK GAAP, prior to the
publication of FRS12, when a decision was taken to restructure, the
necessary provisions were made for severance and other costs.
Accordingly, timing differences, between UK GAAP and US GAAP, arise on
the recognition of such costs.
(e) Deferred taxation
Deferred taxation is provided on a full provision basis under US GAAP.
Under UK GAAP no provision is made for taxation deferred by reliefs
unless there is reasonable evidence that such deferred taxation will be
payable in the foreseeable future.
The following is a summary of the material adjustments to net income and
net equity which would be required if US GAAP had been applied instead of UK
GAAP:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Net income after exceptional items--UK GAAP...... 53 (63) 58
Adjustments to conform with US GAAP
Pension expense................................ - (1) (1)
Purchase accounting adjustments
Amortisation of goodwill and intangibles..... (1) (1) (1)
Capitalisation of interest less amortisation
and disposals................................. (1) (3) -
Restructuring costs............................ - - 5
Deferred taxation
Arising on UK GAAP results................... (10) 16 (12)
Arising on other US GAAP adjustments......... -- 2 (1)
--- --- ---
Total US GAAP adjustments...................... (12) 13 (10)
--- --- ---
Net income--US GAAP.............................. 41 (50) 48
=== === ===
Net investment--UK GAAP.......................... 184 316
Adjustments to conform with US GAAP
Purchase accounting adjustments including
goodwill and intangibles...................... 31 30
Capitalisation of interest less amortisation
and disposals................................. 71 71
Restructuring provision........................ - 5
Pension expense................................ (26) (27)
Deferred taxation.............................. (51) (64)
--- ---
Total US GAAP adjustments...................... 25 15
--- ---
Net investment--US GAAP.......................... 209 331
=== ===
</TABLE>
F-71
<PAGE>
(f) Newly adopted US accounting standards
The Businesses adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. It requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. Required disclosures have been made in the Businesses'
financial statements in the statement of total recognized gains and
losses and prior years information has been restated. The effect of
adopting SFAS No. 130 was not material.
(g) New US accounting standards not yet effective
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. This Standard, which is effective
for fiscal years beginning after June 15, 2000, requires all
derivatives to be recognized in the balance sheet as either assets or
liabilities and measured at fair value. To implement the standard, all
hedging relationships must be reassessed. The Businesses have not yet
evaluated the likely impact on the financial statements.
(h) Combined Cash Flow Statements
The Combined Cash Flow Statements are prepared in accordance with UK
FRS No. 1 (Revised 1996)--Cash Flow Statements, the objective of which
is similar to that set out in the US Standard SFAS No. 95--Statements
of Cash Flows. The two statements differ, however, in their definitions
of cash and their presentation of the main constituent items of cash
flow.
The definition of cash in the UK standard is limited to cash plus
deposits less overdrafts/borrowings repayable on demand without
penalty. In the US, the definition in SFAS No. 95 excludes overdrafts
but is widened to include cash equivalents, comprising short-term
highly liquid investments that are both readily convertible to known
amounts of cash and so near their maturities that they present
insignificant risk of changes in value: generally, only investments
with original maturities of 3 months or less qualify for inclusion.
The format of the UK statement employs some 9 headings compared with 3
in SFAS No. 95. The cash flows within the UK headings of "Net cash
inflow from operating activities", "Dividends received from associated
undertakings", "Returns on investments and servicing of finance" and
"Taxation" would all be included within the heading of "Net cash
provided by operating activities" under SFAS No. 95. Likewise, the UK
headings of "Capital expenditure and financial investment" and
"Acquisitions and disposals" correspond with "Cash flows from investing
activities" under SFAS No. 95, and "Equity dividends paid", "Management
of liquid resources" and "Financing" in the UK, subject to adjustments
for cash equivalents, correspond with "Cash flows from financing
activities" in SFAS No. 95.
Restated in accordance with US GAAP the Combined Cash Flow Statements
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Net cash provided by operating activities.. 238 77 132
Cash flows from investing activities....... (185) (138) (130)
Cash flows from financing activities....... (53) 70 (4)
---- ---- ----
Increase (decrease) in cash and cash
equivalents............................... - 9 (2)
==== ==== ====
</TABLE>
F-72
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
31 Principal companies and operations
a) Principal ICI subsidiary companies included in the Businesses.
<TABLE>
<CAPTION>
% owned Country Unit name
<S> <C> <C>
100 England Tioxide Group Ltd
100 England Tioxide Europe Ltd
100 England Tioxide Group Service Ltd
100 USA Tioxide Americas Inc
100 Canada Tioxide Canada Inc
100 Italy Tioxide Europe Srl
100 Spain Tioxide Europe S.A.
100 France Tioxide Europe SA
100 Malaysia Tioxide (Malaysia) SDN BHD
60 South Africa Tioxide Southern Africa (Pty) Ltd
</TABLE>
b) Principal associated companies included in the Businesses.
<TABLE>
<CAPTION>
% owned Country Unit name
<S> <C> <C>
50 USA Louisiana Pigment Company, LP
</TABLE>
Louisiana Pigment Company, LP is accounted for as a joint arrangement that
is not an entity in these special purpose accounts.
c) Principal operations included in the Businesses.
<TABLE>
<CAPTION>
% owned Country Unit name
<S> <C> <C>
100 England ICI Chemicals & Polymers Ltd--Petrochemicals
100 England Imperial Chemical Industries PLC--Polyurethanes
100 USA ICI Americas Inc--Polyurethanes
100 Netherlands ICI Holland BV--Polyurethanes
</TABLE>
F-73
<PAGE>
32 Supplemental Condensed Combined Financial Information
The payment obligations under the Senior Subordinated Notes (see elsewhere
in the Offering Circular) are guaranteed by certain of the Businesses which are
wholly owned subsidiaries of ICI and will be wholly owned subsidiaries of
Holdings following the transaction described in note 29 (the "Guarantors"). The
guarantees are full, unconditional and joint and several. The Supplemental
Condensed Combined Financial Information sets forth profit and loss account,
balance sheet and cash flow information for the Guarantors and for the other
individual companies and operations of the Businesses (the "Non-Guarantors").
The information reflects the investments of the Guarantors in certain of the
Non-Guarantors using the equity method of accounting. For the purposes of this
Supplemental Condensed Combined Financial Information, the indebtedness between
ICI and the Businesses of (Pounds)866 million and the interest on such
indebtedness and associated tax relief has been reflected within the Non-
Guarantors information.
Supplemental Combined Profit and Loss Account
For the year ended 31 December 1996
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Turnover......................... 131 2,454 (51) 2,534
Operating costs.................. (130) (2,289) 51 (2,368)
Other operating income........... - 6 - 6
---- ------ --- ------
Trading profit before operating
exceptional items............... 1 171 - 172
Operating exceptional items...... - (11) - (11)
---- ------ --- ------
Trading profit after operating
exceptional items............... 1 160 - 161
Income from fixed asset
investment--dividends........... - 2 - 2
Share of loss of consolidated
subsidiaries before interest.... (13) - 13 -
---- ------ --- ------
Profit/(loss) on ordinary
activities before interest...... (12) 162 13 163
Net interest
receivable/(payable)............ 10 (88) - (78)
Share of interest payable of
consolidated subsidiaries....... (17) - 17 -
---- ------ --- ------
Profit/(loss) on ordinary
activities before taxation...... (19) 74 30 85
Taxation on profit/(loss) on
ordinary activities............. (1) (28) - (29)
---- ------ --- ------
Profit/(loss) on ordinary
activities after taxation (20) 46 30 56
Attributable to minorities....... - (3) - (3)
---- ------ --- ------
Net profit/(loss) for the
financial year.................. (20) 43 30 53
==== ====== === ======
</TABLE>
F-74
<PAGE>
Supplemental Combined Profit and Loss Account
For the year ended 31 December 1997
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Turnover......................... 131 2,267 (61) 2,337
Operating costs.................. (134) (2,215) 61 (2,288)
Other operating income........... - 5 - 5
---- ------ --- ------
Trading profit/(loss) before
operating exceptional items..... (3) 57 - 54
Operating exceptional items...... - (56) - (56)
---- ------ --- ------
Trading profit/(loss) after
operating exceptional items..... (3) 1 - (2)
Income from fixed asset
investment--dividends........... - 1 - 1
Exceptional items--profit on sale
or closure of operations........ - 23 - 23
Share of loss of consolidated
subsidiaries before interest.... (50) -- 50 --
---- ------ --- ------
Profit/(loss) on ordinary
activities before interest...... (53) 25 50 22
Net interest
receivable/(payable)............ 17 (86) - (69)
Share of interest payable of
consolidated subsidiaries....... (21) -- 21 --
---- ------ --- ------
Loss on ordinary activities
before taxation................. (57) (61) 71 (47)
Taxation on loss on ordinary
activities...................... (3) (12) - (15)
Share of taxation of consolidated
subsidiaries.................... 16 -- (16) --
---- ------ --- ------
Loss on ordinary activities after
taxation (44) (73) 55 (62)
Attributable to minorities....... - (1) - (1)
---- ------ --- ------
Loss for the financial year...... (44) (74) 55 (63)
==== ====== === ======
</TABLE>
F-75
<PAGE>
Supplemental Combined Profit and Loss Account
For the year ended 31 December 1998
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Turnover......................... 137 1,925 (51) 2,011
Operating costs.................. (125) (1,814) 51 (1,888)
Other operating income........... - 8 - 8
---- ------ --- ------
Trading profit before operating
exceptional items............... 12 119 - 131
Operating exceptional items...... - (10) - (10)
---- ------ --- ------
Trading profit after operating
exceptional items............... 12 109 - 121
Income from fixed asset
investment--dividends........... - 1 - 1
Exceptional items--losses on sale
or closure of operations........ - (4) - (4)
Share of profit of consolidated
subsidiaries before interest.... 32 - (32) -
---- ------ --- ------
Profit on ordinary activities
before interest................. 44 106 (32) 118
Net interest
receivable/(payable)............ 11 (82) - (71)
Share of interest payable of
consolidated subsidiaries....... (16) - 16 -
---- ------ --- ------
Profit on ordinary activities
before taxation................. 39 24 (16) 47
Taxation on profit on ordinary
activities...................... (9) 21 - 12
Share of taxation of consolidated
subsidiaries.................... 7 - (7) -
---- ------ --- ------
Profit on ordinary activities
after taxation 37 45 (23) 59
Attributable to minorities....... - (1) - (1)
---- ------ --- ------
Net profit for the financial
year............................ 37 44 (23) 58
==== ====== === ======
</TABLE>
F-76
<PAGE>
Supplemental Combined Balance Sheet
As at 31 December 1997
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets.................. - 958 - 958
Investments--Participating and
other interests................. 141 7 (141) 7
--- ----- ---- -----
141 965 (141) 965
Current assets
Stocks........................... 12 224 - 236
Debtors.......................... 189 366 (215) 340
Investments and short-term
deposits--unlisted.............. - 2 - 2
Cash at bank..................... - 53 - 53
--- ----- ---- -----
201 645 (215) 631
--- ----- ---- -----
Total assets..................... 342 1,610 (356) 1,596
--- ----- ---- -----
Creditors due within one year
Short-term borrowings............ - (20) - (20)
Current instalments of loans..... - (9) - (9)
Other creditors.................. (51) (572) 215 (408)
--- ----- ---- -----
(51) (601) 215 (437)
--- ----- ---- -----
Net current assets............... 150 44 - 194
--- ----- ---- -----
Total assets less current
liabilities..................... 291 1,009 (141) 1,159
--- ----- ---- -----
Creditors due after more than one
year
Loans............................ - (10) - (10)
Financing due to ICI............. - (866) - (866)
Other creditors.................. - (7) - (7)
--- ----- ---- -----
- (883) - (883)
Provisions for liabilities and
charges......................... - (77) - (77)
Deferred income.................. - (11) - (11)
--- ----- ---- -----
- (971) - (971)
--- ----- ---- -----
Net assets....................... 291 38 (141) 188
=== ===== ==== =====
Net Investment................... 291 34 (141) 184
Minority Interests--equity....... - 4 - 4
--- ----- ---- -----
291 38 (141) 188
=== ===== ==== =====
</TABLE>
F-77
<PAGE>
Supplemental Combined Balance Sheet
As at 31 December 1998
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets.................. - 1,041 - 1,041
Investments--Participating and
other interests................. 239 6 (239) 6
--- ------ ---- ------
239 1,047 (239) 1,047
Current assets
Stocks........................... 13 237 - 250
Debtors.......................... 141 328 (173) 296
Investments and short-term
deposits--unlisted.............. - 2 - 2
Cash at bank..................... - 51 - 51
--- ------ ---- ------
154 618 (173) 599
--- ------ ---- ------
Total assets..................... 393 1,665 (412) 1,646
--- ------ ---- ------
Creditors due within one year
Short-term borrowings............ - (12) - (12)
Current instalments of loans..... - (4) - (4)
Financing due to ICI ............ - (866) - (866)
Other creditors.................. (60) (458) 173 (345)
--- ------ ---- ------
(60) (1,340) 173 (1,227)
--- ------ ---- ------
Net current
assets/(liabilities)............ 94 (722) - (628)
--- ------ ---- ------
Total assets less current
liabilities..................... 333 325 (239) 419
--- ------ ---- ------
Creditors due after more than one
year
Loans............................ - (8) - (8)
Other creditors.................. - (9) - (9)
--- ------ ---- ------
- (17) - (17)
Provisions for liabilities and
charges......................... - (72) - (72)
Deferred income.................. - (11) - (11)
--- ------ ---- ------
- (100) - (100)
--- ------ ---- ------
Net assets....................... 333 225 (239) 319
=== ====== ==== ======
Net investment................... 333 222 (239) 316
Minority interests--equity ...... - 3 - 3
--- ------ ---- ------
333 225 (239) 319
=== ====== ==== ======
</TABLE>
F-78
<PAGE>
Supplemental Combined Cash Flow Statements
For the year ended 31 December 1996
<TABLE>
<CAPTION>
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Net cash inflow from operating
activities...................... 6 286 - 292
Equity income of wholly owned
subsidiaries.................... 45 - (45) -
Returns on investments and
servicing of finance............ 12 (25) - (13)
Taxation......................... 8 (49) - (41)
--- ---- --- ----
71 212 (45) 238
Capital expenditure and financial
investment...................... - (187) - (187)
Disposals........................ (13) - 13 -
--- ---- --- ----
Cashflow before financing........ 58 25 (32) 51
Net movement in financing........ (56) (33) 32 (57)
--- ---- --- ----
Increase/(decrease) in cash...... 2 (8) - (6)
=== ==== === ====
<CAPTION>
For the year ended 31 December 1997
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Net cash inflow from operating
activities...................... (6) 117 - 111
Equity income of wholly owned
subsidiaries.................... 4 - (4) -
Returns on investments and
servicing of finance............ 16 (28) - (12)
Taxation......................... (9) (13) - (22)
--- ---- --- ----
5 76 (4) 77
Capital expenditure and financial
investment...................... - (169) - (169)
Acquisitions/(Disposals)......... (13) 31 13 31
--- ---- --- ----
Cashflow before financing........ (8) (62) 9 (61)
Net movement in financing........ 6 70 (9) 67
--- ---- --- ----
Increase/(decrease) in cash...... (2) 8 - 6
=== ==== === ====
<CAPTION>
For the year ended 31 December 1998
Non-
Guarantors Guarantors Eliminations Combined
---------- ---------- ------------ ---------
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C> <C>
Net cash inflow from operating
activities...................... 9 191 - 200
Equity income of wholly owned
subsidiaries.................... 1 - (1) -
Returns on investments and
servicing of finance............ 9 (21) - (12)
Taxation......................... (10) (46) - (56)
--- ---- --- ----
9 124 (1) 132
Capital expenditure and financial
investment...................... - (130) - (130)
Disposals........................ (70) - 70 -
--- ---- --- ----
Cashflow before financing........ (61) (6) 69 2
Net movement in financing........ 61 4 (69) (4)
--- ---- --- ----
Decrease in cash................. - (2) - (2)
=== ==== === ====
</TABLE>
F-79
<PAGE>
UNAUDITED CONDENSED COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
6 months ended
30 June
-------------------
1998 1999
--------- ---------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Turnover................................................................... 1,070 1,045
Operating costs............................................................ (992) (965)
----- -----
Trading profit............................................................. 78 80
Exceptional items - loss on sale or closure of operations.................. (4) --
----- -----
Profit on ordinary activities before interest.............................. 74 80
Net interest payable....................................................... (39) (32)
----- -----
Profit on ordinary activities before taxation.............................. 35 48
Taxation on profit on ordinary activities.................................. 1 (16)
----- -----
Profit on ordinary activities after taxation .............................. 36 32
Attributable to minorities................................................. -- --
----- -----
Net profit for the financial year.......................................... 36 32
----- -----
</TABLE>
The accompanying notes form an integral part of these condensed combined
financial statements.
F-80
<PAGE>
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
At At
31 December 30 June
1998 1999
----------- -------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Fixed assets
Tangible assets......................................... 1,041 1,066
Investments--Participating and other interests ......... 6 6
------ ------
1,047 1,072
------ ------
Current assets
Stocks.................................................. 250 235
Debtors................................................. 296 369
Investments and short-term deposits--unlisted........... 2 3
Cash at bank............................................ 51 32
------ ------
599 639
------ ------
Total assets............................................ 1,646 1,711
------ ------
Creditors due within one year
Short-term borrowings................................... (12) (10)
Current instalments of loans............................ (4) (1)
Financing due to ICI.................................... (866) (714)
Other creditors......................................... (345) (322)
------ ------
(1,227) (1,047)
------ ------
Net current liabilities ................................ (628) (408)
------ ------
Total assets less current liabilities................... 419 664
------ ------
Creditors due after more than one year
Loans................................................... (8) (152)
Other creditors......................................... (9) (8)
------ ------
(17) (160)
Provisions for liabilities and charges.................. (72) (73)
Deferred income......................................... (11) (10)
------ ------
(100) (243)
------ ------
------ ------
Net assets.............................................. 319 421
====== ======
Net investment.......................................... 316 418
Minority interest - equity ............................. 3 3
------ ------
319 421
====== ======
</TABLE>
The accompanying notes form an integral part of these condensed combined
financial statements.
F-81
<PAGE>
UNAUDITED CONDENSED COMBINED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
6 months ended 30
June
-------------------
1998 1999
--------- ---------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Net cash inflow/(outflow) from operating activities......... 64 20
Returns on investments and servicing of finance............. (9) (41)
Taxation.................................................... (11) (8)
--- ----
44 (29)
Capital expenditures and financial investment............... (50) (83)
--- ----
Cash flow before financing.................................. (6) (112)
Net movement in financing................................... -- 89
--- ----
Decrease in cash............................................ (6) (23)
=== ====
</TABLE>
The accompanying notes form an integral part of these condensed combined
financial statements.
F-82
<PAGE>
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1 Basis of Preparation
These Unaudited Condensed Combined Financial Statements have been prepared
applying the basis of preparation and accounting policies disclosed in
Notes 1 and 2 to the Combined Financial Statements and should be read in
conjunction with those Combined Financial Statements included at pages
F-46 to F-79. In the opinion of management of ICI, the Unaudited Condensed
Combined Financial Statements includes all adjustments, consisting only of
normal recurring adjustments other than those separately disclosed,
necessary for a fair statement of the results for the interim periods.
Financial information for interim periods is not necessarily indicative of
the results for the full year.
2 Inventories
<TABLE>
<CAPTION>
31 December, 30 June,
1998 1999
------------ -----------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Raw materials and consumables........................ 106 95
Stocks in process.................................... 11 11
Finished goods and goods for resale.................. 133 129
--- ---
250 235
=== ===
</TABLE>
Combined Cash Flow Statement
Restated in accordance with US GAAP, the Combined Cash Flow Statement for
the six months ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
(Pounds)m
<S> <C>
Net cash provided by operating activities.......................... (29)
Cash flows from investing activities............................... (82)
Cash flows from financing activities............................... 88
---
Decrease in cash and cash equivalents.............................. (23)
===
</TABLE>
F-83
<PAGE>
3 Differences between UK and US accounting principles
These Unaudited Condensed Combined Financial Statements have been prepared
in accordance with United Kingdom Generally Accepted Accounting Principles (UK
GAAP) which differs in certain significant respects from US GAAP. A description
of the relevant accounting principles which differ materially is given in Note
30 to the Combined Financial Statements.
The following is a summary of the material adjustments to net income and
net assets which would be required if US GAAP had been applied instead of UK
GAAP:
<TABLE>
<CAPTION>
6 months ended
30 June
-------------------
1998 1999
--------- ---------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Net income - UK GAAP....................................... 36 32
Adjustments to conform with US GAAP:
Pension expense.......................................... -- (3)
Purchase accounting adjustments:
Amortisation of goodwill and intangibles...............
Capitalisation of interest less amortisation and
disposals............................................... 17 7
Restructuring costs......................................
Deferred taxation........................................
Arising on UK GAAP results............................. (9) (3)
Arising on other US GAAP adjustments................... (6) (2)
--- ---
Total US GAAP adjustments................................ 2 (1)
--- ---
Net income - US GAAP....................................... 38 31
=== ===
</TABLE>
<TABLE>
<CAPTION>
At 30 June
1999
-----------
(Unaudited)
(Pounds)m
<S> <C>
Net investment - UK GAAP........................................... 418
Adjustments to conform with US GAAP:
Purchase accounting adjustments including goodwill and
intangibles..................................................... 30
Capitalisation of interest less amortisation and disposals....... 78
Restructuring provisions......................................... 5
Pension expense.................................................. (30)
Deferred taxation................................................ (69)
---
Total US GAAP adjustments........................................ 14
---
Net investment - US GAAP........................................... 432
===
</TABLE>
F-84
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus
does not offer to sell or ask for offers to buy any securities other than those
to which this prospectus relates and it does not constitute an offer to sell or
ask for offers to buy any of the securities in any jurisdiction where it is
unlawful, where the person making the offer is not qualified to do so, or to
any person who cannot legally be offered the securities. The information
contained in this prospectus is current only as of its date.
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this exchange offer, may be
required to deliver a prospectus.
---------------
PROSPECTUS
---------------
Huntsman ICI Chemicals LLC
Exchange Offer for
$600,000,000 10 1/8% Senior Subordinated Notes due 2009
(Euro)200,000,000 10 1/8% Senior Subordinated Notes due 2009
---------------
[LOGO OF HUNTSMAN]
[LOGO OF ICI]
---------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 20. Indemnification of Officers and Directors
Huntsman ICI Chemicals LLC is empowered by Section 18-108 of the Delaware
Limited Liability Company Act, subject to the procedures and limitations
therein, to indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever, subject to such
standards and restrictions, if any, as are set forth in its limited liability
company agreement. Huntsman ICI Chemicals LLC's amended and restated limited
liability company agreement contains no indemnification provisions.
Huntsman ICI Financial LLC is empowered by Section 18-108 of the Delaware
Limited Liability Company Act, subject to the procedures and limitations
therein, to indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever, subject to such
standards and restrictions, if any, as are set forth in its limited liability
company agreement. Huntsman ICI Financial LLC's limited liability company
agreement contains no indemnification provisions.
Tioxide Group is an unlimited company having share capital registered in
England and Wales. Section 310 of the U.K. Companies Act of 1985 (as amended)
nullifies any provision contained in a company's articles of association or in
any other contract with the company for exempting any director, officer or
auditor of the company, or indemnifying such person against, any liability that
would attach to him by rule of law in respect of any negligence, default,
breach of duty or breach of trust for which such person may be guilty with
respect to such company. However, Section 310 permits a company to purchase or
maintain insurance for its directors, officers and auditors against liabilities
of this nature and permits a company to indemnify any director, officer or
auditor against any liability incurred by such person that results from
defending any proceedings (civil or criminal) in which a judgment is given in
such person's favor or such person is acquitted or application is made under
Section 144(3) or (4) of the Companies Act (acquisition of shares by innocent
nominee) or Section 727 of the Companies Act (general power to grant relief in
the case of honest and reasonable conduct) where relief is granted to such
director, officer or auditor by the court.
