<PAGE>
As filed with the Securities and Exchange Commission on December 1, 1999
Registration No. 333-88057
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Huntsman ICI Holdings 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 the
Registrant's Principal Executive Offices)
---------------
Robert B. Lence, Esq.
Secretary
Huntsman ICI Holdings 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
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Holdings LLC
Exchange Offer for
$945,048,000 13.375% Senior Discount 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 96 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 12 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............................................................. 12
The Exchange Offer....................................................... 21
The Transaction.......................................................... 30
Use of Proceeds.......................................................... 34
Capitalization........................................................... 34
Unaudited Pro Forma Financial Data....................................... 35
Selected Historical Financial Data....................................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 40
Business................................................................. 58
Management............................................................... 82
Certain Relationships and Related Transactions........................... 87
Other Indebtedness....................................................... 92
Description of Notes..................................................... 96
Plan of Distribution..................................................... 136
Material U.S. Federal Income Tax Consequences............................ 137
Legal Matters............................................................ 138
Experts.................................................................. 138
General Listing Information.............................................. 139
Index to Financial Statements............................................ F-1
</TABLE>
- --------
Our principal executive offices 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............. $945,048,000 aggregate principal amount
at maturity of new 13.375% Senior
Discount Notes due 2009 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 Exchange
Offer--Terms of the Exchange Offer" for a
more complete description of the tender
and withdrawal provisions.
1
<PAGE>
Conditions to the Exchange Offer.... The exchange offer is subject to
customary conditions, some of which we
may waive.
U.S. Federal Income Tax
Consequences................... Your exchange of outstanding notes for
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
Exchange....................... Outstanding notes that are not tendered
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
Notes.......................... Based on interpretations of the staff of
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.
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.
2
<PAGE>
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 Holdings LLC.
Notes Offered.................. $945,048,000 aggregate principal amount
at maturity of 13.375% Senior Discount
Notes due 2009.
Maturity Date.................. December 31, 2009.
Original Issue Discount........ We initially sold each of the notes at an
original issue discount for U.S. federal
income tax purposes. This original issue
discount amount equals the excess of the
$1,000 principal amount at maturity over
the original issue price of $256.81 per
$1,000 principal amount at maturity. You
must include accrued original issue
discount in your gross income for U.S.
federal income tax purposes prior to
conversion, redemption, sale or maturity
of the notes. This will be true even if
the notes are ultimately not converted,
redeemed, sold or paid at maturity.
3
<PAGE>
Optional Redemption............ We may redeem the notes, in whole or in
part, at our option at any time on or
after July 1, 2001 at the redemption
prices listed in "Description of Notes--
Optional Redemption".
Sinking Fund................... None.
Ranking........................ The notes are general unsecured
obligations of our company and are:
. equal in right of payment to all of
our existing and future senior,
unsecured indebtedness,
. senior in right of payment to any of
our future subordinated indebtedness
and
. effectively subordinated 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).
As of September 30, 1999, the notes were
structurally subordinated to $2,506
million of indebtedness of our
subsidiaries, which includes $1,694
million of secured indebtedness of
Huntsman ICI Chemicals under its credit
facilities. We have guaranteed Huntsman
ICI Chemicals's obligations to make
payments under its senior secured credit
facilities and have pledged our
membership interests in Huntsman ICI
Chemicals to secure our obligations under
the guarantee. Therefore, this guarantee
is effectively senior in right of payment
to the notes to the extent of the value
of our membership interests in Huntsman
ICI Chemicals.
Change of Control.............. If we go through a change of control, we
must make an offer to repurchase the
notes at 101% of their accreted value
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
accreted value, plus accrued and unpaid
interest. See "Description of Notes--
Certain Covenants--Limitation on Asset
Sales".
4
<PAGE>
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".
Registration Covenant; Exchange
Offer.......................... We have agreed to consummate the exchange
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.
5
<PAGE>
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
issuance of the new notes pursuant to the
exchange offer. See "Use of Proceeds".
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%
6
<PAGE>
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 TiO2 businesses represented 37%, 9%, 28%
and 26% of pro forma revenues, respectively.
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
(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 directly 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
wholly-owned subsidiary, Huntsman ICI Chemicals 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 TiO2 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, our
direct parent company prior to the closing of the transaction:
. retained a 60% common equity interest in our company and
. received approximately $360 million in cash.
In exchange for transferring its business to us, ICI received:
. a 30% common equity interest in our company,
. approximately $2 billion in cash that was paid in a combination of U.S.
dollars and euros,
. the notes, and
. $604.6 million aggregate principal amount at maturity of our senior
subordinated discount notes with $265.3 million of accreted value at
issuance.
7
<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 us for
$90 million in cash.
<TABLE>
Sources <S> <C>
Uses
</TABLE>
(in millions)
<TABLE>
<S> <C>
Senior secured credit facilities... $1,683
Senior subordinated notes of
Huntsman ICI Chemicals............ 807
Cash equity(b)..................... 90
Cash advanced to Huntsman ICI
Holdings by ICI................... 508
------
Total sources..................... $3,088
======
</TABLE>
<TABLE>
<S> <C>
Cash to ICI................................... $2,021
Cash to BP Chemicals.......................... 117
Cash to Huntsman Specialty(a)................. 360
Issuance of senior and subordinated discount
notes........................................ 508
Cash distributions to members................. 10
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.
8
<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 Holdings 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. 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, 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 the combined financial position or
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 balance sheet and 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.
9
<PAGE>
<TABLE>
<CAPTION>
Predecessor Huntsman Specialty
------------------------- -----------------------------------------------
Six
Two Months Ten Months Nine Months
Year Ended Ended Ended Year Ended months Ended Ended
December 31, February 28, December 31, December 31, September 30 June 30,
------------ ------------ ------------ ------------ ------------ --------
1996 1997 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Sales--net:...... $405 $61 $348 $339 $250 $192
Cost of
sales(1)....... 377 65 300 277 210 134
---- --- ---- ---- ---- ----
Gross profit
(loss)......... 28 (4) 48 62 40 58
Operating
expenses....... 19 2 8 8 7 5
---- --- ---- ---- ---- ----
Operating income
(loss)......... 9 (6) 40 54 33 53
Interest
expense--net.... -- -- 35 40 31 18
Other income(1).. 10 -- -- 1 1 --
---- --- ---- ---- ---- ----
Income (loss)
before income
tax and minority
interest........ 19 (6) 5 15 3 35
Income tax
expense
(benefit)....... 7 (2) 2 6 1 13
Minority
Interest........ -- -- -- -- -- --
---- --- ---- ---- ---- ----
Income (loss)
from continuing
operations...... $ 12 $(4) $ 3 $ 9 $ 2 $ 22
==== === ==== ==== ==== ====
Other Data:
Depreciation and
amortization.... $ -- 1 $ 26 $ 31 $ 23 $ 16
EBITDA(1)(2)..... 49 1 66 86 57 69
Net cash provided
by (used in)
operating
activities...... 48 (5) 37 46 16 40
Net cash used in
investing
activities...... (1) (1) (510) (10) (10) (4)
Net cash provided
by (used in)
financing
activities...... (47) 6 483 (43) (16) (34)
Capital
expenditures.... 1 1 2 10 10 4
Ratio of earnings
to fixed
charges(3)...... 2.7x -- 1.1x 1.4x 1.1x 2.9x
Balance Sheet
Data
(at period end):
Working
capital(4)...... $ 39 $ 40 $ 28 $ 28
Total assets..... 292 594 578 578
Long-term
debt(5)......... -- 464 428 396
Total
liabilities(6).. 287 569 547 528
Stockholders' and
members'
equity.......... 5 25 31 50
<CAPTION>
Huntsman ICI Holdings
---------------------------------------
Pro Forma
Three Months Pro Forma Nine Months
Ended Year Ended Ended
September 30 December 31, September 30,
------------ ------------ -------------
1999 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Statement of
Operations Data:
Sales--net:...... $ 961 $3,671 $2,832
Cost of
sales(1)....... 763 3,077 2,261
------------ ------------ -------------
Gross profit
(loss)......... 198 594 571
Operating
expenses....... 84 353 288
------------ ------------ -------------
Operating income
(loss)......... 114 241 283
Interest
expense--net.... 70 295 225
Other income(1).. 1 9 1
------------ ------------ -------------
Income (loss)
before income
tax and minority
interest........ 45 (45) 59
Income tax
expense
(benefit)....... 8 5 18
Minority
Interest........ 1 2 1
------------ ------------ -------------
Income (loss)
from continuing
operations...... $ 36 $ (52) $ 40
============ ============ =============
Other Data:
Depreciation and
amortization.... $ 49 $ 174 $ 136
EBITDA(1)(2)..... 164 424 420
Net cash provided
by (used in)
operating
activities...... 135
Net cash used in
investing
activities...... (2,461)
Net cash provided
by (used in)
financing
activities...... 2,380
Capital
expenditures.... 60
Ratio of earnings
to fixed
charges(3)...... 1.6x -- 1.3x
Balance Sheet
Data
(at period end):
Working
capital(4)...... $ 445
Total assets..... 4,573
Long-term
debt(5)......... 2,991
Total
liabilities(6).. 3,991
Stockholders' and
members'
equity.......... 582
</TABLE>
(See footnotes on next page)
10
<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. On a pro forma basis,
for the year ended December 31, 1998 earnings were insufficient to cover
fixed charges by $43 million.
(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.
11
<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.
Because the notes are structurally subordinated to our secured indebtedness and
the existing and future obligations of our subsidiaries, we may not have
sufficient funds to pay amounts due on the notes if we default on our senior
indebtedness or our subsidiaries dissolve or become insolvent.
The notes are effectively subordinated to any of our existing and future
secured indebtedness. We have pledged our equity interests in Huntsman ICI
Chemicals to secure our guarantee of Huntsman ICI Chemicals's indebtedness
under its senior secured credit facilities. The senior debt of Huntsman ICI
Chemicals under the credit facilities is secured by liens on substantially all
of its U.S. assets and the stock of certain of its subsidiaries. Accordingly,
if an event of default occurs under the credit facilities, the lenders under
the credit facilities will have the right to foreclose upon Huntsman ICI
Chemicals's assets. In that case, our subsidiaries' assets would first be used
to repay in full amounts outstanding under the credit facilities and may not be
available to repay the notes. See "Other Indebtedness--Description of Credit
Facilities".
We are a holding company with no material assets other than our ownership
interests in our subsidiaries, and the notes are exclusive obligations of our
company, not guaranteed by our subsidiaries. Accordingly, the notes are
effectively subordinated to all existing and future liabilities of our
subsidiaries. The effect of this subordination is that if our subsidiaries were
to undergo a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding, the assets of our subsidiaries would be available to pay our
obligations on the notes only after our subsidiaries' liabilities are satisfied
and we receive our distributions as a holder of equity interests in the
subsidiaries, and we cannot guarantee that we will receive sufficient
distributions to pay amounts due on all or any of the notes. At September 30,
1999, after giving pro forma effect to our transactions with Huntsman Specialty
and ICI and with BP Chemicals and the financing thereof, the total liabilities
of our subsidiaries were approximately $3,507 million.
12
<PAGE>
If our subsidiaries do not make sufficient distributions to us, then we will
not be able to make payment on our debt, including the notes.
We are a holding company with no business operations, sources of income or
assets of our own other than our ownership interests in our subsidiaries. The
notes are the exclusive obligations of our company and not of any of our
subsidiaries. Because all 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 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. Huntsman ICI Chemicals's 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 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 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.
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 $2,990 million (including the current
portion of long-term debt) and a debt to total capitalization ratio of 84%. 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 indenture
governing the notes, Huntsman ICI Chemicals's senior secured credit facilities
and Huntsman ICI Chemicals's senior subordinated notes 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 Huntsman ICI
Chemicals's senior secured credit facilities and Huntsman ICI Chemicals's
senior subordinated notes 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;
13
<PAGE>
. 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.
Huntsman ICI Chemicals is required to make scheduled principal payments
under its senior subordinated notes commencing January 1, 2000 and its senior
secured credit facilities commencing on June 30, 2000. In addition, Huntsman
ICI Chemicals's senior subordinated notes mature prior to the maturity of the
notes. 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 senior
credit facilities and the indentures governing the notes and Huntsman ICI
Chemicals's senior subordinated 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 unpaid interest, the
lenders under the senior 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 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.
If we are not able 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 the assets of our subsidiaries. As
you evaluate our prospects, you should
14
<PAGE>
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.
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.
15
<PAGE>
The industries in which we compete are highly competitive and we may not be
able to compete effectively with 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 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 our 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 our 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 and their affiliates. A breach by
16
<PAGE>
Huntsman Corporation or its affiliates or ICI 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 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 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
17
<PAGE>
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 additional information on recent developments concerning MTBE, see
"Business --Propylene Oxide--Recent Developments".
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, 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
18
<PAGE>
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 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:
. the likelihood that an active market for the notes will develop,
. the liquidity of any such market,
. the ability of holders to sell their notes, or
. 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.
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The notes 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 and our subsidiaries have incurred substantial debt,
including debt under senior secured credit facilities and certain notes of our
wholly-owned subsidiary, Huntsman ICI Chemicals. Our issuance of the notes to
ICI may have been subject to various fraudulent conveyance laws enacted for the
protection of creditors. To the extent that a court were to find that:
(1) the notes were issued with actual intent to hinder, delay or defraud
any present or future creditor, or
(2) we did not receive fair consideration or reasonably equivalent value
for issuing the notes,
and that
(A) we were insolvent,
(B) we were rendered insolvent by reason of the issuance of the notes,
(C) we were engaged or about to engage in a business or transaction for
which our remaining assets constituted unreasonably small capital to
carry on our business or
(D) we intended to incur, or believed that we would incur, debts beyond
our ability to pay those debts as they matured,
then the court could avoid the notes or subordinate the notes in favor of our
creditors. Furthermore, to the extent that the notes were avoided as a
fraudulent conveyance or held unenforceable for any other reason:
. claims of holders of the notes against us would be adversely affected,
. the notes would be effectively subordinated to all obligations of our
creditors, and
. the other creditors would be entitled to be paid in full before any
payment could be made on the notes.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
When we participated in ICI's resale of the outstanding notes on August 2,
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 that 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 February 28,
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 that 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 principal
amount at maturity of $1,000 or 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"), 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 and received
by the exchange agent and forming a part of a book-entry transfer (a "book-
entry confirmation"), that states that DTC 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 that 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 at maturity
equal to that of the surrendered outstanding note. The exchange notes will bear
interest at the same rate and on the same terms as the outstanding notes.
Accreted value on the exchange notes will accrue from June 30, 1999. Holders
whose notes are accepted for exchange will not receive accreted value thereon,
but because the accreted value of the exchange notes is calculated from June
30, 1999, there will be no forfeiture of accreted value by the holders of the
notes whose notes are accepted for exchange in 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;
(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 at maturity 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, such non-exchanged
notes will be credited to an account maintained with DTC. We will return the
notes or have them credited to DTC 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 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
systems must make book-entry delivery of outstanding notes by causing DTC to
transfer those outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Such participant should transmit
its acceptance to DTC on or
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prior to the expiration date or comply with the guaranteed delivery procedures
described below. DTC will verify such acceptance, execute a book-entry transfer
of the tendered outstanding notes into the exchange agent's account at DTC 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 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. 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
shall 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.
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 at maturity of such outstanding notes; and
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<PAGE>
(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 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
that have been tendered for exchange but that 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, the notes withdrawn will be credited to an account maintained with DTC for
the outstanding notes. The notes will be returned or credited to DTC account 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 that, 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 that 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 that is an "affiliate" of our company within the
meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery 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;
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(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 hand delivery or overnight
courier:
By mail:
Bank One Trust Company, NA Bank One Trust Company, NA
Corporate Trust Operations, OH1- Corporate Trust Operations
0184 P.O. Box 710184
235 West Schrock Road Westerville, OH 43271-0184
Westerville, OH 43081 Attention: Special Processing--
Confidential
Attention: Special Processing--
Confidential
By Facsimile: (for eligible institutions only)
614-248-9987
Confirm by Telephone:
1-800-346-5153
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.
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 ICI Financial PLC, a subsidiary of ICI, and are
estimated in the aggregate to be approximately $ .
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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 July 27,
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
that 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 that is an "affiliate" of our company
within the meaning of Rule 405 under the Securities Act. Such notes may be
offered for resale, 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.
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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 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.
29
<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:
[CHART OF COMPANY STRUCTURE]
Transaction Consideration
Initial Transaction Consideration
In exchange for transferring its business to us, Huntsman Specialty:
.retained a 60% common equity interest in us and
.received approximately $360 million in cash.
In exchange for transferring its businesses to us, ICI received:
.a 30% common equity interest in us,
.approximately $2 billion in cash that was paid in a combination of U.S.
dollars and euros,
30
<PAGE>
. the notes, and
. senior subordinated discount notes issued by us with $265.3 million of
accreted value at issuance.
