<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-29415
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ICO, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
TEXAS 1389 75-1619554
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
JON C. BIRO
SENIOR VICE PRESIDENT AND TREASURER
11490 WESTHEIMER, SUITE 1000 11490 WESTHEIMER, SUITE 1000
HOUSTON, TEXAS 77077 HOUSTON, TEXAS 77077
(281) 721-4200 (281) 721-4200
(Address, including zip code, and telephone (Name, Address, including zip code, and
number, including area code, of telephone number, including area code,
registrant's principal executive offices) of agent for service)
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Copy to:
T. MARK KELLY
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
(713) 758-4592
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness 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. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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PROSPECTUS
ICO, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 10 3/8% SENIOR NOTES DUE 2007, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
---------------------
ICO, Inc., a Texas corporation (the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal," and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 10 3/8% Senior Notes due 2007, Series B (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for each $1,000 principal amount of
its outstanding 10 3/8% Senior Notes due 2007, Series A (the "Old Notes"), of
which $120,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Old Notes except for certain transfer restrictions and registration rights
relating to the Old Notes. The Exchange Notes will evidence the same debt as the
Old Notes and will be issued under and be entitled to the benefits of the
Indenture (as defined herein). The Exchange Notes and the Old Notes are
collectively referred to herein as the "Notes."
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future Senior Indebtedness of
the Company, and senior in right of payment to all existing and future
Subordinated Indebtedness of the Company. Under certain circumstances, any
existing or future Restricted Subsidiaries of the Company will be obligated to
guarantee the Notes. See "Description of Notes -- Guarantees of Certain
Indebtedness". The obligation of the Restricted Subsidiaries under such
guarantees will be senior unsecured obligations of such Restricted Subsidiaries
which will rank pari passu with all existing and future unsecured Senior
Indebtedness of such Guarantor and senior in right of payment to all future
Subordinated Indebtedness of such Guarantor.
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1997, unless the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendment."
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the business day prior to the Expiration Date (as defined herein),
unless previously accepted for exchange. The maximum period of time that the
Exchange Offer will remain open is 45 days from the date the Registration
Statement is declared effective, including all extensions. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Company and to the terms and provisions of the Registration
Rights Agreement (as defined herein). In addition, the Company has agreed that
it will make the Prospectus and any amendment or supplement to this Prospectus
available for resales by broker dealers who acquired the Notes in market making
or trading activities for a period of up to 180 days. Old Notes may be tendered
only in denominations of $1,000 principal amount and integral multiples thereof.
The Company has agreed to pay the expenses of the Exchange Offer. See "The
Exchange Offer."
(cover continued on next page)
---------------------
See "Risk Factors" beginning on Page 14 of this Prospectus for a discussion
of certain factors that should be considered in connection with the Exchange
Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is October 3, 1997.
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The Exchange Notes will bear interest at the rate of 10 3/8% per annum,
payable semi-annually on June 1 and December 1 of each year, commencing December
1, 1997. Holders of Exchange Notes of record on November 15, 1997 will receive
interest on December 1, 1997 from the date of issuance of the Exchange Notes,
plus an amount equal to the accrued interest on the Old Notes from the date of
issuance of the Old Notes, June 9, 1997, to the date of exchange thereof.
Interest on the Old Notes accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.
The Old Notes were sold by the Company on June 9, 1997 to the Initial
Purchaser (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchaser only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and to a limited number of institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), each of whom
agreed to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be offered, resold or otherwise transferred
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Registration Rights Agreement entered into with the
Initial Purchaser in connection with the offering of the Old Notes. See "The
Exchange Offer" and "Description of Notes -- Registration Rights; Liquidated
Damages."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by the respective holders thereof (other than a "Restricted Holder,"
being (i) a broker-dealer who purchased Old Notes exchanged for such Exchange
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the 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 Exchange Notes are acquired
in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Holders who tender Old Notes in the
Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely upon the Morgan Stanley Letter or similar no-action
letters. See "The Exchange Offer -- General." Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). 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 Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus and any amendment or supplement to this Prospectus available to
any broker-dealer for use in connection with any such resale for a period of up
to 180 days after consummation of the Exchange Offer. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Notes or as to the ability of or
price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
Bear, Stearns & Co. Inc. (the "Initial Purchaser") has informed the Company that
it currently intends to make a market for the Exchange Notes as permitted by
applicable law and regulation. However, it is not so obligated, and any such
market making may be discontinued at any time without notice. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of or the trading market for the
Exchange Notes.
2
<PAGE> 4
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
TABLE OF CONTENTS
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PAGE NO.
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Available Information....................................... 3
Disclosure Regarding Forward Looking Statements............. 4
Incorporation of Certain Documents by Reference............. 4
Prospectus Summary.......................................... 6
Summary Financial Data...................................... 12
Risk Factors................................................ 14
The Company................................................. 21
Private Placement........................................... 23
Use of Proceeds............................................. 23
Capitalization.............................................. 24
Selected Historical Financial Data.......................... 25
Selected Unaudited Pro Forma Consolidated Financial Data.... 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 37
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 49
The Exchange Offer.......................................... 56
Description of Certain Credit Facilities.................... 63
Description of Notes........................................ 64
Description of Capital Stock................................ 94
Certain Federal Income Tax Consequences..................... 96
Plan of Distribution........................................ 99
Transfer Restrictions on Old Notes.......................... 101
Legal Matters............................................... 103
Experts..................................................... 104
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by the Company
with the Commission which can be accessed over the Internet at
http://www.sec.gov. The Company's Common Stock is traded on The Nasdaq Stock
Market National Market System under the trading symbol "ICOC" and such reports,
proxy statements and other information concerning the Company may also be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006. While any Old Notes remain outstanding, the Company will
make available, upon request, to any holder and any prospective purchaser of Old
Notes, the information required pursuant to Rule 144A(d)(4) under the Securities
Act during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act. Any such request should be directed to Jon C. Biro, Senior
Vice President and Treasurer of the Company, 11490 Westheimer, Suite 1000,
Houston, Texas 77077.
3
<PAGE> 5
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain certain of the information set
forth in the Registration Statement. Reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of contracts or other
documents are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of the applicable contract or other
document filed with the Commission. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes (or incorporates by reference) "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Exchange Act. Certain
statements contained in this Prospectus, including without limitation,
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both domestic and foreign; industry
capacity; management of growth; development of products; proprietary rights;
demographic changes; existing government regulations and changes in, or the
failure to comply with, government regulations; liability and other claims
asserted against the Company; competition; the loss of any significant
customers; changes in operating strategy or development plans; the ability to
attract and retain qualified personnel; the significant indebtedness of the
Company as a result of the sale of the Old Notes; the availability and terms of
capital to fund the expansion of the Company's business; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business". Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents, which have been filed with the Commission pursuant to the
Exchange Act: (i) the Company's Current Report on Form 8-K dated April 30, 1996
and the amendment thereto dated July 15, 1996, (ii) the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996; (iii) the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996; (iv) the
Company's Proxy Statement dated January 24, 1997 for the Annual Meeting of
Shareholders held March 3, 1997; (v) the Company's Quarterly Report on Form 10-Q
for the six months ended March 31, 1997; (vi) the Company's Current Report on
Form 8-K filed May 12, 1997; (vii) the Company's Current Report on Form 8-K
filed June 4, 1997, (viii) the Company's Quarterly Report on Form 10-Q for the
nine months ended June 30, 1997, (ix) the Company's Current Report on Form 8-K
dated August 5, 1997 and the amendment thereto dated October 2, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made by the Prospectus shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of such documents.
4
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Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed
incorporated document or in any accompanying prospectus supplement modifies or
supersedes such statement (but not to the extent that any statement and any such
other filed document is only summarized herein or in any other subsequently
filed document). Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents referred to above which have been or may be
incorporated by reference, not including exhibits to the information that has
been incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Requests for such copies should be directed to Jon C. Biro, Senior
Vice President and Treasurer, ICO, Inc., 11490 Westheimer, Suite 1000, Houston,
Texas 77077; telephone number (281) 721-4200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
5
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the "Selected Historical Financial Data", "Unaudited Pro Forma
Condensed Consolidated Financial Statements" and Consolidated Financial
Statements and notes thereto, each included elsewhere in this Prospectus or
incorporated by reference herein. Unless the context otherwise requires or as
otherwise stated, for purposes of this Prospectus the "Company" or "ICO" refers
to ICO, Inc. and its wholly-owned subsidiaries. References to a "fiscal year"
refer to the Company's fiscal year which ends on September 30 (e.g., "fiscal
1996" means the Company's fiscal year ended September 30, 1996), and all numbers
presented in the text have been rounded to the nearest increment.
THE COMPANY
The Company provides specialized oilfield services and petrochemical
processing services. The Company operates in the United States, Canada and
Europe, and has grown through a combination of internal growth and sixteen
acquisitions since the beginning of fiscal 1994. On a consolidated basis, pro
forma for the fiscal 1996 and fiscal 1997 acquisitions of Wedco Technology, Inc.