Article 22(a) of the Articles of Association of Tioxide Group indemnifies
every director, officer and auditor of Tioxide Group out of the assets of
Tioxide Group against all losses and liabilities that such person may sustain
in the performance of the duties of his office to the extent permitted by
Section 310 of the Companies Act. Furthermore, Article 22(b) empowers the
directors of Tioxide Group to purchase insurance for any director, officer or
auditor of Tioxide Group as permitted by the Companies Act.
Tioxide Americas Inc. is incorporated in the Cayman Islands. Cayman Islands
law does not specifically limit the extent to which a company's articles of
association may provide for the indemnification of officers and directors,
except to the extent that such provision may be held by the Cayman Islands
courts to be contrary to public policy (e.g., for purporting to provide
indemnification against the consequences of committing a crime). In addition,
an officer or director may not be able to enforce indemnification for his own
dishonesty or wilful neglect or default.
Article 123 of the Articles of Association of Tioxide Americas Inc., which
is filed as an exhibit to this registration statement, contain provisions
providing for the indemnification by Tioxide Americas of an officer, director
or trustee of Tioxide Americas for all actions, proceedings, claims, costs,
charges, losses, damages and expenses which they incur or sustain by reason of
any act done or omitted in or about the execution of their duty in their
respective offices or trusts, except such (if any) as they shall incur or
sustain by or through their own respective wilful neglect or default.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
3.1 Certificate of Formation of Huntsman ICI Chemicals LLC*
3.2 Amended and Restated Limited Liability Company Agreement of Huntsman
ICI Chemicals LLC dated June 30, 1999*
3.3 Certificate of Formation of Huntsman ICI Financial LLC*
3.4 Limited Liability Company Agreement of Huntsman ICI Financial LLC dated
June 18, 1999, as amended by the First Amendment dated June 19, 1999*
3.5 Memorandum of Association of Tioxide Group
3.6 Articles of Association of Tioxide Group
3.7 Memorandum of Association of Tioxide Americas Inc.*
3.8 Articles of Association of Tioxide Americas Inc.*
4.1 Indenture, dated as of June 30, 1999, among Huntsman ICI Chemicals LLC,
the Guarantors party thereto and Bank One, N.A., as Trustee, relating
to the 10 1/8% Senior Subordinated Notes due 2009*
4.2 Form of certificate of 10 1/8% Senior Subordinated Note due 2009
denominated in dollars (included as Exhibit A-3 to Exhibit 4.1)*
4.3 Form of certificate of 10 1/8% Senior Subordinated Note due 2009
denominated in euros (included as Exhibit A-4 to Exhibit 4.1)*
4.4 Exchange and Registration Rights Agreement dated June 30, 1999, by and
among Huntsman ICI Chemicals LLC, the Guarantors party thereto,
Goldman, Sachs & Co., Deutsche Bank Securities Inc., Chase Securities
Inc. and Warburg Dillon Read LLC*
4.5 Form of Guarantee (included as Exhibit E to Exhibit 4.1)*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom as to the
legality of the notes to be issued by Huntsman ICI Chemicals LLC, and
the guarantees to be issued by Huntsman ICI Financial LLC, in the
exchange offer
5.2 Opinion and consent of Slaughter and May to Tioxide Group as to the
legality of the guarantees to be issued by Tioxide Group in the
exchange offer
5.3 Opinion and consent of Walkers as to the legality of the guarantees to
be issued by Tioxide Americas Inc. in the exchange offer
8.1 Form of opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP
as to the tax consequences of the notes to be issued by Huntsman ICI
Chemical LLC
10.1 Contribution Agreement, dated as of April 15, 1999, by and among
Imperial Chemical Industries PLC, Huntsman Specialty Chemicals
Corporation, Huntsman ICI Holdings LLC and Huntsman ICI Chemicals LLC
as amended by the first Amending Agreement, dated June 4, 1999, the
second Amending Agreement, dated June 30, 1999, and the third Amending
Agreement, dated June 30, 1999*
10.2 Purchase and Sale Agreement (PO/MTBE Business), dated March 21, 1997,
among Texaco, Texaco Chemical Inc. and Huntsman Specialty Chemicals
Corporation*
10.3 Operating and Maintenance Agreement, dated as of March 21, 1997, by and
between Huntsman Specialty Chemicals Corporation and Huntsman
Petrochemical Corporation*
10.4 Credit Agreement, dated as of June 30, 1999, by and among Huntsman ICI
Chemicals LLC, Huntsman ICI Holdings LLC, Bankers Trust Company,
Goldman Sachs Credit Partners LP, The Chase Manhattan Bank, and Warburg
Dillon Read and various lending institutions party thereto*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.5 Asset Sale Agreement, dated June 30, 1999, by and between BP Chemicals
Limited and Huntsman ICI Chemicals LLC
10.6 Joint Venture Agreement, dated as of October 18, 1993 between Tioxide
Americas Inc. and Kronos Louisiana, Inc.*
10.7 Shareholders Agreement, dated as of January 11, 1982, by and among
Imperial Chemical Industries PLC, ICI American Holdings, Inc. and
Uniroyal, Inc.*
10.8 Operating Agreement, dated December 28, 1981, between Uniroyal, Inc.,
Rubicon Chemicals, Inc. and Rubicon, Inc.*
10.9 Liability and Indemnity Agreement, dated December 28, 1981, by and
among Rubicon Inc., Rubicon Chemicals Inc., Imperial Chemical
Industries PLC, ICI American Holdings Inc., ICI Americas Inc. and
Uniroyal Inc.*
10.10 Titanium Dioxide Supply Agreement, dated July 3, 1997, by and between
Imperial Chemicals Industries PLC and Tioxide Group++
10.11 Slag Sales Agreement, dated July 10, 1997, by and between Richards Bay
Iron and Titanium (Proprietary) Limited and Tioxide S.A. (Pty)
Limited++
10.12 Slag Sales Agreement, dated July 10, 1997, by and between Qit-Fer Et
Titane Inc. and Tioxide Europe Limited++
10.13 Supply Agreement, dated April 13, 1999, by and between Shell Trading
International Limited and ICI Chemicals & Polymers Limited++
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Huntsman ICI Chemicals LLC*
23.1 Consent of Deloitte & Touche LLP (Houston, Texas)
23.2 Consent of Deloitte & Touche LLP (Salt Lake City, Utah)
23.3 Consent of Arthur Andersen LLP
23.4 Consent of KPMG Audit Plc
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Slaughter and May (included in Exhibit 5.2)
23.7 Consent of Walkers (included in Exhibit 5.3)
23.8 Consent of Chem Systems
23.9 Consent of International Business Management Associates
24.1 Powers of Attorney (included as part of signature page)*
25.1 Form T-1 Statement of Eligibility of Bank One, N.A. to act as Trustee
under the indenture*
27.1 Financial Data Schedule (for SEC use only)
99.1 Form of Letter of Transmittal for dollar denominated notes*
99.2 Form of Notice of Guaranteed Delivery for dollar denominated notes*
99.3 Form of Letter of Transmittal for euro denominated notes*
99.4 Form of Notice of Guaranteed Delivery for euro denominated notes*
99.5 Letter to Brokers*
99.6 Letter to Clients*
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
++ Portions of this document have been omitted and previously filed separately
with the SEC pursuant to requests for confidential treatment pursuant to
Rule 406 of the Securities Act.
II-3
<PAGE>
Item 22. Undertakings
The Undersigned registrants hereby undertake:
(1) To file during any period in which offers to sale are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of the receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Huntsman ICI Chemicals
LLC has duly caused this Amendment No. 2 to Form S-4 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Salt Lake City, State of Utah, on the 1st day of December, 1999.
Huntsman ICI Chemicals LLC
/s/ J. Kimo Esplin
By: _________________________________
J. Kimo Esplin
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Form S-4 Registration Statement has been signed by the following
persons in the capacities on the 1st day of December, 1999:
<TABLE>
<CAPTION>
Name Capacities
---- ----------
<S> <C>
Jon M. Huntsman* Chief Executive Officer, Chairman of the
______________________________________ Board of Managers & Manager
Jon M. Huntsman
Jon M. Huntsman, Jr.* Vice Chairman of the Board of Managers and
______________________________________ Manager
Jon M. Huntsman, Jr.
Peter R. Huntsman* President, Chief Operating Officer and
______________________________________ Manager
Peter R. Huntsman
/s/ J. Kimo Esplin Chief Financial Officer
______________________________________
J. Kimo Esplin
</TABLE>
/s/ J. Kimo Esplin
*By: _______________________
J. Kimo Esplin
Attorney-in-Fact
II-5
<PAGE>
HUNTSMAN ICI FINANCIAL LLC
Pursuant to the requirements of the Securities Act, Huntsman ICI Financial
LLC has duly caused this Amendment No. 2 to Form S-4 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Salt Lake City, State of Utah, on the 1st day of December, 1999.
Huntsman ICI Financial LLC
/s/ J. Kimo Esplin
By: _________________________________
J. Kimo Esplin
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Form S-4 Registration Statement has been signed by the following
persons in the capacities on the 1st day of December, 1999:
<TABLE>
<CAPTION>
Name Capacities
---- ----------
<S> <C>
Jon M. Huntsman* Chief Executive Officer, Chairman of the
______________________________________ Board of Managers & Manager
Jon M. Huntsman
Jon M. Huntsman, Jr.* Vice Chairman of the Board of Managers and
______________________________________ Manager
Jon M. Huntsman, Jr.
Peter R. Huntsman* President, Chief Operating Officer and
______________________________________ Manager
Peter R. Huntsman
/s/ J. Kimo Esplin Chief Financial Officer
______________________________________
J. Kimo Esplin
</TABLE>
/s/ J. Kimo Esplin
*By: _______________________
J. Kimo Esplin
Attorney-in-Fact
II-6
<PAGE>
TIOXIDE GROUP
Pursuant to the requirements of the Securities Act, Tioxide Group has duly
caused this Amendment No. 2 to Form S-4 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of Salt
Lake City, State of Utah, on the 1st day of December, 1999.
Tioxide Group
/s/ J. Kimo Esplin
By: _________________________________
J. Kimo Esplin
Director
Pursuant to the requirements of Securities Act of 1933, this Amendment No.
2 toForm S-4 Registration Statement has been signed by the following persons on
the 1st day of December, 1999:
<TABLE>
<CAPTION>
Name Capacities
---- ----------
<S> <C>
Peter R. Huntsman* Chairman of the Board of Directors
______________________________________
Peter R. Huntsman
/s/ J. Kimo Esplin Director
______________________________________
J. Kimo Esplin
L. Russell Healy* Director
______________________________________
L. Russell Healy
</TABLE>
/s/ J. Kimo Esplin
*By: _______________________
J. Kimo Esplin
Attorney-in-Fact
II-7
<PAGE>
TIOXIDE AMERICAS INC.
Pursuant to the requirements of the Securities Act, Tioxide Americas Inc.
has duly caused this Amendment No. 2 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Salt Lake City, State of Utah, on the 1st day of December, 1999.
Tioxide Americas Inc.
/s/ J. Kimo Esplin
By: _________________________________
J. Kimo Esplin
Director
Pursuant to the requirements of Securities Act of 1933, this Amendment No.
2 toForm S-4 Registration Statement has been signed by the following persons on
the 1st day of December, 1999:
<TABLE>
<CAPTION>
Name Capacities
---- ----------
<S> <C>
Peter R. Huntsman* Chairman of the Board of Directors
______________________________________
Peter R. Huntsman
/s/ J. Kimo Esplin Director
______________________________________
J. Kimo Esplin
L. Russell Healy* Director and Treasurer
______________________________________
L. Russell Healy
/s/ J. Kimo Esplin
*By: _________________________________
J. Kimo Esplin
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibits
------ -----------------------
<C> <S>
3.1 Certificate of Formation of Huntsman ICI Chemicals LLC*
3.2 Amended and Restated Limited Liability Company Agreement of Huntsman
ICI Chemicals LLC dated June 30, 1999*
3.3 Certificate of Formation of Huntsman ICI Financial LLC*
3.4 Limited Liability Company Agreement of Huntsman ICI Financial LLC
dated June 18, 1999, as amended by the First Amendment dated June 19,
1999*
3.5 Memorandum of Association of Tioxide Group
3.6 Articles of Association of Tioxide Group
3.7 Memorandum of Association of Tioxide Americas Inc.*
3.8 Articles of Association of Tioxide Americas Inc.*
4.1 Indenture, dated as of June 30, 1999, among Huntsman ICI Chemicals
LLC, the Guarantors party thereto and Bank One, N.A., as Trustee,
relating to the 10 1/8% Senior Subordinated Notes due 2009*
4.2 Form of certificate of 10 1/8% Senior Subordinated Note due 2009
denominated in dollars (included as Exhibit A-3 to Exhibit 4.1)*
4.3 Form of certificate of 10 1/8% Senior Subordinated Note due 2009
denominated in euros (included as Exhibit A-4 to Exhibit 4.1)*
4.4 Exchange and Registration Rights Agreement dated June 30, 1999, by
and among Huntsman ICI Chemicals LLC, the Guarantors party thereto,
Goldman, Sachs & Co., Deutsche Bank Securities Inc., Chase Securities
Inc. and Warburg Dillon Read LLC*
4.5 Form of Guarantee (included as Exhibit E of Exhibit 4.1)*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom as to the
legality of the notes to be issued by Huntsman ICI Chemicals LLC, and
the guarantees to be issued by Huntsman ICI Financial LLC, in the
exchange offer
5.2 Opinion and consent of Slaughter and May to Tioxide Group as to the
legality of the guarantees to be issued by Tioxide Group in the
exchange offer
5.3 Opinion and consent of Walkers as to the legality of the guarantees
to be issued by Tioxide Americas Inc. in the exchange offer
8.1 Form of opinion and consent of Skadden, Arps, Slate, Meagher & Flom
LLP as to the tax consequences of the notes to be issued by Huntsman
ICI Chemical LLC
10.1 Contribution Agreement, dated as of April 15, 1999, by and among
Imperial Chemical Industries PLC, Huntsman Specialty Chemicals
Corporation, Huntsman ICI Holdings LLC and Huntsman ICI Chemicals LLC
as amended by the first Amending Agreement, dated June 4, 1999, the
second Amending Agreement, dated June 30, 1999, and the third
Amending Agreement, dated June 30, 1999*
10.2 Purchase and Sale Agreement (PO/MTBE Business), dated March 21, 1997,
among Texaco, Texaco Chemical Inc. and Huntsman Specialty Chemicals
Corporation*
10.3 Operating and Maintenance Agreement, dated as of March 21, 1997, by
and between Huntsman Specialty Chemicals Corporation and Huntsman
Petrochemical Corporation*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.4 Credit Agreement, dated as of June 30, 1999, by and among Huntsman ICI
Chemicals LLC, Huntsman ICI Holdings LLC, Bankers Trust Company,
Goldman Sachs Credit Partners LP, The Chase Manhattan Bank, and
Warburg Dillon Read and various lending institutions party thereto*
10.5 Asset Sale Agreement, dated June 30, 1999, by and between BP Chemicals
Limited and Huntsman ICI Chemicals LLC
10.6 Joint Venture Agreement, dated as of October 18, 1993 between Tioxide
Americas Inc. and Kronos Louisiana, Inc.*
10.7 Shareholders Agreement, dated as of January 11, 1982, by and among
Imperial Chemical Industries PLC, ICI American Holdings, Inc. and
Uniroyal, Inc.*
10.8 Operating Agreement, dated December 28, 1981, between Uniroyal, Inc.,
Rubicon Chemicals, Inc. and Rubicon, Inc.*
10.9 Liability and Indemnity Agreement, dated December 28, 1981, by and
among Rubicon Inc., Rubicon Chemicals Inc., Imperial Chemical
Industries PLC, ICI American Holdings Inc., ICI Americas Inc. and
Uniroyal Inc.*
10.10 Titanium Dioxide Supply Agreement, dated July 3, 1997, by and between
Imperial Chemicals Industries PLC and Tioxide Group++
10.11 Slag Sales Agreement, dated July 10, 1997, by and between Richards Bay
Iron and Titanium (Proprietary) Limited and Tioxide S.A. (Pty)
Limited++
10.12 Slag Sales Agreement, dated July 10, 1997, by and between Qit-Fer Et
Titane Inc. and Tioxide Europe Limited++
10.13 Supply Agreement dated April 13, 1998, by and between Shell Trading
International Limited and ICI Chemicals & Polymers Limited++
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Huntsman ICI Chemicals LLC*
23.1 Consent of Deloitte & Touche LLP (Houston, Texas)
23.2 Consent of Deloitte & Touche LLP (Salt Lake City, Utah)
23.3 Consent of Arthur Andersen LLP
23.4 Consent of KPMG Audit Plc
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Slaughter and May (included in Exhibit 5.2)
23.7 Consent of Walkers (included in Exhibit 5.3)
23.8 Consent of Chem Systems
23.9 Consent of International Business Management Associates
24.1 Powers of Attorney (included as part of signature page)*
25.1 Form T-1 Statement of Eligibility of Bank One, N.A. to act as Trustee
under the indenture*
27.1 Financial Data Schedule (for SEC use only)
99.1 Form of Letter of Transmittal for dollar denominated notes*
99.2 Form of Notice of Guaranteed Delivery for dollar denominated notes*
99.3 Form of Letter of Transmittal for euro denominated notes*
99.4 Form of Notice of Guaranteed Delivery for euro denominated notes*
99.5 Letter to Brokers*
99.6 Letter to Clients*
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
++ Portions of this document have been omitted and previously filed separately
with the SEC pursuant to requests for confidential treatment pursuant to
Rule 406 of the Securities Act.
<PAGE>
EXHIBIT 3.5
--------------------------------------------------
An Unlimited Company having a Share Capital
--------------------------------------------------
MEMORANDUM OF ASSOCIATION
of
TIOXIDE GROUP
(Adopted by Written Resolution dated 29 June 1999)
______________________________________
1. The name of the Company is "Tioxide Group"/1/.
2. The Registered office of the Company will be situated in England and Wales.
3. Subject to clause 4 below, the objects for which the Company is established
are:
(A) In any part of the world to do all or any of the following things:
(1) To promote the production and use of titanium, zinc, lead and other
metals or their compounds, derivatives and alloys and in particular
titanium pigments, composite pigments and all other pigments.
(2) To carry on all kinds of research work incident or relating to the
production and use of titanium, zinc, lead and other metals and their
alloys and compounds and prepare for market all such articles and
things, and generally to carry on all kinds of metallurgical
operations.
________________________________________________________________________________
/1/ (a) The Company's name was changed to British Titan Limited on 1st
January 1971.
(b) The Company's name was changed to Tioxide Group Limited on 29th
December 1975.
(c) The Company's name became Tioxide Group PLC upon it having re-
registered as a public limited company on 15th October 1981.
(d) The Company's name became Tioxide Group Limited upon it having re-
registered as a private limited company on 1st October 1991.
(e) The Company's name became Tioxide Group upon it having re-registered as
an unlimited company on 29 June 1999.
<PAGE>
(3) To carry on the business of manufacturing chemists and of
manufacturers, producers of and dealers in sulphuric and other acids,
alkalis and chemicals and chemical substances of every description.
(4) To explore, erect, exercise, develop, finance and turn to account all
kinds of processes for the production of titanium, zinc, lead and
other metals and their compounds and alloys and all kind of plant and
machinery for the production of the same and for any such purpose to
buy or otherwise acquire buildings, plant, machinery, appliances and
tools.
(5) To search for, prospect, examine and explore mines and ground in any
part of the world and to obtain information in regard to mines, mining
claims, mining districts and localities; to acquire, take on lease or
concession or otherwise to acquire any interest therein, and to hold,
sell, dispose of and deal with any property supposed to contain
titanium, zinc, lead or other metals or minerals and undertakings
connected therewith.
(6) To carry on the business of roasters, smelters, refiners, rollers,
galvanisers, and manufacturers of and dealers in titanium, zinc, lead,
and other metals and all by-products thereof.
(7) To institute, enter into, carry on, assist or participate in such
mining, metallurgical, manufacturing, agricultural, commercial,
industrial and other operations, trades, businesses and undertakings
as may seem to the Company capable of being conveniently carried on in
connection with any of the objects of the Company or which may be
calculated directly or indirectly to enhance the value of or render
profitable any of the Company's property or rights.
(B) To acquire by purchase, exchange, subscription or otherwise, howsoever, and
to hold or dispose of the whole or any portion of the share or loan capital
or the assets or undertaking of any company, association, firm or person
for the time being engaged, concerned, or interested in any of the trades
or businesses which this Company is authorised to carry on and to subsidise
or assist in any manner any such company as aforesaid and to make and do or
assist in making or doing such arrangements and things as may be considered
desirable with a view to the extension or the economical or profitable
conduct of the business of any such company or calculated to promote the
success thereof and generally to exercise the rights, enjoy the privileges,
and fulfil the obligations as holders of shares or loan capital in any such
company.
(C) To purchase, acquire, rent, build, construct, equip, execute, carry out,
improve, work, develop, administer, maintain, manage or control in any part
of the world works and conveniences of all kinds, including therein roads,
ways, railways, tramways, carrying or transport undertakings, by land,
water, or air, stations, aerodromes, docks, harbours, piers, wharves,
canals, reservoirs, water rights, waterworks, watercourses, bridges,
flumes, irrigations, embankments, hydraulic works, drainage, iron, steel
ordnance, engineering and improvement works, gasworks, electrical works,
telegraphs, telephones, cables, timber rights, saw-mills, paper and pulp
mills, crushing mills, smelting works,
<PAGE>
quarries, collieries, coke ovens, foundries, furnaces, factories,
warehouses, hotels, viaducts, aqueducts, markets, exchanges, mints, ships,
lighters, postal services, newspapers and other publications, breweries,
stores, shops, churches, chapels, public and private buildings, residences,
places of amusement, recreation or instruction, or any other works, whether
for the purposes of the Company or for sale or hire to or in return for any
consideration from any other company or persons and to contribute to or
assist in the carrying out or establishment, construction, maintenance,
improvement, management, working, control or superintendence thereof
respectively, provided that no telegraph, telephone and postal business
shall be carried on in the United Kingdom without the licence of the
British Government.
(D) To manufacture, produce and deal in all kinds of articles and things
required for the purposes of or produced by any such business as aforesaid
or commonly dealt in by persons engaged in any such business, and all
substitutes for any of the articles and things above mentioned.
(E) To subscribe for, underwrite, purchase, or otherwise acquire, and to hold,
dispose of, and deal with the shares, stocks, securities and evidences of
indebtedness or the right to participate in profits or other similar
documents issued by any government, authority, corporation or body, or by
any company, association or body of persons, and any options or rights in
respect thereof, and to buy and sell foreign exchange.
(F) To co-ordinate, finance and manage all or any part of the operations of any
company which is a subsidiary company of or otherwise under the control of
the Company and generally to carry on the business of a holding company.
(G) To purchase or otherwise acquire for any estate or interest, any property,
assets, or any concessions, licences, grants, patents, trade marks or other
exclusive or non-exclusive rights of any kind which may appear to be
necessary or convenient for any business of the Company, and to develop and
turn to account and deal with the same in such manner as may be thought
expedient, and to make experiments and tests and to carry on all kinds of
research work.
(H) To raise or borrow money and to receive deposits in such manner as the
board of directors thinks fit.
(I) To draw, make, accept, endorse, discount, negotiate, execute and issue
promissory notes, bills of exchange, bills of lading, warrants, debentures
and other negotiable and transferable instruments.