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
Senior subordinated notes of Cash to BP Chemicals............. 117
Huntsman ICI Chemicals.......... 807 Cash to Huntsman Specialty(a).... 360
Cash equity(b)................... 90 Issuance of senior and
Cash advanced to Huntsman ICI subordinated discount notes..... 508
Holdings by ICI................. 508 Cash distributions to members.... 10
Transaction fees and expenses.... 72
--------- ---------
Total sources.................. $ 3,088 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) Huntsman ICI Chemicals with borrowed funds under a senior secured
credit agreement, which provides an aggregate of $2.07 billion of
senior secured credit facilities. Huntsman ICI Chemicals's
obligations under the credit facilities are supported by guarantees
of our company, our domestic subsidiaries and of Tioxide Group and
Tioxide Americas Inc. Payments of the notes will be effectively
subordinated in right of payment to our guarantee of the senior
secured credit facilities of Huntsman ICI to the extent of the value
of our assets securing the senior credit facilities. See "Other
Indebtedness--Description of Credit Facilities" for a more detailed
description of the senior secured credit facilities.
Huntsman ICI Chemicals received approximately $807 million in proceeds from
its offering of $600,000,000 and (Euro)200,000,000 10 1/8% Senior Subordinated
Notes, which proceeds were applied towards the purchase price of the Huntsman
Specialty and ICI businesses. Huntsman ICI Chemicals will pay interest on its
senior subordinated notes semi-annually at a rate of 10 1/8% per annum, and
must redeem the notes when they mature on July 1, 2009. These notes are
guaranteed by Huntsman ICI Financial LLC, Tioxide Group and Tioxide Americas
Inc. See "Other Indebtedness- Description of Huntsman ICI Chemicals LLC Senior
Subordinated Notes" for a more detailed description of these notes.
Approximately $508 million of the purchase price was paid in the form of
the notes and the senior subordinated notes issued by us to ICI. Neither the
notes nor the senior subordinated discount notes require cash interest
payments. Our senior 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. In addition, ICI has agreed not
to sell the senior subordinated discount notes without our consent prior to the
reset of the interest rate thereon. Both the notes and our senior subordinated
discount notes mature on December 31, 2009. With our consent, on August 2,
1999, ICI resold the notes in a private transaction under Rule 144A and
Regulation S of the Securities Act.
31
<PAGE>
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 us 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 us 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 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
32
<PAGE>
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 our limited liability company agreement, Huntsman
Specialty has the option to purchase, and ICI has the right to require Huntsman
Specialty to purchase, ICI's 30% interest in our company between June 30, 2002
and June 30, 2003 subject to extension under specific circumstances agreed upon
in the limited liability company agreement for our company. 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 our company 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 our company 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 us
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 us following the occurrence of a change of control of our
company 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 us to register such
interests for resale under the Securities Act.
33
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes
pursuant to the exchange offer. We issued the outstanding notes to ICI to fund
a portion of our transaction with ICI and Huntsman Specialty. See "The
Transaction".
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 Holdings and the related notes
included elsewhere in this prospectus. Except as set forth in the table 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
Senior subordinated notes of Huntsman ICI Chemicals............. 812
The notes....................................................... 233
Senior subordinated discount notes of Huntsman ICI Holdings..... 251(a)
Other long-term debt............................................ 17
------
Total long-term debt.............................................. 2,990
Equity(b)......................................................... 582
------
Total capitalization.............................................. $3,572
======
</TABLE>
- --------
(a) Our senior subordinated discount notes are recorded at a discount
reflecting a market interest rate of 14%.
(b) At September 30, 1999, our total authorized ownership interests consisted
of 1,000 units.
34
<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. 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 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.
35
<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 Pro Forma Huntsman
(U.K. GAAP) Adjustments(a) (U.S. GAAP)(a) Specialty Adjustments ICI Holdings Adjustments ICI Holdings
------------- -------------- -------------- --------- ----------- ------------ ------------ ------------
(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 4 (c) 3,077
------------- ----------- ------ ---- ---- ------ ------ ------
Gross profit..... 324 (12) 517 62 19 598 (4) 594
Operating
expenses........ 211 (3) 345 8 353 353
------------- ----------- ------ ---- ---- ------ ------ ------
Operating
income.......... 113 (9) 172 54 19 245 (4) 241
Interest
expense--net.... 71 (12) 97 40 137 158 (d) 295
Other income..... 5 -- 8 1 9 9
------------- ----------- ------ ---- ---- ------ ------ ------
Income before
income tax and
minority
interest........ 47 (Pounds) 3 83 15 19 117 (162) (45)
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 $ (159) $ (52)
============= =========== ====== ==== ==== ====== ====== ======
Other Data:
Depreciation and
amortization... (Pounds)76 $ 139 $ 31 $ 170 $ 174
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
Three Months
Ended
September
Six Months Ended June 30, 1999 30, 1999
------------------------------------------------------------------ ------------
ICI Businesses
-------------------------------------------- Pro Forma
U.S. GAAP Huntsman Pro Forma Huntsman Huntsman
(U.K. GAAP) Adjustments(a) (U.S. GAAP)(a) Specialty Adjustments ICI Holdings ICI Holdings
------------- -------------- -------------- --------- ----------- ------------ ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales--net....... (Pounds)1,045 $1,679 $192 $ $ 961 $2,832
Cost of sales.... 840 (Pounds) 5 1,358 134 6 (c) 763 2,261
------------- ----------- ------ ---- ---- ------ ------
Gross profit..... 205 (5) 321 58 (6) 198 571
Operating
expenses........ 125 3 206 5 (7)(f) 84 288
------------- ----------- ------ ---- ---- ------ ------
Operating
income.......... 80 (8) 115 53 1 114 283
Interest
expense--net.... 32 (12) 32 18 105 (d) 70 225
Other income..... -- -- -- -- -- 1 1
------------- ----------- ------ ---- ---- ------ ------
Income (loss)
before income
tax............. 48 4 83 35 (104) 45 59
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 $(67) $ 36 $ 40
============= =========== ====== ==== ==== ====== ======
Other Data:
Depreciation and
amortization... (Pounds) 40 $ 72 $ 16 $ 49 $ 136
</TABLE>
(See footnotes on next page)
36
<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 TiO2 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 incremental difference in 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 intellectual property, and non-compete agreements, are amortized
over 5 to 15 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 on stepped up
assets................................... 132 66
Pro forma amortization of intellectual
property................................. 6 3
Pro forma amortization of non-compete
agreement................................ 5 2
Reclassification of asset write off
provision (see note (f))................. 7
----- ----
$ 4 $ 6
===== ====
(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 senior subordinated notes
(10.125%) of Huntsman ICI Chemicals...... 82 41
Interest on the notes (13.375%)........... 34 20
Interest on the senior subordinated
discount notes (14.000%) of Huntsman ICI
Holdings................................. 32 20
Amortization of deferred loan fees........ 9 5
Interest expense for debt of Huntsman
Specialty that is not included in our
transaction with ICI and Huntsman
Specialty................................ (40) (18)
Interest on ICI debt repaid............... (97) (32)
----- ----
$158 $105
===== ====
</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 the reclassification of $7 million of costs relating to an asset
write down of ICI Businesses to cost of sales from selling general and
administrative and other operating expenses.
37
<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 Holdings 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>
Predecessor(1) Huntsman Specialty(1) Huntsman ICI Holdings
-------------------------------- ------------------------------------------------ -------------------------
Six
Nine Months Months Three
Year Ended Two Ten Year Ended Ended Months Ended
December 31, Months Ended Months Ended Ended September 30, June 30, September 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> <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 7 5 84
---- ---- ---- --- ---- ---- ---- ---- -------
Operating income
(loss)......... (21) (13) 9 (6) 40 54 33 53 114
Interest
expense--net... -- -- -- -- 35 40 30 18 70
Other income.... 12 11 10 -- -- 1 -- -- 1
---- ---- ---- --- ---- ---- ---- ---- -------
Income (loss)
before income
tax............ (9) (2) 19 (6) 5 15 3 35 45
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 $ 36
==== ==== ==== === ==== ==== ==== ==== =======
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 41 135
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) (35) 2,380
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 1.6X
Balance Sheet
Data (at period
end):
Working
capital(5)..... $ 45 $ 44 $ 39 $ 40 $ 28 $ 28 $ 445
Total assets.... 199 243 292 594 578 578 4,573
Long-term
debt(6)........ -- -- -- 464 428 396 2,291
Total
liabilities(7).. 205 250 287 569 547 528 3,991
Stockholders'
and members'
equity......... (6) (7) 5 25 31 50 582
</TABLE>
(See footnotes on next page)
38
<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, $72 million and $74 million at December
31, 1997 and 1998 and June 30, 1999, respectively.
39
<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 pro forma revenues derived through our four principal businesses are
as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30
------------ -------------
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
------ ------ ------
$3,671 $2,786 $2,832
====== ====== ======
</TABLE>
Our four 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.
40
<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 Holdings Financial Data
The financial information for the nine-months ended September 30, 1998 and
1999 discussed below are presented on 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 Six Months Three Months Nine Months
Ended Ended Ended Ended
September 30, June 30, September 30, September 30,
1998 1999 1999 1998 1999
------------- ---------- ------------- ------ ------
<S> <C> <C> <C> <C> <C>
Sales - net ............. $250 $192 $961 $2,786 $2,832
Cost of sales ........... 210 134 763 2,348 2,261
---- ---- ---- ------ ------
Gross profit ............ 40 58 198 438 571
Selling, general and
administrative
expenses ............... 6 5 84 263 288
---- ---- ---- ------ ------
Income from operations .. 34 53 114 175 283
Interest expense, net ... 31 18 68 221 225
Other income (expense)... -- -- (1) 3 1
---- ---- ---- ------ ------
Income (loss) before
income tax ............. 3 35 45 (43) 59
Income tax expense
(benefit)............... 1 13 8 (7) 18
Minority interest ....... -- -- 1 (1) 1
---- ---- ---- ------ ------
Net income (loss)........ $ 2 $ 22 $ 36 $ (35) $ 40
==== ==== ==== ====== ======
</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. 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
41
<PAGE>
in the Wilton olefins facility that 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. We have
historically engaged in feedstock procurement activities which includes the
buying and selling of naphtha and other feedstocks with the primary objective
of ensuring a reliable and cost competitive raw material supply. TiO\\2\\ sales
increased $28 million due largely to higher volumes, primarily in Asia.
Gross profit. Gross profit increased $133 million to $571 million for the
nine months ended September 30, 1999 from $438 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 lower fixed
costs, resulting from on-going cost reduction initiatives.
Selling, general and administrative expenses (including research and
development expenses). SG&A expenses 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 $225
million for the nine months ended September 30, 1999 from $221 million for the
same period in 1998. Higher interest expense was a result of higher interest
rates during 1999 as compared to 1998 and additional accretion of interest on
the senior discount notes and senior subordinated discount notes.
Income taxes. Income taxes increased $25 million to $18 million for the
nine months ended September 30, 1999 from a credit 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 $86 million to $51 million for the nine
months ended September 30, 1999 from a net loss of $35 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.
42
<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> <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 (loss) before income tax........... (19) (7) 15
Income tax expense (benefit).............. (8) (2) 6
------ ------ ----
Net income (loss)......................... $ (11) $ (5) $ 9
====== ====== ====
</TABLE>
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
43
<PAGE>
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.
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
44
<PAGE>
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
income(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
activities before
interest............... 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
minorities............. 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
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. 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.
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.
45
<PAGE>
Net interest payable. Net interest payable in the first half of 1999
increased 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 TiO2 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 TiO2 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 TiO2
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.
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 TiO2 carried
46
<PAGE>
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 TiO2 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%; TiO2 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 TiO2 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 TiO2 carried
forward trading losses. The 1996 effective rate is primarily caused by TiO2
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
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.
47
<PAGE>
Discussion of Polyurethane Chemicals, Petrochemicals and TiO2 Businesses
Financial Data
The financial data and discussion presented below for each of the
polyurethane chemicals, petrochemicals and TiO2 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 the 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.
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.
48
<PAGE>
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 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>
49
<PAGE>
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 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.
50
<PAGE>
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>
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.
51
<PAGE>
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 TiO2 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)11 million in 1996.
The exceptional charges for 1997 were comprised of (Pounds)17 million to settle
a supplier dispute, (Pounds)10 million in severance charges in connection with
our ongoing cost reduction initiative and (Pounds)4 million of other charges.
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 Chemicals did the following:
. We issued the outstanding notes to ICI. See "Description of Notes".
52
<PAGE>
. We issued approximately $604.6 million in aggregate principal amount of
senior subordinated discount notes to ICI at an issue price of $265.3
million. These notes mature on December 31, 2009 and initially accrete
interest at a rate of 8%. Following the occurrence of certain events,
the interest rate will be reset to a market rate. These notes are
general unsecured obligations and are subordinated in right of payment
to the prior payment of all of our current and future senior debt. See
"Other Indebtedness--Description of $604,557,000 Senior Subordinated
Discount Notes Due 2009".
. Huntsman ICI Chemicals entered into senior secured credit facilities
which provide for borrowings of up to $2,077 million, including $400
million under a revolving facility, all 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
"Other Indebtedness--Description of Credit Facilities".
. Huntsman ICI Chemicals issued $807 million of 10 1/8% Senior
Subordinated Notes denominated in U.S. dollars and euros due 2009.
These notes are general unsecured obligations and are subordinated in
right of payment to the prior payment of all of Huntsman ICI
Chemicals's current and future senior debt. See "Other Indebtedness--
Description of Huntsman ICI Chemicals LLC Senior Subordinated Notes".
. We received $90 million from institutional investors.
As of September 30, 1999, we had $400 million available under our revolving
credit facility and $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.
Huntsman ICI Chemicals's senior secured credit facilities currently
prohibit, and the indenture governing Huntsman ICI Chemicals's senior
subordinated 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 to make required payments of principal and interest on Huntsman ICI
Chemicals's debt when due, as well as fund capital expenditures and working
capital requirements. The notes do not pay interest or principal until maturity
on December 31, 2009. The indebtedness of Huntsman ICI Chemicals that restricts
payments to us will mature prior to the maturity of the notes. We anticipate
that Huntsman ICI Chemicals will make a distribution to us in order for us to
pay the principal amount of the notes at maturity.
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
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
53
<PAGE>
$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 TiO2 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.
54
<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.
55
<PAGE>
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 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 or workarounds) relevant parts of key components and embedded chips in
such IT and Non-IT systems. We then followed up with 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.
56
<PAGE>
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 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 the PO businesses), propylene oxide, 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 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%, 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 widely 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
capacities, 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 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:
[CHART]
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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]
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, our company, 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
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highest in Asia 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 production 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 with their suppliers of the
products' primary raw materials. Since 1996, we have invested
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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 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
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.
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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 of 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 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.
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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
Petrochemical Corporation, which has the capacity to produce approximately 120
million pounds of PG per year at a neighboring facility.
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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:
[CHART]
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. 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 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
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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.
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
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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 that
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 that
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 that 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 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
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<PAGE>
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
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
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<PAGE>
plastics, resins, adhesives, synthetic rubber and surfactants that 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.
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.
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<PAGE>
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
Market size
(billions W. Europe as Historic Growth,
of a % of Global W. Europe
Product pounds) Market (1992-1998) Markets Applications
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Polyethylene, Packaging materials,
ethylene oxide, plastics,
Ethylene 177 23% 3.3% polyvinyl chloride, housewares,
alpha olefins beverage containers,
personal care
- ---------------------------------------------------------------------------------------------------
Polypropylene, Clothing fibers,
propylene oxide, plastics,
Propylene 101 28% 4.5% acrylonitrile, automotive parts,
isopropanol foams for bedding
& furniture
- ---------------------------------------------------------------------------------------------------
Polyurethanes, Appliances,
polystyrene, automotive components,
Benzene 64 24% 4.2% cyclohexane, detergents,
cumene 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 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
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<PAGE>
pounds and consumption was estimated at 15.5 billion pounds in 1998. The five
largest Western European producers of benzene are Dow, Shell, our company,
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.
. Strong Customer Relationships--We have several strong customer
relationships in diverse markets that 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.
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<PAGE>
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 that
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.
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>
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<PAGE>
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 that 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.
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
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<PAGE>
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 that 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, our company 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.
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
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<PAGE>
attractive industry that 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 TiO2 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 TiO2 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 TiO2 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
TiO2 market.
Strategy
The strategy of our TiO2 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 TiO2 business will also be able to improve the
utilization of our assets by taking advantage of opportunities to
expand 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 TiO2 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 that 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.
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<PAGE>
Sales and Marketing
Approximately 95% of our TiO2 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 TiO2, 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 TiO2 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 TiO2 market over the next several years. The table
below summarizes the major end markets for our TiO2 products and our
representative customers:
<TABLE>
<CAPTION>
% of 1998
End Markets Sales Volume Major Customers
--------------------- ------------ ---------------------------------------
<S> <C> <C>
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>
Manufacturing and Operations
Our TiO2 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 TiO2
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 TiO2 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.
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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 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 that 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 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
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<PAGE>
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 TiO2 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 TiO2 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 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
that 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 that 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 TiO2 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
-------- -----------------------
<C> <S>
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............................... TiO2 Manufacturing Facility
Greatham, U.K.............................. TiO2 Manufacturing Facility
Calais, France............................. TiO2 Manufacturing Facility
Huelva, Spain.............................. TiO2 Manufacturing Facility
Scarlino, Italy............................ TiO2 Manufacturing Facility
Teluk Kalung, Malaysia..................... TiO2 Manufacturing Facility
Lake Charles, Louisiana(3)................. TiO2 Manufacturing Facility
Umbogintwini, South Africa(4).............. TiO2 Manufacturing Facility
Tracy, Canada.............................. TiO2 Finishing Plant
Billingham, U.K............................ TiO2 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 that 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 that 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 that 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 that 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 Huntsman Specialty
and ICI 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
---- --- --------
<C> <C> <S>
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
Charles Miller Smith..... 60 Manager
David John Gee........... 51 Manager
Patrick W. Thomas........ 41 President--Polyurethane Chemicals Division
Douglas A. L. Coombs..... 59 President--Tioxide Division
Executive Vice President and Chief Financial
J. Kimo Esplin........... 38 Officer
Thomas G. Fisher......... 51 Executive Vice President--Tioxide
Michael J. Kern.......... 50 Executive Vice President--Manufacturing
Executive Vice President, General Counsel and
Robert B. Lence.......... 42 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, Jr... 58 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 Holdings and Huntsman ICI Chemicals. 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
Holdings and Huntsman ICI Chemicals. 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 Holdings and Huntsman ICI Chemicals. 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.