("Wedco"), Bayshore Industrial, Inc. ("Bayshore"), Rotec Chemicals Ltd.
("Rotec") and Verplast S.p.A. ("Verplast") as if they had occurred at the start
of the period, ICO would have reported net revenues of $204.2 million, Adjusted
EBITDA (as defined) of $26.9 million and a net loss of $12.9 million for the
year ended September 30, 1996 and would have reported net revenues of $178.2
million, EBITDA of $24.8 million and net income of $1.4 million for the nine
months ended June 30, 1997. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements."
The Company is a leading provider of oilfield services designed to reduce
the customers' cost of drilling and production by preventing faulty tubular
goods from being placed downhole (exploration services), reclaiming and
reconditioning used tubular goods and sucker rods (production services), and
preventing premature failure of tubular goods and sucker rods from occurring due
to the corrosive downhole drilling environment (corrosion control services).
Although comprehensive industry statistics are not readily available, ICO
believes it is one of the two largest providers of inspection, reconditioning
and coating services for tubular goods in the United States. The Company's
customers in the oilfield services segment include several of the leading
integrated oil companies and major independent oil and gas exploration and
production companies.
In the petrochemical processing segment, the Company provides specialty
size reduction services and manufactures and distributes concentrates for use in
petrochemical products. The Company's size reduction services and concentrates
manufacturing operations are an intermediate step between the primary production
of petrochemical resins and the final manufacture of a wide variety of end
products, such as paint, garbage bags or objects made of plastic. The Company's
size reduction services involve the grinding of pellets into smaller sizes or
the blending of petrochemical pellets with other additives or fillers, while the
Company's concentrates manufacturing operations produce additives, which, when
blended into resin, give end products desired properties such as flame
retardance, color, ultraviolet stabilization or adhesion.
From the beginning of fiscal 1994 through the middle of fiscal 1996, ICO
completed and integrated eight acquisitions in the oilfield services segment
which increased its market share and expanded its service capabilities. In April
1996, the Company entered the petrochemical processing industry through the
acquisition of Wedco to take advantage of opportunities in that market. ICO
believes that the petrochemical processing segment presents consolidation
opportunities similar to those which existed in the oilfield services segment on
which ICO capitalized in the early 1990's. Since the Wedco acquisition, the
Company has completed six additional acquisitions in the petrochemical
processing industry and is in the process of consolidating three manufacturing
facilities to reduce operating costs and capital expenditure requirements.
The Company seeks growth through internal expansion, capital investments
and acquisitions. The primary focus of the Company's growth strategy is to (i)
increase its penetration of the oilfield services segment by continuing to
introduce new products that meet customers needs and utilizing technology to
develop innovative solutions for customers, (ii) continue to consolidate certain
segments of the petrochemical
6
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processing market through acquisitions, (iii) expand its business of
international distribution of certain petrochemical products, and (iv)
selectively pursue complementary acquisitions in the oilfield services business.
RECENT DEVELOPMENTS
On April 30, 1997 the Company completed the acquisition of Rotec, an
English manufacturer of specialized color concentrates and compounds, primarily
for the rotational molding industry. Rotec distributes the products it
manufactures to customers in Europe under its own brand name, and it has a sales
force of three persons and a facility located in Rushden, England. The Company
believes that the Rotec acquisition will enhance its distribution capabilities
in Europe and will offer it opportunities to provide its United States
rotational molding customers with products currently sold by Rotec.
On May 5, 1997 the Company acquired the remaining 50% interest in
Micronyl-Wedco S.A. ("Micronyl"), a joint venture previously established by
Wedco to perform size reduction operations in France, from its local management
joint venture partner. Micronyl operates two size reduction facilities in France
which perform services similar to those performed by other Wedco units.
On July 21, 1997 the Company acquired Verplast S.p.A. ("Verplast") for
$18,293,000 in cash and the assumption of $7,100,000 in debt. The Company used a
portion of the proceeds of the recently issued Senior Notes due 2007 to acquire
Verplast and accounted for the acquisition using the purchase method of
accounting. Verplast, located in northern Italy, is a supplier of petrochemical
processing services and value-added plastic materials for the rotational molding
market and for other plastic powder applications.
On September 19, 1997 the Company acquired the operating assets of
Nspection Systems, Inc. ("Nspection") for $600,000 in cash and future royalty
payments based on sales. Nspection provides electromagnetic inspection and
related services for new and used tubing, casing and drill pipe utilizing two
locations in Houston, Texas.
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on June 9, 1997 to the Initial
Purchaser and were thereupon offered and sold by the Initial Purchaser only to
certain qualified buyers. The Company intends to use the $115.3 million net
proceeds received by the Company in connection with the sale of the Old Notes to
(i) repay the balance of certain of the Company's outstanding indebtedness, of
approximately $17.2 million ($16.7 million of which has been repaid as of
September 29, 1997), and (ii) finance capital expenditures in its petrochemical
processing business segment, estimated at $8.2 million. The balance of the net
proceeds of the sale of the Old Notes is intended to be used for general
corporate purposes, including capital expenditures and acquisitions. In July
1997, the Company used $18.3 million of the proceeds to purchase Verplast. See
"Private Placement" and "Capitalization."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $120,000,000 principal
amount of Exchange Notes for up to $120,000,000 principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto. The Exchange Notes will evidence the same debt as
the Old Notes and will be issued under and be entitled to the benefits of the
Indenture governing the Old Notes. See "Description of the Notes."
The Exchange Offer......... Each $1,000 principal amount of Exchange Notes will
be issued in exchange for each $1,000 principal
amount of outstanding Old Notes. As of the date
hereof, $120,000,000 principal amount of Old Notes
are
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<PAGE> 9
issued and outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes on
or promptly after the Expiration Date.
Resale..................... The Company believes that the Exchange Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except for certain
Restricted Holders who may be required to deliver
copies of this Prospectus in connection with any
resale of the Exchange Notes issued in exchange for
such Old Notes. See "The Exchange Offer -- General"
and "Plan of Distribution."
Expiration Date............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Interest on the Notes...... The Exchange Notes will bear interest payable
semi-annually on June 1 and December 1 of each
year, commencing December 1, 1997. Holders of
Exchange Notes of record on November 15, 1997 will
receive interest on December 1, 1997 from the date
of issuance of the Exchange Notes, plus an amount
equal to the accrued interest on the Old Notes from
the date of issuance of the Old Notes, June 9,
1997, to the date of exchange thereof.
Consequently, holders who exchange their Old Notes
for Exchange Notes will receive the same interest
payment on December 1, 1997 that they would have
received had they not accepted the Exchange Offer.
Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the Exchange
Notes. See "The Exchange Offer -- Interest on the
Exchange Notes."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message (as defined herein) together with
the Old Notes to be exchanged and any other
required documentation to the Exchange Agent at the
address set forth herein and therein or effect a
tender of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. See
"The Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Holders......... Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on the
beneficial holder's behalf. If such beneficial
holder wishes to tender directly, such beneficial
holder must, prior to completing and executing the
Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the
registered holder. The transfer of record ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old
8
<PAGE> 10
Notes and a properly completed Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis
and deliver an Agent's Message, may tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date, unless
previously accepted for exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
Termination of the Exchange
Offer.................... The Company may terminate the Exchange Offer if it
determines that the Exchange Offer violates any
applicable law or interpretation of the staff of
the SEC. Holders of Old Notes will have certain
rights against the Company under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Termination" and "Description of the
Notes -- Registration Rights; Liquidated Damages."
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
General."
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. The mailing address of the
Exchange Agent is: State Street Bank and Trust
Company, Corporate Trust Department, P.O. Box 778,
Boston, Massachusetts 02102-0078. Hand deliveries
and deliveries by overnight courier should be
addressed to State Street Bank and Trust Company,
Corporate Trust Department, 4th Floor, Two
International Place, Boston, Massachusetts 02110.
For information with respect to the Exchange Offer,
the telephone number for the Exchange Agent is
(617) 664-5587 and the facsimile number for the
Exchange Agent is (617) 664-5395. See "The Exchange
Offer -- Exchange Agent."
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of
the Old Notes, see "Private Placement."
Principal Executive
Offices.................... The Company's address is 11490 Westheimer, Suite
1000, Houston, Texas 77077. The Company's telephone
number is (281) 721-4200.
TERMS OF THE NOTES
Notes Outstanding.......... $120 million principal amount of 10 3/8% Senior
Notes due 2007.
Maturity Date.............. June 1, 2007.
9
<PAGE> 11
Interest Payment Dates..... June 1 and December 1 of each year, commencing
December 1, 1997.
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after June 1, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption, or at the Make-Whole Price plus accrued
and unpaid interest to the date of redemption if
redeemed prior to June 1, 2002. In addition, the
Company may, at its option, redeem prior to June 1,
2000 up to 35% of the aggregate principal amount of
the Notes at 110.375% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption, from the net proceeds of one or more
Equity Offerings, provided that at least $78
million the aggregate principal amount of the Notes
remains outstanding following each such redemption.