(J) To mortgage, charge, pledge or give liens or other security over the whole
or any part of the Company's undertaking, property and assets (whether
present or future), including its uncalled capital, for its own obligations
or the obligations of any company which is a direct or indirect subsidiary
or affiliate of Huntsman ICI Chemicals LLC on such terms and conditions as
the board of directors thinks fit.
<PAGE>
(K) To draw, make, accept, endorse, discount, negotiate, execute, and issue,
and to buy, sell and deal in bills of exchange, promissory notes, and other
negotiable or transferable instruments.
(L) To amalgamate or enter into partnership or any joint purse or profit-
sharing arrangement with, and to co-operate in any may with or assist or
subsidise any company, firm or person.
(M) To promote or concur in the promotion of any company, the promotion of
which shall be considered desirable.
(N) To lend or advance money and to give credit and to enter (whether
gratuitously or otherwise) into guarantees or indemnities of all kinds, and
whether secured or unsecured, whether in respect of its own obligations or
those of Huntsman ICI Chemicals LLC or those of any company which is a
direct or indirect subsidiary or affiliate of Huntsman ICI Chemicals LLC
and on such terms and conditions as the board of directors thinks fit.
(O) To the extent permitted by law, to give financial assistance for the
purpose of the acquisition of shares of the Company or any company which is
a holding company thereof or for the purpose of reducing or discharging a
liability incurred for the purpose of such an acquisition and to give such
assistance by means of gift, loan, guarantee, indemnity, the provision of
security or otherwise.
(P) To sell, lease, grant licences, easements and other rights over, and in any
other manner deal with or dispose of, the undertaking, property, assets,
rights and effects of the Company or any part thereof for such
consideration as may be thought fit, and in particular for stocks, shares
or securities of any other company, whether fully or partly paid up.
(Q) To undertake and transact all kinds of trust and agency business.
(R) To establish competitions, and to offer and grant prizes, rewards and
premiums, and to provide for and furnish or secure to any Members or
customers of the Company, or to the holders of any coupons or tickets
issued by or for the Company, any chattels, conveniences, advantages,
benefits or special privileges which may seem expedient, and either
gratuitously or otherwise and generally to adopt such means of making
known, the products of the Company and pushing the sale thereof as may seem
expedient.
(S) To take all necessary or proper steps in Parliament or with the
authorities, national, local municipal or otherwise, of any place in which
the Company may have interests, and to carry on any negotiations or
operations for the purpose of directly or indirectly carrying out the
objects of the Company or effecting any modification in the constitution of
the Company or furthering the interest of its Members, and to oppose any
such steps taken by any other company, firm or person which may be
considered likely directly or indirectly to prejudice the interests of the
Company or its Members.
<PAGE>
(T) To procure the registration or incorporation of the Company in or under the
laws of any place outside England.
(U) To subscribe or guarantee money for any national, charitable, benevolent,
public, general or useful object or for any exhibition, or for any purpose
which may be considered likely, directly or indirectly, to further the
objects of the Company or the interests of its Members, employees or their
dependants.
(V) To grant pensions or gratuities to any employees or ex-employees of the
Company or of any company in which the Company may be interested or their
predecessors in business, or the relations, connections or dependants of
any such persons, and to establish or support associations, institutions,
clubs, funds and trusts, or to make donations and gifts which may be
considered calculated to benefit any such persons or otherwise advance the
interests of the Company or of its Members, and to establish and contribute
to any scheme for the purchase by trustees of shares or securities of the
Company or any such other company as aforesaid to be held for the benefit
of the Company's employees and to lend money to the Company's employees to
enable them to purchase houses or shares or securities of the Company and
to formulate and carry into effect any scheme for sharing the profits of
the Company with its employees or any of them.
(W) To distribute among the Members of the Company in specie any property of
the Company.
(X) To do all or any of the things and matters aforesaid in any part of the
world, and either as principals, agents, contractors, trustees or
otherwise, and by or through trustees, agents or otherwise, and either
alone or in conjunction with others.
(Y) To do all such other things as may be considered to be incidental or
conducive to the above objects or any of them.
4. And it is hereby declared that the objects of the Company as specified in
each of the foregoing paragraphs of this clauses (except only if and so far as
otherwise expressly provided in any paragraph) shall be separate and distinct
objects of the Company and shall not be in anywise limited by reference to any
other paragraph or the order in which the same occur or the name of the Company.
However, with the exception of paragraphs (F), (J) and (N), the Company shall
only be permitted to undertake any of the objects and matters referred to in
clause 3 to the extent the same is incidental to the attainment of all or any of
the objects stated in paragraphs (F), (J) and (N).
<PAGE>
WE, the several persons whose names and addresses are subscribed, are desirous
of being formed into a Company, in pursuance of this Memorandum of Association,
and we respectively agree to take the number of shares in the capital of the
Company set opposite our respective names.
- --------------------------------------------------------------------------------
NAMES, ADDRESSES AND DESCRIPTIONS OF SUBSCRIBERS Number of Shares
taken by each
Subscriber
- --------------------------------------------------------------------------------
FRANK A CREW, 95 Gresham Street, London EC2 One
Incorporated Accountant
F MORRELL GILDER, 95 Gresham Street, London EC2 One
Chartered Secretary
- --------------------------------------------------------------------------------
Dated the 21st day of July, 1930
- --------------------------------------------------------------------------------
Witness to the above Signatures:
H HILLIARD ATTERIDGE
2 Bond Court, Walbrook, London EC4
Solicitor
<PAGE>
EXHIBIT 3.6
An unlimited company having a share capital
ARTICLES OF ASSOCIATION
of
TIOXIDE GROUP
______________________________________
Preliminary
1.(a) The Regulations contained in Table A in the Schedule to the Companies
(Tables A to F) Regulations 1985 (SI 1985 No. 805) as amended by the
Companies (Tables A to F) (Amendment) Regulations 1985 (SI 1985 No.
1052) (such Table being hereinafter called Table A) shall apply to the
Company save in so far as they are excluded or varied hereby and such
Regulations (save as so excluded or varied) and the Articles
hereinafter contained shall be the articles of association of the
Company.
(b) In these Articles the expression the Act means the Companies Act 1985,
but so that any reference in these Articles to any provision of the
Act shall be deemed to include a reference to any statutory
modification or re-enactment of that provision for the time being in
force.
2. In these Articles, unless the context otherwise requires:
business day means any day (excluding a Saturday or a Sunday) on which banks are
open in London and New York for the transaction of normal banking business;
Ordinary Dividend means, in respect of each financial year, the Gross Dividend
minus the aggregate Preference Dividend payable in respect of such financial
year in accordance with the provisions of Article 4;
Aggregate Class A Interest shall be calculated as follows:
Aggregate Class A Interest = 9 x Ordinary Dividend
---
909
Aggregate Ordinary Share Interest shall be calculated as follows:
Aggregate Ordinary Share Interest = 900 x Ordinary Dividend
---
909
<PAGE>
Share Capital
3. The capital of the Company is (Pounds)310,000,000/1/, divided into 100
ordinary shares of (Pounds)1 each (Ordinary Shares), 900 Class A Ordinary Shares
of (Pounds)1 each (Class A Shares) and 309,999,000 preference shares of
(Pounds)1 each (Preference Shares). The special rights and restrictions
attaching to these shares are as set out in Articles 4, 5, 6, 7, 8 and 9.
Income
4. The profits which the Company may determine to distribute by way of
dividend in respect of each financial year of the Company (the Gross Dividend)
shall be applied:
(a) first, in paying to the holders of the Preference Shares, as a
dividend on the Preference Shares, a fixed cumulative preferential
dividend (the Preference Dividend) at the rate of seven (7) per cent.
per annum (exclusive of any associated tax credit) of the nominal
value of each Preference Share held by them. The Preference Dividend
shall accrue on a daily basis and shall be payable annually in arrear
on 30 June (or if such date is not a business day on the next
following business day) in each year in respect of the year ending on
that date. The first such payment shall be made on 30 June 2000 in
respect of the period from the date of issue of the Preference
Share(s) concerned until 30 June 2000. The Preference Dividend shall
be paid to the holders of the Preference Shares whose names appear on
the register at 12.00 noon 2 business days before the relevant
dividend payment date;
(b) second, in paying a dividend on the Ordinary Shares and Class A
Shares. The dividend shall be applied as between the Class A
Shareholders and the Ordinary Shareholders in the following manner:
(i) the Company shall first calculate the Aggregate Class A Interest
and Aggregate Ordinary Share Interest;
(ii) the Aggregate Class A Interest shall then be divided amongst the
holders of Class A Shares pro rata in accordance with the
aggregate nominal value of the Class A Shares held by them with
any fractions of a dividend being rounded down to the nearest
penny; and
(iii) the Aggregate Ordinary Share Interest shall then be divided
amongst the holders of Ordinary Shares pro rata in accordance
with the aggregate nominal value of the Ordinary Shares held by
them with any fractions of a dividend being rounded down to the
nearest penny; and
________________________________________________________________________________
/1/ By written resolution dated 29 June 1999 the authorised capital of the
Company was increased to (Pounds)373,000,000 by the creation of 63,000,000
additional preference shares of (Pounds)1 each.
<PAGE>
(c) any fractions of a dividend remaining shall be retained by the
Directors and applied for the benefit of the Company.
Capital
5. On a distribution of assets of the Company among its members on a
winding up or other return of capital, the assets of the Company available for
distribution amongst its members in accordance with the Act shall be applied as
follows:
(a) first in paying to the holders of Preference Shares, an amount equal
to the aggregate of the capital paid up or credited as paid up on each
Preference Share and a sum equal to any arrears and accruals of the
Preference Dividend (whether earned or declared or not) payable on
such share calculated up to and including the date of the commencement
of the winding up or (in any other case) the date of the return of
capital and the Preference Shares shall have no further rights of
participation in the assets of the Company;
(b) secondly in paying pari passu to the holders of the Class A Shares and
the Ordinary Shares pro rata the par value of their respective
holdings of Class A Shares and Ordinary Shares and the Class A Shares
shall have no further rights of participation in the assets of the
Company; and
(c) thirdly, in distributing any balance of such assets amongst the
holders of the Ordinary Shares.
Voting
6. The holders of Preference Shares shall be entitled to receive notice
of and to attend any general meeting of the Company but shall not have the right
to speak or vote in respect of their holdings of Preference Shares, subject to
the following exceptions:
6.1 if at the date of the meeting any part of any Preference Dividend is
for whatever reason in arrears for more than six months, the holders
of the Preference Shares shall be entitled to attend, speak and vote
on any resolution at such meeting or any adjournment of it; or
6.2 if it is proposed at the meeting to consider any resolution approving
the winding up of the Company, the holders of the Preference Shares
shall be entitled to attend such a meeting and to speak and vote only
on such resolution or any motion for adjournment of the meeting before
such resolution is voted on.
7. If entitled to vote at a general meeting of the Company, every holder
of Preference Shares present in person or by proxy (or, being a corporation, by
a duly authorised representative) shall have one vote for every Preference Share
held by him.
8. The Class A Shares shall not carry the right to receive notice of, or
to attend or vote at, general meetings.
<PAGE>
Variation of Rights
9. Subject to the provisions of the Act, if at any time the capital of
the Company is divided into different classes of shares, the rights attached to
any class may (unless otherwise provided by the terms of issue of the shares of
that class) be varied or abrogated, whether or not the Company is being wound
up, either with the consent in writing of the holders of three-quarters in
nominal value of the issued shares of the class or with the sanction of an
extraordinary resolution passed at a separate general meeting of the holders of
the shares of the class (but not otherwise). Such general meeting shall be
conducted in accordance with the provisions of these Articles governing the
conduct of general meetings.
Allotment of Shares
10.(a) Shares which are comprised in the authorised but unissued share
capital of the Company shall be under the control of the directors who
may (subject to Section 80 of the Act and to paragraphs (b) and (c)
below) allot, grant options over or otherwise dispose of the same, to
such persons, on such terms and in such manner as they think fit.
(b) The directors are generally and unconditionally authorised, for the
purposes of Section 80 of the Act, to exercise any power of the
Company to allot and grant rights to subscribe for or convert
securities into shares of the Company up to the amount of the
authorised share capital with which the Company is incorporated at any
time or times during the period of five years from the date of
incorporation of the Company and the directors may, after that period,
allot any shares or grant any such rights under this authority in
pursuance of an offer or agreement so to do made by the Company within
that period. The authority hereby given may at any time (subject to
the said Section 80) be renewed, revoked or varied by ordinary
resolution of the Company in general meeting.
(c) In accordance with Section 91(1) of the Act, the pre-emption
provisions in Section 89(1) and the provisions of sub-sections 90(1)
to (6) (inclusive) of the Act shall not apply to the Company.
(d) Regulation 3 in Table A shall not apply to the Company.
Shares
11. The lien conferred by Regulation 8 in Table A shall attach also to
fully paid-up shares, and the Company shall also have a first and paramount lien
on all shares, whether fully paid or not, standing registered in the name of any
person indebted or under liability to the Company, whether he shall be the sole
registered holder thereof or shall be one of two or more joint holders, for all
moneys presently payable by him or his estate to the Company. Regulation 8 in
Table A shall be modified accordingly.
12. The liability of any member in default in respect of a call shall be
increased by the addition at the end of the first sentence of Regulation 18 in
Table A of the words "and all expenses that may have been incurred by the
Company by reason of such non-payment".
<PAGE>
13. Regulation 24 and 25 in Table A shall not apply to the Company.
14.(a) The Company may by special resolution:
(i) increase the share capital by such sum to be divided into shares
of such amount as the resolution may prescribe;
(ii) consolidate and divide all or any of its share capital into
shares of a larger amount than its existing shares;
(iii) subdivide its shares, or any of them, into shares of a smaller
amount than its existing shares;
(iv) cancel any shares which at the date of the passing of the
resolution have not been taken or agreed to be taken by any
person;
(v) reduce its share capital and any share premium account in any
way (including, without limitation, by the purchase by the
Company of its shares or any of them).
(b) Subject to the provisions of the Act, the Company may enter into any
contract for the purchase of all or any of its shares of any class
(including any redeemable shares) and any contract under which it may,
subject to any conditions, become entitled or obliged to purchase all
or any of such shares and may make payments in respect of the
redemption or purchase of such shares otherwise than out of
distributable profits or the proceeds of a fresh issue of shares.
Every contract entered into pursuant to this Article shall be
authorised by such resolution of the Company as may for the time being
be required by law, but subject thereto the directors shall have full
power to determine or approve the terms of any such contract. Neither
the Company nor the directors shall be required to select the shares
in question rateably or in any other particular manner as between the
holders of shares of the same class or as between them and the holders
of shares of any other class or in accordance with the rights as to
dividends or capital conferred by any class of shares. Subject to the
provisions of the Act, the Company may agree to the variation of any
contract entered into pursuant to this article and to the release of
any of its rights or obligations under any such contract.
Notwithstanding anything to the contrary contained in the Articles,
the rights attaching to any class of shares shall not be deemed to be
varied by anything done by the Company pursuant to this Article.
Regulations 32, 34 and 35 in Table A shall not apply to the Company.
General Meetings and Resolutions
15.(a) Every notice convening a general meeting shall comply with the
provisions of Section 372(3) of the Act as to giving information to
members in regard to their right to appoint proxies; and notices of
and other communications relating to any general meeting which any
member is entitled to receive need not be sent to the directors or the
auditors for the time being of the Company (unless the law otherwise
provides), and Regulation 38 of Table A shall be modified accordingly.
<PAGE>
(b) Regulation 38 of Table A shall be further modified by the deletion in
the first sentence of the words "or a resolution appointing a person a
director" and by the deletion in the second sentence of the words "at
least fourteen clear days' notice" and the substitution therefor of
the words "at least seven clear days' notice".
16. The second sentence of Regulation 40 of Table A shall be deleted and
replaced by the following: "One person entitled to vote upon the business to be
transacted, being a member or a proxy for a member or a duly authorised
representative of a corporation, shall be a quorum".
17.(a) If a quorum is not present within half an hour from the time appointed
for a general meeting, the general meeting shall stand adjourned to
the same day in the next week at the same time and place or to such
other day and at such other time and place as the directors may
determine; and if at the adjourned general meeting a quorum is not
present within half an hour from the time appointed therefor such
adjourned general meeting shall be dissolved.
(b) Regulation 41 in Table A shall not apply to the Company.
18. A poll may be demanded by the chairman or by any member present in
person or by proxy and entitled to vote and Regulation 46 of Table A shall be
modified accordingly.
19. Regulation 53 of Table A shall be modified by the addition at its end
of the following sentence: "If such a resolution in writing is described as a
special resolution or as an extraordinary resolution or as an elective
resolution, it shall have effect accordingly."
Votes of Members
20. An instrument appointing a proxy shall be in writing, executed by or
on behalf of the appointor and in any common form or in such other form as the
directors may approve. It shall be deemed to confer authority to vote on any
amendment of a resolution, put to the meeting, for which it is given as the
proxy thinks fit. The instrument of proxy shall, unless the contrary is stated
therein, be valid as well for any adjournment of the meeting as for the meeting
to which it relates. Regulations 60 and 61 of Table A shall not apply to the
Company.
21. Regulation 62 of Table A shall be modified by the deletion in
paragraph (a) of the words "deposited at" and by the substitution for them of
the words "left at or sent by post or by facsimile transmission to", by the
substitution in paragraph (a) of the words "one hour" in place of "48 hours", by
the deletion in paragraph (b) of the word "deposited" and by the substitution
for it of the words "left at or sent by post or by facsimile transmission" and
by the substitution in paragraph (b) of the words "one hour" in place of "24
hours".
Appointment of Directors
22.(a) Regulation 64 in Table A shall not apply to the Company and Regulation
65 of Table A shall be modified by the deletion of the words "approved
by resolution of the directors and willing to act".
<PAGE>
(b) The maximum number and minimum number respectively of the directors
may be determined from time to time by ordinary resolution in general
meeting of the Company. Subject to and in default of any such
determination there shall be no maximum number of directors and the
minimum number of directors shall be one. Whensoever the minimum
number of the directors shall be one, a sole director shall have
authority to exercise all the powers and discretions by Table A and by
these Articles expressed to be vested in the directors generally, and
Regulation 89 in Table A shall be modified accordingly.
(c) An alternate director shall cease to be an alternate director if his
appointor ceases for any reason to be a director. Regulation 67 of
Table A shall not apply to the Company.
(d) The directors may delegate any of their powers to committees
consisting of such person or persons (whether directors or not) as
they think fit. Regulation 72 of Table A shall be modified
accordingly.
(e) The directors shall not be required to retire by rotation and
Regulations 73 to 80 (inclusive) and the last sentence of Regulation
84 of Table A shall not apply to the Company.
(f) No person shall be appointed a director at any general meeting unless
either:
(i) he is recommended by the directors; or
(ii) not less than fourteen nor more than thirty-five clear days
before the date appointed for the general meeting, notice signed
by a member qualified to vote at the general meeting has been
given to the Company of the intention to propose that person for
appointment, together with notice signed by that person of his
willingness to be appointed.
(g) Subject to paragraph (f) above, the Company may by ordinary resolution
in general meeting appoint any person who is willing to act to be a
director, either to fill a vacancy or as an additional director.
(h) The directors may appoint a person who is willing to act to be a
director, either to fill a vacancy or as an additional director,
provided that the appointment does not cause the number of directors
to exceed any number determined in accordance with paragraph (b) above
as the maximum number of directors.
(i) A member or members holding a majority of the shares for the time
being carrying the right to vote at a general meeting of the Company
shall have power from time to time and at any time to appoint any
person or persons as a director or directors either as an additional
director or to fill any vacancy and to remove from office any director
howsoever appointed. Any such appointment or removal shall be effected
by an instrument in writing signed by the member or members making the
same, or in the case of a member being a company, signed by one of its
directors on its behalf, and shall take effect upon lodgment at the
registered office of the Company.
<PAGE>
(j) Subject to (i) above, no director shall be required to retire or
vacate his office, and no person shall be ineligible for appointment
as a director, by reason of his having attained any particular age.
Borrowing Powers
23. The directors may exercise all the powers of the Company to borrow
money without limit as to amount and upon such terms and in such manner as they
think fit, and subject (in the case of any security convertible into shares) to
Section 80 of the Act to grant any mortgage, charge or standard security over
its undertaking, property and uncalled capital, or any part thereof, and to
issue debentures, debenture stock, and other securities whether outright or as
security for any debt, liability or obligation of the Company or of any third
party.
Alternate Directors
24.(a) An alternate director shall not be entitled as such to receive any
remuneration from the Company, save that he may be paid by the Company
such part (if any) of the remuneration otherwise payable to his
appointor as such appointor may by notice in writing to the Company
from time to time direct, and the first sentence of Regulation 66 in
Table A shall be modified accordingly.
(b) A director, or any such other person as is mentioned in Regulation 65
in Table A, may act as an alternate director to represent more than
one director, and an alternate director shall be entitled at any
meeting of the directors or of any committee of the directors to one
vote for every director whom he represents in addition to his own vote
(if any) as a director, but he shall count as only one for the purpose
of determining whether a quorum is present.
Gratuities and Pensions
25.(a) The directors may exercise the powers of the Company to provide
benefits, either by the payment of gratuities or pensions or by
insurance or in any other manner whether similar to the foregoing or
not, for any director or former director or the relations, connections
or dependants of any director or former director who holds or has held
any executive office or employment with the Company or with any body
corporate which is or has been a subsidiary of the Company or with a
predecessor in business of the company or of any such body corporate
and may contribute to any fund and pay premiums for the purchase or
provision of any such benefit. No director or former director shall be
accountable to the Company or the members for any benefit provided
pursuant to this Article and the receipt of any such benefit shall not
disqualify any person from being or becoming a director of the
Company.
(b) Regulation 87 in Table A shall not apply to the Company.
<PAGE>
Proceedings of Directors
26.(a) A director may vote, at any meeting of the directors or of any
committee of the directors, on any resolution, notwithstanding that it
in any way concerns or relates to a matter in which he has, directly
or indirectly, any kind of interest whatsoever, and if he shall vote
on any such resolution as aforesaid his vote shall be counted; and in
relation to any such resolution as aforesaid he shall (whether or not
he shall vote on the same) be taken into account in calculating the
quorum present at the meeting.
(b) Regulations 94 to 97 (inclusive) in Table A shall not apply to the
Company.
(c) Any director or his alternate may validly participate in a meeting of
the directors or a committee of directors through the medium of video
and/or telephone conference or similar form of communication equipment
provided that all persons participating in a meeting are able to hear
and speak to each other throughout such meeting. A person so
participating shall be deemed to be present in person at the meeting
and shall accordingly be counted in a quorum and be entitled to vote.
Subject to the Act, all business transacted in such manner by the
directors or a committee of the directors shall for the purposes of
the Articles be deemed to be validly and effectively transacted at a
meeting of the directors or of a committee of the directors
notwithstanding that fewer than two directors or alternate directors
are physically present at the same place. Such a meeting shall be
deemed to take place where the largest group of those participating is
assembled or, if there is no such group, where the chairman of the
meeting then is.
(d) If and for so long as there is a sole director, he may exercise all
the powers conferred on the directors by the Articles by resolution in
writing signed by him, and Regulations 88, 89, 91 and 93 of Table A
shall not apply.
The Seal
27.(a) If the Company has a seal it shall only be used with the authority of
the directors or of a committee of directors. The directors may
determine who shall sign any instrument to which the seal is affixed
and unless otherwise so determined it shall be signed by a director
and by the secretary or a second director. The obligation under
Regulation 6 in Table A relating to the sealing of share certificates
shall apply only if the Company has a seal. Regulation 101 in Table A
shall not apply to the Company.
(b) The Company may exercise the powers conferred by Section 39 of the Act
with regard to having an official seal for use abroad, and such powers
shall be vested in the directors.
Notices
28.(a) Regulation 112 of Table A shall be modified by the deletion of the
last sentence and the substitution therefor of the following: "Any
member whose registered addressed is not within the United Kingdom
shall be entitled to have notices given to him at that address."