Charles Miller Smith is a Manager. Mr. Miller Smith also serves as Chairman
of Imperial Chemical Industries PLC. He was appointed a Non-Executive Director
in 1993 and an Executive Director in 1994, succeeding Sir Ronald Hampel as
Chief Executive in 1995 and as Chairman with effect from April 22, 1999. He was
formerly a Director of Unilever PLC and is Deputy Chairman of Scottish Power
plc and a Non-Executive Director of HSBC Holdings PLC. He is also a member of
the Board of Overseers of the Lemberg Programme, Brandeis University.
David John Gee is a Manager. Mr. Gee also serves as Vice President Finance
of the ICI Group. He joined Imperial Chemical Industries PLC in 1974 in its
Pharmaceuticals Business (now Zeneca PLC) and has served in numerous roles
including Business Accountant for the Pigments & Chemicals Business of ICI
Organics Division, Chief Accountant of Nobels Explosives, General Manager
Finance of ICI Australia and Chief Financial Officer of ICI Chemicals &
Polymers Limited. Previously, he was Group Controller of Imperial Chemical
Industries PLC.
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.
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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.
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 that 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.
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Graham Thompson is Vice President and Controller. Mr. Thompson joined
Imperial Chemicals Industries PLC in 1978 in its Organics Division (now Zeneca
PLC) and served in a number of positions including Business Accountant for the
Fine Chemicals Manufacturing Organization and Controller of ICI Francolor in
Paris. In 1986, Mr. Thompson joined the polyurethanes business of ICI and until
1999 served as Business Controller.
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.
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 Huntsman
Specialty, the predecessor of our company and Huntsman ICI Chemicals. Because
they are executive officers for both our company and our operating subsidiary,
Huntsman ICI Chemicals, we expect that future compensation received by the
officers from these two companies will be primarily attributable to the
services rendered for Huntsman ICI Chemicals. 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
Name and Principal --------------------- Options All Other
Position Year Salary Bonus (Number of Shares) Compensation
------------------ ---- ------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Jon M. Huntsman,
Chairman of the Board
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........... 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>
Final Years of Benefit Service at Retirement
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
Each of the managers will be reimbursed by us for his out-of-pocket costs
and expense incurred in connection with his attendance at board of manager
meetings.
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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
affiliates 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 us.
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 that 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
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.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.
Petrochemicals Business
Naphtha Supply Agreement
We have 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
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shareholder in Phillips Imperial Petroleum Limited or until the refinery is
permanently shut down. We purchase these products on terms and conditions that
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.
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.
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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
(2) the supply of any existing service that 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.
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Tax Sharing Arrangement
Pursuant to our Limited Liability Company Agreement and the Limited
Liability Company Agreement of Huntsman ICI Chemicals, we have a tax sharing
arrangement with all of our and Huntsman ICI Chemicals's common equity holders.
Under this tax sharing arrangement, because Huntsman ICI Chemicals is treated
as a partnership for U.S. income tax purposes, Huntsman ICI Chemicals will make
quarterly payments (with appropriate annual adjustments) to us, and we will in
turn make payments to our common equity holders, in an amount equal to the U.S.
federal and state income taxes we and Huntsman ICI Chemicals would have paid
had we been a consolidated group for federal income tax purposes. The
arrangement also provides for Huntsman ICI Chemicals to receive cash payments
from the common equity holders (through us) in amounts up to the amount of U.S.
federal and state income tax refunds or benefit against future tax liabilities
equal to the amount that we would have received from the use of net operating
losses or tax credits generated by us had we been a consolidated group for U.S.
federal income tax purposes.
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OTHER INDEBTEDNESS
Description of Credit Facilities
In order to fund the closing of the transfer of ICI's and Huntsman
Specialty's businesses to us, Huntsman ICI Chemicals 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 made available to Huntsman ICI Chemicals as
subfacilities under the revolving loan facility. At the close of business on
June 30, 1999, Huntsman ICI Chemicals borrowed $1.67 billion under the Senior
Secured Credit Facilities. The revolving loan facility is available to Huntsman
ICI Chemicals for working capital and general corporate purposes.
The obligations of Huntsman ICI Chemicals under the Senior Secured Credit
Facilities are supported by guarantees of our company, 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. Huntsman
ICI Chemicals has secured its obligations under the Senior Secured Credit
Facilities with the pledge of substantially all of its assets, including the
stock of its domestic subsidiaries and of Tioxide Group. Huntsman ICI
Chemicals's obligations under the Senior Secured Credit Facilities are also
secured by the pledge by our company of its membership interests in Huntsman
ICI Chemicals, 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
the option of Huntsman ICI Chemicals, 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.
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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 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, consolidations and
mergers, the purchase and sale of assets, issuance of stock, loans and
investments, voluntary payments and modifications of indebtedness, and
affiliate transactions. In addition, the Senior Secured Credit Facilities have
a covenant restricting Huntsman ICI Chemicals's ability to pay dividends or
make other distributions on its equity interests; this covenant will prevent
Huntsman ICI Chemicals from distributing cash to us for the purpose of paying
principal, interest or premium on the notes. The financial covenants require
Huntsman ICI Chemicals to maintain financial ratios, including a leverage ratio
and an interest coverage ratio, and minimum consolidated net worth and require
Huntsman ICI Chemicals to limit the amount of its capital expenditures.
Description of Huntsman ICI Chemicals LLC Senior Subordinated Notes
In connection with the transaction with ICI and Huntsman Specialty on June
30, 1999, Huntsman ICI Chemicals issued $600,000,000 and (Euro)200,000,000 10
1/8% Senior Subordinated Notes pursuant to an Indenture between Huntsman ICI
Chemicals and Bank One, N.A., as trustee (the "Huntsman ICI Chemicals
Indenture"). Interest on the these notes is payable semi-annually at a rate of
10 1/8% per annum, and these notes will mature on July 1, 2009.
The senior subordinated notes are redeemable (1) on or after July 1, 2004
at 105.063% of the principal amount thereof, declining ratably to par on and
after July 1, 2007, and (2) prior to July 1, 2004 at 105.063% of the principal
amount thereof, discounted to the redemption date using the treasury rate (for
the dollar denominated notes) or the Bund rate (for the euro denominated notes)
plus 0.50%, plus in each case accrued and unpaid interest to the date of
redemption. In addition, at any time prior to July 1, 2002, Huntsman ICI
Chemicals has the right to redeem up to 35% of the original principal amount of
the these notes with the net proceeds of one or more offerings of capital stock
at 110.125% of the principal amount plus accrued but unpaid interest to the
date of redemption; provided that not less than 65% of the aggregate principal
amount of either the dollar or euro senior subordinated notes originally issued
must remain outstanding immediately after giving effect to such redemption
(other than such notes held by Huntsman ICI Chemicals or any of its
affiliates).
The senior subordinated notes are unconditionally guaranteed by Tioxide
Group, Tioxide Americas Inc. and Huntsman ICI Financial on a senior
subordinated basis. The guarantees of the senior subordinated notes are:
. general unsecured senior subordinated obligations of the guarantors,
. effectively subordinated in right of payment to all existing and future
senior debt of the guarantors,
. equal in right of payment to all existing and future senior subordinated
indebtedness of the guarantors, and
. senior in right of payment to any subordinated indebtedness of the
guarantors.
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The Huntsman ICI Chemicals Indenture contains change of control provisions
similar to those applicable to the notes requiring Huntsman ICI Chemicals to
offer to repurchase the senior subordinated notes upon a change of control.
Huntsman ICI Chemicals is required to offer to repurchase the senior
subordinated notes at 100% of their principal amount plus accrued and unpaid
interest to the date of redemption in the event that the net cash proceeds of
certain asset sales of Huntsman ICI Chemicals or its restricted subsidiaries
are not used within 365 days after the occurrence of such sales to permanently
reduce senior debt of Huntsman ICI Chemicals and/or to make an investment in or
acquire assets reasonably related to the business of Huntsman ICI Chemicals and
its restricted subsidiaries.
The Huntsman ICI Chemicals Indenture imposes certain limitations on the
ability of Huntsman ICI Chemicals and its restricted subsidiaries to, among
other things:
(1) incur additional indebtedness,
(2) pay dividends or make certain other restricted payments,
(3) restrict the ability of restricted subsidiaries to pay dividends or
make certain payments to Huntsman ICI Chemicals,
(4) consummate certain asset sales,
(5) enter into certain transactions with affiliates,
(6) incur indebtedness that is subordinate in right of payment to any
senior debt of Huntsman ICI Chemicals and senior in right or payment to
these senior subordinated notes,
(7) incur liens securing indebtedness that is pari passu with or
subordinated in right of payment to these notes,
(8) merge or consolidate with any other person, or
(9) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of Huntsman ICI Chemicals.
In particular, with respect to restricted payments, the Huntsman ICI
Chemicals Indenture provides that unless certain conditions are satisfied
Huntsman ICI Chemicals and its restricted subsidiaries may not be permitted to
pay any dividend or other distribution on any capital stock (other than
dividends or distributions payable solely in capital stock that is not
disqualified stock); make any payment to acquire or retire for value any
capital stock of Huntsman ICI Chemicals or any of its affiliates (other than
capital stock owned by Huntsman ICI Chemicals or any wholly-owned restricted
subsidiary); make any payment to acquire or retire for value any indebtedness
that is subordinated in right of payment to these senior subordinated notes
(other than certain permitted refinancings); or make certain investments.
Huntsman ICI Chemicals generally can make restricted payments, including
dividends and distributions to our company, only if:
(1) no default or event of default has occurred and is continuing under the
Huntsman ICI Chemicals Indenture,
(2) Huntsman ICI Chemicals could incur at least $1.00 of additional
indebtedness under the Huntsman ICI Chemicals Indenture and
(3) the aggregate amount of all restricted payments made by Huntsman ICI
Chemicals since June 30, 1999 does not exceed the sum of
. 50% of Huntsman ICI Chemicals's aggregate cumulative Consolidated
Net Income (as defined in the Huntsman ICI Chemicals Indenture) plus
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. the aggregate net proceeds received by Huntsman ICI Chemicals after
such date from certain issuances of capital stock.
Events of default under the Huntsman ICI Chemicals Indenture include, among
other things, payment defaults, covenant defaults, cross defaults to certain
other indebtedness, judgment defaults and certain events of bankruptcy and
insolvency.
Description of $604,557,000 Senior Subordinated Discount Notes Due 2009
In exchange for transferring its business to us, we issued to ICI Finance
senior subordinated discount notes with $265.3 million of accreted value at
issuance. The terms and conditions of our 8% Senior Subordinated Discount Notes
are substantially similar to the notes, except for the following:
. The senior subordinated discount notes rank junior to all of our
existing and future senior indebtedness, including the notes.
. The senior subordinated discount notes rank senior to all of our future
indebtedness that is expressly subordinated to the senior subordinated
discount notes.
. The senior subordinated discount notes mature on December 31, 2009 and
initially accrete in value at a rate of 8%.
. Upon the occurrence of a "reset event" (as defined below), the accretion
rate on the senior subordinated discount notes will be reset to a market
rate. The reset of the accretion rate on the senior subordinated
discount notes will be accomplished through the exchange of the senior
subordinated discount notes for notes with substantially similar terms,
except that the principal amount of the new notes will be adjusted, up
or down, to reflect the future value on December 31, 2009 of the
accreted value of the senior subordinated discount notes on the reset
date at the market rate ("Reset Notes"). A "reset event" will occur
upon:
-- the lapse of either ICI's put option or Huntsman Specialty's call
option with respect to ICI's membership interests in our company,
except that the accretion rate will not be reset due to the lapse of
such options before June 30, 2003, and
-- the completion, or failure to complete within a prescribed time, of a
transaction initiated by ICI's exercise of its put option or Huntsman
Specialty's exercise of its call option under our company's limited
liability company agreement. See "The Transaction--Description of Put
and Call Options".
. We may redeem the senior subordinated discount notes at any time prior
to the reset date, in whole or in part, at a redemption price equal to
100% of the accreted value as of the redemption date of the notes to be
redeemed.
. From the reset date until June 30, 2004, we cannot redeem the Reset
Notes.
. After June 30, 2004, we may redeem the Reset Notes, in whole or in
part, at the redemption prices, expressed as percentages of the accreted
value as of the redemption date, set forth below if redeemed during the
twelve-month period beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ------------------------------------
2004............ 100 + ( 1/2 x reset accretion rate)%
<S> <C>
2005............ 100 + ( 1/3 x reset accretion rate)%
2006............ 100 + ( 1/6 x reset accretion rate)%
2007 and
thereafter..... 100.000 %
</TABLE>
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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 Holdings" refers only to Huntsman ICI Holdings LLC and not to any
of its subsidiaries.
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 and amended
and restated as of August 2, 1999, among Huntsman ICI Holdings 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 exchange and registration rights agreement dated August 2,
1999. It does not restate those agreements in their entirety. We urge you to
read the indenture and the exchange and registration rights agreement because
they, and not this description, define your rights as holders of these notes. A
copy of the indenture and exchange 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
The Notes
The notes are:
. general unsecured obligations of Huntsman ICI Holdings;
. effectively subordinated in right of payment to all existing and future
secured Indebtedness of Huntsman ICI Holdings to the extent of the
value of the assets securing such Indebtedness and to all liabilities
(including trade payables) of Huntsman ICI Holdings's subsidiaries;
. equal in right of payment to all existing and future unsubordinated,
unsecured Indebtedness of Huntsman ICI Holdings; and
. senior in right of payment to any future subordinated Indebtedness of
Huntsman ICI Holdings.
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As of September 30, 1999, Huntsman ICI Holdings's subsidiaries had
approximately $2,506 million of Indebtedness outstanding.
As of the date of this prospectus, all the subsidiaries of Huntsman ICI
Holdings are "Restricted Subsidiaries". However, under the circumstances
described below under "Certain Covenants--Unrestricted Subsidiaries", we are
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries". Unrestricted Subsidiaries will not be subject to the restrictive
covenants in the indenture.
Principal, Maturity and Interest of the Notes
The notes are limited to $945,048,000 million aggregate principal amount at
maturity. Huntsman ICI Holdings issued the notes in denominations of $1,000 and
integral multiples of $1,000. The notes were (1) issued to ICI Finance PLC on
June 30, 1999 at a price of $256.81 per $1,000 principal amount at maturity and
(2) resold by ICI Finance to in a private transaction under Rule 144A and
Regulation S of the Securities Act at a price of $267.19 per $1,000 principal
amount at maturity. The notes mature on December 31, 2009.
The notes do not bear cash interest. The notes accrete at a rate of
13.375%, per annum, compounded semiannually, which means the value of the notes
will gradually increase in price at the stated rate from the issue price of
$256.81 per $1000 principal amount at Stated Maturity on June 30, 1999 to
$1,000 principal amount at Stated Maturity by December 31, 2009.
The notes were issued at a substantial discount from their principal amount
at maturity and there will not be any cash payment of interest on the notes.
For U.S. federal income tax purposes, the notes are treated as having been
issued with "original issue discount" equal to the difference between the issue
price of the notes and the principal amount of the notes. Each holder of a note
must include as gross income for U.S. federal income tax purposes a portion of
such original issue discount for each day during each taxable year in which a
note is held even though no cash interest payment will be received. The notes
also may carry market discount.
The following table sets forth the approximate Accreted Value, which value
reflects the accrued original issue discount calculated to each such date, per
$1,000 principal amount at maturity of notes at the dates specified:
<TABLE>
<CAPTION>
Accreted
Date Value
---- ---------
<S> <C>
June 30, 1999.................................. $ 256.81
July 1, 2000................................... $ 292.31
July 1, 2001................................... $ 332.71
July 1, 2002................................... $ 378.70
July 1, 2003................................... $ 431.05
July 1, 2004................................... $ 490.63
July 1, 2005................................... $ 558.44
July 1, 2006................................... $ 635.63
July 1, 2007................................... $ 723.49
July 1, 2008................................... $ 823.49
July 1, 2009................................... $ 937.32
December 31, 2009.............................. $1,000.00
</TABLE>
Optional Redemption
Huntsman ICI Holdings may not redeem the notes prior to July 1, 2001. From
July 1, 2001 through June 30, 2004, Huntsman ICI Holdings may redeem all or a
part of the notes upon not less than 30 nor more than 60 days' notice. The
redemption price per $1,000 principal amount at maturity will be equal to the
present value of $523.44, discounted from July 1, 2004. The present value of
the redemption price is computed using a discount rate equal to the Treasury
Rate plus 50 basis points.