See "Description of Notes -- Optional Redemption."
Mandatory Redemption....... None, except as set forth below under "Change of
Control Offer" and in the case of an asset sale
offer. See "Description of Notes -- Limitation on
Sale of Assets."
Change of Control Offer.... Upon the occurrence of a Change of Control, the
Company will be required, subject to certain
conditions, to offer to repurchase all or any part
of the outstanding Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date
of repurchase. See "Description of Notes -- Change
of Control."
Ranking.................... The Notes are senior unsecured obligations of the
Company ranking pari passu in right of payment with
all existing and future Senior Indebtedness of the
Company, and senior in right of payment to all
existing and future Subordinated Indebtedness of
the Company. At June 30, 1997, after giving pro
forma effect to the acquisition of Verplast, the
Company would have had $1.4 million of indebtedness
that would rank pari passu with the Notes, $900,000
of which is secured and would effectively rank
senior to the Notes in right of payment. In
addition, at June 30, 1997 the Company would have
had $15.0 million available for borrowing under the
Bank Credit Facility on the same pro forma basis.
The Notes will be effectively subordinated to the
liabilities of the Company's subsidiaries,
including trade payables. At June 30, 1997, on the
same pro forma basis, the Company's subsidiaries
would have had $22.8 million of indebtedness that
would be effectively senior to the Notes. See
"Description of Notes -- Ranking."
Certain Covenants.......... The Indenture governing the Notes (the "Indenture")
contains certain covenants, including, but not
limited to, covenants limiting the Company and its
Subsidiaries with respect to the following: (i)
asset sales; (ii) the incurrence of additional
indebtedness; (iii) liens; (iv) issuance of certain
preferred stock; (v) mergers and consolidations;
(vi) payment restrictions affecting subsidiaries;
(vii) dividends, investments and other restricted
payments; (viii) transactions with affiliates; and
(ix) issuance or sale of equity interests in
subsidiaries. See "Description of Notes -- Certain
Covenants."
Use of Proceeds of Old
Notes...................... The Company intends to use the net proceeds of the
sale of the Old Notes (approximately $115.3
million) to (i) repay the balance of certain of the
Company's outstanding indebtedness, estimated at
$17.2 million
10
<PAGE> 12
($16.7 million of which has been repaid as of
September 29, 1997), and (ii) finance capital
expenditures in its petrochemical processing
business segment, estimated at $8.2 million. The
balance of the net proceeds of the sale of the Old
Notes is intended to be used for general corporate
purposes, including capital expenditures and
acquisitions. In July 1997, the Company used $18.3
million of the proceeds to purchase Verplast. See
"Capitalization".
Transfer Restrictions...... The Old Notes were not registered under the
Securities Act and unless so registered may not be
offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act.
See "Transfer Restrictions on Old Notes".
Exchange Offer............. Pursuant to a registration rights agreement (the
"Registration Rights Agreement") by and between the
Company and the Initial Purchaser, the Company has
agreed to (i) file a registration statement with
the Commission (the "Exchange Offer Registration
Statement") with respect to an offer to exchange
the Old Notes (the "Exchange Offer") for senior
debt securities of the Company with terms
substantially identical to the Old Notes (the "New
Notes") (except that the New Notes generally will
not contain terms with respect to transfer
restrictions) within 60 days after the date of
original issuance of the Old Notes, June 9, 1997,
and (ii) use its best efforts to cause such
registration statement to become effective under
the Securities Act within 120 days after such issue
date. The Registration Statement of which this
Prospectus is a part constitutes such Exchange
Offer Registration Statement. In the event that
applicable law or interpretations of the staff of
the Commission do not permit the Company to effect
the Exchange Offer, or if certain holders of the
Notes notify the Company that they are not
permitted to participate in, or would not receive
freely tradeable Notes pursuant to, the Exchange
Offer, the Company will use its best efforts to
cause to become effective a registration statement
(the "Shelf Registration Statement") with respect
to the resale of the Old Notes and to keep the
Shelf Registration Statement effective until two
years after the date of original issuance of the
Old Notes. The interest rate on the Old Notes is
subject to increase under certain circumstances if
the Company is not in compliance with its
obligations under the Registration Rights
Agreement. See "Description of
Notes -- Registration Rights; Liquidated Damages."
RISK FACTORS
The Notes involve certain risks that a potential investor should carefully
evaluate prior to making an investment. See "Risk Factors."
11
<PAGE> 13
SUMMARY FINANCIAL DATA(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ 34,635 $ 60,217 $ 75,970 $ 87,883 $ 108,663 $ 73,470 $ 137,045
Cost of sales and services............... 24,153 42,862 54,191 59,885 74,704 51,051 96,662
--------- --------- --------- --------- ---------- ---------- ----------
Gross profit............................. 10,482 17,355 21,779 27,998 33,959 22,419 40,383
Selling, general and administrative
expenses............................... 8,055 12,730 15,202 17,736 19,996 13,050 22,182
Depreciation and amortization............ 2,616 3,669 4,357 5,112 7,230 4,826 8,012
Impairment of long-term assets........... -- -- -- -- 5,025 -- --
Non-recurring compensation
arrangements........................... -- -- -- -- 1,812 -- --
Non-recurring litigation charges......... (467) 605 -- -- 1,112 -- --
Writedown of inventories................. -- -- -- 104 868 -- --
--------- --------- --------- --------- ---------- ---------- ----------
Operating income (loss).................. 278 351 2,220 5,046 (2,084) 4,543 10,189
Interest (income) expense, net........... 740 2,352 (431) (1,307) (608) (752) 1,532
Other (income) expense................... -- -- -- (4) 216 (104) (118)
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item..................... (462) (2,001) 2,651 6,357 (1,692) 5,399 8,775
Income taxes (benefit)................... -- -- 55 567 (632) 697 3,568
Extraordinary item -- gain (loss) on
repayment of debt...................... 79 -- (1,371) -- -- -- --
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss)........................ (383) (2,001) 1,225 5,790 (1,060) 4,702 5,207
--------- --------- --------- --------- ---------- ---------- ----------
Preferred dividends...................... -- -- 1,826 2,176 2,178 1,633 1,632
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss) available for Common
shareholders........................... $ (383) $ (2,001) $ (601) $ 3,614 $ (3,238) $ 3,069 $ 3,575
========= ========= ========= ========= ========== ========== ==========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARES:
Income (loss) before extraordinary
items.................................. $ (.15) $ (.49) $ .09 $ .41 $ (.24) $ .27 $ .17
Net income (loss) available for Common
shareholders........................... $ (.12) $ (.49) $ (.07) $ .41 $ (.24) $ .27 $ .17
========= ========= ========= ========= ========== ========== ==========
Cash dividends declared on Common
stock.................................. -- -- -- -- $ .21 $ .17 $ .16
Weighted average shares outstanding...... 3,093,964 4,052,325 8,299,559 8,709,303 13,327,855 11,241,031 20,911,797
OTHER FINANCIAL DATA:
EBITDA(2)................................ $ 2,894 $ 4,020 $ 6,577 $ 10,158 $ 5,146 $ 9,369 $ 18,201
Adjusted EBITDA(3)....................... 2,427 4,625 6,577 10,262 13,963 9,369 18,201
Net cash provided by (used for) operating
activities............................. 752 (1,008) 4,746 9,029 11,110 7,476 7,151
Net cash used for investing activities... (625) (2,115) (7,443) (6,640) (14,466) (11,584) (19,877)
Net cash provided by (used for) financing
activities............................. (401) 12,364 18,010 (2,161) (8,221) (3,065) 101,590
Capital expenditures(4).................. 642 2,252 4,782 5,838 8,712 7,136 9,832
Common stock dividends................... -- -- -- -- 2,830 1,866 3,375
Ratios of:
Earnings to fixed charges(5)............. -- -- 3.7x 10.7x -- 8.3x 4.2x
EBITDA to interest expense, net(6)....... 3.9x 1.7x -- -- -- -- 11.9x
Adjusted EBITDA to interest expense,
net(6)................................. 3.3x 2.0x -- -- -- -- 11.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents................... $ 209 $ 9,450 $24,763 $24,991 $ 13,414 $ 17,818 $102,278
Working capital........................ 3,321 17,787 37,656 37,284 29,882 28,756 127,820
Property, plant & equipment, net....... 25,435 24,431 27,513 29,824 72,585 73,482 84,637
Total assets........................... 40,713 51,353 78,969 88,183 163,391 168,397 300,661
Long-term debt, net of current
portion.............................. 19,376 10,676 456 1,047 15,422 15,578 131,003
Stockholders' equity................... 10,304 32,293 69,204 74,471 120,594 126,808 128,004
</TABLE>
12
<PAGE> 14
- ---------------
(1) The Statement of Operations, Balance Sheet and Other Financial Data include
the results of operations and financial position of the Company and each of
the companies acquired since their respective dates of acquisition. See note
2 to the Consolidated Financial Statements and notes thereto incorporated by
reference in this Prospectus, and "Selected Unaudited Pro Forma Condensed
Consolidated Financial Data" included elsewhere in this Prospectus.