<PAGE>
(b) Regulation 116 of Table A shall be modified by the deletion of the
words "within the United Kingdom".
Indemnity
29.(a) Every director or other officer or auditor of the Company shall be
indemnified out of the assets of the Company against all losses or
liabilities which he may sustain or incur in or about the execution of
the duties of his office or otherwise in relation thereto, including
any liability incurred by him in defending any proceedings, whether
civil or criminal, or in connection with any application under Section
144 or Section 727 of the Act in which relief is granted to him by the
Court, and no director or other officer shall be liable for any loss,
damage or misfortune which may happen to or be incurred by the Company
in the execution of the duties of his office or in relation thereto.
But this Article shall only have effect in so far as its provisions
are not avoided by Section 310 of the Act.
(b) The directors shall have power to purchase and maintain for any
director, officer or auditor of the Company, insurance against any
such liability as is referred to in Section 310(1) of the Act.
(c) Regulation 118 in Table A shall not apply to the Company.
<PAGE>
EXHIBIT 5.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
December 1, 1999
Huntsman ICI Chemicals LLC
Huntsman ICI Financial LLC
Tioxide Group
Tioxide Americas Inc.
500 Huntsman Way
Salt Lake City, Utah 84108
Re: Huntsman ICI Chemicals LLC, Huntsman ICI Financial LLC, Tioxide Group
and Tioxide Americas Inc. Registration Statement on Form S-4
(File Nos. 333-85141, 333-85141-01 through 333-85141-03)
------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Huntsman ICI Chemicals LLC, a Delaware
limited liability company (the "Company"), and the Guarantors (as defined below)
in connection with the public offering of (a) $600,000,000 aggregate principal
amount of the Company's 10 1/8% Senior Subordinated Notes due 2009 and (b)
(EURO)200,000,000 aggregate principal amount of the Company's 10 1/8% Senior
Subordinated Notes due 2009 (together, the "Exchange Notes"), that are
unconditionally guaranteed (the "Guarantee") by each of Huntsman ICI Financial
LLC (the "Delaware Guarantor"), Tioxide Group (the "U.K. Guarantor") and Tioxide
Americas Inc. (the "Cayman Guarantor" and, collectively with the Delaware
Guarantor and the U.K. Guarantor, the "Guarantors"). The Exchange Notes are to
be issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a
like principal amount and denomination of the issued and outstanding 10 1/8%
Senior Subordinated Notes due 2009 of the Company (the "Original Notes") under
an Indenture dated as of June 30, 1999 (the "Indenture"), between the Company
and Bank One, N.A., as Trustee (the "Trustee"), as contemplated by the Exchange
and Registration Rights Agreement dated as of June 30, 1999 (the "Registration
Rights Agreement"), by and among the
<PAGE>
Company, the Guarantors, Goldman, Sachs & Co., Deutsche Bank Securities Inc.,
Chase Securities Inc. and Warburg Dillon Read LLC.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File Nos. 333-85141, 333-85141-01 through 333-85141-03)
as filed with the Securities and Exchange Commission (the "Commission") on
August 13, 1999 under the Act, Amendment No. 1 thereto as filed with the
Commission on October 14, 1999, and Amendment No. 2 thereto as filed with the
Commission on the date hereof (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) an executed copy
of the Registration Rights Agreement; (iii) an executed copy of the Indenture;
(iv) a certified copy of the Certificate of Formation of the Company, dated
March 23, 1999, as amended on April 12, 1999; (v) the Amended and Restated
Limited Liability Company Agreement of the Company as currently in effect; (vi)
certain resolutions adopted by the Board of Managers of the Company relating to
the Registration Rights Agreement, the Exchange Offer, the issuance of the
Original Notes and the Exchange Notes, the Indenture and related matters; (vii)
a certified copy of the Certificate of Formation of the Delaware Guarantor dated
May 19, 1999; (viii) the Limited Liability Company Agreement of the Delaware
Guarantor as currently in effect; (ix) certain resolutions adopted by the Board
of Managers of the Delaware Guarantor relating to the Exchange Offer, the
issuance of the Guarantee, the Indenture and related matters; (x) the Form T-1
of the Trustee filed as an exhibit to the Registration Statement; (xi) the form
of the Exchange Notes and (xii) an executed copy of the Guarantee. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and the Guarantors and such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company and the Guarantors and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of executed docu-
2
<PAGE>
ments or documents to be executed, we have assumed that the parties thereto,
other than the Company and the Delaware Guarantor, had or will have the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect on such parties. We have also assumed that the U.K.
Guarantor has been duly organized and is validly existing under the laws of its
jurisdiction of organization and that it has complied with all aspects of such
laws in connection with its execution of and performance under the Guarantee and
the Indenture. As to any facts material to the opinions expressed herein which
we have not independently established or verified, we have relied upon
statements and representations of officers and other representatives of the
Company, the Guarantors and others.
Our opinions set forth herein are limited to the Limited Liability Company
Act of the State of Delaware and the laws of the State of New York which are
normally applicable to transactions of the type contemplated by the Exchange
Offer, and to the extent that judicial or regulatory orders or decrees or
consents, approvals, licenses, authorizations, validations, filings, recordings
or registrations with governmental authorities are relevant, to those required
under such laws (all of the foregoing being referred to as "Opined on Law"). We
do not express any opinion with respect to the law of any jurisdiction other
than Opined on Law or as to the effect of any such non-opined law on the
opinions herein stated.
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. When (i) the Registration Statement becomes effective under the Act and
the Indenture has been qualified under the Trust Indenture Act of 1939, as
amended, and (ii) the Exchange Notes (in the form examined by us) have been duly
executed and authenticated in accordance with the terms of the Indenture and
have been issued and delivered upon consummation of the Exchange Offer against
receipt of Original Notes surrendered in exchange therefor in accordance with
the terms of the Exchange Offer, the Exchange Notes will constitute valid and
binding obligations of the Company, entitled to the benefits of the Indenture,
and enforceable against the Company in accordance with their terms, except that
(A) the enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws nor or
hereafter in effect relating to creditors' rights generally and (2) general
principles of equity (regardless of whether
3
<PAGE>
enforceability is considered in a proceeding at law or in equity) and (B) the
waiver included in Section 4.06 of the Indenture may be unenforceable.
2. The Guarantee has been duly and validly authorized by the Delaware
Guarantor and when (i) the Registration Statement becomes effective under the
Act and the Indenture has been qualified under the Trust Indenture Act of 1939,
as amended; and (ii) the Exchange Notes have been duly executed and
authenticated in accordance with the Indenture and have been issued and
delivered upon consummation of the Exchange Offer, and the Guarantee that has
been executed by the Delaware Guarantor and the U.K. Guarantor has been attached
thereto in accordance with the terms of the Indenture and delivered in
accordance with the Exchange Offer, the Guarantee will constitute the valid and
binding obligations of each of the Delaware Guarantor and the U.K. Guarantor,
enforceable against each of the Delaware Guarantor and the U.K. Guarantor in
accordance with its terms and entitled to the benefits of the Indenture, except
that (A) the enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws nor or
hereafter in effect relating to creditors' rights generally and (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and (B) the waiver included in Section 4.06 of
the Indenture may be unenforceable.
In rendering the opinions set forth above, we have assumed that the
execution and delivery by the Company, the Delaware Guarantor and the U.K.
Guarantor of the Indenture, the Exchange Notes and the Guarantee, as applicable,
and the performance by the Company, the Delaware Guarantor and the U.K.
Guarantor of their respective obligations thereunder do not and will not
violate, conflict with or constitute a default under any agreement or instrument
to which the Company, the Delaware Guarantor or the U.K. Guarantor, or any of
their respective properties is subject, except for those agreements and
instruments governed by the laws of the United States or any state thereof that
have been identified to us by the Company as being material to it and that have
been filed as exhibits to the Registration Statement.
In rendering our opinion 2 set forth above with respect to the
enforceablility of the Guarantee against the U.K Guarantor, (1) we have assumed
that the execution and delivery by the U.K. Guarantor of the Indenture and the
Guarantee and the performance by the U.K. Guarantor of its obligations
thereunder do not and will not (i) violate the laws of the United Kingdom or
(ii) violate, conflict with or constitute a breach or default under the
memorandum of association or articles of association of the U.K. Guarantor and
(2) our opinion with respect to the enforceability of the
4
<PAGE>
choice of New York law and choice of New York forum provisions of the Indenture
and Guarantee is rendered in reliance upon the Act of July 19, 1984, ch. 421,
1984 McKinney's Sess. Laws of N.Y. 1406 (codified at N.Y. Gen. Oblig. Law (S)(S)
5-1401, 5-1402 (McKinney Supp. 1986) and N.Y. CPLR 327(b) (McKinney Supp. 1986))
(the "1984 Act") and is subject to the qualifications that such enforceability
(i) may be limited by public policy considerations of any jurisdiction, other
than the courts of the State of New York, in which enforcement of such
provisions, or of a judgment upon an agreement containing such provisions, is
sought and (ii) as specified in the 1984 Act, does not apply to the extent
provided to the contrary in subsection two of Section 1-105 of the New York
Uniform Commercial Code.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
5
<PAGE>
EXHIBIT 5.2
[Slaughter and May Letterhead]
CC992700121
Huntsman ICI Chemicals LLC AGB
500 Huntsman Way
Salt Lake City
Utah 84108
USA
Tioxide Group
Lincoln House
137-143 Hammersmith Road
London W14 0QL
23rd November, 1999
Dear Sirs,
Huntsman ICI Chemicals LLC, Huntsman ICI Financial LLC,
Tioxide Group and Tioxide Americas Inc.
Registration Statement on Form S-4 (File Nos. 333-85141,
333-85141-01 through 333-85141-03) "Registration Statement"
Introduction
1. We refer to the indenture (the "Indenture") dated 30th June, 1999 and made
between Huntsman ICI Chemicals LLC (the "Company"), Huntsman ICI Financial
LLC, Tioxide Americas, Inc., Bank One, N.A. and Tioxide Group (the
"Guarantor"). We refer to, in particular, the guarantee (the "Guarantee")
provided by the Guarantor, the terms of which are set out in Article 11 of
the Indendure and in the form of guarantee endorsed on the Notes as set out
in Exhibit E to the Indenture.
2. Terms and expressions defined in the Indenture have the same meanings when
used in this letter unless separately defined in this letter.
3. We have been instructed by our client, Huntsman Corporation ("Huntsman"),
and have been requested by Huntsman to write this letter. We have not been
involved in the preparation or negotiation of the Indenture or of the
Guarantee and our role has been limited to the writing of this letter. This
letter may be relied upon only by Huntsman and the Guarantor and may be
used only in connection with the Indenture. This opinion may, however, be
relied upon by
<PAGE>
Huntsman ICI Chemicals LLC 2 23rd November, 1999
Skadden, Arps, Slate, Meagher & Flom LLP solely for the purpose of
rendering an opinion letter to the Company and the Guarantor in connection
with the issuance and delivery of the Exchange Notes.
4. This letter sets out our opinion on certain matters of English law as at
today's date. We have not made any investigation of, and do not express any
opinion on, any other law. This letter is to be construed in accordance
with English law.
5. For the purposes of this letter, we have examined:
(A) A copy of a signed copy of the Indenture and of the Guarantee (the
"Transaction Documents").
(B) A certificate of David Busby, Secretary of the Guarantor, dated 22nd
November, 1999 (the "Secretary's Certificate") to which are attached
copies of the following documents:
(i) the Memorandum and Articles of Association of the Guarantor in
force as at 29th June, 1999,
(ii) the minutes of a meeting of the Board of Directors of the
Guarantor held on 29th June, 1999,
(iii) the resolution of the members of the Guarantor dated 29th June,
1999, approving the giving of financial assistance by providing
the Guarantee,
(iv) the statutory declaration ("Statutory Declaration") in the form
prescribed by s.155(6)(a) of the Companies Act 1985 (as amended)
(the "Act") sworn by the directors of the Guarantor on 29th
June, 1999, and
(v) the report of the Guarantor's auditors pursuant to s.156(4) of
the Act dated 29th June, 1999.
(C) The entries shown on the microfiche obtained by us from Companies
House, London, on 22nd November, 1999 of the file of the Guarantor
maintained at Companies House (the "Microfiche").
Assumptions
6. For the purposes of this letter, we have assumed each of the following:
(A) The Indenture and each guarantee endorsed to a Note has been signed on
behalf of the Guarantor by Samuel D. Scruggs or J. Kimo Esplin.
(B) The Indenture and each guarantee endorsed to a Note has been
unconditionally delivered by the Guarantor.
<PAGE>
Huntsman ICI Chemicals LLC 3 23rd November, 1999
(C) Signatures on all documents that we have examined are genuine.
(D) The statements contained in the Secretary's Certificate referred to in
paragraph 5(B) are true, complete and accurate as at today's date.
(E) (i) The information disclosed by the Microfiche, by our search on
22nd November, 1999 of the Companies House database (CH Direct)
and by our telephone search on 22nd November, 1999 at the Central
Registry of Winding-Up Petitions in relation to the Guarantor was
then accurate and has not since then been altered or added to.
(ii) The Microfiche and those searches did not fail to disclose any
information relevant for the purposes of this opinion.
(F) (i) The minutes referred to in sub-paragraph 5(B)(ii) truly record
the proceedings of a duly convened, constituted and conducted
meeting of the Board of Directors of the Guarantor.
(ii) The resolutions passed and authorisations given at that meeting
have not subsequently been amended, revoked or superseded.
(G) (i) The written resolution referred to in sub-paragraph 5(B)(iii) was
signed by a duly authorised representative of each member who
would have been entitled to vote upon it if it had been proposed
at a general meeting at which that member was present.
(ii) The resolution was not, between the date of its being passed and
the date of signature and delivery of the Indenture and of the
Guarantee, amended, revoked or superseded.
(H) (i) Each of the Guarantee and the Indenture is entered into by the
Guarantor in good faith and in furtherance of its objects under
its Memorandum of Association.
(ii) Each of the Guarantee and the Indenture is in the best interests
and to the advantage of the Guarantor.
(I) Each of the Indenture and the Guarantee has the same meaning and
effect as it would have if it were governed by English law.
(J) As at 29th June, 1999, the giving of the Guarantee did not cause the
Guarantor or its directors to be in default under article 16
(Borrowing Powers) of the Guarantor's Articles of Association.
(K) (i) The Guarantor has not made any proposal for a voluntary
arrangement under Part I of the Insolvency Act 1986 or passed any
voluntary winding-up resolution.
<PAGE>
Huntsman ICI Chemicals LLC 4 23rd November, 1999
(ii) No petition has been presented or order made by a court for the
winding-up, dissolution or administration of the Guarantor.
(ii) No administrator, receiver, administrative receiver, trustee in
bankruptcy or similar officer has been appointed in relation to
the Guarantor or any of its assets or revenues.
(L) (i) The Statutory Declaration referred to in paragraph 5(C)(iv) was
duly executed and is in full force and effect as at today's date
and the statements contained in those documents were complete
and accurate as at 29th June, 1999.
(ii) The directors of the Guarantor had reasonable grounds for their
opinion as to its solvency for the purposes of the Statutory
Declaration. In forming that opinion they took into account the
relevant liabilities in accordance with section 156(3) of the
Act.
(iii) The Guarantor had, on 30th June, 1999 net assets (as defined by
section 154(2) of the Act) which were not reduced by the
financial assistance described in the Statutory Declaration.
(iv) The Statutory Declaration and the auditor's report which is
required to be annexed to it was delivered to the Registrar of
Companies, together with the written resolution referred to in
paragraph 5(C)(iii) within the time limit and otherwise in
accordance with section 156(5) of the Act.
(M) All copy or draft documents examined by us conform to the originals.
Opinion
7. We are of the opinion that:
(A) The Guarantor is an unlimited liability company which has been duly
incorporated and is validly existing.
(B) The Guarantor has the capacity and power to:
(i) execute and deliver the Transaction Documents; and
(ii) perform any obligations which it may have under the Transaction
Documents.
(C) The signature and delivery of the Transaction Documents by the
Guarantor and the performance of any obligations which it may have
under the Transaction Documents have been authorised by all necessary
corporate action on the part of the Guarantor.
<PAGE>
Huntsman ICI Chemicals LLC 5 23rd November, 1999
(D) The signature and delivery of the Transaction Documents by the
Guarantor and the performance of any obligations which it may have
under the Transaction Documents are not prohibited by any law or
regulation applicable to English companies generally or by the
Memorandum and Articles of Association of the Guarantor.
(E) The choice of the laws of the State of New York ("New York law") as
the governing law of the Indenture and of the Guarantee is a valid
choice of law. English law will treat the validity and binding nature
of the obligations contained in the Indenture and in the Guarantee as
being governed by New York law.
Reservations
8. Our opinion is qualified by the following reservations and any matter of
fact not disclosed to us:
(A) Laws relating to liquidation or administration or other laws or
procedures affecting generally the enforcement of creditors' rights
may affect any obligations of the Guarantor under the Transaction
Documents and the remedies available.
(B) We have not reviewed, and we express no opinion on the impact on our
opinion of, the provisions of the Trust Indenture Act of 1939 of the
United States of America (15 U.S. Code SS77aaa-77bbbb) (as amended)
which are incorporated by reference into the Indenture or the
Guarantee.
(C) If an English court assumes jurisdiction:
(i) It will not apply New York law if:
(a) it is not pleaded and proved; or
(b) to do so would be contrary to English public policy of
mandatory rules of English law.
(ii) It might have to have regard to the law of the place of
performance of any obligation under the Indenture or under the
Guarantee which is to be performed outside England and Wales. It
may refer to that law in relation to the manner of performance
and the steps to be taken in the event of defective performance.
9. We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus included in the Registration Statement. In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended or the rules and
<PAGE>
Huntsman ICI Chemicals LLC 6 23rd November, 1999
regulations of the United States Securities and Exchange Commission thereunder.
Yours faithfully,
/s/ Slaughter and May
<PAGE>
EXHIBIT 5.3
WALKERS
Attorneys-at-Law
WALKER HOUSE, P.O BOX 265GT
GEORGE TOWN, GRAND CAYMAN
CAYMAN ISLANDS
TEL: (345) 949-0100 FAX: (345) 949-7886
Internet: [email protected]
IGA/S87-23507
Tioxide Americas Inc.
Huntsman ICI Chemicals LLC
30th November 1999
Dear Sirs,
We have been asked to provide this legal opinion to you with regard to the laws
of the Cayman Islands in relation to the Documents (as defined in Schedule 1
hereto) being entered into by Tioxide Americas Inc. (the "Company").
For the purposes of giving this opinion, we have examined the documents listed
in Schedule 1 hereto.
In giving this opinion we have relied upon the assumptions set out in Schedule 2
hereto, which we have not independently verified.
We are Attorneys-at-Law in the Cayman Islands and express no opinion as to any
laws other than the laws of the Cayman Islands in force and as interpreted at
the date hereof. Except as explicitly stated herein, we express no opinion in
relation to any representation or warranty contained in the Documents nor upon
the commercial terms of the transactions contemplated by the Documents.
Based upon the foregoing examinations and assumptions and upon such searches as
we have conducted and having regard to legal considerations which we deem
relevant, and subject to the qualifications set out in Schedule 3 hereto, we are
of the opinion that under the laws of the Cayman Islands:
-1-
<PAGE>
1. The Company is a company duly incorporated, validly existing and in
good standing under the laws of the Cayman Islands and has full power
and legal right to execute and deliver the Documents to be executed by
it and to perform the provisions of the Documents to be performed on
its part.
2. The Company has taken all necessary corporate action to duly authorise
the execution and delivery of the Documents and to perform its
respective obligations thereunder. When delivered by the Company, the
Documents will constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their respective terms.
3. The execution, delivery and performance of the Documents to which the
Company is a party, the consummation of the transactions contemplated
thereby and the compliance by the Company with the terms and
provisions thereof do not:
(i) contravene any law or regulation of the Cayman Islands applicable
to the Company ; or
(ii) contravene the Memorandum and Articles of Association of the
Company.
This opinion is limited to the matters referred to herein and shall not be
construed as extending to any other matter or document not referred to herein.
This opinion is given solely for your benefit, the benefit of your legal
advisers acting in that capacity in relation to this transaction and may not be
relied upon by any other person without our prior written consent other than
Skadden, Arps, Slate, Meagher & Flom LLP who may rely upon this opinion solely
for the purpose of rendering an opinion letter to the Company and the Guarantors
(as defined in the Registration Statement) in connection with the issuance and
delivery of the Exchange Notes (as defined in the Registration Statement) and
the Guarantees (as defined in the Registration Statement). We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and to
the reference to us under the caption "Legal Matters" in the prospectus included
in the Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the United States Securities Act.
This opinion is governed by and shall be construed in accordance with the laws
of the Cayman Islands.
Yours faithfully,
/s/ WALKERS
-2-
<PAGE>
Schedule 1
List of Documents Examined
(1) the Memorandum and Articles of Association of the Company adopted by
special resolution on 25th June 1999 and the Certificate of Registration By
Way of Continuation of the Company dated 25th June 1999;
(2) a Certificate of Good Standing in respect of the Company dated 25th June
1999 issued by the Registrar of Companies;
(3) an executed copy of the written resolutions of the Board of Directors of
the Company dated 29th June 1999 (the "Resolutions");
(4) the Exchange Notes (as defined in the Indenture);
(5) the Registration Statement on Form S-4 (as amended) filed with the United
States Securities and Exchange Commission under the Securities Act of 1933,
as amended relating to the exchange of an aggregate principal amount of up
to $600,000,000 and of up to Euros 200,000,000 of the Company's 10 and 1/8%
Senior Subordinated Notes due 2009 for a like principal amount and
denomination of its issued and outstanding 10 and 1/8% Senior Subordinated
Notes due 2009 from the holders thereof (the "Registration Statement");
(6) (i) the Indenture dated as of June 30, 1999 among Huntsman ICI Chemicals
LLC, each of the Guarantors including the Company named therein and
Banc One, N.A.;
(ii) the Guarantee dated as of June 30, 1999 executed by the Company;
(7) such other documents as we have considered necessary for the purposes of
rendering this opinion.
(the documents listed in paragraphs (6)(i) to (6)(ii) above inclusive are
collectively referred to in the opinion as the "Documents").
-3-
<PAGE>
Schedule 2
Assumptions
The opinions hereinbefore given are based upon the following assumptions:
1. There are no provisions of the laws of any jurisdiction outside the
Cayman Islands which would be contravened by the execution or delivery
of the Documents and that, in so far as any obligation expressed to be
incurred under the Documents is to be performed in or is otherwise
subject to the laws of any jurisdiction outside the Cayman Islands, its
performance will not be illegal by virtue of the laws of that
jurisdiction.
2. The Documents are within the capacity and powers of and have been or
will be duly authorised, executed and delivered by each of the parties
thereto (other than the Company) and constitute or will, when executed
and delivered, constitute the legal, valid and binding obligations of
each of the parties thereto enforceable in accordance with their terms
as a matter of the laws of all relevant jurisdictions (other than the
Cayman Islands).
3. The choice of the laws of the jurisdiction selected to govern each of
the Documents has been made in good faith and will be regarded as a
valid and binding selection which will be upheld in the courts of that
jurisdiction and all other relevant jurisdictions (other than the
Cayman Islands).
4. All authorisations, approvals, consents, licences and exemptions
required by and all filings and other requirements of each of the
parties to the Documents outside the Cayman Islands to ensure the
legality, validity and enforceability of the Documents have been or
will be duly obtained, made or fulfilled and are and will remain in
full force and effect and that any conditions to which they are subject
have been satisfied.
5. All conditions precedent contained in the Documents have been or will
be satisfied or waived.
6. No disposition of property effected by any of the Documents is made
wilfully to defeat an obligation owed to a creditor and at an
undervalue.