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After July 1, 2004, Huntsman ICI Holdings 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 the Accreted Value as of the redemption
date) set forth below if redeemed during the twelve-month period beginning on
July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.......................................... 106.688%
2005.......................................... 104.458%
2006.......................................... 102.229%
2007 and thereafter........................... 100.000%
</TABLE>
Huntsman ICI Holdings 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 the notes will have the right
to require Huntsman ICI Holdings to repurchase all or any part (equal to $1,000
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 Holdings will
offer a Change of Control Payment in cash equal to 101% of the Accreted Value
of the notes repurchased. Within 30 days following any Change of Control,
Huntsman ICI Holdings will mail a notice to each holder describing the
transaction(s) 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 Holdings will also publish a notice of the offer to repurchase in
accordance with the procedures described under "--Notices". Huntsman ICI
Holdings 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 Holdings 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 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
Holdings.
The 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 Accreted Value to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof.
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 Holdings must either:
. repay all commitments under Indebtedness under the Credit Facilities,
if required under the terms of the Credit Facilities,
. offer to repay all commitments under all Indebtedness under the Credit
Facilities and repay each lender that has accepted the offer, or
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. obtain the requisite consents, if any, under the Credit Facilities to
permit the repurchase of the notes required by this covenant.
The provisions described above that require Huntsman ICI Holdings to make a
Change of Control Offer following a Change of Control will be 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 Holdings repurchase or redeem the notes in the event
of a takeover, recapitalization or similar transaction.
Huntsman ICI Holdings will not be 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 Holdings 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 Holdings 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 Holdings 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 Holdings 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:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) 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 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 Holdings 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 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 Holdings
will not create, incur, issue, assume, guarantee or otherwise become liable,
contingently or otherwise, with
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respect to (collectively, "incur") any Indebtedness (including Acquired Debt),
other than Permitted Debt that Huntsman ICI Holdings or its Restricted
Subsidiaries is permitted to incur in clauses (2), (3), (6), 7(b), (8), (9),
(13), (17), (18), (24) and (25) of the definition of Permitted Debt below,
unless Huntsman ICI Holdings's Consolidated Fixed Charge Coverage Ratio would
have been greater than 2.0 to 1.0, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of the most recently ended
fiscal quarter.
Huntsman ICI Holdings shall not permit Huntsman ICI Chemicals or any of its
Restricted Subsidiaries to incur any Indebtedness (including Acquired Debt),
other than Permitted Debt unless the Huntsman ICI Chemicals Consolidated Fixed
Charge Coverage Ratio would have been greater than 2.0 to 1.0, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred at the
beginning of the most recently ended fiscal quarter.
The first two paragraphs of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
Indebtedness under the Credit Facilities; provided that the aggregate
principal amount of all Indebtedness of Huntsman ICI Holdings's
Restricted Subsidiaries outstanding under all Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to
$2.4 billion less the amount of any repayments made under the Credit
Facilities with the Net Proceeds of any Asset Sale (which are
accompanied by a corresponding permanent commitment reduction)
pursuant to the provision described under "--Limitation on Asset
Sales", but in no event shall such permitted amount be less than $1
billion;
(2) the incurrence by Huntsman ICI Holdings and its Restricted
Subsidiaries of Existing Indebtedness (other than the Credit
Facilities);
(3) the incurrence on June 30, 1999 by Huntsman ICI Holdings of
Indebtedness represented by the notes and the Subordinated Notes;
(4) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, not to exceed
$35 million at any time outstanding;
(5) mortgage financing or purchase money obligations, in each case,
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of any assets for use in
the business of any of Huntsman ICI Holdings's Restricted
Subsidiaries, in an aggregate principal amount not to exceed $35
million at any time outstanding;
(6) the incurrence by Huntsman ICI Holdings or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace, in
whole or in part, Indebtedness (other than intercompany Indebtedness)
that was permitted by the indenture to be incurred under either of the
provisions described in the preceding two paragraphs or clauses (2) or
(3) of this paragraph;
(7)(A) the incurrence by a Restricted Subsidiary of Huntsman ICI Holdings
of Indebtedness to Huntsman ICI Holdings or to a Restricted
Subsidiary of Huntsman ICI Holdings for so long as such
Indebtedness is held by Huntsman ICI Holdings or a Restricted
Subsidiary of Huntsman ICI Holdings, in each case subject to no
Lien held by a person other than Huntsman ICI Holdings or a
Restricted Subsidiary of Huntsman ICI Holdings (other than the
pledge of intercompany notes under the Credit Facilities);
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(B) the incurrence by Huntsman ICI Holdings of Indebtedness 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);
(8) the incurrence by Huntsman ICI Holdings or any of its Restricted
Subsidiaries of Hedging Obligations; provided that no Hedging Obligations
that are incurred for the purpose providing protection against
fluctuations in interest rates shall constitute "Permitted Debt" unless
they relate to Indebtedness that is permitted by the terms of the
indenture to be outstanding;
(9) guarantees by Huntsman ICI Holdings or a subsidiary of Indebtedness of
Huntsman ICI Holdings or a subsidiary that is permitted by the terms of
the indenture;
(10) 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;
(11) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
Indebtedness represented by letters of credit or bonds for the
account of such Restricted Subsidiary in order to provide security
for workers' compensation claims, payment obligations in connection
with self-insurance or similar requirements in the ordinary course of
business;
(12) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
Indebtedness under the Overdraft Facility incurred in the ordinary
course of business, not to exceed $80 million in the aggregate at any
time outstanding;
(13) the incurrence by Huntsman ICI Holdings or any of its subsidiaries of
Indebtedness arising from agreements of Huntsman ICI Holdings 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 the acquisition; provided that the maximum aggregate
liability in respect of all the Indebtedness will at no time exceed
the gross proceeds actually received by Huntsman ICI Holdings and the
subsidiary in connection with the disposition;
(14) Indebtedness of Foreign Subsidiaries that are Restricted Subsidiaries
to the extent that the aggregate outstanding amount of Indebtedness
incurred by such Foreign Subsidiaries under the provision described
in this clause (14) 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;
(15) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
subordinated Indebtedness to BASF Corporation or one or more of its
Affiliates pursuant to Section 10 of the BASF Agreement in an
aggregate amount not to exceed $50 million;
(16) the incurrence by Huntsman ICI Holdings's Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, not to exceed $50 million;
(17) the accretion or amortization of original issue discount and the
write up of Indebtedness in accordance with purchase accounting;
(18) the incurrence by Huntsman ICI Holdings of additional Indebtedness,
if any, upon the issuance of the Reset Notes;
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(19) Obligations in respect of performance bonds and completion,
guarantee, surety and similar bonds provided by Huntsman ICI
Holdings's Restricted Subsidiaries in the ordinary course of
business;
(20) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to Huntsman
ICI Holdings or any subsidiary of Huntsman ICI Holdings (except for
Standard Securitization Undertakings);
(21) Indebtedness of Huntsman ICI Holdings's Restricted Subsidiaries to a
Huntsman Affiliate or an ICI Affiliate constituting Subordinated
Indebtedness;
(22) Indebtedness of consisting of take-or-pay obligations contained in
supply agreements entered into in the ordinary course of business;
(23) Indebtedness of Huntsman ICI Holdings's Restricted Subsidiaries to
any of Huntsman ICI Holdings's Restricted Subsidiaries incurred in
connection with the purchase of accounts receivable and related
assets by such Restricted Subsidiaries from any such subsidiary which
assets are subsequently conveyed by Huntsman ICI Holdings to a
Securitization Entity in a Qualified Securitization Transaction;
(24) the incurrence by Huntsman ICI Holdings of additional Indebtedness,
if any, pursuant to the registration rights agreement as a result of
Additional Interest; and
(25) the incurrence by Huntsman ICI Holdings of Indebtedness represented
by its 10.125% senior subordinated notes due 2009 or any notes
exchanged therefor.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (1) through (25) above,
or is entitled to be incurred pursuant to the first or second paragraph of this
covenant, Huntsman ICI Holdings will be permitted to classify and reclassify
such item of Indebtedness on the date of its incurrence in any manner that
complies with this covenant.
Limitation on Restricted Payments. Huntsman ICI Holdings may not make any
Investment unless it is a Permitted Investment. In addition, Huntsman ICI
Holdings will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make a Restricted Payment, unless:
(1) no default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(2) Huntsman ICI Holdings would, at the time of the Restricted Payment and
after giving pro forma effect to the Restricted Payment as if the
Restricted Payment had been made at the beginning of the fiscal
quarter in which such payment is made, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated
Fixed Charge Coverage Ratio test described in the first paragraph
under "--Limitation on Incurrence of Additional Indebtedness"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Huntsman ICI Holdings and each of
its Restricted Subsidiaries after the date of the indenture (including
Restricted Payments permitted by the provisions described in clauses
(1) and (2) of the next succeeding paragraph), shall not exceed, at
the date of determination, the sum of:
(A) an amount equal to 50% of Consolidated Net Income of Huntsman ICI
Holdings for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of
the indenture to the end of Huntsman ICI Holdings's most recently
ended full fiscal quarter for which internal financial statements
are
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available at the time of such Restricted Payment (or, if such
Consolidated Net Income of Huntsman ICI Holdings for such period is
a deficit, less 100% of such deficit), plus
(B) an amount equal to 100% of Capital Stock Sale Proceeds.
These provisions do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration such
payment would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of Huntsman ICI Holdings in
exchange for, or out of the net proceeds of the substantially
concurrent sale (other than to a subsidiary of Huntsman ICI Holdings)
of, Equity Interests of Huntsman ICI Holdings (other than Disqualified
Stock);
(3) the defeasance, redemption, repurchase or other acquisition of any
Indebtedness of Huntsman ICI Holdings that is subordinate or junior in
right of payment to the notes either:
. solely in exchange for Equity Interests (other than Disqualified
Stock) of Huntsman ICI Holdings or
. through the application of net proceeds of a substantially
concurrent sale or incurrence for cash (other than to a subsidiary
of Huntsman ICI Holdings) of (A) Equity Interests (other than
Disqualified Stock) of Huntsman ICI Holdings or (B) Permitted
Refinancing Indebtedness;
(4) tax distributions; and
(5) the payment of consideration by a third party to equity holders of
Huntsman ICI Holdings.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Huntsman ICI Holdings or
any of its Restricted Subsidiaries pursuant to the Restricted Payment.
Limitation on Asset Sales. Huntsman ICI Holdings will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Huntsman ICI Holdings 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 the board of managers of Huntsman ICI
Holdings;
(2) at least 75% of the consideration received by Huntsman ICI Holdings or
the applicable Restricted Subsidiary from the Asset Sale is in the form
of cash, Cash Equivalents or Foreign Cash Equivalents. For purposes of
this provision, any liabilities shown on Huntsman ICI Holdings's or the
applicable Restricted Subsidiary's most recent balance sheet, 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; and
(3) upon the consummation of an Asset Sale, Huntsman ICI Holdings applies,
or causes the applicable Restricted Subsidiary to apply, the Net
Proceeds relating to such Asset Sale on or before the Net Proceeds
Offer Trigger Date.
On or before the Net Proceeds Offer Trigger Date, Huntsman ICI Holdings
must apply the Net Proceeds from an Asset Sale at its option:
(1) to prepay any Indebtedness of a Restricted Subsidiary;
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(2) to acquire or invest in properties and assets (including Capital Stock
of any entity) that replace the properties and assets that were the
subject of the Asset Sale or that will be used in a Related Business or
in businesses reasonably related thereto ("Replacement Assets"); and/or
(3) to acquire all of the capital stock or assets of any person or division
conducting a business reasonably related to that of Huntsman ICI
Holdings or its subsidiaries.
Any Net Proceeds that Huntsman ICI Holdings does not apply in accordance
with the preceding paragraph will constitute a Net Proceeds Offer Amount. When
the aggregate amount of the Net Proceeds Offer Amount is equal to or exceeds
$30 million, Huntsman ICI Holdings or such 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 the notes and
. all holders of Indebtedness that
-- is equal in right of payment with the notes containing provisions
similar to those in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets, on a pro rata basis,
the maximum Accreted Value of the notes and
-- is equal in right of payment with the notes 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
Accreted Value of the notes to be purchased plus any accrued and unpaid
interest thereon 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
Holdings or any Restricted Subsidiary of Huntsman ICI Holdings 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 Holdings 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 of
the transfer Huntsman ICI Holdings is no longer an obligor on the
notes, the successor corporation will be deemed to have sold the
properties and assets of Huntsman ICI Holdings and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and will
comply with the provisions of this covenant with respect to such deemed
sale as if it were an Asset Sale. The fair market value of such
properties and assets of Huntsman ICI Holdings or its Restricted
Subsidiaries deemed to be sold will be deemed to be Net Proceeds for
purposes of this covenant.
Notwithstanding the provisions described in the preceding paragraphs,
Huntsman ICI Holdings and its Restricted Subsidiaries may close 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 Holdings or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted under
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this paragraph will constitute Net Proceeds 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 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 must remain open for a period of 20 business days or such
longer period as may be required by law.
Huntsman ICI Holdings must 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 Holdings must comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the "Limitation on Asset Sale" provisions
of the indenture by virtue thereof.
Limitation on Preferred Stock of Restricted Subsidiaries. Huntsman ICI
Holdings may not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (other than to Huntsman ICI Holdings or to a Restricted
Subsidiary of Huntsman ICI Holdings) or permit any Person (other than Huntsman
ICI Holdings or a Restricted Subsidiary of Huntsman ICI Holdings) to own any
Preferred Stock of any Restricted Subsidiary of Huntsman ICI Holdings;
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 Holdings
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 Holdings may not, directly or indirectly,
create, incur, assume or suffer to exist any Lien of any kind upon any of its
assets or properties, except Permitted Liens.
Merger, Consolidation and Sale of Assets. Huntsman ICI Holdings may not
directly or indirectly: (A) consolidate or merge with or into another person
(whether or not Huntsman ICI Holdings is the surviving company); or (B) sell,
transfer or otherwise dispose of all or substantially all of its properties or
assets, in one or more related transactions, to another person; unless:
(1) either (a) Huntsman ICI Holdings is the surviving company, or (b) the
person formed by or surviving any such consolidation or merger (if
other than Huntsman ICI Holdings) or to which such sale, transfer or
other disposition shall have been made is a person organized or
existing under the laws of the United States, any state thereof, the
District of Columbia, England or any country that is a member of the
European Union (the "Surviving Entity");
(2) the person Surviving Entity assumes all obligations of Huntsman ICI
Holdings under the notes, the indenture and the registration rights
agreement pursuant to agreements reasonably satisfactory to the
trustee;
(3) immediately after such transaction no default or Event of Default
exists; and
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(4) immediately after giving effect to such transaction, including the
assumption of the notes by the survivor of the transaction, Huntsman
ICI Holdings:
(a) has Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Huntsman ICI Holdings immediately
preceding the transaction, and
(b) is able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the Consolidated Fixed
Charge Coverage Ratio Test described in the first paragraph of "--
Limitation on Incurrence of Additional Indebtedness".
Huntsman ICI Holdings may not permit any Restricted Subsidiary to directly
or indirectly: (A) consolidate or merge with or into another person (whether or
not such Restricted Subsidiary is the surviving company) or (B) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to another person;
unless Huntsman ICI Chemicals is a party to such transaction and
(1) either (a) Huntsman ICI Chemicals is the surviving company, or (b) the
person formed by or surviving any such consolidation or merger (if
other than Huntsman ICI Chemicals) or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is a
person organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(2) immediately after such transaction no default or Event of Default
exists; and
(3) immediately after giving effect to such transaction, Huntsman ICI
Chemicals is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Debt) pursuant to the provision described under
"--Limitation on Incurrence of Additional Indebtedness".
In addition, Huntsman ICI Holdings may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more related
transactions, to any other person.
This covenant does not apply to:
. a sale, assignment, transfer, conveyance or other disposition of assets
between or among Huntsman ICI Holdings and any of its Wholly Owned
Restricted Subsidiaries or
. any merger of Huntsman ICI Holdings or any Restricted Subsidiary with
or into any Wholly Owned Restricted Subsidiary or any transaction that
results in the conversion of Huntsman ICI Holdings from a limited
liability company to a corporation under the laws of the State of
Delaware or any other state of the United States.
Subject to the immediately preceding sentence and notwithstanding anything
else in this covenant to the contrary, 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
will instead be treated as (A) an Asset Sale, if the result of such transaction
is the transfer of assets by Huntsman ICI Holdings or a Restricted Subsidiary,
or (B) an Investment, if the result of such transaction is the acquisition of
assets by Huntsman ICI Holdings or a Restricted Subsidiary.
Limitations on Transactions with Affiliates. Huntsman ICI Holdings may not,
and may 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
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(2) Affiliate Transactions on terms that are no less favorable to Huntsman
ICI Holdings or the relevant Restricted Subsidiary than those that
might reasonably have been obtained in a comparable transaction by
Huntsman ICI Holdings or such Restricted Subsidiary with an unrelated
person.