(2) EBITDA represents income from operations before interest expense, other
income and expense, provision for income taxes, extraordinary items and
depreciation and amortization. EBITDA is a widely accepted indicator of a
company's ability to service debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operations, or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(3) Adjusted EBITDA is comprised of EBITDA (see (2) above) excluding the
following fiscal 1996 operating expenses: impairment of long-term assets,
non-recurring compensation arrangements, non-recurring litigation and
writedown of inventories. Adjusted EBITDA is provided as additional
information regarding ICO's ability to service debt, but, as with EBITDA,
should not be considered in isolation or as a substitute for net income,
cash flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(4) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes, extraordinary items,
undistributed income in joint ventures and fixed charges. Fixed charges
consist of interest expense (including the amortization of debt issuance
costs) plus that portion of rental payments on operating leases deemed
representative of the interest factor. As a result of incurring a net loss
for the fiscal years ended September 30, 1992, 1993 and 1996, earnings did
not cover fixed charges by $462,000, $2,001,000 and $1,772,000,
respectively.
(6) The ratio has not been presented for periods in which the Company incurred
net interest income.
13
<PAGE> 15
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors should be considered by prospective investors
when evaluating an investment in the Notes.
LEVERAGE AND RESTRICTIONS IMPOSED BY INDEBTEDNESS
At June 30, 1997, on a pro forma basis, after giving effect to the
acquisition of Verplast as described under "Unaudited Pro Forma Condensed
Consolidated Financial Data," the Company would have had $144.7 million of
indebtedness and stockholders' equity of $128.0 million. In addition, the terms
of the Notes permit the Company to incur (i) $25 million of indebtedness under
the Bank Credit Facility, which amount the Company may increase if certain
inventory and receivables levels are achieved by the Company and (ii) certain
other indebtedness. The Company's stockholders' equity includes 322,500 shares,
with a $100 liquidation preference, of $6.75 Convertible Exchangeable Preferred
Stock (the "Convertible Preferred Stock") outstanding on which holders are
entitled to receive, out of funds of the Company legally available therefor, an
annual cash dividend of $6.75 per share, payable quarterly. See "Private
Placement", "Capitalization", "Unaudited Pro Forma Condensed Consolidated
Financial Statements", "Description of Certain Credit Facilities" and
"Description of Notes."
The significant indebtedness incurred as a result of the sale of the Old
Notes will have several important consequences to the holders of the Notes,
including, but not limited to, the following: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to service the Company's
indebtedness (including any increase in the Company's indebtedness to the extent
permitted by the terms of the Notes) and to pay dividends on the Convertible
Preferred Stock outstanding, to the extent funds are legally available, and the
failure of the Company to generate sufficient cash flow to service such
indebtedness could result in a default under such indebtedness, including under
the Notes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or for other
purposes may be impaired; (iii) the Company's flexibility to expand, make
capital expenditures and respond to changes in the industry and economic
conditions generally may be limited; (iv) the Indenture contains, and future
agreements relating to the Company's indebtedness (including any expanded bank
lines of credit, to the extent permitted by the terms of the Notes) may contain,
numerous financial and other restrictive covenants, including, among other
things, limitations on the ability of the Company to incur additional
indebtedness, to create liens and other encumbrances, to make certain payments
and investments, to sell or otherwise dispose of assets or to merge or
consolidate with another entity, the failure to comply with which may result in
an event of default, which, if not cured or waived, could have a material
adverse effect on the Company; and (v) the ability of the Company to satisfy its
obligations pursuant to such indebtedness, including pursuant to the Notes and
the Indenture, will be dependent upon the Company's future performance which, in
turn, will be subject to management, financial, business, regulatory and other
factors affecting the business and operations of the Company, some of which are
not in the Company's control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
If the Company is unable to generate sufficient cash flow to meet its debt
obligations, the Company may be required to renegotiate the payment terms or to
refinance all or a portion of the indebtedness under the Notes, its bank lines
of credit or otherwise, to sell assets or to obtain additional financing. If the
Company cannot satisfy its obligations related to such indebtedness,
substantially all of the Company's long-term debt could be in default and could
be declared immediately due and payable which would have a material adverse
effect on the Company. See "Description of Notes" and "Description of Capital
Stock."
RANKING OF THE NOTES: EFFECTIVE SUBORDINATION
The Old Notes are, and the Exchange Notes will be, senior unsecured
obligations of ICO, Inc. ranking pari passu in right of payment with all
existing and future senior indebtedness of ICO, Inc. Holders of secured
indebtedness of the Company and its subsidiaries, however, will have claims with
respect to the assets constituting collateral for such indebtedness that are
prior to the claims of holders of Notes. In addition, the
14
<PAGE> 16
Old Notes are, and the Exchange Notes will be, effectively subordinated to
liabilities of the Company's subsidiaries, including trade payables.
In the event of a default on the Notes, or a bankruptcy, liquidation or
reorganization of the Company, assets securing indebtedness of the Company and
its subsidiaries will be available to satisfy obligations with respect to the
indebtedness secured thereby before any payment therefrom could be made on the
Notes. Accordingly, the Notes will be effectively subordinated to claims of
secured creditors of the Company to the extent of such pledged collateral. At
June 30, 1997, after giving pro forma effect to the acquisition of Verplast, the
Company would have had $1.4 million of indebtedness that would rank pari passu
with the Notes, of which $900,000 is secured and would effectively rank senior
to the Notes in right of payment. The Company's subsidiaries would have had
$22.8 million of indebtedness that would be effectively senior to the Notes, as
described in the following paragraph. The terms of the Notes permit the Company
to incur (i) $25 million of indebtedness under the Bank Credit Facility, which
amount the Company may increase if certain inventory and receivables levels are
achieved by the Company and (ii) certain other indebtedness. All of such
additional borrowings could rank senior to or pari passu in right of payment
with the Notes in the event of any default by the Company under its
indebtedness. See "Selected Historical Financial Data", "Unaudited Pro Forma
Condensed Consolidated Financial Data", "Description of Certain Credit
Facilities", "Description of the Notes", and the Company's Consolidated
Financial Statements and notes thereto incorporated by reference in this
Prospectus.
Although the Company itself has substantial assets, material amounts of
assets are held by the Company's subsidiaries. The Company's subsidiaries will
not guarantee the Company's obligations under the Notes and will not be required
to do so except in certain circumstances in which a subsidiary in the future
provides a Guarantee to third persons. Therefore, any indebtedness, or other
claims of creditors, of the Company's subsidiaries will be effectively senior to
the claims of the holders of the Notes with respect to the assets of such
subsidiary, and the rights of the Company and its creditors, including holders
of the Notes, with respect to a subsidiary's assets, upon such subsidiary's
liquidation or reorganization (and the consequent right of holders of the Notes
to participate in those assets) will be subject to the prior claims of such
subsidiary's creditors and the holders of minority interests, except to the
extent that the Company may itself be a creditor with recognized claims against
a subsidiary. In such case the Company's claims would still be subordinate to
any security interest in the assets of such subsidiary and any indebtedness of
such subsidiary senior to the claims of the Company. In addition, the Company is
dependent to a material extent upon the dividends or other distributions paid by
its subsidiaries to pay its operating expenses, service its debt obligations,
including the Notes, and satisfy any repurchase obligations relating to the
Notes, as a result of a Change of Control or a sale or disposition of certain
assets. Such funds may not be available depending on the financial condition and
results of operations of such subsidiaries on a stand alone basis. See
"-- Fraudulent Transfer Statutes" and "Description of Notes."
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control at any time, the Company will be
required to offer to repurchase all or any part of each Holder's Notes at a
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase. Neither the board of directors nor the Trustee may waive the
Company's obligation to make a Change of Control offer. There can be no
assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control. In addition, the requirement to
repurchase the Notes upon a Change of Control may discourage persons from making
a tender offer for or a bid to acquire the Company. See "Description of
Notes -- Change of Control".
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the retention of, and continued performance by,
its senior management, including Dr. Asher O. Pacholder, Chairman of the Board
and Chief Financial Officer, Ms. Sylvia A. Pacholder, President and Chief
Executive Officer, Mr. Theo J. M. L. Verhoeff, Executive Vice President -- Wedco
and Mr. Isaac H. Joseph, Executive Vice President -- Oilfield Services. The
Company believes that
15
<PAGE> 17
the loss of the services of any of its senior management could have a material
adverse effect on the Company. ICO has not obtained key-man disability or life
insurance policies covering such executive officers. The Company's success also
depends in part on its ability to attract, retain and motivate qualified
professionals. While the Company believes it has been able to obtain the
services of such personnel to date, there can be no assurance that it will
continue to be able to do so. See "Business -- Oilfield Services" and
"-- Petrochemical Processing."