7. The Company was on the date of execution of the Documents to which it
is a party able to pay its debts as they became due from its own
moneys, and that any disposition or settlement of property effected by
any of the Documents is made in good faith and for valuable
consideration.
8. None of the Documents has been or will be executed or delivered in the
Cayman Islands.
9. All original documents are authentic, that all signatures and seals are
genuine, that all documents purporting to be sealed have been so
sealed, that all copies are complete and conform to their original and
that the Documents conform in every material respect to the latest
drafts of the same produced to us.
10. The copies of the Memorandum and Articles of Association, Register of
Members, Register of Directors and Officers and Register of Mortgages
and Charges provided to us by the Registered Office of the Company are
true and correct copies of the originals of the same and that all
matters required by law to be
-4-
<PAGE>
recorded therein are so recorded and that the corporate records of the
Company do not contain any document in addition to those already
provided to us other than the Resolutions as confirmed in the letter to
us from the Registered Office of the Company dated 19th November 1999.
11. None of the parties to any of the Documents is:
(a) a "person in Iraq" as that term is defined in The Iraq and
Kuwait (United Nations Sanctions) (Dependent Territories)
Order 1990 or an "Iraqi person" as defined in The Iraq (United
Nations) (Sequestration of Assets) (Dependent Territories)
Order 1993 or a person resident in the Republic of Iraq for
the purposes of the The Caribbean Territories (Control of
Gold, Securities, Payment and Credits: Kuwait and Republic of
Iraq) Order 1990; or
(b) a "person connected with Libya" as that term is defined in The
Libya (United Nations Sanctions) (Dependent Territories) Order
1992.
12. The Resolutions were duly adopted in accordance with the Articles of
Association of the Company.
13. At the time of the registration by way of continuation of the Company
in the Cayman Islands and as a matter of the laws of the State of
Delaware, the Directors of the Company were John A. Collingwood, Rene
Lachance and Guy Gauthier and the shareholder of the Company was ICI
American Holdings Inc.
-5-
<PAGE>
Schedule 3
Qualifications
The opinions hereinbefore given are subject to the following qualifications:
1. The term "enforceable" as used above means that the obligations assumed
by the Company under the Documents are of a type which the courts of
the Cayman Islands enforce; it does not mean that those obligations
will necessarily be enforced in all circumstances in accordance with
their terms. In particular:
(a) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganisation and other laws of general
application relating to or affecting the rights of creditors;
(b) enforcement may be limited by general principles of equity;
(c) claims may become barred under statutes of limitation or may
be or become subject to defences of set-off or counterclaim;
(d) where obligations are to be performed in a jurisdiction
outside the Cayman Islands, they may not be enforceable in the
Cayman Islands to the extent that performance would be illegal
under the laws of that jurisdiction;
(e) an award of a court of the Cayman Islands may be required to
be made in Cayman Islands dollars;
(f) to the extent that any provision of the Documents is
adjudicated to be penal in nature, it will not be enforceable
in the courts of the Cayman Islands; in particular, the
enforceability of any provision of the Documents which imposes
additional obligations in the event of any breach or default,
or of payment or prepayment being made other than on an agreed
date may be limited to the extent that it is subsequently
adjudicated to be penal in nature and not an attempt to make a
reasonable pre-estimate of loss;
(g) to the extent that the performance of any obligation arising
under the Documents would be fraudulent or contrary to public
policy, it will not be enforceable in the courts of the Cayman
Islands; and
(h) a Cayman Islands court will not necessarily award costs in
litigation in accordance with contractual provisions in this
regard.
2. Cayman Islands stamp duty will be payable if the Documents are executed
in, brought to, or produced before a court of the Cayman Islands. Such
duty would be nominal except in the case of:
(a) a legal or equitable mortgage or charge of immovable property
or a debenture:
(i) where the sum secured is CI$300,000 (US$360,000) or
less, in which case such duty would be 1% of the sum
secured;
-6-
<PAGE>
(ii) where the sum secured is more than CI$300,000
(US$360,000), in which case such duty would be 1.5%
of the sum secured;
(b) a legal or equitable mortgage of movable property (not
including a debenture), in which case such duty would be 1.5%
of the sum secured;
(c) a bill of sale, in which case such duty would be 1% of the sum
secured;
PROVIDED that no duty shall be payable where the property is situated
outside the Cayman Islands and that in the case of a mortgage of
moveable property situated in the Cayman Islands granted by an exempted
company or by an ordinary non-resident company (as defined in the
Companies Law (1998 Revision)) or by a body corporate incorporated
outside the Cayman Islands, the maximum duty payable shall be
CI$500.00. (US$600.00).
3. A certificate, determination, calculation or designation of any party
to the Documents as to any matter provided therein might be held by a
Cayman Islands court not to be conclusive, final and binding,
notwithstanding any provision to that effect therein contained, if, for
example, it could be shown to have an unreasonable, arbitrary or
improper basis or in the event of manifest error.
4. If any provision of the Documents is held to be illegal, invalid or
unenforceable, severance of such provision from the remaining
provisions will be subject to the discretion of the Cayman Islands
courts.
5. To maintain the Company in good standing under the laws of the Cayman
Islands, annual filing fees must be paid and returns made to the
Registrar of Companies.
6. Any term of any of the Documents may be amended orally by the parties
thereto, notwithstanding provisions to the contrary contained therein.
7. Notwithstanding any purported date of execution in any of the
Documents, the rights and obligations therein contained take effect
only on the actual execution and delivery thereof but the Documents may
provide that they have retrospective effect as between the parties
thereto alone.
8. The effectiveness of terms in the Documents excusing any party from a
liability or duty otherwise owed or indemnifying that party from the
consequences of incurring such liability or breaching such duty are
limited by law.
-7-
<PAGE>
EXHIBIT 8.1
__________, 1999
Huntsman ICI Chemicals LLC
500 Huntsman Way
Salt Lake City, Utah 84108
Gentlemen:
In connection with the filing of the Registration Statement on Form S-4
(the "Registration Statement"), you have asked us to address the anticipated
material U.S. federal income tax consequences of the exchange of $600,000,000 10
1/8% Senior Subordinated Notes due 2009 and (EURO)200,000,000 10 1/8% Senior
Subordinated Notes due 2009 (the "Old Notes") for new notes (the "New Notes")
that are identical to the Old Notes in all material respects except that they
(i) are registered under the Securities Act of 1933 (the "Securities Act"), (ii)
will not contain certain transfer restrictions and registration rights of the
Old Notes, and (iii) will not contain provisions relating to the payment of
liquidated damages to holders of the Old Notes under circumstances relating to
the timing of an exchange offer. More particularly, you have requested our
opinion regarding the material U.S. federal income tax consequences under the
heading "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" in the Registration
Statement filed on the date hereof with the Securities and Exchange Commission
(the "Commission") under the Securities Act. This opinion is delivered in
accordance with the requirements of Item 601(b)(8) of Regulation S-K under the
Securities Act.
In rendering our opinion, we have reviewed the Registration Statement and
such other materials as we have deemed necessary or appropriate as a basis for
our opinion. In addition, we have considered the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
promulgated thereunder by the U.S. Department of Treasury (the "Regulations"),
pertinent judicial authorities, rulings of the Internal Revenue Service (the
"IRS"), and such other authorities as we have considered relevant, in each case
as in effect on the date hereof. It should be noted that such Code, Regulations,
judicial decisions, administrative interpretations and other authorities are
subject to change at any time, perhaps with
<PAGE>
Huntsman ICI Chemicals LLC
__________, 1999
Page 2
retroactive effect. A material change in any of the materials or authorities
upon which our opinion is based could affect our conclusions stated herein.
Based upon the foregoing, subject to the qualifications set forth herein,
the exchange of the Old Notes for the New Notes pursuant to the exchange offer
described in the Registration Statement will be disregarded for U.S. federal
income tax purposes.
This opinion is being furnished in connection with the Registration
Statement. This opinion is expressed as of the date hereof, and we disclaim any
undertaking to advise you of any subsequent changes of the facts stated or
assumed herein or any subsequent changes in applicable law. This opinion is for
your benefit and is not to be used, circulated, quoted or otherwise referred to
for any purpose, except that you may refer to this opinion in the Registration
Statement. Investors should consult their tax advisors as to the particular tax
consequences to them of exchanging Old Notes for New Notes and acquiring,
holding, converting or otherwise disposing of New Notes, including the effect
and the applicability of state, local or foreign tax laws. Any variation or
difference in any fact from those set forth or assumed either herein or in the
Registration Statement may affect the conclusions stated herein. In addition,
there can be no assurance that the IRS will not assert contrary positions.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement. In giving this consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
<PAGE>
EXHIBIT 10.5
CONFORMED COPY
Dated 30th June 1999
BP CHEMICALS LIMITED
-and-
HUNTSMAN ICI CHEMICALS LLC
============================================
Asset Sale Agreement
============================================
Slaughter and May
35 Basinghall Street
London EC2V 5DB
(JCXT/REL)
<PAGE>
2
CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND INTERPRETATION....................................... 4
2. SALE OF BPCL INTEREST AND THE OTHER ASSETS........................... 9
3. CONSIDERATION........................................................ 9
4. CONDITIONS........................................................... 10
5. CONDUCT BEFORE CLOSING............................................... 11
6. CLOSING.............................................................. 12
7. FURTHER ASSURANCE.................................................... 14
8. EMPLOYEES............................................................ 15
9. WARRANTIES........................................................... 15
10. OTHER PROVISIONS RELATING TO THE WARRANTIES AND INDEMNITIES.......... 16
11. LIMITATIONS ON CLAIMS................................................ 18
12. FURTHER LIMITATIONS ON CLAIMS........................................ 20
13. UNDERTAKINGS......................................................... 23
14. COSTS................................................................ 24
15. PERFORMANCE BY GROUP MEMBERS; CAPACITY OF PARTIES.................... 24
16. ANNOUNCEMENTS........................................................ 25
17. ENTIRE AGREEMENT..................................................... 25
18. VARIATION............................................................ 26
19. ASSIGNMENT........................................................... 26
20. SEVERABILITY......................................................... 28
21. COUNTERPARTS......................................................... 28
22. NOTICES.............................................................. 28
23. GOVERNING LAW, JURISDICTION AND SERVICE OF PROCESS................... 29
24. EXERCISE OF RIGHTS AND REMEDIES...................................... 29
</TABLE>
<PAGE>
3
<TABLE>
<S> <C>
25. CONFIDENTIALITY...................................................... 30
SCHEDULE 1 CLOSING....................................................... 31
SCHEDULE 2 WARRANTIES.................................................... 33
SCHEDULE 3 SITE.......................................................... 38
</TABLE>
<PAGE>
4
THIS ASSET SALE AGREEMENT is made the 30th day of June 1999
BETWEEN:
(1) BP CHEMICALS LIMITED a company incorporated in England and Wales with
registered number 194971 whose registered office is at Britannic House,
1 Finsbury Circus, London EC2M 7BA (the Vendor) as agent for BP
International Limited; and
(2) HUNTSMAN ICI CHEMICALS LLC a limited liability company formed under the
laws of Delaware whose principal place of business is at 500 Huntsman
Way, Salt Lake City, Utah, USA (the Purchaser) as agent for Huntsman
ICI Petrochemicals (UK) Limited.
WHEREAS:
(A) The Vendor (as agent for BP International Limited) owns an undivided 20
per cent. share in the Plants (as defined below).
(B) The Vendor wishes to sell and the Purchaser (as agent for Huntsman ICI
Petrochemicals (UK) Limited) wishes to purchase the Vendor's 20 per
cent. ownership interest in the Plants (including certain related
rights and assets) on the terms and conditions set out in this
Agreement.
IT IS AGREED as follows:
1. Definitions And Interpretation
1.1 In this Agreement, except so far as the context otherwise requires, the
following terms shall have the following meanings:
Ancillary Agreements means the following documents in the agreed form:
(a) Product Supply Agreement (ethylene, propylene and butadiene);
(b) Ethylene Infrastructure Agreement;
(c) Ownership, Operating, Use and Maintenance Agreement (Wilton-
Grangemouth pipeline); and
(d) Operating and Maintenance Agreement (Liquefaction 4);
Assets has the meaning given in clause 2;
BPCL Interest means (a) the Vendor's 20 per cent. undivided ownership
interest in the Plants and (b) to the extent that the same are not
extinguished upon the termination at Closing of the BP/ICI Joint
Venture Agreements, all the Vendor's right, title and interest in and
to the Related Assets;
BP/ICI Joint Venture Agreements has the meaning given in the Tripartite
Agreement;
Business Day means a day (excluding Saturdays) on which banks generally
are open in London, Salt Lake City and New York City for the
transaction of normal banking business;
Claim means any Warranty Claim;
Closing means the completion of the sale and purchase of the BPCL
Interest and the other Assets and related matters in accordance with
clause 6;
<PAGE>
5
Closing Date means the date on which Huntsman/ICI Closing occurs
pursuant to the Contribution Agreement, or such other date as the
parties may agree in writing;
Computer Systems means IT systems (hardware, software and networks
infrastructure) and all embedded information technology contained in
material plant, machinery and equipment;
Conditions has the meaning given in the Tripartite Agreement;
Confidentiality Agreements has the meaning given in the Tripartite
Agreement;
Consideration has the meaning given in clause 3.1;
Contracts means:
(a) the "ECR Supply Agreement - 1999" between the Vendor and Cabot
Europa, which was extended for the period from 1st January 1999
to 31st December 1999 pursuant to a letter dated 28th September
1998 from the Vendor to Cabot Europa;
(b) the Erskine Condensate Sales Agreement dated 30th January 1998
between Britoil Public Limited Company and BP Chemicals Limited;
(c) (to the extent still in effect) the Licence Agreement dated 10th
May 1978 between BP Trading Limited, the Vendor and ICI Limited;
(d) (to the extent still in effect) the Licence Agreement dated 9th
May 1977 between Bayer AG, ICI Limited and the Vendor; and
(e) (to the extent still in effect), those of the BP/ICI JV
Agreements to which BPCL is a party and which are indicated with
an asterisk in Schedule 1 to the Tripartite Agreement;
Contribution Agreement means the contribution agreement dated as of
15th April 1999 between (1) Imperial Chemical Industries PLC, (2)
Huntsman Specialty Chemicals Corporation, (3) Huntsman ICI Holdings,
LLC and (4) the Purchaser (as amended), a copy of which will be
provided to the Vendor within 5 Business Days of the date of this
Agreement (with any commercially sensitive information blanked out);
Costs means liabilities, losses, damages, costs (including reasonable
legal costs), charges, penalties and expenses (including Tax);
Cracker Stocks means all the stocks of fuels, spare parts and loose
tools and fittings beneficially owned by any member of the Vendor's
Group, or under the control of any member of the Vendor's Group
(subject to reservation of title by the relevant supplier), exclusively
or primarily for the purposes of the Plants (including where held by a
consignee), but excluding the Excluded Stocks;
Disclosed Matters means any fact, matter, event or circumstance which
is fairly disclosed in the Disclosure Letter and/or which is deemed to
be disclosed in the Disclosure Letter in accordance with its terms or
for which the Vendor is stated not to be liable in the Disclosure
Letter;
Disclosure Letter means the disclosure letter in the agreed form from
the Vendor to the Purchaser delivered immediately before the signing of
this Agreement;
<PAGE>
6
dollar or $ means the lawful currency of the United States of America;
Excluded Stocks means feedstocks, stocks-in-process and finished stocks
beneficially owned by any member of the Vendor's Group or under the
control of any member of the Vendor's Group (subject to reservation of
title by the relevant supplier);
Group means, in relation to the Vendor or the Purchaser, that party and
its Subsidiaries for the time being and any undertaking which controls,
is controlled by or is under common control with that party for the
time being;
Huntsman/ICI Closing means Closing or, if applicable, Delayed Closing
of the transfer of the Olefins Manufacturing Business pursuant to the
Contribution Agreement (and in this definition "Closing", "Delayed
Closing" and "Olefins Manufacturing Business" have the meanings given
to them in the Contribution Agreement);
HSCC's Group has the meaning given in the Contribution Agreement;
Information means all information, know-how and techniques (whether or
not confidential and in whatever form held) including, without
limitation, all:
(a) formulae, designs, specifications, drawings, data, manuals and
instructions;
(b) customer lists, sales, marketing and promotional literature;
(c) business plans and forecasts; and
(d) technical or other expertise;
Intellectual Property Rights means patents, trade marks, service marks,
trade names, business names, rights in designs, copyright (including
rights in computer software and moral rights), database rights, rights
in domain names and all other intellectual property rights, in each
case whether registered or unregistered and including applications for
the grant of any of the foregoing rights, and all rights or forms of
protection having equivalent or similar effect to any of the foregoing
which may subsist anywhere in the world but excluding Information;
Permitted Encumbrances means (a) security interests in the ordinary
course of business or by operation of law, security interests arising
under sales contracts with title retention provisions and equipment
leases with third parties entered into in the ordinary course of
business and security interests for Taxes and other governmental
charges which are not due and payable or which may thereafter be paid
without penalty, and (b) other imperfections in title and encumbrances,
if any, which do not materially impair the continued use and operation
of the assets to which they relate;
Plants means the plants at Wilton known as JVO6, JVB3 and GTU and (save
in the Recitals and in the definitions of BPCL Interest and Related
Assets) includes the Related Assets;
Related Assets means the plant and infrastructure relating to the
Plants and used for (a) the storage and distribution of products and
feedstock and/or (b) the production of products, but excluding
Liquefaction 4 (as defined in the Operating and Maintenance Agreement
(Liquefaction 4) in the agreed form);
<PAGE>
7
Related Persons means, in relation to the relevant person, any of its
agents, directors, officers, employees, advisers or consultants and any
other person which the relevant person has engaged or instructed in
connection with the transactions contemplated by this Agreement;
Relates to means exclusively or predominantly used in, developed or
acquired for use in and Relate to shall be construed accordingly;
relief includes, unless the context otherwise requires, any allowance,
credit, deduction, exemption or set off in respect of any Tax or
relevant to the computation of any income, profits or gains for the
purposes of any Tax, or any right to repayment of or saving of Tax, and
any reference to the use or set off of relief shall be construed
accordingly;
Repeated Warranties means the Warranties set out in paragraphs 1, 2,
4.4, 4.5, 4.6, 4.7, 5.3 and 8.1 of Schedule 2;
Senior Employee means any employee of any member of the Purchaser's
Group employed at ICI Job Grade 40 and above (or at or above the
equivalent grade within the Purchaser's Group);
Site means the property listed in Schedule 3;
Spot Rate means the spot rate of exchange (closing mid-point) on the
relevant date, as quoted in the London edition of the Financial Times
first published thereafter or, where no such rate of exchange is
published in respect of that date, at the rate quoted by Citibank N.A.
as at the close of business in London on that date;
Tax means all taxes, levies, duties, imposts, charges and withholdings
of any nature, including any excise, property, sales, transfer,
franchise and payroll taxes and any national insurance or social
security contributions, together with all penalties, charges and
interest relating to any of the foregoing or to any late or incorrect
return in respect of any of them, regardless of whether such taxes,
levies, duties, imposts, charges, withholdings, penalties and interest
are chargeable directly or primarily against or attributable directly
or primarily to any company or any other person and of whether any
amount in respect of them is recoverable from any other person;
Tripartite Agreement means the agreement dated the same date as this
Agreement entered into between (1) the Vendor, (2) Imperial Chemical
Industries PLC, (3) ICI Chemicals & Polymers Limited, (4) Huntsman
Specialty Chemicals Corporation, (5) Huntsman ICI Holdings, LLC and (6)
the Purchaser;
Transaction Agreements means this Agreement, the Ancillary Agreements,
the Disclosure Letter and any other agreements referred to in this
Agreement and to be entered into in accordance with this Agreement on
the date of this Agreement or on or prior to Closing;
VAT means value added tax or any similar sales or turnover tax;
Vendor's Bank Account means account number 89842 with Citibank, London
Branch, Sort Code 18-50-08 (account name BP International Limited);
<PAGE>
8
Warranties means the warranties set out in Schedule 2 (and shall
include, for the avoidance of doubt, the Repeated Warranties);
Warranty Claim means any claim in respect of any breach of a Warranty.
1.2 In this Agreement, unless the context otherwise requires:
(a) references to persons shall include individuals, bodies
corporate (wherever incorporated), unincorporated associations
and partnerships;
(b) the headings are inserted for convenience only and shall not
affect the construction of this Agreement;
(c) references to one gender include all genders;
(d) any reference to an enactment or statutory provision is a
reference to it as it may have been, or may from time to time
be, amended, modified, consolidated or re-enacted (with or
without modification) and includes all instruments or orders
made under such enactment but, where any such amendment,
consolidation or re-enactment would increase or reduce the
Vendor's liability under the Warranties, such amendment,
consolidation or re-enactment of such legislation shall not be
taken to increase or reduce the liability of the Vendor under
the Warranties;
(e) any reference to a document in the agreed form is to the form of
the relevant document agreed between the parties and initialled
by them or on their behalf for identification purposes;
(f) references to any English legal term for any action, remedy,
method of judicial proceeding, legal document, legal status,
court, official or any other legal concept shall, in respect of
any jurisdiction other than England, be deemed to include the
legal concept which most nearly approximates in that
jurisdiction to the English legal term; and
(g) Subsidiary means, in relation to an undertaking (the holding
undertaking), any other undertaking in which the holding
undertaking (or persons acting on its or their behalf) for the
time being directly or indirectly holds or controls either:
(a) a majority of the voting rights normally exercisable at
general meetings of the members of that undertaking; or
(b) the right to appoint or remove directors having a majority
of the voting rights exercisable at meetings of the board
of directors or other body exercising management powers of
that undertaking on all, or substantially all, matters,
and any undertaking which is a Subsidiary of another undertaking
is also a Subsidiary of any further undertaking of which that
other is a Subsidiary. For this purpose, undertaking means a
body corporate or partnership or an unincorporated association
carrying on trade or a business with or without a view to
profit. In relation to an undertaking which is not a company,
expressions in this Agreement appropriate to companies are to be
construed as
<PAGE>
9
references to the corresponding persons, officers, documents or
organs (as the case may be) appropriate to undertakings of that
description.
1.3 The Schedules comprise schedules to this Agreement and form part of
this Agreement. Accordingly any reference to this Agreement shall
include the Schedules.
1.4 Where it is necessary to determine whether a monetary amount, limit or
threshold set out in this Agreement has been reached or exceeded (as
the case may be) and the value of any sum to be taken into account in
making that determination is expressed in a currency other than the
currency in which such monetary amount, limit or threshold is
expressed, such sum shall be translated into the currency in which such
monetary amount, limit or threshold is expressed at the Spot Rate on
the relevant date. The relevant date for the purposes of any Claim
shall be the Business Day on which the party against whom the Claim is
made receives written notification of that Claim or, if that day is not
a Business Day, the Business Day next following.
2. Sale Of BPCL Interest and the other Assets
On and subject to the terms set out in this Agreement, the Vendor
agrees with the Purchaser that the Vendor shall sell or procure the
sale by each relevant member of the Vendor's Group of, and that the
Purchaser shall purchase or procure the purchase of, the Assets listed
below and the Purchaser (as agent for Huntsman ICI Petrochemicals (UK)
Limited) undertakes to purchase or to procure the purchase of the
Assets listed below, in each case as at and with effect from Closing
but free from all liens, charges and encumbrances (other than, in the
case only of the Assets in (b) and (e) below, Permitted Encumbrances)
and all other rights exercisable by third parties (subject to the
rights of the counterparties to the Contracts and as otherwise
indicated in this Agreement, including without limitation in clause
6.6):
(a) the BPCL Interest;
(b) the Cracker Stocks;
(c) the benefit (subject to the burden) of the Contracts;
(d) books and records of the Vendor's Group to the extent relating
to the Contracts but excluding (i) materials relating to a
Contract but dated before the date of the Contract and (ii)
internal notes, memoranda and analyses relating to the
Contracts;
(e) all other property rights and all other assets of whatsoever
nature to which any member of the Vendor's Group is entitled and
which are used exclusively or primarily in the operation of the
Plants, but always excluding the Excluded Stocks,
(together, the Assets).