The board of managers of Huntsman ICI Chemicals and the board of the
relevant Restricted Subsidiary must approve each Affiliate Transaction that
involves an aggregate fair market value of more than $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 Holdings or any of its Restricted Subsidiaries 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 from an Independent Financial Advisor as to the fairness of such
transaction or series of related transactions to Huntsman ICI Holdings or the
relevant Restricted Subsidiary from a financial point of view, 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, employees or consultants of Huntsman
ICI Holdings or any Restricted Subsidiary of Huntsman ICI Holdings as
determined in good faith by the board of managers of Huntsman ICI
Holdings or senior management;
. transactions exclusively between Huntsman ICI Holdings and any of its
Restricted Subsidiaries or exclusively between the Restricted
Subsidiaries, provided such transactions are not otherwise prohibited
by the indenture;
. any agreement as in effect as of June 30, 1999 or contemplated by the
Contribution Agreement, or any amendment to or replacement of such
agreement 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
the indenture;
. transactions between any of Huntsman ICI Holdings, 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 the ordinary course of business and otherwise in compliance
with the terms of the indenture, which when taken together are fair to
Huntsman ICI Holdings or the Restricted Subsidiaries, as applicable, in
the reasonable determination of the board of managers or senior
management of Huntsman ICI Holdings, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party.
Intermediate Holding Company Indebtedness or Disqualified Stock. Huntsman
ICI Holdings may not permit any intermediate holding company or similar entity
between Huntsman ICI Holdings and Huntsman ICI Chemicals to incur any
Indebtedness or issue any Disqualified Stock.
Conduct of Business. Huntsman ICI Holdings and its Restricted Subsidiaries
(other than a Securitization Entity) may not engage in any businesses which are
not the same, similar or related to the businesses in which Huntsman ICI
Holdings and its Restricted Subsidiaries were engaged on June 30, 1999, except
to the extent that after engaging in any new business, Huntsman ICI Holdings
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.
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Reports to Holders. Whether or not required by the SEC, so long as any
notes are outstanding, after the date the Exchange Offer is required to be
consummated, Huntsman ICI Holdings must 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 Holdings 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
Holdings's 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 Holdings were required to file such reports.
If Huntsman ICI Holdings 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 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 Holdings and its Restricted Subsidiaries separate
from the financial condition and results of operations of the Unrestricted
Subsidiaries of Huntsman ICI Holdings.
Events of Default
Each of the following 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;
(2) the failure to pay the Accreted Value on any notes, when such Accreted
Value becomes due and payable, at maturity, upon redemption or
otherwise, whether or not such payment is prohibited by the
subordination provisions of the indenture;
(3) the failure of Huntsman ICI Holdings to comply with any covenant or
agreement contained in the indenture for a period of 60 days after
receiving a written notice specifying the default (and demanding that
such default be remedied) from the trustee or the holders of at least
25% of the Accreted Value of the notes outstanding (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) any default under any agreement governing Indebtedness of Huntsman ICI
Holdings or any of its Restricted Subsidiaries, if that default:
(A) is caused by a failure to pay at final maturity the principal
amount of the Indebtedness prior to the expiration of the
applicable grace period for such Indebtedness on the date of such
default; or
(B) results in the acceleration of the Indebtedness prior to its
express maturity;
and in each case, the total amount of Indebtedness unpaid or accelerated in an
aggregate amount exceeds $25 million and has not been discharged in full or
such acceleration has not been rescinded within 30 days of such final maturity
or acceleration;
(5) the failure of Huntsman ICI Holdings or its Restricted Subsidiaries to
pay or otherwise discharge or stay one or more judgments in an
aggregate amount exceeding $25 million,
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which are not covered by indemnities or third party insurance as to
which the person giving such indemnity or such insurer has not
disclaimed coverage, for a period of 60 days after such judgments
become final and non-appealable; or
(6) certain events of bankruptcy affecting Huntsman ICI Holdings or any of
its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy, insolvency or reorganization with respect to Huntsman ICI
Holdings, the Default Amount of all the notes, together with accrued and
unpaid interest, will become immediately due and payable without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee or holders of at least 25% in aggregate Accreted Value of the
outstanding notes may declare the Default Amount of all notes, together with
accrued and unpaid interest, to be immediately due and payable by notice in
writing to Huntsman ICI Holdings and the trustee. The written notice must
specify the respective Event of Default and that it is a "notice of
acceleration".
Until the Full Accretion Date, the "Default Amount" as of a particular
date shall equal the Accreted Value of the notes as of such date. On or after
the Full Accretion Date, the "Default Amount" shall equal 100% of the
principal amount thereof.
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 Accreted
Value of the notes may rescind and cancel such declaration and its
consequences:
. if the rescission would not conflict with any judgment or decree,
. if all existing Events of Default have been cured or waived except
nonpayment of Accreted Value or interest that has become due solely
because of the acceleration,
. to the extent the payment of such interest is lawful, interest (at the
same rate specified in the notes) on overdue payments of Accreted Value
or interest, which has become due otherwise than by such declaration of
acceleration, has been paid,
. if Huntsman ICI Holdings has paid the trustee its reasonable
compensation and reimbursed the trustee for its expenses, disbursements
and advances, and
. 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 aggregate Accreted Value 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, holders of a
majority in aggregate Accreted Value 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, if an Event of Default occurs or is continuing, then the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any holders unless those holders have
offered the trustee reasonable indemnity. The trustee may withhold from
holders of the notes notice of any continuing default or Event of Default,
other than a default or Event of Default relating
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to the payment of Accreted Value, premium or interest, if it determines that
withholding notice is in the best interest of the holders.
Legal Defeasance and Covenant Defeasance
Huntsman ICI Holdings may, at its option and at any time, elect to have all
of its obligations discharged with respect to the outstanding notes ("Legal
Defeasance"). Legal Defeasance means that Huntsman ICI Holdings will be deemed
to have paid and discharged the entire indebtedness represented by the
outstanding notes, except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the Accreted Value, premium, if any, and interest on the
notes when such payments are due from the trust fund referred to
below,
(2) Huntsman ICI Holdings's 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 Holdings's obligations in connection therewith and
(4) the Legal Defeasance provisions of the indenture.
In addition, Huntsman ICI Holdings may, at its option and at any time,
elect to have released certain of its 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.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Huntsman ICI Holdings must irrevocably deposit with the trustee, in
trust, for the benefit of the holders of the notes, cash in U.S.
dollars or U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay all of the
Accreted Value, premium, if any, and interest on the notes on the
stated date for payment thereof;
(2) in the case of Legal Defeasance, Huntsman ICI Holdings shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that:
(A) Huntsman ICI Holdings has received from, or there has been
published by, the Internal Revenue Service a ruling or
(B) since the date of the indenture, 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;
(3) in the case of Covenant Defeasance, Huntsman ICI Holdings 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 outstanding notes will not recognize income, gain or loss
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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:
(A) on the date of such deposit (other than a default or Event of
Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the
notes), or
(B) 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 instrument or material agreement to which Huntsman ICI
Holdings or any of its subsidiaries is a party or by which Huntsman
ICI Holdings or any of its subsidiaries is bound;
(6) Huntsman ICI Holdings shall have delivered to the trustee an officers'
certificate stating that the deposit was not made by Huntsman ICI
Holdings with the intent of preferring the holders of the notes over
any other creditors of Huntsman ICI Holdings or with the intent of
defeating, hindering, delaying or defrauding any other creditors of
Huntsman ICI Holdings or others;
(7) Huntsman ICI Holdings 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;
Huntsman ICI Holdings shall have delivered to the trustee an opinion of
counsel to the effect that:
(1) either (A) Huntsman ICI Holdings 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
(2) assuming no intervening bankruptcy of Huntsman ICI Holdings 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 Holdings, 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 to all outstanding notes when:
(1)either
(A) all the existing authenticated and delivered notes (except lost,
stolen or destroyed notes that 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 Holdings and repaid
to Huntsman ICI Holdings 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 Holdings 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 already delivered to the trustee for
cancellation,
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for Accreted Value of, premium, if any, and interest on the notes
to the date of deposit together with irrevocable instructions from
Huntsman ICI Holdings directing the trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may be;
(2) Huntsman ICI Holdings has paid all other sums payable under the
indenture by Huntsman ICI Holdings; and
(3) Huntsman ICI Holdings 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
Holdings, and thereafter holders of the notes must look to Huntsman ICI
Holdings for payment as general creditors.
Cancellation
All notes that are redeemed by or on behalf of Huntsman ICI Holdings will
be cancelled and, accordingly, may not be reissued or resold. If Huntsman ICI
Holdings 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 Holdings will not be required to pay any
additional amounts to cover such withholding taxes.
Modification of the Indenture
Without the consent of each holder of an outstanding note affected, an
amendment and waiver may not:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) change the method of calculation of or reduce the rate of or change
the time for payment of Accreted Value, or defaulted interest, on any
notes;
(3) reduce the principal of or change 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 the
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 holders of notes to receive payment of Accreted Value and interest
on the notes or permitting holders of a majority in Accreted Value of
notes to waive defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Huntsman ICI Holdings 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 completed;
or
(7) modify or change any provision of the indenture in a manner which
adversely affects the holders.
Other modifications and amendments to the indenture may be made with the
consent of the holders of a majority in Accreted Value of the then outstanding
notes issued under the indenture.
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Notwithstanding the preceding, without the consent of any holder of the notes,
Huntsman ICI Holdings and the trustee may amend or supplement the indenture or
the notes to:
(1) cure any ambiguities, defect or inconsistency;
(2) provide for the assumption of Huntsman ICI Holdings's obligations to
holders of notes in the case of a merger or consolidation or sale of
all or substantially all of Huntsman ICI Holdings'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 provides that it and the notes 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.
The Trustee
The indenture provides 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 Holdings, 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.
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"Accreted Value" means, as of any date prior to December 31, 2009, an
amount per $1,000 principal amount at maturity of notes that is equal to the
sum of (A) the Issue Price ($256.81 per $1,000 principal amount at maturity of
notes) of such notes and (B) the portion of the excess of the principal amount
of such notes over such Issue Price which shall have been amortized through
such date, such amount to be so amortized on a daily basis and compounded semi-
annually on each January 1 and July 1 at the Applicable Rate from June 30, 1999
of the notes through the date of determination computed on the basis of a 360-
day year of twelve 30-day months, and as of any date on or after December 31,
2009, the principal amount of each note.
"Acquired Debt" means, with respect to any specified person, Indebtedness
of any other person existing at the time such other person is merged with or
into or became a Restricted Subsidiary of such specified person, and not
incurred in connection with, or in contemplation of, such other person merging
with or into, or becoming a Restricted Subsidiary of, such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Applicable Rate" means 13.375% per annum.
"Asset Acquisition" means:
. an Investment by Huntsman ICI Holdings or any of its Restricted
Subsidiaries in any other person pursuant to which such person shall
become a Restricted Subsidiary of Huntsman ICI Holdings or any of
Huntsman ICI Holdings's Restricted Subsidiaries or shall merge or
consolidate with Huntsman ICI Holdings or any of Huntsman ICI
Holdings's Restricted Subsidiaries, or
. the acquisition by Huntsman ICI Holdings or any of its Restricted
Subsidiaries of the assets of any person that constitute all or
substantially all of the assets of such person, 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
Holdings or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any person other than Huntsman ICI Holdings or a
Restricted Subsidiary of Huntsman ICI Holdings of (A) any Capital Stock of any
Restricted Subsidiary of Huntsman ICI Holdings; or (B) any other property or
assets of Huntsman ICI Holdings or any Restricted Subsidiary of Huntsman ICI
Holdings 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
Holdings 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 Huntsman ICI Holdings's or any of
its Restricted Subsidiary's patents, trade secrets, know-how and other
intellectual property of Huntsman
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ICI Holdings or any of its Restricted Subsidiaries to the extent that
such license does not prohibit the licensor from using the patent,
trade secret, know-how or technology license or require Huntsman ICI
Holdings or any of its Restricted Subsidiaries to pay any fees for any
such use,
(4) the sale, lease, conveyance, disposition or other transfer
(A) of all or substantially all of the assets of Huntsman ICI Holdings
as permitted by the provision described under "Certain Covenants--
Merger, Consolidation and Sale of Assets",
(B) 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 of Huntsman ICI Holdings,
(C) pursuant to any foreclosure of assets or other remedy provided by
applicable law to a creditor of Huntsman ICI Holdings or any
subsidiary of Huntsman ICI Holdings 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,
(D) 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 Holdings or
(E) 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
"Certain Covenants-- Limitation on Restricted Payments",
(6) Permitted Investments, and
(7) any merger or consolidation permitted by the provision described under
"Certain Covenants--Merger, Consolidation and Sale of Assets".
"BASF Agreement" means the Propylene Oxide Supply Agreement, dated as of
March 21, 1997, by and between BASF Corporation, a Delaware corporation, and
Huntsman ICI Chemicals, as assignee of Huntsman Specialty Chemicals
Corporation, a Delaware corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York or Salt Lake City, Utah or
at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is on a day that is not a Business Day at a
place of payment, payment may be made at that place on the next succeeding
Business Day, and no interest will accrue on such payment for the intervening
period.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a limited liability company, any and all membership
interests;
(2) in the case of a corporation, corporate stock, including common stock
and preferred stock;
(3) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated, whether voting or non-voting) of corporate stock;
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(4) in the case of a partnership, partnership interests (whether general
or limited); and
(5) any other interest (other than any debt obligation) or participation
that confers on a Person the right to receive a share of the profits
and losses of, or distributions of assets of, the issuing Person, in
each case, whether now outstanding on or issued after June 30, 1999.
"Capital Stock Sale Proceeds" means the aggregate net cash proceeds
(including the fair market value of the non-cash proceeds, as determined by an
independent appraisal firm) received by Huntsman ICI Holdings after the date of
this indenture (A) as a contribution to the common equity capital or from the
issue or sale of Equity Interests of Huntsman ICI Holdings (other than
Disqualified Stock) or (B) from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt securities
of Huntsman ICI Holdings that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of Huntsman ICI Holdings).
"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,
(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 (vii) 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 minimis amounts) of the type specified in
clauses (1) through (6) above.
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"Change of Control" means:
(1) prior to the initial public offering of common equity in Huntsman ICI
Holdings, the failure by Mr. Jon M. Huntsman, his spouse, direct
descendants or an entity controlled by any of the foregoing and/or by
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 Holdings or
(2) after initial public offering of common equity in Huntsman ICI
Holdings, 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 Stock of Huntsman ICI Holdings other than in a
transaction having the approval of the board of managers of
Huntsman ICI Holdings at least a majority of which members are
Continuing Directors; or
(B) Continuing Directors shall cease to constitute at least a majority
of the board of managers of Huntsman ICI Holdings.
"Class A Shares" means the Class A Shares of TGL 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 right to nominal dividends and a nominal liquidation
preference.
"Commission" or "SEC" means the Securities and Exchange Commission.
"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 to be redeemed 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 such notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the trustee after consultation with
Huntsman ICI Holdings.
"Comparable Treasury Price" means with respect to any redemption date for
the notes (1) the average of four Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (2) if the trustee obtains fewer than four 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 and
(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),
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(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 information is available (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 during such
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 issuance of the notes;
(2) 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 the Transaction Date, 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
(3) 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 Debt) 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 Holdings or a
Restricted Subsidiary, the preceding paragraph shall 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
the "Consolidated Fixed Charge Coverage Ratio":
(A) 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;
(B) 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
(C) notwithstanding clause (A) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Hedging Obligations,
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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 Capital Stock (other than Disqualified 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 Indebtedness" means, with respect to any person as of any
date of determination, the sum, without duplication, of:
(1) the total amount of outstanding Indebtedness of such person and its
Restricted Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person that has been
Guaranteed by the referent person or one or more of its Restricted
Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock of such
person and all preferred stock of Restricted Subsidiaries of such
person, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of:
(1) the consolidated interest expense of such person and its Restricted
Subsidiaries for such period, whether paid or accrued,
(2) the consolidated interest expense of such person and its Restricted
Subsidiaries that was capitalized during such period, and
(3) any interest expense on Indebtedness of another person that is
guaranteed by such person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon);
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Consolidated Net Income pursuant to clause (D) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Consolidated Net Income pursuant to clause (D)
of the definition thereof), in each case, on a consolidated basis and in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate net income (or loss) of such person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; 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,
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(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 by a contract, operation of law or otherwise (other than,
in the case of Huntsman ICI Chemicals, any agreement or instrument
evidencing Indebtedness or Preferred Stock outstanding on the date of
the indenture or incurred or issued thereafter in compliance with the
provision described under "Certain Covenants--Limitation on Incurrence
of Additional Indebtedness",
(E) the net income 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 person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets,
and
(I) all gains or losses from the cumulative effect of any change in
accounting principles; provided further, that to the extent not
otherwise included in net income, the amount of cash distribution
received from LPC from operating cash flow (without giving effect to
gains on asset dispositions, extraordinary items, liquidation or
dividends) shall be added to net income.
"Consolidated Net Worth" of any person means the consolidated stockholders'
equity of such person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Stock of
such person.
"Consolidated Non-cash Charges" means, with respect to any person, for any
period, the aggregate depreciation, amortization and other non-cash expenses 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 charge
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 Directors" means, as of any date, the collective reference to:
. all members of the board of managers of Huntsman ICI Holdings who have
held office continuously since a date no later than the later of twelve
months prior to the Initial Public Offering and June 30, 1999, and
. all members of the board of managers of Huntsman ICI Holdings who
assumed office after such date and whose appointment or nomination for
election by Huntsman ICI Holdings's shareholders was approved by a vote
of at least 50% of the Continuing Directors in office immediately prior
to such appointment or nomination or by the Huntsman Group.
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"Contribution Agreement" means the Contribution Agreement dated as of April
15, 1999, as amended by an Amending Agreement dated as of June 4, 1999, among
Huntsman ICI Holdings, Huntsman ICI Chemicals, Huntsman Specialty and Imperial
Chemical Industries Plc., as amended as of June 30, 1999.