OILFIELD SERVICES: DEPENDENCE ON VOLATILE OIL AND GAS INDUSTRY
Demand for the Company's oilfield services principally depends upon the
level of domestic oil and gas drilling activity, which in turn depends upon
factors such as the level of oil and gas prices, expectations about future oil
and gas prices, the cost of exploring for and producing oil and gas, worldwide
weather conditions, international political, military, regulatory and economic
conditions and the ability of oil and gas companies to raise capital. No
assurance can be given that current levels of domestic oil and gas exploration
activities will continue or that the demand for the Company's services will
continue to reflect the level of activity in the industry generally. Industry
conditions will continue to be influenced by numerous factors over which the
Company will have no control. Over the last several years, drilling activity has
increased due to technological advances, royalty relief in deep offshore waters
and relatively stable oil and gas prices. A material decline in oil or gas
prices or domestic industry activity could have a material adverse effect on the
Company's oilfield service business, results of operations and prospects.
Furthermore, the oilfield services business is substantially seasonal,
reflecting the pattern of oilfield drilling and workovers, with the first and
fourth quarters of the fiscal years having generally higher levels of activity.
See "Business -- Oilfield Services" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TECHNOLOGICAL OBSOLESCENCE
The operations of the Company's oilfield services and specialty
petrochemical processing businesses are dependent to a certain degree upon
proprietary technology, know-how and trade secrets either developed by the
Company or licensed to it by third parties. In many cases, these or equivalent
processes or technologies are available to the Company's competitors, customers
and others. In addition, there can be no assurance that such persons will not
develop substantially equivalent or superior proprietary processes and
technologies. The development by others of equivalent or superior information,
processes or technologies could have a material adverse effect on the Company.
See "Business -- Oilfield Services," "-- Petrochemical Processing" and
"-- Patents and Licenses."
LIMITED OPERATING HISTORY IN THE PETROCHEMICAL PROCESSING BUSINESS; ABILITY TO
MANAGE GROWTH
The Company recently entered the specialty petrochemical processing
industry with its acquisition of Wedco in April 1996, and had no experience in
the industry prior to the acquisition. Since the acquisition of Wedco, the
Company has expanded its specialty petrochemical processing business with the
acquisitions of PSI and Bayshore in July 1996 and December 1996, respectively,
the Rotec acquisition and the purchase of the micropowders business of Exxon
Chemical Belgium ("Micropowders Business") in April 1997, the Micronyl
acquisition in May 1997, and the Verplast acquisition in July 1997, and the
success of the Company will depend, in part, on the Company's ability to
integrate the operations of these specialty petrochemical processing companies,
including centralizing certain functions to achieve cost savings, successfully
implementing the Company's announced plan to discontinue petrochemical size
reduction services at plants in Houston, Texas and Long Beach, California (which
have been closed) and Maywood, Illinois (which is expected to be closed during
fiscal 1997 or early fiscal 1998) and developing programs and processes that
will promote cooperation among the businesses and the sharing of resources. In
addition, the recent growth of the Company will place significant demands on the
Company's management, internal systems and networks. There can be no assurance
that the Company will be able to effectively manage or implement its plans for
these operations or that if implemented such plans will be successful. In
addition, in fiscal 1997, the Company began to expand the distribution aspects
of its specialty petrochemical production services business through the
acquisition of the Micropowders Business, the execution of supply agreements
with Borealis and Exxon Chemical Holland
16
<PAGE> 18
and the acquisition of Rotec and Verplast. Each of these operations, as well as
the Bayshore operation, will require the Company to buy and manage inventories
of supplies and products in the specialty petrochemical processing business. The
Company's entry into the distribution portion of this business may require the
Company to maintain greater levels of working capital than it has historically
and to manage the risk of ownership of commodity inventories having fluctuating
market values. The maintenance of excessive inventories in these businesses
could expose the Company to losses upon drops in market prices for its products
while maintenance of insufficient inventories may result in lost sales to the
Company. See "Business -- Petrochemical Processing" and "Management's Discussion
and Analysis of Financial condition and Results of Operations."
CYCLICAL NATURE OF PETROCHEMICAL PROCESSING SERVICES
The business cycles of the Company's petrochemical processing services
segment are subject to changes in the cost of the petrochemicals produced by the
major chemical companies; as a result, the cycles are relatively unpredictable.
In addition, these business cycles may reflect cycles and prices in the
petroleum industry which also affect the Company's oilfield services business
segment and may make the Company as a whole vulnerable to the effects of changes
in the petroleum industry.
RISKS OF INTERNATIONAL OPERATIONS
A portion of the Company's current operations are conducted in
international markets, particularly the Company's Western European specialty
petrochemical processing services business. International specialty
petrochemical processing operations accounted for 32% of the Company's operating
revenues on a pro forma basis for the fiscal year ended September 30, 1996. The
Company expects to continue to seek to expand its international operations,
particularly in Europe, through internal growth and acquisitions, although the
Company has not entered into any agreement or arrangement for any such
acquisition. The Company's international operations are subject to certain
political, economic and other uncertainties, including, among others, risks of
government policies regarding private property, taxation policies, foreign
exchange restrictions and currency fluctuations and other restrictions arising
out of foreign governmental sovereignty over areas in which the Company conducts
business, and, possibly, civil disturbance or other forms of conflict. The
Company has not historically hedged against the risks inherent in currency
fluctuations, and there is no assurance the Company will be able to effectively
hedge against such risks. Losses from these factors could be material in those
countries where the Company now has or may in the future have a concentration of
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and note 17 to the Consolidated Financial Statements of
the Company included elsewhere in this Prospectus or incorporated by reference
herein.
ACQUISITION STRATEGY
Since the beginning of fiscal 1994, the Company has made 16 acquisitions.
Reported revenues have increased from $34.6 million in fiscal 1992 to $108.7
million in fiscal 1996. Currently, the Company is actively seeking strategic
acquisitions that will provide additional and complementary products and
services. The Company expects to fund such acquisitions through a combination of
one or more of the following: cash from operations, the issuance of additional
equity securities, the net proceeds received from the sale of the Old Notes and
indebtedness, including borrowings under bank lines of credit (to the extent
permitted under the terms of the Notes). While the Company considers acquisition
opportunities from time to time, the Company has not entered into any agreement
or arrangement for any such acquisition. There can be no assurance that the
Company will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that the Company will be able to
profitably manage additional businesses or successfully integrate such
additional businesses into the Company at all, or without substantial costs,
delays or other problems. There can be no assurance that businesses acquired
will achieve sales and profitability that justify the investment made by the
Company. Any inability on the part of the Company to effectively control these
risks and integrate and manage acquired businesses could have a material adverse
effect on the Company. See "The
17
<PAGE> 19
Company -- Acquisitions," "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and "Use of Proceeds."
RECENT LOSS
The Company reported a net loss in fiscal 1996 as a result of certain
nonrecurring costs and expenses. There can be no assurance that the Company will
be profitable in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus or
incorporated by reference herein.
CONTROL BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Six of the Company's ten directors are presently or were formerly
associated with Pacholder Associates, Inc., an investment advisory firm located
in Cincinnati, Ohio ("PAI"), or USF&G Pacholder Fund, Inc., an affiliate of PAI,
and a seventh director is the founder and former chief executive officer of
Wedco. As a majority of the Company's Board of Directors, these persons
collectively are in a position to direct the business and policies of the
Company. Five of these persons (Dr. Asher O. Pacholder, Sylvia A. Pacholder,
Robin E. Pacholder, William J. Morgan and William E. Willoughby), PAI and
certain former shareholders of Wedco are parties to a stockholders agreement
("ICO Stockholders Agreement") covering approximately 33% of the Company's
outstanding Common Stock, without par value (the "Company Common Stock") and
which currently requires the shares subject thereto to be voted for the slate of
directors nominated by the Company's management for election at annual elections
of directors. The number of shares subject to the shareholders agreement may be
sufficient to control the election of the Company's Board of Directors. In
addition, the Company's organizational documents provide for the classification
of the Board of Directors of ICO into three classes, with directors serving
staggered three-year terms. As a result only one-third of the Company's Board of
Directors will be elected each year. The concentration of share ownership and
terms of the shareholders agreement and the classified board provision may
discourage persons from making a tender offer or a bid to acquire the Company.
See "Description of Capital Stock," included elsewhere in this Prospectus and
the Company's Proxy Statement dated January 24, 1997, incorporated by reference
herein.