3. Consideration
3.1 The consideration (Consideration) for the Assets shall be the payment
in cash by Huntsman ICI Petrochemicals (UK) Limited to the Vendor of
the sum of (pound)73,333,333 (payment of which shall be procured by the
Purchaser). The Consideration shall be apportioned as follows:
<PAGE>
10
(a) the plant and equipment comprised (pound)73,333,330
within the BPCL Interest (less the net book
value of the
Cracker Stocks)
(b) the Cracker Stocks the net book
value thereof
(c) the benefit (subject to the burden) (pound)1
of the Contracts
(d) books and records (pound)1
(e) other property rights and assets (pound)1.
3.2 The apportionment of the Consideration as described in clause 3.1 shall
be adopted by the Vendor (on behalf of itself and each of the relevant
members of the Vendor's Group) and the Purchaser for all purposes
(including Tax) except as otherwise required by law.
3.3 The Consideration shall be paid free from any set-off, deduction or
withholding whatsoever.
3.4 If any payment is made by the Vendor to the Purchaser pursuant to a
claim under any indemnity under this Agreement or pursuant to any
Warranty Claim, the payment shall so far as possible be made by way of
reduction to the Consideration payable with respect to the appropriate
Assets.
3.5 Any sum payable by the Purchaser for itself to the Vendor for itself or
(on the basis described in clause 10.1) as agent for the relevant
members of the Vendor's Group under this Agreement is exclusive of any
amounts in respect of applicable VAT.
3.6 The Purchaser shall procure the payment to the Vendor in addition to
the Consideration an amount equal to the VAT chargeable in respect of
the Assets against delivery by the Vendor of an appropriate VAT
invoice.
4. Conditions
4.1 The obligations of the parties under clause 2 are conditional upon the
Conditions being fulfilled (or waived). Each party shall use all
reasonable endeavours to procure (so far as it lies within its
respective powers to do so) that each of the Conditions, to the extent
that they are not waived, are fulfilled as soon as possible, but in any
event before 31st October 1999 (the Termination Date).
4.2 If the Conditions are not satisfied or waived on or before the
Termination Date, this Agreement shall automatically terminate.
4.3 If this Agreement terminates or is terminated in accordance with this
clause 4 then the obligations of each party under this Agreement
(except for obligations under clauses 14, 15, 16, 17, 18, 19, 21, 22,
23, 24 and 25) shall automatically terminate, provided that the rights
and liabilities of the parties which have accrued prior to termination
shall subsist.
4.4 Subject to the provisions of the Tripartite Agreement, no Condition may
be waived except by written agreement of the parties.
<PAGE>
11
4.5 Each party shall notify the other parties as soon as reasonably
practicable after it becomes aware that any Condition has been
satisfied.
4.6 If any fact which makes any of the Conditions incapable of being
satisfied on or before the Termination Date comes to the knowledge of
any party at any time prior to Closing, then that party shall notify
the other parties of that fact. The parties shall then first negotiate
in good faith and use their reasonable endeavours to agree an
alternative set of arrangements which place the parties in no worse a
position than it would have been in had the relevant Condition been
capable of being satisfied, so far as is practicable in the time
available before the Termination Date. If such endeavours and
negotiations in good faith have taken place and it has not been
possible to agree to such an alternative set of arrangements, then
either party shall be entitled to treat this Agreement as terminated by
written notice to the other party, provided that neither party shall be
entitled to treat this Agreement as terminated where that party is in
breach of its obligations under clauses 4.1 to 4.5 where such breach
has contributed materially to the non-satisfaction of the Condition.
5. Conduct before Closing
5.1 The Vendor will ensure that, until Closing:
(a) it and each other applicable members of the Vendor's Group will
exercise its rights and perform or comply with its obligations
under the BP/ICI Joint Venture Agreements and the Contracts in
the ordinary and normal course and without any alteration in
nature or manner (save for routine and unimportant matters) and
on sound commercial principles consistent with those applied by
it during the financial period ended on the 31st December 1998
and, to the extent relevant, so as to protect and maintain the
Plants;
(b) all reasonable measures are taken by it and other applicable
members of the Vendor's Group, consistent with past practice, to
protect and maintain the Assets (other than the Plants).
5.2 Without prejudice to the generality of clause 5.1, until Closing the
Vendor will ensure, in respect of the Assets and the operation of the
Plants, that without the prior written consent of the Purchaser:
(a) no member of the Vendor's Group will dispose of, or agree to
dispose of or grant or agree to grant any option or other right
over or licence of, any Asset (except in the ordinary course of
business on normal arm's length terms);
(b) no member of the Vendor's Group will embark on a programme,
submit any bid or tender or make any contract or commitment in
relation to the Plants which is likely to involve more than
(pound)50,000 (save for the renewal of an existing leasehold
interest in any property on arm's length terms) by reference to:
(i) value; or
(ii) capital expenditure or costs; or
(iii) liabilities,
<PAGE>
12
or (whatever the sum involved) is likely (aa) to result in any
material change in the nature of the operations, liabilities and
activities of the Plants or (bb) to involve any abnormal or
unusual commitment in relation to the Plants;
(c) no member of the Vendor's Group will make any material change in
the extent of the insurance cover relating to the Plants and the
Assets as taken out by any member of the Vendor's Group (if
any); and
(d) no member of the Vendor's Group will amend, terminate, transfer,
assign or grant any waiver in relation to the Contracts.
The Purchaser will consider and provide a response to any request for
such consent as promptly as reasonably practicable.
5.3 To the extent that any matter referred to in clause 5.2 is within the
control of ICI Chemicals & Polymers Limited as owner and operator of
the Plants, the Vendor's obligation under clause 5.2 shall be construed
as an obligation to exercise its rights and discretions under the
BP/ICI Joint Venture Agreements in a manner consistent with the
requirements of clause 5.2.
6. Closing
6.1 Subject to clause 6.6, beneficial ownership and risk in respect of each
of the Assets shall pass to Huntsman ICI Petrochemicals (UK) Limited on
Closing. Closing shall take place at such place or places outside the
United Kingdom as are agreed between the Vendor and the Purchaser.
Closing shall take place on the Closing Date.
6.2 (a) The Vendor agrees with the Purchaser that the Vendor and each
relevant member of the Vendor's Group shall at Closing transfer
the Assets and shall do, or procure the doing of, all those
things listed in relation to them in Schedule 1; and
(b) the Purchaser agrees with the Vendor that the Purchaser shall at
Closing do, or procure the doing of, all those things listed in
relation to it in Schedule 1.
6.3 The cash sum to be paid by Huntsman ICI Petrochemicals (UK) Limited to
the Vendor at Closing shall be paid by Huntsman ICI Petrochemicals (UK)
Limited (and the Purchaser shall procure such payment) to the Vendor's
Bank Account in immediately available funds and the Vendor shall
receive such payment on its own account and as agent for each relevant
member of its Group.
6.4 At Closing, the Vendor and the Purchaser shall procure that the members
of its Group expressed to be parties thereto shall enter into the
Ancillary Agreements.
6.5 Each party (first party) agrees with the other party (on behalf of
itself and the members of its Group) to indemnify and keep indemnified
on an after Tax basis the other party and each member of its Group
against any Cost which it may incur or suffer as a result of any
document delivered by the first party (or any member of its Group)
pursuant to this clause 6 being unauthorised, invalid or for any other
reason ineffective for its purpose or as a result of any document
required to be delivered by the first party (or any member of its
Group) pursuant to clause 6.2 and Schedule 1 not being so delivered,
save that for the avoidance of doubt nothing in this clause 6.5 shall
<PAGE>
13
operate to transfer to the Vendor or any member of its Group any
responsibility for any stamp duty or other transfer or similar taxes
which may arise pursuant to this Agreement.
6.6 Insofar as the benefit and burden of the Contracts cannot effectively
be or are not permitted to be assigned or transferred by the relevant
member of the Vendor's Group to Huntsman ICI Petrochemicals (UK)
Limited except by agreements of novation or without obtaining a
consent, approval or waiver from a third party (a Consent) then the
following provisions shall apply:
(a) this Agreement shall not constitute an assignment or an
attempted assignment of the relevant Contract if, or to the
extent that, such an assignment or attempted assignment would
constitute a breach of such Contract;
(b) the Vendor (on behalf of itself and each relevant member of the
Vendor's Group) and the Purchaser shall each use reasonable
endeavours to procure that such Contracts are novated or that
the necessary Consents are obtained and this Agreement shall
constitute an assignment of such Contract with effect from the
time when all Consents required in respect of such assignment
have been obtained;
(c) unless or until each such Contract is so novated or assigned or
any necessary Consent is obtained, the relevant member of the
Vendor's Group shall hold any such Contract and any moneys,
goods or other benefits received thereunder as agent of the
Purchaser and shall accordingly, promptly on receipt of the
same, account for and pay or deliver to the Purchaser (as agent
for Huntsman ICI Petrochemicals (UK) Limited) such moneys, goods
and other benefits less any reasonable direct out-of-pocket
costs and expenses of performance of that Contract incurred by
that member of the Vendor's Group (to the extent clause 6.6(d)
does not apply) (excluding, for the avoidance of doubt,
management time) and the Vendor shall comply with all reasonable
requests of the Purchaser in relation to that Contract or the
performance thereof; and
(d) the Purchaser shall assist the relevant member of the Vendor's
Group to perform all its obligations (or, at the Vendor's
request, procure the performance of all of the obligations of
the relevant member of the Vendor's Group) under any such
Contract as sub-contractor of the relevant Vendor provided that
sub-contracting is permissible under the terms of the relevant
Contract and where sub-contracting is not permissible, the
Purchaser shall, provided that this is permissible under the
terms of the relevant Contract, procure the performance by
Huntsman ICI Petrochemicals (UK) Limited of any such Contract as
agent for the relevant member of the Vendor's Group, and the
Purchaser shall procure that Huntsman ICI Petrochemicals (UK)
Limited in the performance of such agency or sub-contracting
role shall indemnify the relevant member of the Vendor's Group
(save to the extent that the Costs are caused by the relevant
member's failure to comply with its obligations under this
clause or to take reasonable care in performing any obligations
under the relevant Contract which remain to be performed by it
and save in respect of the Costs of third party claims in
respect of such arrangement) on an after Tax
<PAGE>
14
basis against all Costs suffered or reasonably incurred in
connection with any such Contracts provided that the Purchaser
shall not be obliged to indemnify the relevant member of the
Vendor's Group in respect of its internal administrative costs
(including costs of the time of its employees) in respect of the
sub-contracting or agency or arrangements described in this sub-
paragraph and provided further that this indemnity shall not
apply to the extent that the obligation or liability in question
has arisen out of any breach of the relevant Contract by the
Vendor or the relevant member of the Vendor's Group prior to the
Closing Date;
(e) no effect shall however be given to sub-paragraphs (c) or (d)
above if any other party under the relevant Contract repudiates
the contract, refuses to deal with the relevant member of the
Vendor's Group or Huntsman ICI Petrochemicals (UK) Limited as
contemplated by the said sub-paragraphs (but then only for as
long as it persists with such refusal) or if giving effect
thereto would constitute a breach of the relevant Contract in
which case the Vendor, the relevant member of the Vendor's Group
and the Purchaser will use their respective reasonable
endeavours to make such other arrangements between themselves as
may be permissible to implement as far as possible the effective
transfer of the benefits and burden of such Contract to Huntsman
ICI Petrochemicals (UK) Limited or if such arrangements cannot
be made in respect of such Contract, the relevant member of the
Vendor's Group and the Purchaser shall use their respective
reasonable endeavours to procure that such Contract is
terminated without liability to either of them (in such a manner
that the Purchaser (as agent for Huntsman ICI Petrochemicals
(UK) Limited) may, if it so requires, negotiate a new contract
on its own behalf) and neither the Vendor, nor the relevant
member of the Vendor's Group or the Purchaser shall have any
further obligation to the other relating to the Contract after
such termination.
7. Further Assurance
7.1 Save for the Excluded Stocks, the Vendor undertakes that neither it nor
any member of the Vendor's Group shall assert any right of ownership
over the Site or any part thereof or over any assets which at Closing
are located on the Site. To the extent such assets are legally owned by
a member of the Vendor's Group, the Vendor shall procure that legal
title to such assets is transferred to the Purchaser or a member of the
Purchaser's Group nominated by the Purchaser as soon as practicable
after Closing without further consideration and at the Vendor's cost.
7.2 The Vendor hereby grants to the Purchaser, or agrees to procure the
grant to the Purchaser (in each case, for itself and for the benefit of
each member of its Group) of, a non-exclusive, perpetual, irrevocable,
freely transferable, royalty-free licence to use in the operation of
the Plants (a) any Intellectual Property Rights owned by any member of
the Vendor's Group and (b) any confidential Information the rights in
which are owned by any member of the Vendor's Group which in each case
has been used, within the period of 24 months preceding the date of
this Agreement, at or in the operation of the Plants (or any of them).
<PAGE>
15
7.3 The Purchaser shall allow the Vendor's supplies of feedstocks comprised
within the Excluded Stocks and situated on the Wilton site at Closing
to be processed at the Plants on the Vendor's behalf into ethylene and
other co-products on the same terms as applied under the BP/ICI Joint
Venture Agreements before Closing and the Vendor shall reimburse the
Purchaser for all amounts that would have been payable under the BP/ICI
Joint Venture Agreements in respect of such processing.
7.4 With effect from Closing, the Purchaser shall:
(a) subject and without prejudice to clause 6.6 (which shall take
precedence over this clause 7.4 in circumstances where it
applies), observe and perform or procure to be observed or
performed all the obligations of the Vendor (or any member of
the Vendor's Group as the case may be) under the Contracts
except insofar as such obligations should have been performed
before Closing; and
(b) keep the Vendor and other members of the Vendor's Group fully
and effectively indemnified on an after Tax basis against any
liability howsoever arising from the failure of the Purchaser to
perform its obligations under subclause 7.4(a), provided that
this indemnity shall not apply to the extent that the obligation
or liability in question has arisen out of any breach of the
relevant Contract by the Vendor or the relevant member of the
Vendor's Group prior to Closing.
8. Employees
If the contract of employment of any employee of any member of the
Vendor's Group is found or alleged to have effect after Closing as if
originally made with the Purchaser or any member of the Purchaser's
Group, the Vendor shall indemnify and keep indemnified on an after Tax
basis the Purchaser (for itself and as agent of each applicable member
of its Group) from and against any Costs arising from the employment of
such employee by the relevant member of the Purchaser's Group.
9. Warranties
9.1 Subject to clauses 10, 11 and 12, the Vendor warrants to the Purchaser
(on the basis set out in clause 10) that each of the Warranties is true
and accurate as at the date of this Agreement and that each of the
Repeated Warranties will be true and accurate on the Closing Date as if
repeated immediately before Closing by reference to the facts and
circumstances subsisting at the Closing Date.
9.2 The Purchaser warrants to the Vendor that each of the following
warranties is true and accurate as at the date of this Agreement and
will be true and accurate on the Closing Date as if repeated
immediately before Closing by reference to the facts and circumstances
subsisting at the Closing Date:
(a) the Purchaser and any other party to any Transaction Agreement
who is a member of the Purchaser's Group is duly incorporated
and validly existing under the laws of the jurisdiction in which
it is incorporated and has (or will have at the time such
agreements are entered into and performed) the necessary
corporate power and corporate authority to enter into and to
perform those of the Transaction Agreements to which it is a
party;
<PAGE>
16
(b) those of the Transaction Agreements to which they are party
constitute valid and binding obligations of the Purchaser and
any other party to any Transaction Agreement who is a member of
the Purchaser's Group;
(c) the execution, delivery and compliance with the terms of those
of the Transaction Agreements to which they are party by the
Purchaser and any other party to any Transaction Agreement who
is a member of the Purchaser's Group will:
(i) not constitute a breach of any Contract or entitle any
person to terminate or avoid any Contract;
(ii) be in compliance with the memorandum and articles of
association, bye-laws or other equivalent constitutional
documents of the Purchaser and such other member of its
Group;
(iii) not contravene any order, judgement, decree, law or
regulation by which the Purchaser or such other member of
its Group is bound;
(d) no administrator, receiver or administrative receiver or any
other equivalent officer has been appointed in respect of the
Purchaser or, to the extent relevant to performance of
obligations under this Agreement, any member of the Purchaser's
Group or in respect of any part of the assets or undertakings of
any such company;
(e) no petition has been presented, no order has been made, no
resolution has been passed and no meeting has been convened for
the winding-up of the Purchaser or, to the extent relevant to
performance of obligations under this Agreement, any member of
the Purchaser's Group or for an administration order or the
equivalent in the relevant jurisdiction of incorporation to be
made in relation to any such company;
(f) neither the Purchaser nor, to the extent relevant to performance
of obligations under this Agreement, any member of the
Purchaser's Group is unable to pay its debts as they fall due;
and
(g) no distress, distraint, charging order, garnishee order,
execution or other equivalent process in the jurisdiction of
incorporation has been levied or, so far as the Purchaser is
aware, applied for in respect of the whole or any material part
of the property, assets and/or undertaking of the Purchaser or,
to the extent relevant to performance of obligations under this
Agreement, any member of the Purchaser's Group and remains
outstanding.
9.3 The warranties given by the Purchaser pursuant to clause 9.2 are given
subject to the limitations in clauses 10, 11 and 12, which clauses will
apply, mutatis mutandis, to the warranties given by the Purchaser.
10. Other provisions relating to the Warranties and Indemnities
10.1 The Warranties and the indemnities given by the Vendor are given by the
Vendor as principal to the Purchaser, provided that, as between the
Vendor and any member of its Group, but without prejudice to the
Vendor's liability as principal to the Purchaser, the
<PAGE>
17
Warranties and the indemnities given by the Vendor under this Agreement
are given by the Vendor for itself and as agent for each other relevant
member of the Vendor's Group. The Vendor's liability to the Purchaser
in respect of any breach of the Warranties or under the indemnities
given by the Vendor under this Agreement shall be no greater, and no
less, than such liability would have been if such agency relationship
between the Vendor and any member of its Group had not existed. The
Warranties and the indemnities given by the Vendor shall only be
enforceable by the Purchaser against the Vendor.
10.2 The Purchaser shall not be entitled to claim that any fact, matter or
circumstance causes any of the Warranties to be breached if such fact,
matter or circumstance is a Disclosed Matter.
10.3 Without prejudice to the other provisions of this clause 10 and the
provisions of clauses 11 and 12 the Vendor shall not be liable for any
Warranty Claim to the extent that any of the following employees of
HSCC's Group had actual knowledge at the date of this Agreement of the
facts, matters, events or circumstances which are the subject matter of
the Claim in question and that such facts, matters, events or
circumstances constituted a breach of Warranty:
P. Huntsman, M. Kern, K. Ninow, D. Stanutz, T. Fisher,
K. Esplin, L. Tullos, R. Healy, R. Stolle, N. MacArthur,
W. Chapman, K. Kemper, R Monty, B. Ridd, M. Dixon, J. Huffman,
R. Lence, C. Dowd, L. Grossman, L. Skidmore, D. Marley,
C. Trievel, S. Scruggs,
and there shall be no implied requirement that such persons make any
enquiries of any other person, party, body or authority.
10.4 Each of the Warranties shall be separate and independent and, save as
expressly provided to the contrary, shall not be limited by reference
to or inference from any other Warranty or any other term of this
Agreement or any Ancillary Agreement.
10.5 In the Warranties, unless the context otherwise indicates, where any
statement is qualified by the expression "to the best of the Vendor's
knowledge and awareness", "so far as the Vendor is aware" or similar
expressions, that statement shall be deemed made on the basis of the
actual knowledge, at the date of this Agreement and at Closing (in the
case of the Repeated Warranties), of the following persons:
Des Gillen, Peter Skelley, Paul Bowdler, George Smith, Pat
Dixon, Bill Brandt, Colin Saunders and Rob Nevin,
but such phrases shall carry no further or other implication nor impose
any requirement on such persons to make enquiries of any other person,
party, body or authority.
10.6 The Vendor shall not have any liability in respect of any claim under
clause 9 in respect of the Repeated Warranties to the extent that such
claim arises (i) as a result of any action taken by the Vendor prior to
Closing in accordance with a written request made by the Purchaser or
(ii) as a result of any action omitted to be taken by the Vendor prior
to Closing due to the Purchaser withholding its consent to any such
action being taken pursuant to the Purchaser's rights under clause 5.2
if the Purchaser either knew
<PAGE>
18
or ought reasonably to have known, when withholding such consent, that
doing so was likely to give rise to a breach of the Repeated
Warranties.
11. Limitations on Claims
11.1 The provisions of this clause 11 (except for clause 11.11 which shall
apply generally in its terms) shall operate to define and limit the
liability of the Vendor in respect of any Claims and to establish the
circumstances within which Claims may be made.
11.2 The maximum aggregate liability of the Vendor in respect of:
(a) all Claims shall not exceed the amount of the Consideration;
(b) (subject to the overall limit in paragraph (a)) all Claims
pursuant to paragraph 11 of the Warranties shall not exceed
15,000,000; and
(c) (subject to the overall limit in paragraph (a)) all Claims other
than those made pursuant to paragraphs 1, 2.1, 2.2 or 11 of the
Warranties shall not exceed (pounds)10,000,000.
11.3 The Vendor shall not have any liability in respect of any individual
Warranty Claim (other than a Claim pursuant to paragraphs 1, 2.1 or 2.2
of the Warranties) unless its liability in respect of such Claim
exceeds (pounds)50,000.
Where a series of Claims arise out of the same act, omission, fact or
circumstances, they shall be aggregated for the purposes of determining
whether or not the relevant one of these thresholds has been exceeded.
For the avoidance of doubt amounts for which the Vendor has no
liability, or by which its liability is reduced, as a consequence of
the operation of this clause 11 or clause 12 shall not be taken into
account in determining whether the amount of such Claim exceeds the
threshold specified in this clause 11.3.
11.4 (a) The Vendor shall not have any liability in respect of any
Warranty Claim (other than a Claim pursuant to paragraphs 1, 2.1
or 2.2 of the Warranties) unless the aggregate amount of its
liability in respect of all Claims under the Warranties exceeds
(pound)1,000,000 in which case it shall only be liable for the
excess.
(b) For the avoidance of doubt, amounts for which the Vendor has no
liability, or by which the Vendor's liability is reduced, as a
consequence of the operation of this clause 11 and/or clauses 10
or 12 shall not be capable of being aggregated as a Claim or
part thereof with other Claims for the purposes of this clause
11.4.
11.5 The Vendor shall not be liable for any Claim unless the Vendor shall
have received from the Purchaser written notice containing specific
reasonable details of the Claim, including the Purchaser's estimate (on
a without prejudice basis) of the amount of such Claim, on or before
the date falling one (1) year after the Closing Date.
The Purchaser shall give notice to the Vendor of the relevant facts or
matter that may give rise to a Claim as soon as practicable after it
becomes aware of such facts or matter. Failure to give such notice
shall not of itself prevent the Purchaser from bringing the relevant
Claim, but the Vendor shall not be liable to the Purchaser in
<PAGE>
19
respect of such Claim to the extent that the amount of it is increased,
or is not reduced, as a result of such failure.
11.6 Any Claim shall (if it has not been previously satisfied, settled or
withdrawn) be deemed to have been withdrawn (and no new claim may be
made in respect of the facts giving rise to such withdrawn claim)
unless legal proceedings in respect of it have been commenced by both
being issued and served within nine (9) months of the rejection in
writing of such Claim by the Vendor.