"Credit Facilities" means, with respect to Huntsman ICI Holdings and/or its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, indentures or other agreements, in each case with banks or other
institutional lenders or investors providing for:
. revolving credit loans,
. term loans,
. notes,
. receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such
lenders against such receivables), or
. letters of credit,
together with the related documents thereto (including any guarantee agreements
and security documents), in each case, as amended, supplemented or otherwise
modified from time to time.
The term "Credit Facilities" also includes any agreement extending the
maturity of, refinancing, replacing (whether or not contemporaneously) or
otherwise restructuring (including increasing the amount of available
borrowings thereunder (provided that such increase in borrowings is permitted
by the provision described under "Certain Covenants--Limitation on Incurrence
of Additional Indebtedness" above or adding Restricted Subsidiaries of Huntsman
ICI Holdings as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreements or any successor or
replacement agreements and whether by the same or any other agent, lender or
group of lenders or investors.
"Disposition" means, with respect to any person, any merger, consolidation
or other business combination involving such person (whether or not such person
is the surviving person) or the sale, assignment, or transfer, lease conveyance
or other disposition of all or substantially all of such person's assets or
Capital Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require Huntsman ICI Holdings to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale shall
not constitute Disqualified Stock if:
. the asset sale or change of control provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital
Stock than the provisions described under "Repurchase at the Option of
Holders upon Change of Control" and "Certain Covenants--Limitation on
Asset Sales", and
. such Capital Stock specifically provides that such person will not
repurchase or redeem any such stock pursuant to such provision prior to
the repurchase of such notes as are required to be repurchased pursuant
to the provisions described under "Repurchase at the Option of Holders
upon Change of Control" and "Certain Covenants--Limitation on Asset
Sales".
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Notwithstanding the foregoing, Capital Stock shall not be deemed to be
Disqualified Stock if it may only be so redeemed solely in consideration of
Capital Stock that is not Disqualified Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Exchange Offer" means an offer to exchange the notes for exchange notes
pursuant to a registration statement filed pursuant to the registration rights
agreement.
"Existing Indebtedness" means Indebtedness of Huntsman ICI Holdings and its
Restricted Subsidiaries in existence on June 30, 1999, reduced by the amount of
any prepayments with Net Proceeds of any Asset Sale (which are accompanied by a
corresponding permanent commitment reduction) pursuant to the provision
described under "Certain Covenants--Limitation on Asset Sales".
"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 Holdings or its Restricted Subsidiaries have 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 Restricted Subsidiary of Huntsman ICI
Holdings organized and conducting its principal operations outside the United
States.
"Foreign Subsidiary Asset Sale" means any direct or indirect sale,
issuance, conveyance, transfer, lease, assignment or other transfer for value
by Huntsman ICI Holdings or any of its Restricted Subsidiaries to any person
other than Huntsman ICI Holdings or a Restricted Subsidiary of Huntsman ICI
Holdings or the Capital Stock of any Foreign Subsidiary or any of the property
or assets of any Foreign Subsidiary.
"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 are in effect as of June 30, 1999.
"Guarantee" or "guarantee" means a guarantee other than by endorsement of
negotiable instruments for collection in the ordinary course of business,
direct or indirect, in any manner
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including, without limitation, by way of a pledge of assets or through letters
of credit or reimbursement agreements in respect thereof, of all or any part of
any Indebtedness, measured as the lesser of the aggregate outstanding amount of
the Indebtedness so guaranteed and the face amount of the Guarantee.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under:
(1) interest rate swap agreements, interest rate cap agreements, interest
rate collar agreements, interest rate option agreements and other
similar agreements or arrangements designed to protect such person and
its subsidiaries against fluctuations in interest rates;
(2) foreign currency exchange agreements, foreign currency swap agreements
and other similar agreements or arrangements designed to protect such
person and its subsidiaries against fluctuations in currency values;
and
(3) commodity futures contracts, commodity options and other similar
agreements or arrangements designed to protect such person and its
subsidiaries against fluctuations in the price of commodities used in
the ordinary course of business of that person and its subsidiaries.
"Huntsman Affiliate" means Huntsman Corporation or any of its Affiliates
(other than Huntsman ICI Holdings and its subsidiaries).
"ICI Affiliate" means ICI or any Affiliate of ICI.
"Indebtedness" means, with respect to any specified person, any
indebtedness of such person, whether or nor incurred at the date of this
Indenture and whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) deferred and unpaid of the purchase price of any property, except any
such balance that constitutes an accrued expense or trade payable;
(6) all Disqualified Stock issued by such person; or
(7) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified person (whether or not such Indebtedness is assumed by
the specified person) and, to the extent not otherwise included, the Guarantee
by such person of any indebtedness of any other person.
Notwithstanding the foregoing, "Indebtedness" does not include:
(A) advances paid in the ordinary course of business by customers 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 Holdings 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 Holdings and/or its Restricted Subsidiaries for a three year
period beginning on the date of any incurrence of such indebtedness.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other 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 Holdings and
. which, in the judgment of the board of managers of Huntsman ICI
Holdings, is otherwise independent and qualified to perform the task
for which it is to be engaged.
"Investments" 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 another person, including an Affiliate, or any payment for property or
services for the account or use of another person but excluding commissions,
travel and similar advances to officers and employees made in the ordinary
course of business), 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 together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investment" shall exclude extensions of trade credit by Huntsman ICI Holdings
and its Restricted Subsidiaries on commercially reasonable terms in accordance
with normal trade practices of Huntsman ICI Holdings or such Restricted
Subsidiary, as the case may be.
"Issue Price" means the aggregate issue price of the notes, which equals
$242,700,000.
"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 interest in accounts
receivable and related assets conveyed by Huntsman ICI Holdings or any of its
subsidiaries in connection with any Qualified Securitization Transaction.
"LPC" mean Louisiana Pigment Company.
"Members Agreement" means the Members Agreement, dated as of June 30, 1999,
by and among Huntsman ICI Holdings, Huntsman Specialty, BT Capital Investors,
L.P., Chase Equity Associates, L.P. and The Goldman Sachs Group, Inc.
"Net Proceeds" means, with respect to any Asset Sale, the proceeds in the
form of cash, Cash Equivalents or Foreign Cash Equivalents including payments
in respect of deferred payment obligations when received in the form of cash,
Cash Equivalents or Foreign Cash Equivalents (other than the portion of any
such deferred payment constituting interest) received by Huntsman ICI Holdings
or any of its Restricted Subsidiaries from an Asset Sale (including any cash
received upon the sale or other disposition of any non-cash consideration
received in any 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),
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(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, including any taxes to be paid by
Huntsman ICI Holdings or any of its subsidiaries upon the repatriation
of such cash proceeds to the United States upon consummation of a
Foreign Subsidiary Asset Sale and involving any amounts distributed in
respect of owners', partners' or members' tax liabilities resulting
from or in respect of such sale,
(C) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale,
(D) the decrease in proceeds from securitization transactions which
results from such Asset Sale, and
(E) appropriate amounts to be provided by Huntsman ICI Holdings or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities relied to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer Trigger Date" means, with respect to a particular Asset
Sale, the date which is the later of:
(1) 420 days following the receipt of the Net Proceeds of such Asset Sale
(or 10 days following such earlier date, if any, as the board of
managers of Huntsman ICI Holdings or of such Restricted Subsidiary
making such Asset Sale determines not to apply all or any part of the
Net Proceeds relating to such Asset Sale as set forth in clauses
(3)(A), (3)(B) or (3)(C) of "Certain Covenants--Limitation on Asset
Sales") and
(2) 10 days following the consummation by any subsidiary of Huntsman ICI
Holdings of an offer to purchase (or other similar transaction) or
redemption of any Indebtedness of any Restricted Subsidiary, the
purchase or redemption of which would constitute the prepayment of
Indebtedness of a Restricted Subsidiary under clause (3)(A) or (3)(C)
of "Certain Covenants--Limitation on Asset Sales";
provided, however, that notwithstanding anything to the contrary in the
indenture, neither Huntsman ICI Holdings nor any Restricted Subsidiary shall
make any investment pursuant to clause (3)(B) of "Certain Covenants--Limitation
on Asset Sales" more than 365 days following the receipt of the Net Proceeds of
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.
"Operating Agreement" means the Amended and Restated Limited Liability
Company Agreement, dated as of June 30, 1999, of Huntsman ICI Holdings.
"Permitted Investments" means any Investment by Huntsman ICI Holdings in a
Wholly Owned Restricted Subsidiary of Huntsman ICI Holdings.
"Permitted Liens" means:
(1) Liens on the assets of Huntsman ICI Holdings securing Indebtedness and
other Obligations under the Indebtedness described in clause (1) of
"Certain Covenants--Limitation on Incurrence of Additional
Indebtedness", or as otherwise provided for under the Credit
Facilities;
(2) Liens incurred pursuant to any of the Transaction Documents;
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(3) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(4) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith
by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been
made;
(5) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security;
(6) Liens incurred or deposits made to secure the performance of leases,
statutory or regulatory obligation, bankers' acceptance, surety and
appeal bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment
of borrowed money);
(7) Liens arising from the rendering of a final judgment or order against
Huntsman ICI Holdings that does not give rise to an Event of Default;
(8) Liens in favor of the trustee arising under the provisions in the
indenture; and
(9) Liens in favor of the trustee for its benefit and the benefit of the
holders of the notes, as their respective interests appear.
"Permitted Refinancing Indebtedness" means any Indebtedness of Huntsman ICI
Holdings or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to refinance, renew, replace or defease other
Indebtedness of Huntsman ICI Holdings or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus accrued interest
and premium, if any, on, the Indebtedness so refinanced, renewed,
replaced or defeased (plus the amount of reasonable expenses incurred
in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being refinanced, renewed, replaced or
defeased; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced or
defeased is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of
payment to, the notes, on terms at least as favorable to the holders
of the notes as those contained in the documentation governing the
Indebtedness being refinanced, renewed, replaced or defeased.
"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
Stock.
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"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by Huntsman ICI Holdings or any of its
subsidiaries pursuant to which Huntsman ICI Holdings or any of its subsidiaries
may sell, convey or otherwise transfer pursuant to customary terms to:
(A) a Securitization Entity (in the case of a transfer by Huntsman ICI
Holdings or any of its subsidiaries) and
(B) 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
Holdings 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 any primary U.S. government securities
dealer in New York City appointed by the trustee in consultation with Huntsman
ICI Holdings.
"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 for 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.
"Related Business" means assets (including assets of a referent person
owned directly or indirectly through ownership of Capital Stock) of a kind used
or useful in the business of Huntsman ICI Holdings and its subsidiaries as
existing on June 30, 1999 or in a business reasonably related thereto.
"Replacement Assets" means properties and assets (including Capital Stock
of any entity) that replace the properties and assets that were the subject of
an Asset Sale or properties and assets (including Capital Stock of any entity)
that will be used in the business of Huntsman ICI Holdings and its subsidiaries
as existing on June 30, 1999 or in businesses reasonably related thereto.
"Reset Notes" means any Reset Notes issued in respect of the Subordinated
Notes pursuant to the indenture governing such notes.
"Restricted Payment" means to:
(1) declare or pay any dividends or make any distribution on account of
Huntsman ICI Holding's Equity Interests or to the direct or indirect
holders of Huntsman ICI Holding's Equity Interests, other than
. dividends or distributions payable to a Wholly Owned Restricted
Subsidiary of Huntsman ICI Holdings and
. dividends or distributions payable in Equity Interests, other than
Disqualified Stock, of Huntsman ICI Holdings;
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Huntsman ICI Holdings; or
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(3) make any payment on or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the
notes, other than the notes, except a payment of interest or principal
at the Stated Maturity thereof.
"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 Holdings or a Restricted Subsidiary of any property,
whether owned by Huntsman ICI Holdings or any Restricted Subsidiary at June 30,
1999 or later acquired, which has been or is to be sold or transferred by
Huntsman ICI Holdings 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.
"Securitization Entity" means a wholly owned subsidiary of Huntsman ICI
Holdings (or another person in which Huntsman ICI Holdings or any subsidiary of
Huntsman ICI Holdings makes an Investment and to which Huntsman ICI Holdings or
any subsidiary of Huntsman ICI Holdings 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 Holdings (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 Holdings or any subsidiary of
Huntsman ICI Holdings 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 Holdings or any subsidiary
of Huntsman ICI Holdings in any way other than pursuant to Standard
Securitization Undertakings or
. subjects any property or asset of Huntsman ICI Holdings or any
subsidiary of Huntsman ICI Holdings 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 financial
assets) retained or acquired by Huntsman ICI Holdings or any
subsidiary of Huntsman ICI Holdings,
(2) with which neither Huntsman ICI Holdings nor any subsidiary of
Huntsman ICI Holdings has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to
Huntsman ICI Holdings or such subsidiary than those that might be
obtained at the time from persons that are not Affiliates of Huntsman
ICI Holdings, 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 Holdings nor any subsidiary of Huntsman
ICI Holdings 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 Holdings 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 Holdings giving effect to such designation
and an officers' certificate certifying that such designation complied
with the foregoing conditions.
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"Significant Subsidiary" means any Restricted Subsidiary of Huntsman ICI
Holdings which is a "Significant Subsidiary" as such term is defined in Rule 1-
02(w) of Regulation S-X under the Exchange Act.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Huntsman ICI Holdings or any
subsidiary of Huntsman ICI Holdings which are reasonably customary in an
accounts receivable securitization transaction.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness on June 30, 1999, or, if none, the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means Indebtedness of Huntsman ICI Chemicals
which is expressly subordinated in right of payment to its 10.125% Senior
Subordinated Notes due 2009 or any notes exchanged therefor.
"Subordinated Notes" means Huntsman ICI Holdings's 8% Subordinated Discount
Notes due 2009 and any notes issued in exchange therefor as permitted by, or
contemplated under, the purchase agreement or the indenture governing the
Subordinated Notes.
"Subscription Agreement" means the Subscription Agreement, dated as of June
3, 1999, by and among Huntsman ICI Holdings, BT Capital Investors, L.P., Chase
Equity Associates, L.P. and The Goldman Sachs Group, Inc.
"Tax Sharing Agreement" means the tax sharing arrangements contained in the
Operating Agreement.
"TGL" means Tioxide Group, or any other Wholly Owned Restricted Subsidiary
of Huntsman ICI Holdings that complies with all covenants applicable to TGL
under the indenture.
"Transaction Agreements" means the Contribution Agreement, the Members
Agreement, the Operating Agreement, the Subscription Agreement and the Tax
Sharing Agreement and any agreement, document, instrument or certificate
executed or delivered pursuant to the terms thereof.
"Treasury Rate" means, with respect to any redemption date for the notes:
(1) the yield, under the heading that represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor
publication that is published weekly by the Board of Governors of the
Federal Reserve System and that establishes yields on actively traded
United States Treasury securities adjusted to constant maturity under
the caption "Treasury Constant Maturities", for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is
within three months before or after the applicable maturity date,
yields for the two published maturities most closely corresponding to
the Comparable Treasury Issue shall be determined and the Treasury
Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month); or
(2) if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using 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.
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The Treasury Rate shall be calculated on the third Business Day preceding
the redemption date.
"U.K. Holdco 1" means, Huntsman ICI (Holdings) U.K., a direct Wholly-Owned
Restricted Subsidiary of TGL that is a private unlimited company incorporated
under the laws of England and Wales.
"Unrestricted Subsidiary" of any person means:
(1) any subsidiary of such person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary in the
manner provided below, and
(2) any subsidiary of an Unrestricted Subsidiary.
The board of managers of Huntsman ICI Holdings may designate any subsidiary
to be an Unrestricted Subsidiary unless such subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, Huntsman ICI Holdings or any
other subsidiary of Huntsman ICI Holdings that is not a subsidiary of the
subsidiary to be so designated; provided that:
(1) Huntsman ICI Holdings certifies to the trustee that such designation
complies with the "Limitation on Restricted Payments" covenant and
(2) each subsidiary to be so designated 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 pursuant to which
the lender has recourse to any of the assets of Huntsman ICI Holdings
or any of its Restricted Subsidiaries.
The board of managers of Huntsman ICI Holdings may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, Huntsman ICI
Holdings 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
(2) immediately before and immediately after giving effect to such
designation, no default or Event of Default shall have occurred and be
continuing. Any such designation by the board of managers of Huntsman
ICI Holdings shall be evidenced to the trustee by promptly filing with
the trustee a copy of the resolution passed by the board of managers
giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any person as of any date means the Capital Stock of such
person that is at the time entitled to vote in the election of the board of
managers or board of directors, or any authorized committee thereof, of such
person or other similar governing body of such person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments 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; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of such person where all of the outstanding Capital Stock or other
ownership interests of which (other than, directors' qualifying shares) are
owned by such person and/or by one or more Wholly Owned Restricted Subsidiaries
of such person, provided, however, that each of TGL and U.K. Holdco 1 shall be
deemed to be a Wholly Owned Restricted Subsidiary of Huntsman ICI Holdings.
Listing
The outstanding notes are listed on the Luxembourg Stock Exchange, and
concurrently with the filing of the registration statement, of which this
prospectus forms a part, 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 will be 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
for making payments on, and transfer of, notes will be maintained in
Luxembourg. We have initially designated Banque Internationale A Luxembourg,
S.A. as our agent for such purposes.