ENVIRONMENTAL REGULATIONS
The Company is subject to numerous and changing local, state, federal and
foreign laws and regulations concerning the use, storage, treatment, disposal
and general handling of hazardous materials, some of which may be considered to
be hazardous wastes, and restricting releases of pollutants and contaminants
into the environment. These laws and regulations may require the Company to
obtain and maintain its operations in compliance with certain permits and other
authorizations mandating procedures under which the Company shall operate and
restricting emissions. Many of these laws and regulations provide for strict
joint and several liability for the costs of cleaning up contamination resulting
from releases of regulated materials into the environment. Violations of
mandatory procedures under operating permits may result in fines, remedial
actions or, in more serious instances, shutdowns or revocation of permits or
authorizations. There can be no assurance that a review of the Company's past,
present or future operations by courts or federal, state, local or foreign
regulatory authorities will not result in determinations that could have a
material adverse effect on the Company's financial condition or results of
operations. In addition, the revocation of any of the Company's material
operating permits, the denial of any material permit application or the failure
to renew any interim permit, could have a material adverse effect on the
Company. The Company cannot predict what environmental laws and regulations will
be enacted or adopted in the future or how such future law or regulation will be
administered or interpreted. Compliance with more stringent environmental laws
and regulations, more vigorous enforcement policies, or stricter interpretations
of current laws and regulations, or the occurrence of an industrial accident,
could have a material adverse effect on the Company. See "Business --
Environmental Regulation" and "-- Legal Proceedings."
18
<PAGE> 20
INSURANCE RISKS
The Company has insurance coverage it believes to be adequate for the risks
of the businesses in which the Company is engaged. However, the occurrence of a
significant loss not fully covered by insurance could have a material adverse
effect on the Company. In addition, there can be no assurance that the Company
will be able to maintain adequate insurance coverage at rates it believes
reasonable. See "Business -- Insurance and Risk."
COMPETITION
Each of the industries in which the Company participates is highly
competitive. Some competitors or potential competitors of the Company have
substantially greater financial or other resources than the Company. The
inability of the Company to effectively compete in its markets would have a
material adverse effect on the Company. See "Business -- Oilfield
Services -- Competition" and "-- Petrochemical Processing -- Competition."
LEGAL PROCEEDINGS
The Company is a named defendant in 14 cases involving 14 plaintiffs, filed
since June 1990, for personal injury claims alleging exposure to silica
resulting in silicosis-related disease. The Company is generally protected under
worker's compensation law from claims under these suits except to the extent a
judgment is awarded against the Company for intentional tort. If an adverse
judgment is obtained against the Company in any of the referenced suits which is
ultimately determined not to be covered by insurance, the amount of such
judgment could have a material adverse effect on the Company. The Company is
also a party to certain other litigation. See "Business -- Legal Proceedings."
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has been no public market for the Notes,
and there can be no assurance that such a market will develop. In addition, the
Notes will not be listed on any national securities exchange. The Company has
been advised by the Initial Purchaser that it currently intends to make a market
in the Notes following the Offering as permitted by applicable law and
regulation; however the Initial Purchaser is not obligated to do so and any such
market-making activities may be discontinued at any time without notice. In
addition, such market-making activities may be limited during the Exchange
Offer. Therefore, there can be no assurance that an active market for any of the
Notes will develop, either prior to or after the Company's performance of its
obligations under the Registration Rights Agreement and even if a market does
develop, the price at which the holders of Exchange Notes will be able to sell
such Notes is not assured and the Exchange Notes could trade at a price above or
below either their purchase price or face value. Furthermore, prior to the
Company's performance of its obligations under the Registration Rights
Agreement, the Notes may only be offered and sold pursuant to an exemption from
the registration requirements of the Securities Act and applicable state
securities laws or pursuant to an effective registration statement under the
Securities Act and such state securities laws. See "Description of
Notes -- Registration Rights" and "Transfer Restrictions on Old Notes."
RISKS OF NOT ACCEPTING THE EXCHANGE OFFER
Investors who do not accept the Exchange Offer will continue to hold Old
Notes and any rights to receive registered Exchange Notes will be extinguished.
The Old Notes have not been, and will not be, registered under the Securities
Act or any state securities laws. Unless so registered, the Old Notes may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws.
FRAUDULENT TRANSFER STATUTES
Under Federal or state fraudulent transfer laws, the indebtedness
represented by the Notes may be subordinated to existing or future indebtedness
of the Company or found not to be enforceable in accordance
19
<PAGE> 21
with its terms. Under such statutes, if a court were to find that, at the time
the Notes were issued, the Company (i) was insolvent, or was rendered insolvent
by the issuance of the Notes, and the substantially concurrent use of the
proceeds therefrom, (ii)was engaged in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital, (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, or (iv) intended to hinder, delay or defraud its
creditors, such court could void the Company's obligations under the Notes, or
subordinate the Notes to all other indebtedness of the Company. In such event,
there can be no assurance that any repayment of the Notes could ever be
recovered by Holders of the Notes.
If Guarantees (as defined) by any of the Company's subsidiaries are issued
in accordance with the terms of the Notes, a similar risk would exist that the
indebtedness of any subsidiary represented by any Guarantee may be subordinated
to existing or future indebtedness of the Guarantor (as defined), found not to
be enforceable in accordance with its terms, or that the Guarantor's obligations
under the Guarantee could be avoided and any proceeds paid under the Guarantee
be ordered returned to the Guarantor, if a court were to find (a) any of the
factors listed in (i) through (iv) of the foregoing paragraph true with regard
to the Guarantor at the time the Guarantee was given, or (b) that the Guarantor
received less than fair consideration or reasonably equivalent value for giving
the Guarantee. It is likely that a Guarantor will be deemed not to have received
fair consideration or reasonably equivalent value for its Guarantee to the
extent that its liability thereunder exceeds the amount by which it directly
benefits from the proceeds of the Old Notes.
For purposes of the foregoing, the measure of insolvency varies depending
upon the law of the jurisdiction which is being applied. Generally, however, the
Company or the Guarantor would be considered to have been insolvent at the time
the Old Notes were issued or the Guarantee given if the sum of its debts was, at
that time, greater than the sum of the value of all of its property at a fair
valuation, or if the then fair saleable value of its assets was less than the
amount that was then required to pay its probable liability on its existing
debts as they became absolute and matured. There can be no assurance as to what
standard a court would apply in order to determine whether the Company or any
Guarantor was insolvent as of the date the Old Notes were issued or any
Guarantee given, or that, regardless of the method of valuation, a court would
not determine that the Company or Guarantor was insolvent on that date, or that,
regardless of whether the Company or Guarantor was insolvent on the date the Old
Notes were issued or the Guarantee given, as the case may be, that the issuances
constituted fraudulent transfers on another of the grounds summarized above.
20
<PAGE> 22
THE COMPANY
The Company provides specialized oilfield and petrochemical processing
services. In the oilfield services segment, ICO is a leading provider of
inspection, reconditioning and coating services for new and used tubular goods
and sucker rods utilized in the oil and gas industry. The Company's oilfield
services are designed to reduce the customers' cost of drilling and production
by preventing faulty tubular goods from being placed downhole (exploration
services), reclaiming and reconditioning used tubular goods and sucker rods
(production services), and preventing premature failure of tubular goods and
sucker rods from occurring due to the corrosive downhole drilling environment
(corrosion control services). Although comprehensive industry statistics are not
readily available, ICO believes it is one of the two largest providers of
inspection, reconditioning and coating services for tubular goods in the United
States. In the petrochemical processing segment, the Company provides grinding
and ancillary services for petrochemical resins produced in pellet form (size
reduction services) and formulates and manufactures concentrated products for
blending with petrochemical resins to give finished products desired
characteristics such as color or ultraviolet protectants (concentrates
manufacturing).
ACQUISITIONS
From the beginning of fiscal 1994 through the middle of fiscal 1996, the
Company completed and integrated eight acquisitions in the oilfield services
segment which increased its market share and expanded its service capabilities.
The Company made an additional acquisition in September 1997 within the oilfield
services segment. In April 1996, the Company entered the petrochemical
processing industry through the acquisition of Wedco to take advantage of
opportunities in that market. Since the Wedco acquisition, the Company has
completed six additional acquisitions in the petrochemical processing industry.
In total, in the 16 acquisitions since the beginning of fiscal 1994, the Company
has invested approximately $42.7 million cash, issued 13,371,242 shares of
Company Common Stock (recorded at approximately $65.8 million) and effectively
assumed certain liabilities in these acquisitions, as described below. The
Company is actively seeking strategic acquisitions, although the Company has not
entered into any agreement or arrangement for any such acquisition. For
additional information, see the unaudited pro forma information regarding these
acquisitions contained in notes 2 and 19 of the Company's Consolidated Financial
Statements and notes thereto incorporated by reference in this Prospectus. Also
see "Unaudited Pro Forma Condensed Consolidated Financial Statements" and "Use
of Proceeds" included in this Prospectus.
In November 1993, ICO acquired the assets of Tubular Ultrasound Corporation
("TUC"), a tubular inspection company with low cost ultrasonic inspection
technology, located in Houston, Texas, for a total consideration of $1.1 million
in Company Common Stock and repayment of debt. The TUC acquisition provided ICO
with additional engineering and product development expertise in the ultrasonic
inspection area.
In February 1994, ICO acquired Shearer Supply Ltd. ("Shearer") located in
Edmonton, Alberta, for $1.9 million in cash and Company Common Stock, which
provided ICO with a presence in the Canadian market. Shearer is the largest
provider of sucker rod inspection and reclamation services in Canada and sells
pump engines used in the oilfield.