11.7 The liability of the Vendor for any Claim in respect of any fact,
matter, event or circumstance shall be reduced or extinguished:
(a) to the extent that such Claim arises or, such Claim otherwise
having arisen, is increased as a result of any legislation not
in force at the date hereof or any change of law, regulation,
directive, requirement or administrative practice having the
force of law or the practice of any tax authority or any change
in rates of tax made after the Closing Date;
(b) to the extent that such Claim would not have arisen but for, or
is increased as a result of, a voluntary act, omission,
transaction or arrangement (other than any voluntary act,
omission, transaction or arrangement which is contemplated by
this Agreement) carried out after the Closing Date by the
Purchaser or any other member of the Purchaser's Group or their
respective directors, employees or agents where such person had
actual knowledge that such act, omission, transaction or
arrangement would or would be likely to give rise to or increase
a Claim and a reasonable alternate course of action was
available which would not be expected to give rise to a claim;
(c) to the extent that the amount of such Claim is recovered under
any policy of insurance;
(d) if the Purchaser failed to comply or procure compliance with the
terms of any provision of this Agreement, to the extent that the
Vendor could have avoided or mitigated the loss arising from the
subject matter of the Claim if the Purchaser had complied with
such provision; or
(e) to the extent that the Claim or breach would not have arisen but
for an act, omission, transaction or arrangement carried out by
the Vendor or any member of the Vendor's Group at the written
request or with the written approval of the Purchaser or any
other member of the Purchaser's Group or any of their respective
authorised representatives except when any employee of the
Vendor's Group who either receives such request or seeks such
approval has actual knowledge at the relevant time that the
Claim will arise or increase as a result of the matter in
respect of which the request, consent or approval is made or
given and fails to disclose that fact to the Purchaser.
11.8 If any Claim shall arise by reason of some liability which at the time
that the Claim is notified to the Vendor is contingent only, the Vendor
shall be under no obligation to make any payment to the Purchaser in
respect of such Claim until such time as such contingent liability
ceases to be so contingent. Clause 11.6 shall be amended in relation to
such Claim so that the Claim shall not be deemed to be withdrawn unless
<PAGE>
20
legal proceedings have not been commenced within nine months from the
later of (i) the date on which the said liability ceases to be
contingent; and (ii) the rejection in writing of such Claim by the
Vendor.
11.9 The Purchaser's Group shall not be entitled to recover any Costs more
than once to the extent that this could lead to double-recovery of the
same Costs in relation to the claims under more than one of the
Warranties and/or indemnities provided by members of the Vendor's Group
under, or in connection with, this Agreement or the Ancillary
Agreements. The Vendor and the Purchaser hereby agree with each other
that, to the extent that a benefit or saving obtained by any member of
the Purchaser's Group has been taken into account in reducing any claim
or has given rise to a payment by the Purchaser's Group under this
Agreement, it shall not be so taken into account again or give rise to
another such payment.
11.10 Before making a Claim in respect of any breach of the Warranties which
is capable of remedy, the Purchaser shall allow the Vendor thirty (30)
days after the date on which notice of the relevant facts or matter
that may give rise to a Claim is given in accordance with clause 11.5
in order to allow the Vendor to remedy the breach unless to do so would
prejudice the Purchaser to any significant extent.
11.11 Each of the Vendor and the Purchaser hereby waives and relinquishes any
right of set off or counterclaim, deduction or retention which it might
otherwise have in respect of any Claim or out of any payments which it
may be obliged to make (or procure to be made) to the other of them
pursuant to this Agreement.
11.12 The limitations on liability set out in this clause 11 shall not apply
to any liability for any Claim to the extent such Claim is attributable
to, or such Claim is increased as a result of, fraud or deceit on the
part of the Vendor or any of its Related Persons.
11.13 The sole remedy against the Vendor for any breach by it of any of the
Warranties shall be an action for damages. The Purchaser shall not be
entitled to rescind this Agreement before or after Closing in any
circumstances.
11.14 Nothing in this clause 11 or clauses 10 and 12 shall in any way
restrict or limit the general obligation at law of the Purchaser to
mitigate any loss or damage which it may suffer in consequence of any
breach by the Vendor of the terms of this Agreement or any fact,
matter, event or circumstance giving rise to a Warranty Claim.
12. Further Limitations on Claims
12.1 Where the Purchaser or any other member of the Purchaser's Group is
entitled (whether by payment, discount, credit, relief or otherwise) to
recover from a third party (including any insurance company or tax
authority) any sum in respect of any matter giving rise to a Claim or
to obtain any relief, saving or benefit which is in respect of any
matter (in each case whether before or after the Vendor has made
payment hereunder), the Purchaser shall (or, as appropriate, shall
procure that the relevant member of the Purchaser's Group shall):
(a) as soon as reasonably practicable notify the Vendor and provide
such information as the Vendor may reasonably require relating
to such potential recovery from that third party or to obtaining
such relief, saving or benefit and
<PAGE>
21
the steps taken or to be taken by the Purchaser or the relevant
member of the Purchaser's Group in connection with it (failure
to make such notification or provide such information shall not
prevent the Purchaser from making the relevant Claim, but the
Vendor shall not be liable to the Purchaser in respect of such
Claim to the extent that the amount of it is increased, or is
not reduced, as a result of such failure);
(b) if so required by the Vendor (subject to the Purchaser being
fully indemnified to its reasonable satisfaction by the Vendor
against all reasonable out-of-pocket costs and expenses incurred
by the Purchaser or the relevant member of the Purchaser's
Group) take all steps (whether by way of a claim against its
insurers or otherwise including but without limitation
proceedings) as the Vendor may reasonably require to enforce
such recovery or obtain such relief, saving or benefit and
comply with the Vendor's reasonable requests as to the timing of
such steps; and
(c) shall keep the Vendor informed of the progress of any action
taken,
and thereafter either:
(i) any Claim against the Vendor shall be limited (in addition to
the limitations on its liability referred to in clauses 10 and
11 and this clause 12) to the amount by which the loss or damage
suffered by the Purchaser or any relevant member of the
Purchaser's Group as a result of such breach shall exceed the
amount so recovered from the third party (net of Tax paid by the
Purchaser or relevant member of the Purchaser's Group on such
sum and the reasonable costs incurred in recovering such amount)
or the value of the relief, saving or benefit obtained,
calculated by reference to the amount saved (less the reasonable
costs of obtaining such relief, saving or benefit); or
(ii) if the Vendor has paid to the Purchaser an amount in discharge
of a Claim and the Purchaser or any other member of the
Purchaser's Group subsequently recovers (whether by payment,
discount, credit, relief or otherwise) from a third party
(including any insurance company or tax authority) a sum which
is referable to the matter giving rise to the Claim or obtains
any relief, saving or benefit which is so referable, the
Purchaser shall repay to the Vendor:
(A) an amount equal to the sum recovered from the third party
(net of tax paid by the Purchaser on such sum and the
reasonable costs incurred in recovering such sum) or the
value of the relief, saving or benefit obtained,
calculated by reference to the amount saved (less the
reasonable costs of obtaining such relief, saving or
benefit); or
(B) if the figure resulting under sub-paragraph (A) above is
greater than the amount paid by the Vendor to the
Purchaser or other members of the Purchaser's Group in
respect of the relevant Claim, such lesser amount as shall
have been so paid by the relevant Vendor.
12.2 Any payment required to be made by the Purchaser, pursuant to clause
12.1 shall be made:
<PAGE>
22
(a) in a case where any member of the Purchaser's Group receives a
payment, within ten (10) Business Days of the receipt thereof;
and
(b) in a case where any member of the Purchaser's Group obtains a
relief, saving or benefit, within ten (10) Business Days of the
date on which such relief, saving or benefit gives rise to an
increased receipt or reduced payment by the Purchaser's Group.
12.3 If the Purchaser, or any other member of the Purchaser's Group, becomes
aware of any third party claim, matter or event (a third party claim)
which might reasonably be expected to lead to a Claim being made, the
Purchaser shall (subject to being fully indemnified by the Vendor
against all reasonable out of pocket costs and expenses incurred by the
Purchaser or any member of the Purchaser's Group as a result of so
acting):
(a) procure that notice thereof is promptly given to the Vendor as
soon as is reasonably practicable;
(b) not make (or, as appropriate, shall procure that no other member
of the Purchaser's Group shall make) any admission of liability,
agreement or compromise with any person, body or authority in
relation to any such third party claim without prior
consultation with and the prior agreement of the Vendor, which
agreement shall not be unreasonably withheld or delayed;
(c) not take any action which reduces the amount recoverable in
respect of such third party claim under any policy of insurance
under which any such third party claim would be covered if such
action had not been taken;
(d) take such action as the Vendor may reasonably request to avoid,
dispute, resist, appeal, compromise or defend such third party
claim;
(e) ensure, at the request in writing of the Vendor, that the Vendor
is placed in a position to take on or take over the conduct of
all proceedings and/or negotiations of whatsoever nature arising
in connection with the third party claim in question, provided
that the Purchaser shall not be required to commence any legal
proceedings where it or the relevant member of the Purchaser's
Group has validly assigned all of its rights in relation to the
relevant Claim to the Vendor in a manner which entitles the
Vendor to the same benefits in respect of such rights as the
Purchaser or the relevant member of the Purchaser's Group had;
and
(f) if the Vendor does not elect to take control of the conduct of
proceedings under clause 12.3(e), the Purchaser shall ensure
that the Vendor is kept fully informed of any actual or proposed
developments (including any meetings) and shall be provided with
copies of all material correspondence and documentation relating
to such third party claim or action, and such other information,
assistance and access to records and personnel as it reasonably
requires,
and, without prejudice to any other limitation of liability contained
in this Agreement, if the Purchaser fails to comply with any of the
obligations contained in this clause
<PAGE>
23
12.3, the Vendor shall not be liable in respect of any such Claim to
the extent that the Vendor's liability is increased or, as the case may
be, not reduced as a result of the Purchaser's failure. Notwithstanding
the foregoing, the Vendor shall not be entitled to assume the defence
of any claim, action or demand of a third party (but shall continue to
be entitled to exercise the remainder its rights under the above sub-
paragraphs) if such claim, action or demand seeks any relief other than
damages (including any order, injunction or other equitable relief)
against the Purchaser or relevant member of the Purchaser's Group which
the Purchaser reasonably determines cannot be separated from a related
claim for damages. If such claim for other relief can be separated from
the claim for damages at any stage, the Vendor shall be entitled to
assume the defence of the claim for damages from that point on.
12.4 Upon any Claim being made, or notification from the Purchaser to the
relevant Vendor of any third party claim which might lead to such a
Claim being made, the Purchaser shall, and shall co-operate to procure
that each other member of the Purchaser's Group shall:
(a) make available to accountants and other professional advisers
appointed by the Vendor such access to relevant personnel and
properties and to any relevant records and information as the
Vendor may reasonably request in connection with such Claim or
third party claim provided that neither the Purchaser nor any
member of the Purchaser's Group nor any of their Related Persons
shall be required to disclose any legally privileged
information; and
(b) use reasonable endeavours to procure that the auditors (both
past and then current) of the relevant member of the Purchaser's
Group make available their audit working papers in respect of
audits of that company's accounts for any relevant accounting
period in connection with such Claim or third party claim,
subject to the Vendor entering into a release in a form
satisfactory to such auditors in relation to such working papers
being made available and provided that such auditors shall not
be required to reveal any information which is legally
privileged.
This clause 12 shall not apply to the extent that recovery has been
obtained pursuant any other provision of this Agreement.
13. Undertakings
13.1 After Closing, the Vendor shall and shall procure that each relevant
member of its Group shall, and the Purchaser shall and shall procure
that each relevant member of the Purchaser's Group shall from time to
time, do, execute and deliver, (in each case at its own cost) at the
reasonable request of the other party and in a form which is reasonably
satisfactory to the other party, all such further acts, deeds,
documents, instruments of assignment and transfer as may be necessary
to complete the sale and purchase of the Assets in accordance with the
terms of this Agreement and otherwise to give effect to the terms of
this Agreement and to secure to the parties the full benefit of the
rights, powers and remedies conferred upon the parties in this
Agreement.
<PAGE>
24
13.2 The Purchaser shall, and it shall procure that each member of its Group
shall, provide the Vendor at the Vendor's cost, excluding any costs of
management time spent, with such information and the services of such
relevant employees as it reasonably requests and as is necessary for
the purposes of preparing business accounts in respect of the period up
to the Closing Date in accordance with the Vendor's reporting
requirements and timetable and all other assistance as the Vendor shall
reasonably require for those purposes.
13.3 For a period of ten (10) years after Closing, the Purchaser shall and
shall procure that each member of the Purchaser's Group shall give the
Vendor and its accountants reasonable access at all reasonable times,
and provide copies of, all books and records delivered to the Purchaser
on or after Closing as are reasonably required for the purposes of
drawing up the accounts of the Vendor and any other purposes including
Tax matters, and the Purchaser shall procure that none of such books,
records or files is destroyed or disposed of without the prior written
consent of the Vendor.
13.4 Notwithstanding any other provision of this Agreement, the Vendor and
other members of the Vendor's Group shall be entitled to retain
originals or copies of all files, books, personnel, and records
relating to litigation existing at Closing, whether or not currently in
their possession.
13.5 The Vendor undertakes that it shall not, and shall procure that each
other member of its Group shall not for as long as it remains such a
member, directly or indirectly, and for one year thereafter, solicit or
entice away from any member of the Purchaser's Group any Senior
Employee or persuade any such Senior Employee to leave the employment
of any member of the Purchaser's Group except that this shall not
prevent any member of the Vendor's Group from offering employment to:
(a) any Senior Employee whose employment with the relevant member of
the Purchaser's Group has then ceased or who has given (or
received) notice terminating such employment; and
(b) any Senior Employee who responds to any public recruitment
advertisement placed by or on behalf of that member.
14. Costs
Save as otherwise provided in this Agreement, each party shall pay (on
behalf of itself and members of its Group) any costs and expenses
(including without limitation, and save as otherwise provided in this
Agreement, any stamp or other documentary or transaction duties and any
other transfer taxes) incurred by it or by any member of its Group in
connection with the negotiation, preparation, completion and
implementation of the transactions contemplated by this Agreement and
each of the agreements referred to herein.
15. Performance by Group Members; Capacity of parties
15.1 Each party shall procure (in respect of any member of its Group which
is not wholly-owned, only insofar as it is able) that the members of
its Group perform:
(a) all obligations under this Agreement which are expressed to
relate to members of its respective Group; and
<PAGE>
25
(b) all obligations under any agreement entered into by any member of
its Group pursuant to this Agreement (including, without
limitation, all of the Transaction Agreements).
The liability of a party under this clause 15 shall not be discharged
or impaired by any amendment to or variation of this Agreement, any
release of or granting of time or other indulgence to any member of its
Group or any third party or any other act, event or omission which but
for this clause would operate to impair or discharge the liability of
such party under this clause 15.
15.2 Notwithstanding the disclosure of any agency arrangement in this
Agreement, whether a party is acting as agent or principal shall not
affect its liability (or the liability of the other party) under this
Agreement.
16. Announcements
16.1 From the date of this Agreement until Closing or termination of this
agreement no formal public announcement or press release in connection
with the signature or subject matter of this Agreement shall (subject
to clause 16.2) be made or issued by or on behalf of any party or any
member of its Group upon the signing of this Agreement or at any time
between the date hereof and Closing (or such other date, if any, upon
which this Agreement terminates in accordance with clause 4) without
the prior written approval of the other parties (such approval not to
be unreasonably withheld or delayed).
16.2 If a party has an obligation to make or issue any announcement required
by law or by any stock exchange or by any governmental authority, the
relevant party shall give the other parties every reasonable
opportunity to comment on any announcement or release before it is made
or issued (provided that this shall not have the effect of preventing
the party making the announcement or release from complying with its
legal and/or stock exchange obligations).
16.3 No formal public announcement or press release in relation to the
termination of this Agreement shall be made or issued by or on behalf
of any party or any member of its Group save that as is required by
applicable law and regulations containing the minimum amount of
information necessary to comply with the relevant requirements. Each
party shall give the other every reasonable opportunity to comment on
its announcement referred to above (provided that this could not have
the effect of preventing such party from complying with its obligations
under applicable law and regulations).
17. Entire Agreement
17.1 This Agreement, the Tripartite Agreement, the Ancillary Agreements, the
Confidentiality Agreements (to which both parties to this Agreement (or
any member of their respective Groups) are a party), the Disclosure
Letter and all other contracts, agreements and arrangements to be
entered into pursuant to the terms of this Agreement or
contemporaneously herewith (to which both parties to this Agreement (or
any member of their respective Groups) are a party)(together the
Relevant Agreements) together constitute the whole and only agreement
between the parties relating to the sale and purchase of the Assets and
any prior drafts, agreements,
<PAGE>
26
undertakings, representations, warranties and arrangements of any
nature whatsoever, whether or not in writing, relating thereto are
superseded and extinguished.
17.2 Each party (first party) acknowledges and agrees (for itself and on
behalf of each other member of its Group) with the other party (for
itself and as agent for each other member of its Group and for any of
its or their respective Related Persons) that:
(a) it does not rely on and has not been induced to enter into this
Agreement or any other Relevant Agreement by any assurance,
representation or warranty (express or implied) made or given by
or on behalf of the other party or any member of the other
party's Group or any of their respective Related Persons other
than those expressly set out in this Agreement or in such other
Relevant Agreement or, to the extent that it has so relied and/or
been so induced, it has (in the absence of fraud) no rights or
remedies in relation thereto and shall make no claim in relation
thereto against such parties;
(b) the other party and the members of the other party's Group, and
any of their respective Related Persons, do not owe any duty of
care to any member of the first party's Group other than those
expressly set out in this Agreement or any other Relevant
Agreement; and
(c) any warranty or other rights which may be implied by law in any
jurisdiction in relation to the sale of Assets in such
jurisdiction shall be excluded or, if incapable of exclusion,
irrevocably waived and it agrees to indemnify each member of the
other party's Group and their respective Related Persons in
respect of any Costs arising or incurred as a result of claims
under any such implied warranties and other rights by the first
party or any other member of its Group or their respective
successors in title (in the case of the Purchaser, including
without limitation any providers of finance to the Purchaser).
17.3 The Purchaser agrees with the Vendor that, save as expressly provided
for in this Agreement and without prejudice to the Warranties, neither
the Vendor nor any member of its Group shall have any liability to the
Purchaser or any member of its Group under or in connection with the
BP/ICI Joint Venture Agreements.
17.4 This clause shall not exclude any liability for, or remedy in respect
of, fraudulent misrepresentation by a party or a member of its Group or
any of their respective Related Persons or where it is otherwise
unlawful to do so.
18. Variation
No variation of this Agreement (or of any of the documents referred to
in this Agreement) shall be valid unless it is in writing and signed by
or on behalf of each of the parties to it. The expression "variation"
shall include any variation, supplement, deletion or replacement
however effected.
19. Assignment
19.1 No party shall be entitled to assign the benefit of any provision of
this Agreement without the prior written approval of the other party
except that:
<PAGE>
27
(a) the Purchaser may, upon giving written notice to each party,
assign the benefit of this Agreement in whole or in part
(subject, for the avoidance of doubt, to all limitations
contained herein including, without limitation, limitations on
claims under the Warranties) to one or more members of the
Purchaser's Group (a Permitted Assignee) subject to the condition
that if such Permitted Assignee shall subsequently cease to be a
member of the Purchaser's Group, the Purchaser shall procure that
prior to its ceasing to be a member of the Purchaser's Group the
Permitted Assignee shall assign so much of the benefit of this
Agreement as has been assigned to it to the Purchaser or (upon
giving further written notice to the Vendor) to another member of
the Purchaser's Group;
(b) the Purchaser may, upon giving written notice to each party,
assign the benefit of this Agreement in whole or in part to a
person to whom it transfers the Plants (or any part thereof) at
the direction of the providers of finance or their
representatives pursuant to the Financing Agreements (as defined
in the Contribution Agreement) and any such successor may effect
assignments (including the benefit of this clause) in the same
manner;
(c) the Purchaser may, upon giving written notice to each party,
assign the benefit of this Agreement in whole to the providers of
finance or their representative(s) pursuant to the Financing
Agreements (as defined in the Contribution Agreement) and any
such providers of Finance (as defined in the Contribution
Agreement) or representatives may effect assignments (including
the benefit of this clause) in the same manner,
PROVIDED THAT:
(1) the assignee (including successors) undertakes in writing to the
Vendor to be bound by and (where applicable) to perform all the
relevant obligations and limitations of the Purchaser under this
Agreement in relation to the benefits assigned;
(2) any such assignment (including to successors) shall for the
avoidance of doubt, be subject to all limitations contained
herein, including, without limitation, limitations on Claims;
(3) if there is an assignment (including to successors) of part of
the benefit of this Agreement, such assignment shall only be
effective if: (A) such assignee(s) and the Purchaser shall have
first appointed a single person (the Agent, who may be the
Purchaser or one of the assignees) to be their agent for the
purpose of bringing claims against the Vendor, and informed the
Vendor in writing of the identity of such Agent; and (B) all
claims by the Purchaser or any of the assignees under this
Agreement against the Vendor shall be made by the Agent;
Any purported assignment in contravention of this clause shall be void.
19.2 If any assignment is made pursuant to clause 19.1 above, the liability
of the Vendor under this Agreement shall be no greater, and no less,
than such liabilities would have been had such assignment not occurred.
<PAGE>
28
20. Severability
If any provision of this Agreement is held to be invalid or
unenforceable, then such provision shall (so far as it is invalid or
unenforceable) be given no effect and shall be deemed not to be
included in this Agreement but without invalidating any of the
remaining provisions of this Agreement.
21. Counterparts
This Agreement may be executed in any number of counterparts and by the
parties to it on separate counterparts, each of which is an original
but all of which together constitute one and the same instrument.
22. Notices
22.1 Any notice or other communication to be given by one party to another
under, or in connection with, this Agreement shall be in writing and
signed by or on behalf of the party giving it. It shall be served by
sending it by fax to the number set out in clause 22.2, or delivering
it by hand to the address set out in clause 22.2 and in each case
marked for the attention of the relevant party set out in clause 22.2
(or as otherwise notified from time to time in accordance with the
provisions of this clause 22). Any notice so served by hand to or fax
shall be deemed to have been duly given:
(a) in the case of delivery by hand, when delivered;
(b) in the case of fax, when received;
provided that in each case where delivery by hand or by fax occurs
after 6pm on a Business Day or on a day which is not a Business Day,
service shall be deemed to occur at 9am on the next following Business
Day.
References to time in this clause are to local time in the country of
the addressee.
22.2 The addresses and fax numbers of the parties for the purpose of clause
22.1 are as follows:
Vendor
------
Address: Britannic House,
1 Finsbury Circus,
London EC2M 7BA
Fax: 0171 496 4896
For the attention of: The Company Secretary
With a copy to: General Counsel (fax: 0171 496 4896)
Purchaser
---------
Address: 500 Huntsman Way
Salt Lake City
Utah 84108
USA
<PAGE>
29
Fax: 001 801 584 5781
For the attention of: President
With a copy to: General Counsel (fax: 001 801 584 5782)
22.3 A party may notify the other parties to this Agreement of a change to
its name, relevant addressee, address or fax number for the purposes of
this clause 22, provided that, such notice shall only be effective on:
(a) the date specified in the notice as the date on which the change
is to take place; or
(b) if no date is specified or the date specified is less than five
(5) Business Days after the date on which notice is given, the
date following five (5) Business Days after notice of any change
has been given.
23. Governing law, Jurisdiction and Service of Process
23.1 This Agreement and the relationship between the parties shall be
governed by, and interpreted in accordance with, English law.
23.2 All parties agree that the Courts of England are to have exclusive
jurisdiction to settle any dispute (including claims for set off and
counterclaim) which may arise in connection with the creation,
validity, effect, interpretation or performance of, or the legal
relationships established by this Agreement or otherwise arising in
connection with this Agreement and for such purposes irrevocably submit
to the jurisdiction of the English Courts.