Book-Entry, Delivery and Form
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 and
integral multiples of $1,000 in excess thereof.
The notes to be issued in the exchange offer initially will be represented
by one or more notes in definitive, fully registered form without interest
coupons (collectively, the "Global Notes") and will be deposited with the
trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form except in the limited circumstances described below.
See "--Exchange of Book-Entry Notes for Certificated Notes". Except in the
limited circumstances described below, owners of beneficial interests in the
Global Notes will not be entitled to receive physical delivery of Certificated
Notes (as defined below).
Depository Procedures
The following description of the operations and procedures of DTC 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 Holdings takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
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DTC has advised Huntsman ICI Holdings that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
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 (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised Huntsman ICI Holdings that, pursuant to procedures
established by it, (i) upon deposit of the Global Notes, DTC will credit the
accounts of Participants designated by the exchange agent with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Notes).
All interests in a Global Note may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Note to such persons
will be limited to that extent. Because DTC 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 beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, premium, if any, and interest on a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered holder under the indenture. Under the terms
of the indenture, Huntsman ICI Holdings and the trustee will treat the persons
in whose names the notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither Huntsman ICI Holdings, the
trustee nor any agent of Huntsman ICI Holdings or the trustee has or will have
any responsibility or liability for (1) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes or (2) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised the Issuers that its current practice, upon receipt of any payment
in respect of securities such as the notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the trustee or Huntsman ICI Holdings. Neither Huntsman ICI
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Holdings nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the notes, and Huntsman
ICI Holdings and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Interest in the Global Notes are expected to be eligible to 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. See "--Same-
Day Settlement and Payment".
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised Huntsman ICI Holdings that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Notes 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 notes, DTC
reserves the right to exchange the Global Notes for legended notes in
certificated form, and to distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither Huntsman ICI Holdings nor
the trustee nor any of their respective agents will have any responsibility for
the performance by DTC or its respective participants or indirect participants
of its respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if (1) DTC (x) notifies Huntsman ICI
Holdings that it is unwilling or unable to continue as depositary for the
Global Notes and Huntsman ICI Holdings thereupon fails to appoint a successor
depositary or (y) has ceased to be a clearing agency registered under the
Exchange Act, (2) Huntsman ICI Holdings, at its option, notifies the trustee in
writing that it elects to cause the issuance of the Certificated Notes or (3)
there shall have occurred and be continuing a default or Event of Default with
respect to the notes. In addition, beneficial interests in a Global Note may be
exchanged for Certificated Notes upon request but only upon prior written
notice given to the trustee in accordance with the indenture. In all cases,
Certificated 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 or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in "Notice to Investors", unless Huntsman ICI Holdings determines
otherwise in compliance with applicable law. The holder of a non-global note
may transfer such note, subject to compliance with the provisions of the
applicable legend, by surrendering it at the office or agency maintained by
Huntsman ICI Holdings 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.
Exchange of Certificated Notes for Book-Entry Notes
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
trustee a written certificate (in the form provided in the indentures) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such notes. See "Notice to Investors".
133
<PAGE>
Same-Day Settlement and Payment
Payments in respect of the notes represented by the Global Notes (including
accreted value, premium, if any, and interest) will 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 Holdings will
make all payments of accreted value, premium, if any, and interest, by wire
transfer of immediately available funds to the accounts specified by the
holders of the notes 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 the DTC's Same-Day Funds 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 Holdings expects that secondary trading in any Certificated Notes
will also be settled in immediately available funds.
Registration Covenant; Exchange Offer
Huntsman ICI Holdings 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
Holdings is 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 Holdings.
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 February 28,
2000; or
. the exchange offer is not available to any holder of the notes by
reason of U.S. law or SEC policy,
Huntsman ICI Holdings will, in lieu of (or, in the case 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 of the
notes or, in the case of clause (3), of the notes held by the initial
purchasers of the notes for resale by the
134
<PAGE>
initial purchasers of the notes (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 Holdings 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
securityholder 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 a 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%.
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 Holdings.
We have applied to list the exchange notes on the Luxembourg Stock
Exchange. Huntsman ICI Holdings 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.
135
<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.
Huntsman ICI Holdings will not 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:
. may be deemed to be an "underwriter" within the meaning of the
Securities Act.
. 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
. 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 Holdings 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 Holdings 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.
136
<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 Holdings 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 Holdings 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 the 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
Holdings; persons having a functional currency other than the U.S. dollar;
persons treated as related to Huntsman ICI Holdings; and persons who hold notes
as part of a 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 entities for U.S. federal income tax purposes. Prospective
investors are urged to consult their tax advisors regarding the U.S. federal
income 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 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 of the exchange notes will be the same as the
basis in the notes immediately before the exchange.
137
<PAGE>
LEGAL MATTERS
Certain legal matters as to the validity of the notes offered hereby will
be passed upon for Huntsman ICI Holdings by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York.
EXPERTS
The financial statements of (1) Huntsman ICI Holdings 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, TiO2
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.
138
<PAGE>
GENERAL LISTING INFORMATION
Listing
Concurrently with the filing of the registration statement, of which this
prospectus is a part, 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 will be available for inspection and where copies thereof can be
obtained upon request. As long as the exchange notes are listed on the
Luxembourg Stock Exchange, an agent for making payments on, and transfer of,
exchange notes will be maintained in Luxembourg. We have initially designated
Banque Internationale A Luxembourg, S.A. as our agent for such purposes.
The ISIN for the exchange notes is and the CUSIP number for the
exchange notes is .
The issuance of the outstanding notes and the exchange notes was authorized
by the Managers of Huntsman ICI Holdings 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 in Luxembourg:
.Limited Liability Company Agreement of Huntsman ICI Holdings LLC;
.the Indenture relating to the notes, which includes the forms of the Note
certificates; and
.the registration rights agreement.
In addition, copies of the most recent consolidated financial statements of
Huntsman ICI Holdings for the preceding financial year, and any interim
quarterly financial statements published by Huntsman ICI Holdings 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.
Responsibility Statement
Having made all reasonable inquiries, we confirm that this prospectus
contains all information with respect to Huntsman ICI Holdings 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 Holdings 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.
139
<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-7
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-8
Consolidated Statements of Members' Equity for the nine months ended
September 30, 1999 (Unaudited).......................................... F-9
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-10
Notes to Consolidated Financial Statements (Unaudited) .................. F-11
Huntsman Specialty Chemicals Corporation and its Predecessor:
Independent Auditors' Report--Deloitte & Touche LLP...................... F-24
Report of Independent Public Accountants--Arthur Andersen LLP............ F-25
Balance Sheets as of December 31, 1997 and 1998.......................... F-26
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-28
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-29
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-30
Notes to Financial Statements............................................ F-31
ICI Businesses:
Independent Auditors Report--KPMG Audit Plc.............................. F-44
Combined Profit and Loss Accounts for the years ended December 31, 1996,
1997
and 1998................................................................ F-45
Combined Statements of Total Recognised Gains and Losses for the years
ended
December 31, 1996, 1997 and 1998........................................ F-45
Combined Balance Sheets as at December 31, 1997 and 1998................. F-46
Combined Cash Flow Statements for the years ended December 31, 1996,
1997 and 1998........................................................... F-47
Reconciliation of Movements in Combined Net Investment for the years
ended
December 31, 1996, 1997 and 1998........................................ F-47
Notes to the Combined Financial Statements............................... F-48
Unaudited Condensed Combined Profit and Loss Accounts for the six months
ended
June 30, 1998 and June 30, 1999......................................... F-72
Unaudited Condensed Combined Balance Sheets as at December 31, 1998 and
June 30, 1999........................................................... F-73
Unaudited Condensed Combined Cash Flow Statements for the six months
ended June 30, 1998 and 1999............................................ F-74
Notes to the Unaudited Condensed Combined Financial Statements........... F-75
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman ICI Holdings LLC
We have audited the accompanying consolidated balance sheet of Huntsman ICI
Holdings LLC (the "Company") and its subsidiaries 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 consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company and its subsidiaries
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 HOLDINGS LLC
CONSOLIDATED 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 consolidated balance sheet.
F-3
<PAGE>
HUNTSMAN ICI HOLDINGS LLC
NOTES TO CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999 (DATE OF INITIAL CAPITALIZATION)
1. GENERAL
The accompanying balance sheet includes the accounts of Huntsman ICI
Holdings LLC (the "Company") and its majority owned subsidiaries. The
Company was incorporated on March 23, 1999. The Company and its wholly
owned subsidiary, Huntsman ICI Chemicals LLC (Chemicals), were
incorporated 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"). The Company and HSCC are majority-
owned subsidiaries of Huntsman Corporation. The Company was initially
funded on June 30, 1999.
Principles of Consolidation -- The consolidated balance sheet includes the
accounts of the Company and its majority owned subsidiaries. All
significant intercompany accounts have been eliminated.
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 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 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 the Company 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
the Company, (2) approximately $2 billion in cash that was paid in a
combination of U.S. dollars and euros, and (3) discount notes of the
Company with approximately $508 million of accreted value at issuance. The
obligations of the discount notes from the Company are non-recourse to
Chemicals. BT Capital Investors, L.P., Chase Equity Associates, L.P., and
the Goldman Sachs Group acquired the remaining 10% common equity interest
in the Company for $90 million cash.
The sources to finance the above transactions are summarized as follows
(in millions):
<TABLE>
<S> <C>
Senior secured credit facilities of Chemicals..................... $1,683
Senior subordinated notes of Chemicals............................ 807
Senior discount notes of the Company.............................. 243
Senior subordinated discount notes of the Company ($265 million
accreted value).................................................. 224
Cash equity from institutional investors.......................... 90
------
Total sources..................................................... $3,047
======
</TABLE>
F-4
<PAGE>
See Note 3 for a description of the issuance and terms of the senior and
senior subordinated discount notes issued by the Company.
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
In order to fund the transactions discussed in Note 2, the Company
borrowed the following (in millions):
<TABLE>
<S> <C>
Senior Secured Credit Facilities of Chemicals...................... $1,683
Senior Subordinated Notes of Chemicals............................. 807
Senior Discount Notes of the Company............................... 243
Senior Subordinated Discount Notes of the Company.................. 224
------
Total.............................................................. $2,957
======
</TABLE>
The Senior Secured Credit Facilities will allow Chemicals 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
Chemicals' 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 .25% 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 the Company 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.
F-5
<PAGE>
Chemicals 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 at July 1, 2009. The Notes will be
guaranteed by Chemicals' domestic subsidiaries and certain non-U.S.
subsidiaries. The Notes may be redeemed, in whole or in part, at any time
by Chemicals 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 issued to ICI Senior Discount Notes and Senior Subordinated
Discount Notes (collectively, the Discount Notes) with accreted value of
$242.7 million and $265.3 million, respectively. The Discount Notes are
due December 31, 2009. Interest on the Senior Discount Notes will accrue
at 13.375% per annum and can be redeemed at the Company's option from 2001
until 2004 at the present value of $523.44 discounted from July 1, 2004
and thereafter at stipulated redemption prices declining to 100% of
accreted value in 2007. The present value of the redemption price is
computed using a discount rate equal to the Treasury Rate plus 50 basis
points. The Senior Subordinated Discount Notes have a stated rate of 8%
until 2001 and then reset to a market rate and can be redeemed at 100% of
accreted value at any time. For financial reporting purposes, the Senior
Subordinated Discount Notes have been recorded at their estimated fair
value of $224 million based upon prevailing market rates at July 1, 1999.
Interest on the Discount Notes is paid in-kind.
The Senior Discount Notes contain limits on the incurrence of debt,
restricted payments, liens, transactions with affiliates, and merger and
sales of assets.
* * * * *
F-6
<PAGE>
HUNTSMAN ICI HOLDINGS 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.................................................................... 103.6 291.5
Other noncurrent assets................................................................... 15.3 202.7
------ --------
Total assets.......................................................................... $577.6 $4,573.2
====== ========
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 2,979.2
Deferred income taxes..................................................................... 4.3 281.4
Other noncurrent liabilities.............................................................. 0.0 96.0
------ --------
Total liabilities..................................................................... 475.1 3,984.3
Minority interests........................................................................ 0.0 6.7
Mandatorily redeemable preferred stock.................................................... 71.9 0.0
------ --------
Equity:
Members' equity, 1,000 units............................................................ 0.0 523.6
Common stock............................................................................ 0.0 0.0
Additional paid-in capital.............................................................. 25.0 0.0
Retained earnings....................................................................... 5.6 36.1
Accumulated other comprehensive income.................................................. 0.0 22.5
------ --------
Total equity.......................................................................... 30.6 582.2
------ --------
Total liabilities and equity.......................................................... $577.6 $4,573.2
====== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
HUNTSMAN ICI HOLDINGS 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 70.4
Interest income........................................................................ 0.8 0.3 0.8
Other income........................................................................... 0.0 0.0 0.5
------ ------ ------
Income before income taxes............................................................. 3.4 34.6 44.8
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 36.1
Preferred stock dividends.............................................................. 3.2 2.2 0.0
------ ------ ------
Net income (loss) available to common stockholders..................................... (1.1) 19.3 36.1
Other comprehensive income--foreign currency translation adjustments................... 0.0 0.0 22.5
------ ------ ------
Comprehensive income (loss)............................................................ $ (1.1) $ 19.3 $ 58.6
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
HUNTSMAN ICI HOLDINGS 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:
Transfer of Huntsman
Specialty Chemicals
Corp. ("HSCC") assets
and liabilities at book
value.................. 600 $ 533.6 $ 0.0 $ 0.0 $ 0.0 $ 533.6
Contribution of Imperial
Chemicals Industries
PLC ("ICI") assets and
liabilities at fair
value.................. 300 520.0 520.0
Transfer of cash from
equity investors....... 100 90.0 90.0
Distributions to
members................ (620.0) (620.0)
Net income.............. 36.1 36.1
Foreign currency
translation
adjustments............ 22.5 22.5
-------- ---------- ----- ----- ----- -------
Balance, September 30,
1999................... 1,000 $ 523.6 $ 0.0 $36.1 $22.5 $ 582.2
======== ========== ===== ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE>
HUNTSMAN ICI HOLDINGS 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
Issuance of senior discount notes.................................................... 0.0 0.0 243.0
Issuance of senior subordinated discount notes....................................... 0.0 0.0 265.0
Debt issuance costs.................................................................. 0.0 0.0 (74.3)
Cash contributions by equity investors............................................... 0.0 0.0 90.0
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-10
<PAGE>
HUNTSMAN ICI HOLDINGS 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 of Chemicals...................... $ 1,683
Senior subordinated notes of Chemicals............................. 807
Senior Discount Notes of the Company............................... 243
Senior Subordinated Discount Notes of the Company
($265 million accreted value).................................. 224
Cash equity from institutional investors. ......................... 90
--------
Total sources.................................................. $ 3,047
========
</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 $2.8 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) which is being amortized over 5 to 15 years.
F-11
<PAGE>
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 and
non-compete
agreements).. 127
Other assets.. 168
Liabilities
assumed...... (932)
------
Total....... $2,854
======
</TABLE>
The total consideration paid to BP Chemicals was allocated to tangible
assets.
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 (loss)........................ (35) 48
</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.
F-12
<PAGE>
Inventories
Inventories are stated at the lower of cost or market using the weighted
average method.
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. 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.
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
F-13
<PAGE>
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.
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.
F-14
<PAGE>
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.
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
F-15
<PAGE>
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 (0.8 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.
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
------ ------
Total intangibles............................................................. 121.3 316.2
Less accumulated amortization..................................................... 17.7 24.7
--------------------------------------------------
------ ------
Net intangibles............................................................... $103.6 $291.5
</TABLE>
F-16
<PAGE>
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>
7. Long-Term Debt
Long-term debt outstanding as of September 30, 1999 is as follows (in
millions):
<TABLE>
<S> <C> <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
Senior Discount Notes of the Company........................ 243.0
Senior Subordinated Discount Notes of the Company........... 265.0
Less Discount........................................... (37.7)
Plus Accrued Interest on Discount Notes..................... 13.9
Other long-term debt........................................ 17.2
--------
Subtotal................................................ 2,990.5
Less Current Portion........................................ 11.3
--------
Total................................................... $2,979.2
========
</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.
F-17
<PAGE>
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 2,505.0
</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 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 issued to ICI Senior Discount Notes and Senior Subordinated
Discount Notes (collectively, the "Discount Notes") with accreted value of
$242.7 million and $265.3 million, respectively. The Discount Notes are due
December 31, 2009. Interest on the Senior Discount Notes will accrue at 13.375%
per annum and can be redeemed at the Company's option from 2001 until 2004 at
the present value of $523.44 discounted from July 1, 2004 and thereafter at
stipulated redemption prices declining to 100% of accreted value in 2007. The
present value of the redemption price is computed using a discount rate equal
to the Treasury Rate plus 50 basis points. The Senior Subordinated Discount
Notes have a stated rate of 8% until 2001 and then reset to a market rate and
can be redeemed at 100% of accreted value at any time. For financial reporting
purposes, the Senior Subordinated Discount Notes have been recorded at their
estimated fair value of $224 million based upon prevailing market rates at July
1, 1999. Interest on the Discount Notes is paid in kind.