In April 1994, the Company acquired Permian Enterprises, Inc. ("Permian")
for approximately $2.5 million in Company Common Stock and the effective
assumption of $2.1 million in liabilities. Permian provides cement and
fiberglass lining for tubing and casing and also applies an external fusion
bonded wrap to tubular goods.
In April 1994, ICO acquired Frontier Inspection Services, Inc. ("Frontier")
of Farmington, New Mexico for approximately $1.5 million in Company Common
Stock. Frontier is a provider of tubular inspection services in New Mexico and
the lower Rocky Mountain area.
In October 1994, the Company purchased B&W Equipment Sales and Mfg., Inc.
("B&W") for approximately $745,000 in cash and Company Common Stock. B&W designs
and manufactures parts and components for nondestructive testing and inspection
of equipment for use in the tubular market. The acquisition enabled the Company
to lower repair and maintenance expenses for the Company's inspection units.
21
<PAGE> 23
In March 1995, the Company acquired the operating assets of Kebco Pipe
Services, Inc. ("Kebco"), which provides testing, inspecting and reconditioning
services for oil country tubular goods in the West Texas area. Kebco was
acquired for a total consideration of $671,000.
In June 1995, the Company purchased R. J Dixon, Inc. d/b/a Spinco
("Spinco") for approximately $490,000 in cash and 94,884 shares of Company
Common Stock. Spinco provides inspection and reclamation services for drill pipe
and other oil country tubular goods in the Gulf Coast area.
In March 1996, the Company acquired the operating assets of Rainbow
Inspection Company of Mississippi, Inc. ("Rainbow") for $328,000 in cash and
assumed liabilities. Rainbow provides inspection and reclamation services for
oil country tubular goods in the southern United States.
In April 1996, the Company acquired, via merger, Wedco. Wedco serves the
petrochemical industry by providing plastics size reduction services and related
machinery. The consideration paid consisted of 10,232,609 shares of Company
Common Stock, $4.6 million in cash (including transaction fees and expenses) and
the effective assumption of $29.9 million in total liabilities.
In July 1996, the Company acquired PSI for 431,826 shares of Company Common
Stock, approximately $2.0 million in cash and $2.1 million of effectively
assumed liabilities. PSI provides size reduction and related processing services
for the petrochemical industry.
During December 1996, the Company acquired Bayshore for approximately $6.9
million in cash and 1,285,012 shares of Company Common Stock, and effectively
assumed $2.6 million in debt. Bayshore is a provider of concentrates and
compounds to resin producers in the United States.
Effective April 1, 1997, the Company acquired the Micropowders Business.
The consideration consisted of an initial payment of $500,000 and five
additional payments of Dutch Guilders ("NLG") 674,000 ($340,000 at June 30, 1997
exchange rates) payable for each of five years beginning one year after the
acquisition date. The Company also purchased inventory from Exxon Chemical
Belgium and entered into a supply agreement with Exxon Chemical Holland to
acquire inventories in the future at contracted prices. The Company believes
that the acquisition of this business complements the Company's existing
European operations by allowing for the distribution of rotational molding
powders throughout Europe under the ICO Polymers name.
On April 30, 1997, the Company acquired Rotec for $2.5 million in cash and
427,353 shares of Company Common Stock. In addition, Rotec shareholders may be
entitled to additional consideration in cash and Company Common Stock based on
future earnings of Rotec. Rotec serves the United Kingdom, Ireland and
Continental Europe markets and is a producer of high quality concentrates for a
variety of plastics processes.
On May 5, 1997, the Company acquired the remaining 50% ownership of
Micronyl not already owned by the Company for French Francs ("FF") 15 million
($2.6 million) in cash and the assumption of Micronyl's total outstanding debt
as of the acquisition date equal to $1.5 million. Micronyl operates two size
reduction facilities in France which perform services similar to those performed
by other Wedco units.
On July 21, 1997 the Company acquired Verplast S.p.A. ("Verplast") for
$18,293,000 in cash and the assumption of $7,100,000 in debt. The Company used a
portion of the proceeds of the Old Notes to acquire Verplast and accounted for
the acquisition using the purchase method of accounting. Verplast, located in
northern Italy, is a supplier of petrochemical processing services and
value-added plastic materials for the rotational molding market and for other
plastic powder applications.
On September 19, 1997 the Company acquired the operating assets of
Nspection Systems, Inc. for $600,000 in cash and future royalty payments based
on sales. Nspection provides electromagnetic inspection and related services for
new and used tubing, casing and drill pipe utilizing two locations in Houston,
Texas.
In connection with each of the foregoing acquisitions in which ICO issued
Company Common Stock (other than Shearer and Rotec), the Company granted demand
and/or piggyback registration rights to the former owners of the business
acquired to register the resale of the Company Common Stock issued in such
acquisitions.
22
<PAGE> 24
The Company is a Texas corporation whose corporate headquarters are located
at 11490 Westheimer, Suite 1000, Houston, Texas 77077 and its telephone number
is (281) 721-4200.
PRIVATE PLACEMENT
On June 9, 1997, the Company completed the private sale to the Initial
Purchaser of $120,000,000 principal amount of the Old Notes at a price of 96.75%
of the principal amount thereof in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Initial
Purchaser thereupon offered and resold the Old Notes only to qualified
institutional buyers and a limited number of institutional accredited investors
at an initial price to such purchasers of 100% of the principal amount thereof.
The $115.3 million net proceeds received by the Company in connection with the
sale of the Old Notes will be used to (i) repay the balance of certain of the
Company's outstanding indebtedness, estimated at $17.2 million ($16.7 million of
which has been repaid as of September 29, 1997), and (ii) finance capital
expenditures in its petrochemical processing business segment, estimated at $8.2
million. The balance of the net proceeds from the sales of the Old Notes is
intended to be used for general corporate purposes, including capital
expenditures and acquisitions. In July 1997, the Company used $18.3 million of
the proceeds to purchase Verplast.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in capitalization
of the Company.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 on an actual basis, which includes the effect of the sale of the Old
Notes, and pro forma for the acquisition of Verplast. This table should be read
in conjunction with "Selected Historical Financial Data" and "Unaudited Pro
Forma Condensed Consolidated Financial Statements" appearing elsewhere in this
Prospectus and the Consolidated Financial Statements and notes thereto
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL PRO FORMA(1)
-------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and equivalents........................................ $102,278 $ 83,698
======== ========
Short-term borrowings and current maturities of long term
debt...................................................... 2,038 2,193
Credit facilities........................................... 4,126 9,109
-------- --------
$ 6,164 $ 11,302
======== ========
Long-term debt:
10 3/8% Senior Notes due 2007............................. 120,000 120,000
Foreign term debt(2)...................................... 8,317 10,677
Domestic term debt(3)..................................... 2,686 2,686
-------- --------
131,003 133,363
-------- --------
Stockholders' Equity:
Preferred stock, without par value -- 500,000 shares
authorized; 322,500 shares issued and outstanding with
a liquidation preference of $32,250,000................ 13 13
Common Stock, without par value -- 50,000,000 shares
authorized; 21,016,124 shares issued and outstanding,
actual and 21,443,477 shares issued and outstanding,
pro forma and as adjusted.............................. 36,090 36,090
Additional paid-in capital................................ 110,452 110,452
Cumulative translation adjustment......................... (1,050) (1,050)
Accumulated deficit....................................... (17,501) (17,501)
-------- --------
128,004 128,004
-------- --------
Total Capitalization.............................. $259,007 $261,367
======== ========
</TABLE>
- ------------------------------
(1) Represents actual amounts adjusted to give effect to the acquisition of
Verplast as if it had occurred on June 30, 1997.
(2) Consists of term loans for the Company's Wedco Holland ($3,312,000,
including $436,000 of current maturities), Wedco U.K. ($2,403,000, including
$167,000 of current maturities), ICO Polymers B.V. ($1,718,000, including
$343,000 of current maturities), ICO Polymers UK Ltd. ($500,000), Rotec
($437,000, including $164,000 of current maturities) and Micronyl
($1,365,000, including $308,000 of current maturities) subsidiaries and, for
the Pro Forma column, debt assumed in connection with the Verplast
acquisition.
(3) Consist of various term loans secured by property, plant and equipment.