23.3 The Purchaser shall at all times maintain an agent for service of
process and any other documents in proceedings in England. The agent
for the Purchaser shall be Trusec Limited currently of 35 Basinghall
Street London. Any writ, judgment or other notice of legal process
shall be sufficiently served on the Purchaser if delivered to its agent
at its address for the time being. If, for any reason the agent the
Purchaser ceases to act as such, the Purchaser shall promptly appoint
another such agent with an address in England and so advise the Vendor.
Failing such appointment and notification, the Vendor shall be entitled
to appoint an agent on behalf of the Purchaser at the expense of the
Purchaser. A copy of any document served on the agent of the Purchaser
shall also be sent to the Purchaser in accordance with the provisions
of clause 22.
24. Exercise of Rights and Remedies
24.1 No delay or omission on the part of any party to this Agreement in
exercising any right, power or remedy provided under this Agreement or
any other documents referred to in it shall impair such right, power or
remedy or operate as a waiver thereof.
24.2 The single or partial exercise of any right, power or remedy provided
under this Agreement or any document referred to in it shall not
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy except where expressly stated in this
Agreement.
<PAGE>
30
25. Confidentiality
25.1 Subject to sub-clause (b) and clause 16, each party and each member of
its Group shall treat as strictly confidential all information received
or obtained as a result of entering into or performing this Agreement
which relates to:
(a) the other party or the other party's Group;
(b) the provisions or the subject matter of this Agreement or any
document referred to herein; or
(c) the negotiations relating to this Agreement or any document
referred to herein.
25.2 Either party may disclose information which would otherwise be
confidential if and to the extent:
(a) require by the law of any relevant jurisdiction or for the
purpose of any judicial proceedings.
(b) required by any securities exchange or regulatory or governmental
body to which that party is subject or submits, wherever
situated, whether or not the requirement for information has the
force of law;
(c) the information is disclosed on a strictly confidential basis to
the professional advisers, auditors and bankers of such party
provided that such party shall be liable for any failure by its
professional advisers, auditors and bankers to keep such
information strictly confidential;
(d) the other party has given its prior written consent to the
disclosure;
(e) it does so to a member of its Group which accepts restrictions in
the terms of this clause; or
(f) required to enable that party to enforce its rights under this
Agreement,
provided that any such information disclosed pursuant to paragraph (a)
or (b) shall be disclosed (if practicable in the circumstances) only
after notice to the other party.
25.3 The restrictions contained in this clause shall continue to apply after
the termination of this Agreement without limit in time.
25.4 Upon Closing, each of the Confidentiality Agreements shall be
terminated save to the extent that it relates to any business retained
by the Vendor.
<PAGE>
31
Schedule 1
CLOSING
At Closing:
1. The Vendor shall:
(a) deliver to the Purchaser a copy of minutes of a duly held meeting
of the directors of the Vendor (or a duly constituted committee
thereof) authorising the execution by the Vendor of this
Agreement, the Ancillary Agreements in the agreed form and any
other agreement which pursuant to the terms of this Agreement is
to be entered into on or before Closing to which the Vendor is a
party and, in the case where such execution is authorised by a
committee of the board of directors of the relevant Vendor, a
copy of the minutes of a duly held meeting of the directors
constituting such committee or the relevant extract thereof (in
each case such copy minutes being certified as correct by the
secretary of the relevant Vendor);
(b) deliver to the Purchaser a copy of minutes of a duly held meeting
of the directors of each of the relevant members of the Vendor's
Group (or a duly constituted committee thereof) authorising the
execution by the relevant member of the Vendor's Group of the
Ancillary Agreements in the agreed form and any other agreement
which pursuant to the terms of this Agreement is to be entered
into on or before Closing to which the relevant member of the
Vendor's Group is a party and, in the case where such execution
is authorised by a committee of the board of directors of the
relevant member of the Vendor's Group, a copy of the minutes of a
duly held meeting of the directors constituting such committee or
the relevant extract thereof (in each case such copy minutes
being certified as correct by the secretary of the relevant
member of the Vendor's Group);
(c) deliver (or procure the delivery of) to the Purchaser, executed
counterparts of the Ancillary Agreements in the agreed form and
any other agreement which pursuant to the terms of this Agreement
is to be entered into on or before Closing duly executed by the
Vendor and/or the relevant members of the Vendor's Group;
(d) deliver or shall procure that the relevant member of the Vendor's
Group shall deliver to the Purchaser (as agent for Huntsman ICI
Petrochemicals (UK) Limited)or its nominee all the Assets which
are capable of transfer by delivery with the intent that title in
such assets shall pass by and upon such delivery.
2. The Purchaser shall:
(a) deliver to the Vendor:
(i) a copy of the minutes of a duly held meeting of the
directors of the Purchaser (or a duly constituted committee
thereof) authorising the
<PAGE>
32
execution by the Purchaser of this Agreement, the Ancillary
Agreements in the agreed form and any other agreement which
pursuant to the terms of this Agreement is to be entered
into on or before Closing to which the Purchaser is a party
and, in the case where such execution is authorised by a
committee of the board of directors of the Purchaser, a
copy of the minutes of a duly held meeting of the directors
constituting such committee or the relevant extract thereof
(in each case such copy minutes being certified as correct
by the secretary of the Purchaser);
(ii) a copy of the minutes of a duly held meeting of the
directors of each of the relevant members of the
Purchaser's Group (or a duly constituted committee thereof)
authorising the execution by the relevant member of the
Purchaser's Group of the Ancillary Agreements in the agreed
form and any other agreement which pursuant to the terms of
this Agreement is to be entered into on or before Closing
to which the relevant member of the Purchaser's Group is a
party and, in the case where such execution is authorised
by a committee of the board of directors of the relevant
member of the Purchaser's Group, a copy of the minutes of a
duly held meeting of the directors constituting such
committee or the relevant extract thereof (in each case
such copy minutes being certified as correct by the
secretary of the relevant member of the Purchaser's Group);
(iii) a receipt acknowledging delivery of all documents required
to be delivered by the Vendor pursuant to this Schedule 1;
(iv) deliver (or procure the delivery of) to the Vendor of
executed counterparts of the Ancillary Agreements in the
agreed form and any other agreement which pursuant to the
terms of this Agreement is to be entered into on or before
Closing; and
(b) procure the payment by Huntsman ICI Petrochemicals (UK) Limited
of the Consideration to the Vendor in respect of the Assets in
accordance with the provisions of clause 3.
Each of the Vendor and the Purchaser shall, and shall procure that the members
of their respective Group shall, comply with the provisions of this Schedule 1
and at all times from Closing, do all things as may be required to give effect
to the provisions of this Schedule 1, including, without limitation, the
execution of all deeds and documents, procuring the convening of all meetings,
the giving of all necessary waivers and consents and the passing of all
resolutions and otherwise exercising all powers and rights available to them.
<PAGE>
33
Schedule 2
WARRANTIES
Capacity and conduct of business
1.1 The Vendor and any other party to any Transaction Agreement who is a
member of the Vendor's Group is duly incorporated and validly existing
under the laws of the jurisdiction in which it is incorporated and has
(or will have at the time such agreements are entered into and
performed) the necessary corporate power and corporate authority to
enter into and to perform those of the Transaction Agreements to which
it is a party.
1.2 Those of the Transaction Agreements to which they are party constitute
valid and binding obligations of the Vendor and any other party to any
Transaction Agreement who is a member of the Vendor's Group.
1.3 The execution, delivery and compliance with the terms of those of the
Transaction Agreements to which they are party by the Vendor and any
other party to any Transaction Agreement who is a member of the
Vendor's Group will:
(a) not constitute a breach of any Contract or entitle any person to
terminate or avoid any Contract;
(b) be in compliance with the memorandum and articles of association,
bye-laws or other equivalent constitutional documents of the
Vendor and such other member of its Group;
(c) not contravene any order, judgement, decree, law or regulation by
which the Vendor or such other member of its Group is bound.
Assets and Insurance
2.1 The Vendor (or another member of the Vendor's Group) has full legal and
beneficial title to the Assets and either has in its possession, or is
entitled (subject to any Permitted Encumbrance) to take possession of,
each of the Assets capable of possession.
2.2 None of the Assets is subject to any encumbrance (including without
limitation any debenture, mortgage, charge, lien, deposit by way of
security, bill of sale, option or right of pre-emption) other than any
Permitted Encumbrances and there is no agreement or commitment to give
or create any.
2.3 No member of the Vendor's Group has any ownership interest in or
possession of or right of possession over:
(a) books or records containing information which Relates to the
Assets, with the exception of records containing such information
which the Vendor has received in the normal course of the
relationship between the Vendor and ICI Chemicals & Polymers
Limited (as operator) and for internal reports, memoranda and
analyses prepared by the Vendor therefrom or relating thereto; or
<PAGE>
34
(b) plant, machinery or other equipment used exclusively or primarily
at or in the operation of the Plants.
Compliance with law
3. Neither the Vendor nor any member of the Vendor's Group is, in relation
to the Assets, in contravention of any law, statute, order or
regulation of any relevant jurisdiction (other than any anti-trust or
similar legislation), where such contravention when taken together with
contraventions arising out of the same or related acts, omissions,
facts or circumstances will cause a material adverse effect on the
Assets. This Warranty does not apply to the BPCL Interest.
Litigation, insolvency and product liability
4.1 Neither the Vendor nor any member of the Vendor's Group is party to any
litigation, arbitration, administrative or criminal proceedings likely
to involve the Vendor or any member of the Vendor's Group paying any
sum in excess of (pound)50,000 which will, individually or
collectively, cause a material adverse effect on the Assets or the
operation of the Plants or which otherwise will, individually or
collectively, cause a material adverse effect on the Assets or the
operation of the Plants and, so far as the Vendor is aware, there are
no such proceedings pending or threatened in writing.
4.2 There are no orders, decrees, judgments or agreements with any Court or
governmental authority or agency to which the Vendor or any member of
the Vendor's Group is a party or by which the Vendor or any member of
the Vendor's Group is bound which will, individually or collectively,
cause a material adverse effect on the Assets or the operation of the
Plants.
4.3 No member of the Vendor's Group is engaged in any litigation or
arbitration proceedings which are likely, individually or collectively,
to have a material effect on the capacity of the Vendor or any member
of the Vendor's Group to perform its obligations under this Agreement
or any Ancillary Agreement and, so far as the Vendor is aware, no such
legal or arbitration proceedings have been threatened in writing.
4.4 No administrator, receiver or administrative receiver or any other
equivalent officer has been appointed in respect of the Vendor or, to
the extent relevant to performance of obligations under this Agreement,
any member of the Vendor's Group or in respect of any part of the
assets or undertakings of any such company.
4.5 No petition has been presented, no order has been made, no resolution
has been passed and no meeting has been convened for the winding-up of
the Vendor or, to the extent relevant to performance of obligations
under this Agreement, any member of the Vendor's Group or for an
administration order or the equivalent in the relevant jurisdiction of
incorporation to be made in relation to any such company.
4.6 Neither the Vendor nor, to the extent relevant to performance of
obligations under this Agreement, any member of the Vendor's Group is
unable to pay its debts as they fall due.
4.7 No distress, distraint, charging order, garnishee order, execution or
other equivalent process in the jurisdiction of incorporation has been
levied or, so far as the Vendor is
<PAGE>
35
aware, applied for in respect of the whole or any material part of the
property, assets and/or undertaking of the Vendor or, to the extent
relevant to performance of obligations under this Agreement, any member
of the Vendor's Group and remains outstanding.
Contracts
5.1 No member of the Vendor's Group has received written notice of any
breach of, or default under, any Contract and, so far as the Vendor is
aware, no other party to a Contract is in breach of, or in default
under, any Contract.
5.2 The Vendor has provided to the Purchaser a complete and up to date copy
of each Contract incorporating all of its terms and conditions.
5.3 Each Contract is valid and enforceable in accordance with its terms,
save that:
(a) the nature and availability of the remedies provided by the
English courts would depend on the circumstances. These remedies,
including an order by the court requiring the payment of damages
or the payment of a sum due, would be available subject to
principles of law, equity and procedure of general application.
Some remedies, including an order by the court requiring specific
performance of an obligation or the issue of an injunction, would
be entirely within the discretion of the court. The possibility
of obtaining any remedy would be lost if proceedings were not to
be commenced within certain time limits. The English courts have
power to stay proceedings and may decline jurisdiction, notably
if concurrent proceedings are being brought elsewhere.
Accordingly, enforcement of the obligations of the counterparties
under the Contracts would not be certain in every circumstance;
(b) laws relating to liquidation or administration or other laws or
procedures affecting generally the enforcement of creditors'
rights may affect the obligations of the counterparties under the
Contracts and the remedies available;
(c) English law may have to have regard to the law of the place of
performance of any obligation under the Contracts which is to be
performed outside England and Wales. It may refer to that law in
relation to the manner of performance and the steps to be taken
in the event of defective performance;
(d) there could be circumstances in which a certificate,
determination or the like given or made, or discretion exercised,
pursuant to a Contract would not be treated as final; and
(e) any obligation which is in the nature of a penalty for the
failure to perform another obligation would not be valid, binding
or enforceable.
Licences and consents
6.1 The Vendor and other members of the Vendor's Group together have all
governmental authorisations, licences, consents, permissions, approvals
and qualifications (being qualifications which the Vendor or another
member of the Vendor's Group is required
<PAGE>
36
to have for such purpose by applicable law) necessary to use the Assets
in all material respects in the manner in which Assets are now used and
such authorisations, licences, consents, permissions, approvals or
qualifications as are so necessary are in full force and effect and, so
far as the Vendor is aware, there are no circumstances which are likely
to cause any such authorisation, licence, consent, permission or
approval not to be renewed or revoked, where its revocation or non-
renewal (or such revocations or non-renewals collectively) will cause a
material adverse effect on the Assets. This Warranty does not apply to
the BPCL Interest.
6.2 All the authorisations, licences and consents referred to in paragraph
6.1 are valid and subsisting and have been complied with in all
material respects.
Recent Events
7. Since 31st December 1998 and except for the purpose of giving effect to
the transactions contemplated by this Agreement the activities of the
Vendor and each other applicable member of the Vendor's Group in
relation to the Assets have in all material respects been in the
ordinary course consistent with its past practices.
Intellectual Property & Information Technology
8.1 Save for Information the rights in which the Purchaser will acquire
pursuant to the Contracts, no Intellectual Property Rights or
Information of any member of the Vendor's Group and no Computer Systems
of any member of the Vendor's Group have been used in the operation of
the Plants within the 24 months preceding the date of this Agreement.
8.2 No material agreements have been entered into by any member of the
Vendor's Group in relation to any Intellectual Property Rights or
Information which, or the rights in which, are owned by any third party
and which Relate to the Assets or the operation of the Plants.
Employees
9. No employees of any member of the Vendor's Group are employed at or in
the operation of the Plants.
Environmental Matters
10. For the purposes of the warranties in this paragraph 10, where
applicable the definitions in Schedule 14 of the Contribution Agreement
shall apply.
10.1 So far as the Vendor is aware, during the period of three years
expiring on the date of this Agreement, each member of the Vendor's
Group has complied with all material Environmental Permits and
Environmental Laws except where failure to comply would not have a
material adverse effect on the Assets. This Warranty does not apply to
the BPCL Interest.
10.2 All material Environmental Permits required by any member of the
Vendor's Group in connection with the Assets have been obtained and are
in full force and effect and, so far as the Vendor is aware, no
circumstances exist which are likely to result in (a) the variation,
limitation or revocation of any such Environmental Permit; or (b) any
such
<PAGE>
37
Environmental Permit not being extended, renewed or granted (provided
that the transactions provided for in this Agreement do not constitute
a "circumstance" for the purpose of this Agreement) except where such
circumstances, or the matters referred to in (a) or (b) would not have
a material adverse effect on the Assets. This Warranty does not apply
to the BPCL Interest.
10.3 No member of the Vendor's Group is party to any litigation, proceedings
or claim by any relevant authority or other person under Environmental
Laws or in relation to Environmental Matters and, so far as the Vendor
is aware, none is threatened except, in each case, where such actual or
threatened litigation, proceedings or claim would not have a material
adverse effect on the Assets or the operation of the Plants.
The Plants
11.1 Neither BPCL nor any member of its Group:
(a) operates or maintains the Plants (or any part thereof);
(b) requires any governmental authorisation, licence, consent,
permission, approval or qualification by reason of or in
connection with the BPCL Interest; or
(c) is the sole owner of any part of the Plants.
<PAGE>
38
Schedule 3
SITE
The Site comprises the following properties:
1. Olefins 6 Plant at Wilton Works, Wilton, Redcar and Cleveland,
England (shown on plan OM1 in the agreed form);
2. Butadiene Storage, Ethylene Control and Olefins 5 Plant and Lima
compound 8 at Wilton Works, Wilton, Redcar and Cleveland, England
(shown on plan OM2 in the agreed form);
3. Central Control Area, Wilton Works, Wilton, Redcar and Cleveland,
England (shown on plan OM3 in the agreed form);
4. Brine Reservoirs to the south of Wilton Works, Wilton, Redcar and
Cleveland, England (shown edged red on plan 4 in the agreed form);
5. Part of Teesport Works, Redcar and Cleveland, England (shown on
plan OM5 in the agreed form);
6. Part of North Tees Works, Stockton on Tees, England (shown on plan
OM6 in the agreed form);
7. Jetty A, North Tees Works, Stockton on Tees, England;
8. Compound 38, Saltholme (shown on plan OM7 in the agreed form);
9. Ethylene Pipeline Garage, Wilton, Redcar and Cleveland, England;
10. No. 2 Process Office, Wilton, Redcar and Cleveland, England;
11. Wilton Centre, Wilton, Redcar and Cleveland, England.
[Note: the last 3 are short leasehold offices to be assigned. Plans are
not needed.]
References in this Schedule to agreed form plans are to agreed form plans
for the purposes of the Contribution Agreement.
<PAGE>
39
SIGNED )
for and on behalf of )
BP CHEMICALS LIMITED )
by LAURENCE MALLETT as its ) L. Mallett
duly authorised attorney )
SIGNED )
for and on behalf of )
HUNTSMAN ICI CHEMICALS LLC )
by MARTIN MICHIELS as its ) Martin Michiels
duly authorised attorney )
<PAGE>
HUNTSMAN ICI CHEMICALS LLC
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Predecessor Huntsman Specialty
------------------------------ --------------------------------------------------
Year Ended Ten Months Ten Months Year Nine Months Six Months
December 31, Ended Ended Ended Ended Ended
---------------- February 28, December 31, December 31, September 30, June 30,
1994 1995 1996 1997 1997 1998 1998 1999
---- ---- ---- ------------ ------------ ------------ ------------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense
(includes
amortization of
deferred
financing
costs)......... $-- $-- $-- $-- $35 $40 $31 $18
Interest portion
of rent
expense........ -- 5 11 -- -- -- --
--- --- --- --- --- --- --- ---
Total Fixed
Charges......... $ 0 $ 5 $11 $ 0 $35 $40 $31 $18
=== === === === === === === ===
Earnings:
Income from
operations
operation
before taxes... $(9) $(2) $19 $(6) $ 5 $15 $ 3 $35
Fixed Charges: 0 5 11 0 35 40 31 18
Less:
Minority
interest in
pre-tax income
of
subsidiaries... -- -- -- -- -- -- -- --
--- --- --- --- --- --- --- ---
Total Earnings... $(9) $ 3 $30 $(6) $40 $55 $34 $53
=== === === === === === === ===
Ratio of
Earnings to
Fixed Charges.. -- 0.6x 2.7x -- 1.1x 1.4x 1.1x 2.9x
Deficiency of
Earnings to
Fixed Charges.. -- $ 2 $ 6
<CAPTION>
Huntsman ICI Chemicals
----------------------------------------
Pro Forma Pro Forma
Three Months Year Nine Months
Ended Ended Ended
September 30, December 31, September 30,
1999 1998 1999
------------- ------------ -------------
(dollars in millions)
<S> <C> <C> <C>
Fixed Charges:
Interest Expense
(includes
amortization of
deferred
financing
costs)......... $ 53 $229 $225
Interest portion
of rent
expense........ 2 2 2
------------- ------------ -------------
Total Fixed
Charges......... $ 55 $231 $227
============= ============ =============
Earnings:
Income from
operations
operation
before taxes... $ 62 $ 19 $115
Fixed Charges: 55 231 227
Less:
Minority
interest in
pre-tax income
of
subsidiaries... 1 2 1
------------- ------------ -------------
Total Earnings... $118 $252 $343
============= ============ =============
Ratio of
Earnings to
Fixed Charges.. 2.1x 1.1x 1.5x
Deficiency of
Earnings to
Fixed Charges..
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
No. 333-85141 of Huntsman ICI Chemicals LLC of our report dated February 26,
1999 (July 1, 1999 as to Note 14), appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Deloitte & Touche LLP
Houston, Texas
November 30, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement No.
333-85141 of Huntsman ICI Chemicals LLC on Form S-4 of our report dated August
12, 1999, appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Salt Lake City, Utah
November 30, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 14, 1997 included herein and to all references to our
Firm included in this Registration Statement.
Arthur Andersen LLP
Houston, Texas
November 30, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF KPMG AUDIT PLC
The Board of Managers
Huntsman ICI Holdings LLC
We consent to the inclusion in this Registration Statement on Form S-4 of
Huntsman ICI Chemicals LLC of our report dated June 2, 1999 with respect to the
combined balance sheets of the Businesses, as defined, as of December 31, 1998
and 1997 and the related profit and loss accounts, cash flow statements and
statements of total recognized gains and losses for each of the years in the
three year period ended December 31, 1998, which report appears herein, and to
the reference to our firm under the heading "Experts" in the Registration
Statement.
KPMG Audit PLC
London
England
November 30, 1999
<PAGE>
Exhibit 23.8
CONSENT OF EXPERT
We consent to the use of our firm's name, and the references to our
reports, in the Registration Statement on Form S-4 of Huntsman ICI Chemicals
LLC, and any amendments thereto, filed with the Securities and Exchange
Commission for the registration of the 10.125% Senior Subordinated Notes due
2009.
Dated: November 26, 1999
/s/ M.J. Kratochwill
---------------------------------------
Chem Systems
<PAGE>
Exhibit 23.9
CONSENT OF EXPERT
We consent to the use of our firm's name, and the references to our
reports, in the Registration Statement on Form S-4 of Huntsman ICI Chemicals
LLC, and any amendments thereto, filed with the Securities and Exchange
Commission for the registration of the 10.125% Senior Subordinated Notes due
2009.
Dated: November 22, 1999
/s/ IBMA, Inc.
________________________
James R. Fisher
CEO & President
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<CIK> 0001089748
<NAME> HUNTSMAN ICI CHEMICALS LLC
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1998 JUN-30-1999 SEP-30-1999
<CASH> 0 0 67,400
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 597,500
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 377,600
<CURRENT-ASSETS> 0 0 1,128,900
<PP&E> 0 0 2,795,500
<DEPRECIATION> 0 0 88,300
<TOTAL-ASSETS> 0 0 4,614,200
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0 0 0
0 0 0
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<TOTAL-LIABILITY-AND-EQUITY> 0 0 0
<SALES> 224,600 163,000 793,600
<TOTAL-REVENUES> 250,200 192,000 961,200
<CGS> 210,300 134,100 763,000
<TOTAL-COSTS> 216,400 139,400 847,300
<OTHER-EXPENSES> (800) (300) (1,300)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 31,200 18,300 53,200
<INCOME-PRETAX> 3,400 34,600 62,000
<INCOME-TAX> 1,300 13,100 7,900
<INCOME-CONTINUING> 2,100 21,400 53,200
<DISCONTINUED> 0 0 0
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