The Senior Discount Notes contain limits on the incurrence of debt,
restricted payments, liens, transactions with affiliates, and merger and sales
of assets. The HSCC long-term debt and other noncurrent liabilities of $396.2
million and $74.1 million respectively outstanding at June 30, 1999 were not
transferred to the Company as part of the transaction.
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.
F-18
<PAGE>
. 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>
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 $15.7
Income not subject to U.S. federal income tax.......................... 0.0 (0.0) (4.7)
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% 17.7%
</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.
F-19
<PAGE>
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.
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.
F-20
<PAGE>
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.
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
F-21
<PAGE>
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>
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 $0.0 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
F-22
<PAGE>
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 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>
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-24
<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-25
<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-26
<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-27
<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................ 2,682 4,227
-------- ------- -------- --------
NET INCOME (LOSS)
AVAILABLE TO COMMON
STOCKHOLDERS............. $ 12,310 $(3,688) $ 396 $ 5,249
======== ======= ======== ========
</TABLE>
See notes to financial statements.
F-28
<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-29
<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-30
<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-31
<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-32
<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, approximately five years.
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-33
<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 agreement or over their
estimated useful lives, of five years (non-compete agreements), ten years
(other agreements), and fifteen years (patents, licenses and technology)
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, 2001. The Company is currently
evaluating the effects of SFAS No. 133 on its financial statements.
F-34
<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-35
<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-36
<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-37
<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-38
<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
statements 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-39
<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
======== =======
</TABLE>
The management, professional, technical and administrative services billed
to the Predecessor Company by Texaco entities are summarized below in
thousands of dollars:
<TABLE>
<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-40
<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-41
<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-42
<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), 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
approximately $360 million in cash. The Company will use the cash and any
additional funds from Huntsman Corporation to repay certain 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) 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. acquired 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-43
<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-44
<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> <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-45
<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-46
<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-47
<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 U.K. 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 U.K. Generally Accepted Accounting
Principles (U.K. GAAP). The principal accounting policies which have been
applied are set out below.
F-48
<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 U.K. 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-
U.K. 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-49
<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-50
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3Segmental 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-51
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3Segmental 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-52
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3Segmental 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-53
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
4Exceptional 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-54
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
5Trading 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 U.K. 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 U.K. Companies Act
1985.......................................... 538 372 467
------ ------ ------
</TABLE>
6Note of historical cost profits and losses
There were no material differences between reported profits and losses and
historical cost profit and losses on ordinary activities before tax in 1996,
1997 and 1998.
F-55
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
7Staff 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>
8Net 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>
9Taxation 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>
U.K. and overseas taxation has been provided on the profit/(loss) earned
for the periods covered by the accounts, U.K. corporation tax has been provided
at the rate of 31% (1997 31.5%; 1996 33%).
F-56
<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 U.K. 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 U.K. 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-57
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
10Tangible 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-58
<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-59
<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-60
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
16Loans
<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
U.S. dollars................................................ 4 --
Other currencies............................................ 1 --
--- ---
Total secured............................................... 5 --
--- ---
Secured by fixed charge................................... 4 --
Secured by floating charge................................ 1 --
--- ---
Unsecured loans
U.S. 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-61
<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>
17Provisions 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>
18Net 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-62
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
19Returns 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>
20Capital 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>
21Disposals
<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-63
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
22Financing
<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.
23Analysis 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-64
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
24Cash 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>
25Leases
<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-65
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
26Pensions 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).
27Related 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-66
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
28Contingent 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.
29Subsequent 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 received 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 was closed
at the close of business on 30 June 1999.
30Differences between U.K. and U.S. accounting principles
The Combined Financial Statements are prepared in accordance with United
Kingdom Generally Accepted Accounting Principles (U.K. GAAP). The significant
differences between U.K. GAAP and U.S. Generally Accepted Accounting Principles
(U.S. GAAP) which affect net income and net assets are set out below:
(a)Accounting for pension costs
There are four significant differences between U.K. GAAP and U.S. 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 U.K. GAAP permits an alternative
measurement of assets, which, in the case of the main U.K.
retirement plans, is on the basis of the discounted present value
of expected future income streams from the pension plan assets.
F-67
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(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 U.K. 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.
U.K. 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 U.K. 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
U.K. 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 U.S. 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, U.K. 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 U.S. 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 U.S. GAAP, it is normal practice
to ascribe fair values to identifiable intangibles. For the purpose of
the adjustments to U.S. 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.
(c) Capitalisation of interest
There is no accounting standard in the U.K. regarding the
capitalisation of interest and the Businesses do not capitalise
interest in the Combined Financial Statements. Under U.S. 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
U.S. 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 U.K. 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 U.K. GAAP and U.S. GAAP,
arise on the recognition of such costs.
F-68
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
(e) Deferred taxation
Deferred taxation is provided on a full provision basis under U.S.
GAAP. Under U.K. 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 U.S. GAAP had been applied instead of
U.K. GAAP:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(Pounds)m (Pounds)m (Pounds)m
<S> <C> <C> <C>
Net income after exceptional items--U.K. GAAP.... 53 (63) 58
Adjustments to conform with U.S. 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 U.K. GAAP results................. (10) 16 (12)
Arising on other U.S. GAAP adjustments....... -- 2 (1)
--- --- ---
Total U.S. GAAP adjustments.................... (12) 13 (10)
--- --- ---
Net income--U.S. GAAP............................ 41 (50) 48
=== === ===
Net investment--U.K. GAAP........................ 184 316
Adjustments to conform with U.S. 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 U.S. GAAP adjustments.................... 25 15
--- ---
Net investment--U.S. GAAP........................ 209 331
=== ===
</TABLE>
(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 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,
F-69
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
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-70
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
31Principal companies and operations
a) Principal ICI subsidiary companies included in the Businesses.
<TABLE>
<S> <C> <C>
% owned Country Unit name
100 England Tioxide Group
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
b) Principal associated companies included in the Businesses.
% owned Country Unit name
50 USA Louisiana Pigment Company, LP
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.
% owned Country Unit name
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-71
<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-72
<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-73
<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 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-74
<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-4
to F-71. 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>
3 Combined Cash Flow Statement
Restated in accordance with U.S. 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-75
<PAGE>
3Differences between U.K. and U.S. accounting principles
These Unaudited Condensed Combined Financial Statements have been prepared
in accordance with United Kingdom Generally Accepted Accounting Principles
(U.K. GAAP) which differs in certain significant respects from U.S. 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 U.S. GAAP had been applied instead of
U.K. GAAP:
<TABLE>
<CAPTION>
6 months ended
30 June
-------------------
1998 1999
--------- ---------
(Unaudited)
(Pounds)m (Pounds)m
<S> <C> <C>
Net income - U.K. GAAP..................................... 36 32
Adjustments to conform with U.S. GAAP:
Pension expense.......................................... -- (3)
Capitalisation of interest less amortisation and
disposals............................................... 17 7
Deferred taxation........................................
Arising on U.K. GAAP results........................... (9) (3)
Arising on other U.S. GAAP adjustments................. (6) (2)
--- ---
Total U.S. GAAP adjustments.............................. 2 (1)
--- ---
Net income - U.S. GAAP..................................... 38 31
=== ===
</TABLE>
<TABLE>
<CAPTION>
At 30 June
1999
-----------
(Unaudited)
(Pounds)m
<S> <C>
Net investment - U.K. GAAP......................................... 418
Adjustments to conform with U.S. 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 U.S. GAAP adjustments...................................... 14
---
Net investment - U.S. GAAP......................................... 432
===
</TABLE>
F-76
<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 Holdings LLC
Exchange Offer for
$945,048,000 13.375% Senior Discount Notes due 2009
---------------
[LOGO OF HUNTSMAN]
[LOGO OF ICI]
---------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 20. Indemnification of Officers and Directors
Huntsman ICI Holdings 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.
Clause 20 of Huntsman ICI Holdings LLC's current Amended and Restated
Limited Liability Company Agreement, which is filed as an exhibit to this
registration statement, authorize Huntsman ICI Holdings LLC's to indemnify its
managers and officers and to pay or reimburse these individuals for fees and
expenses in advance of a final disposition of a proceeding upon receipt of an
undertaking by or on behalf of such individuals to repay such amounts if so
required.
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 Holdings LLC dated June 30, 1999*
4.1 Amended and Restated Indenture, dated as of August 2, 1999, between
Huntsman ICI Holdings LLC and Bank One, N.A., as Trustee, relating to
the 13.375% Senior Discount Notes due 2009*
4.2 Form of certificate of 13.375% Senior Discount Notes due 2009 (included
in Exhibit A to Exhibit 4.1)*
4.3 Exchange and Registration Rights Agreement dated August 2, 1999, by and
among Huntsman ICI Holdings LLC, Goldman, Sachs & Co., and Deutsche
Bank Securities Inc.*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom as to the
legality of the notes to be issued by Huntsman ICI Holding LLC 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
Holdings 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*
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.*
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
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 Chemicals, Inc., Imperial Chemical Industries PLC, ICI
American Holdings Inc., Rubicon, Inc, and Uniroyal Inc.*
10.10 Indenture, dated as of June 30, 1999, between Huntsman ICI Holdings
LLC and Bank One, N.A., as Trustee, relating to the 8% Senior
Subordinated Discount Notes due 2009*
10.11 Form of certificate of 8% Senior Subordinated Discount Notes due 2009
(included in Exhibit A to Exhibit 10.10)*
10.12 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*
10.13 Form of certificate of 10 1/8% Senior Subordinated Notes due 2009
denominated in dollars (included in Exhibit A-3 to Exhibit 10.12)*
10.14 Form of certificate of 10 1/8% Senior Subordinated Notes due 2009
denominated in euros (included in Exhibit A-4 to Exhibit 10.12)*
10.15 Form of Guarantee (included in Exhibit E to Exhibit 10.12)*
10.16 Titanium Dioxide Supply Agreement, dated July 3, 1997, by and between
Imperial Chemicals Industries PLC and Tioxide Group++
10.17 Slag Sales Agreement, dated July 10, 1997, by and between Richards Bay
Iron and Titanium (Proprietary) Limited and Tioxide S.A. (Pty)
Limited++
10.18 Slag Sales Agreement, dated July 10, 1997, by and between Qit-Fer Et
Titahe Inc. and Tioxide Europe Limited++
10.19 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 Holdings 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 Chem Systems
23.7 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*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Letter to Brokers*
99.4 Letter to Clients*
</TABLE>
- --------
* Previously filed.
++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-2
<PAGE>
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(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 SEC 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Huntsman ICI Holdings
LLC has duly caused this Amendment No. 1 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 Holdings LLC
/s/ Jon M. Huntsman
By: _________________________________
Jon M. Huntsman
Chief Executive Officer, Chairman
of the
Board of Managers & Manager
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 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>
/s/ Jon M. Huntsman Chief Executive Officer, Chairman of the
______________________________________ Board of Managers & Manager
Jon M. Huntsman
/s/ Jon M. Huntsman, Jr. Vice Chairman of the Board of Managers and
______________________________________ Manager
Jon M. Huntsman, Jr.
/s/ Peter R. Huntsman President, Chief Operating Officer and
______________________________________ Manager
Peter R. Huntsman
/s/ J. Kimo Esplin Chief Financial Officer
______________________________________
J. Kimo Esplin
</TABLE>
II-4
<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 Holdings LLC
500 Huntsman Way
Salt Lake City, Utah 84108
Re: Huntsman ICI Holdings LLC
Registration Statement on Form S-4 (File No. 333-88057)
Ladies and Gentlemen:
We have acted as special counsel to Huntsman ICI Holdings LLC, a Delaware
limited liability company (the "Company"), in connection with the public
-------
offering of $945,048,000 aggregate principal amount at maturity of the Company's
13.375% Senior Discount Notes due 2009 (the "Exchange Notes"). The Exchange
--------------
Notes are to be issued pursuant to an exchange offer (the "Exchange Offer") in
--------------
exchange for a like principal amount at maturity of the issued and outstanding
13.375% Senior Discount Notes due 2009 of the Company (the "Original Notes")
--------------
under an Indenture, dated June 30, 1999 and amended and restated as of August 2,
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 August 2, 1999 (the "Registration Rights Agreement"), by and among
-----------------------------
the Company, Goldman, Sachs & Co. and Deutsche Bank Securities Inc.
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 as filed with the Securities and Exchange Commission (the
"SEC")
<PAGE>
Huntsman ICI Holdings LLC
December 1, 1999
Page 2
under the Act on September 29, 1999 and Amendment No.1 to the Form S-4 to
---
be filed with the SEC on the date hereof (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) the Form T-1 of the Trustee filed as an exhibit to the Registration
Statement; and (viii) the form of the Exchange Notes. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such records of the Company and such agreements, certificates of public
officials, certificates of officers or other representa tives of the Company 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
submit ted to us as originals, the conformity to original documents of all
documents submit ted 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 ments or documents to be executed, we have assumed
that the parties thereto, other than the Company, 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. As to any facts material to the
opinions expressed herein which we have not independently estab lished or
verified, we have relied upon statements and representations of officers and
other representatives of the Company 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 govern-
2
<PAGE>
Huntsman ICI Holdings LLC
December 1, 1999
Page 3
mental authorities are relevant, to those requiredmental authorities are
relevant, to those required under such laws (all of the forego ing 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 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 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 opinion set forth above, we have assumed that the
execution and delivery by the Company of the Indenture and the Exchange Notes
and the performance by the Company of its obligations thereunder do not and will
not violate, conflict with or constitute a default under any agreement or
instrument to which the Company or its properties is subject, except for those
agreements and instruments 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.
3
<PAGE>
Huntsman ICI Holdings LLC
December 1, 1999
Page 4
We hereby consent to the filing of this opinion with the SEC 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 SEC.
Very truly yours,
/s/ Skadden, Arps, Meagher & Flom LLP
4
<PAGE>
EXHIBIT 8.1
_________________________, 1999
Huntsman ICI Holdings 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 $945,048,000
13.375% Senior Discount 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 particu larly, 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 retroactive effect. A material
change in any of the materials or authorities upon which our opinion is based
could affect our conclusions stated herein.
<PAGE>
Huntsman ICI Holdings LLC
_________________, 1999
Page 2
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>
Exhibit 12.1
HUNTSMAN ICI HOLDINGS LLC
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Predecessor Huntsman Specialty Huntsman ICI
----------------------------- ------------------------------------ ----------------------------------------
Pro Forma
Year Ended Ten Months Ten Months Year Six Months Three Months Year Nine Months
December 31, Ended Ended Ended Ended Ended Ended Ended
---------------- February 28, December 31, December 31, June 30, September 30, December 31, September 30,
1994 1995 1996 1997 1997 1998 1999 1999 1998 1999
---- ---- ---- ------------ ------------ ------------ ---------- ------------- ------------ -------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense
(includes
amortization of
deferred
financing
costs).......... $-- $-- $-- $-- $35 $40 $18 $ 70 $295 $225
Interest portion
of rent
expense......... -- 5 11 -- -- -- 2 2 2
--- --- --- --- --- --- --- ---- ---- ----
Total Fixed
Charges.......... $ 0 $ 5 $11 $ 0 $35 $40 $18 72 $297 $227
=== === === === === === === ==== ==== ====
Earnings:
Income from
operations
operation before
taxes........... $(9) $(2) $19 $(6) $ 5 $15 $35 $ 45 $(45) $ 59
Fixed Charges: 0 5 11 0 35 40 18 72 297 227
Less:
Minority
interest in pre-
tax income of
subsidiaries.... -- -- -- -- -- -- -- $ 1 2 $ 1
--- --- --- --- --- --- --- ---- ---- ----
Total Earnings... $(9) $ 3 $30 $(6) $40 $55 $53 $118 $254 $287
=== === === === === === === ==== ==== ====
Ratio of
Earnings to
Fixed Charges... -- 0.6 2.7 -- 1.1 1.4 2.9x 1.6x 0.9x 1.3x
Deficiency of
Earnings to
Fixed Charges... -- $ 2 $ 6 $ 43
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-88057 of Huntsman ICI Holdings LLC of our report dated February 26,
1999 (July 1, 1999 as to Note 14), appearing in the Prospectus, which is part
of such Registration Statement, and 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. 1 to the Registration Statement No.
333-88057 of Huntsman ICI Holdings 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 Holdings 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 26, 1999
<PAGE>
Exhibit 23.6
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 Holdings LLC,
and any amendments thereto, filed with the Securities and Exchange Commission
for the registration of the 13.375% Senior Discount Notes due 2009.
Dated: November 26, 1999
/s/ M.J. Kratochwill
---------------------------------------
Chem Systems
<PAGE>
Exhibit 23.7
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 Holdings LLC,
and any amendments thereto, filed with the Securities and Exchange Commission
for the registration of the 13.375% Senior Discount Notes due 2009.
Dated: November 22, 1999
/s/ IBMA, Inc.
________________________
James R. Fisher
CEO & President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001092825
<NAME> HUNTSMAN ICI HOLDINGS 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-01-1999
<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 4,573,200
<CURRENT-LIABILITIES> 0 0 627,700
<BONDS> 0 0 2,979,200
0 0 0
0 0 0
<COMMON> 0 0 533,600
<OTHER-SE> 0 0 58,600
<TOTAL-LIABILITY-AND-EQUITY> 0 0 4,573,200
<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 70,400
<INCOME-PRETAX> 3,400 34,600 44,800
<INCOME-TAX> 1,300 13,100 7,900
<INCOME-CONTINUING> 2,100 21,500 36,100
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,100 21,500 36,100
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