24
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA(1)
The following selected historical financial data have been derived from the
consolidated financial statements of the Company audited by Price Waterhouse
LLP, independent accountants, whose report with respect to the fiscal years
ended September 30, 1994, 1995 and 1996 is incorporated by reference herein. The
data as of June 30, 1997 and for the nine months ended June 30, 1996 and 1997
are derived from the Company's unaudited financial statements incorporated by
reference in this Prospectus. In the opinion of management, the unaudited
financial statements include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The results of operations for the nine months ended June 30, 1997
are not necessarily indicative of the results that may be expected for any other
interim period or the entire year. The following data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto incorporated by reference into this Prospectus and "Management's
Discussion and Analysis of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................... $ 34,635 $ 60,217 $ 75,970 $ 87,883 $ 108,663 $ 73,470 $ 137,045
Cost of sales and services................. 24,153 42,862 54,191 59,885 74,704 51,051 96,662
--------- --------- --------- --------- ---------- ---------- ----------
Gross profit............................... 10,482 17,355 21,779 27,998 33,959 22,419 40,383
Selling, general and administrative
expenses................................. 8,055 12,730 15,202 17,736 19,996 13,050 22,182
Depreciation and amortization.............. 2,616 3,669 4,357 5,112 7,230 4,826 8,012
Impairment of long-term assets............. -- -- -- -- 5,025 -- --
Non-recurring compensation arrangements.... -- -- -- -- 1,812 -- --
Non-recurring litigation charges........... (467) 605 -- -- 1,112 -- --
Writedown of inventories................... -- -- -- 104 868 -- --
--------- --------- --------- --------- ---------- ---------- ----------
Operating income (loss).................... 278 351 2,220 5,046 (2,084) 4,543 10,189
Interest (income) expense, net............. 740 2,352 (431) (1,307) (608) (752) 1,532
Other (income) expense..................... -- -- -- (4) 216 (104) (118)
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item....................... (462) (2,001) 2,651 6,357 (1,692) 5,399 8,775
Income taxes (benefit)..................... -- -- 55 567 (632) 697 3,568
Extraordinary items -- gain (loss) on
repurchase (repayment) of debt........... 79 -- (1,371) -- -- -- --
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss).......................... (383) (2,001) 1,225 5,790 (1,060) 4,702 5,207
Preferred stock dividends.................. -- -- 1,826 2,176 2,178 1,633 1,632
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss) available for
common shareholders...................... $ (383) $ (2,001) $ (601) $ 3,614 $ (3,238) $ 3,069 $ 3,575
========= ========= ========= ========= ========== ========== ==========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARES........................
Income (loss) before extraordinary items... $ (.15) $ (.49) $ .09 $ .41 $ (.24) $ .27 $ .17
Net income (loss) available for Common
shareholders............................. $ (.12) $ (.49) $ (.07) $ .41 $ (.24) $ .27 $ .17
========= ========= ========= ========= ========== ========== ==========
Cash dividends declared on Common stock.... -- -- -- -- .21 .17 .16
Weighted average shares outstanding........ 3,093,964 4,052,325 8,299,559 8,709,303 13,327,855 11,241,031 20,911,797
OTHER FINANCIAL DATA:
EBITDA(2).................................. $ 2,894 $ 4,020 $ 6,577 $ 10,158 $ 5,146 $ 9,369 $ 18,201
Adjusted EBITDA(3)......................... 2,427 4,625 6,577 10,262 13,963 9,369 18,201
Net cash provided by (used for) operating
activities............................... 752 (1,008) 4,746 9,029 11,110 7,476 7,151
Net cash used for investing activities..... (625) (2,115) (7,443) (6,640) (14,466) (11,584) (19,877)
Net cash provided by (used for) financing
activities............................... (401) 12,364 18,010 (2,161) (8,221) (3,065) 101,590
Capital expenditures(4).................... 642 2,252 4,782 5,838 8,712 7,136 9,832
Common stock dividends..................... -- -- -- -- 2,830 1,866 3,375
Ratios of:
Earnings to fixed charges(5)............... -- -- 3.7x 10.7x -- 8.3x 4.2x
EBITDA to interest expense, net(6)......... 3.9x 1.7x -- -- -- -- 11.9x
Adjusted EBITDA to interest expense,
net(6)................................... 3.3x 2.0x -- -- -- -- 11.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30,
---------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents....................... $ 209 $ 9,450 $ 24,763 $ 24,991 $ 13,414 $ 17,818 $ 102,278
Working capital............................ 3,321 17,787 37,656 37,284 29,882 28,756 127,820
Property, plant and equipment, net......... 25,435 24,431 27,513 29,824 72,585 73,482 84,637
Total assets............................... 40,713 51,353 78,969 88,183 163,391 168,397 300,661
Long-term debt, net of current portion..... 19,376 10,676 456 1,047 15,422 15,578 131,003
Total stockholders' equity................. 10,304 32,293 69,204 74,471 120,594 126,808 128,004
</TABLE>
25
<PAGE> 27
- ---------------
(1) The Statement of Operations, Balance Sheet and Other Financial Data include
the results of operations and financial position of the Company and each of
the companies acquired since their respective dates of acquisition. See note
2 to the Consolidated Financial Statements and notes thereto incorporated by
reference in this Prospectus, and "Selected Unaudited Pro Forma Condensed
Consolidated Financial Data" included elsewhere in this Prospectus.
(2) EBITDA represents income from operations before interest expense, other
income and expense, provision for income taxes, extraordinary items and
depreciation and amortization. EBITDA is a widely accepted indicator of a
company's ability to service debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operations, or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(3) Adjusted EBITDA is comprised of EBITDA (see (2) above) excluding the
following fiscal 1996 operating expenses: impairment of long-term assets,
non-recurring compensation arrangements, non-recurring litigation and
writedown of inventories. Adjusted EBITDA is provided as additional
information regarding ICO's ability to service debt, but, as with EBITDA,
should not be considered in isolation or as a substitute for net income,
cash flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(4) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes, extraordinary items,
undistributed income in joint ventures and fixed charges. Fixed charges
consist of interest expense (including the amortization of debt issuance
costs) plus that portion of rental payments on operating leases deemed
representative of the interest factor. As a result of incurring a net loss
for the fiscal years ended September 30, 1992, 1993 and 1996, earnings did
not cover fixed charges by $462,000, $2,001,000 and $1,772,000,
respectively.
(6) The ratio has not been presented for periods in which the Company incurred
net interest income.
26
<PAGE> 28
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected unaudited pro forma financial information, give
effect to the acquisitions of Wedco, Bayshore, Rotec and Verplast and to the
sale of the Old Notes and the use of proceeds therefrom and are qualified in
their entirety by reference to, and should be read in conjunction with the
historical consolidated financial statements and the notes thereto of the
Company incorporated herein by reference.
The unaudited pro forma consolidated condensed balance sheet data assumes
the acquisition of Verplast was consummated as of June 30, 1997 and the
unaudited pro forma consolidated condensed statements of income assume the
acquisitions of Wedco, Bayshore, Rotec and Verplast and the sale of the Old
Notes were consummated as of the beginning of each period presented.
The pro forma data is presented for informational purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred had the acquisitions and the sale of the Old Notes been
consummated at the dates indicated, nor is such data necessarily indicative of
future operating results or financial position. There is no assurance that
similar results will be achieved in the future. Also, see "Use of Proceeds" and
"Unaudited Pro Forma Condensed Consolidated Financial Statements".
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
<S> <C> <C>
PRO FORMA INCOME STATEMENT(1)
Net revenues............................................... $ 204,157 $ 178,172
Gross Profit............................................... 56,250 49,552
Income before depreciation, amortization, interest and
taxes.................................................... 18,105 24,843
Operating Income........................................... 5,426 15,192
Interest, net.............................................. 13,574 10,354
Income (loss) before taxes................................. (9,123) 4,934
Income taxes............................................... 3,797 3,488
Net income (loss).......................................... (12,920) 1,446
Preferred stock dividends.................................. 2,178 1,632
Net income (loss) available for common stockholders........ $ (15,098) $ (186)
Earnings (loss) applicable to common and common share
equivalents.............................................. $ (.72) $ (.01)
Weighted average common and common equivalent shares
outstanding.............................................. 20,967,304 21,612,008
Ratio of earnings to fixed charges(2)...................... -- 1.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997
--------------
<S> <C>
PRO FORMA BALANCE SHEET DATA(1)
Cash and equivalents........................................ $ 83,698
Working capital............................................. 113,893
Property, plant and equipment, net.......................... 96,256
Total assets................................................ 320,065
Long-term debt.............................................. 133,363
Stockholders' equity........................................ 128,004
Book value per common share(3).............................. $ 4.47
Shares outstanding.......................................... 21,443,477
</TABLE>
- ---------------
(1) Unaudited pro forma selected income statements and balance sheet data has
been derived from the Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes, extraordinary items,
undistributed income in joint ventures and fixed charges. Fixed charges
consist of interest expense (including the amortization of debt issuance
costs) plus that portion of rental payments on operating leases deemed
representative of the interest factor. For fiscal 1996 pro forma earnings
did not cover fixed charges by $9,203,000 (after the fiscal 1996 writedowns
of impaired long-term assets and inventories and charges for non-recurring
compensation arrangements and non-recurring litigation charges).
(3) Calculated as pro forma stockholders' equity of $128,004,000 less
liquidation preference of ICO's preferred shares outstanding of $32,250,000
divided by common shares outstanding at June 30, 1997.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's net revenues in recent years have increased due to a variety
of factors, including acquisitions and increased sales volumes in both existing
and acquired business lines.
Prior to April 1996, the Company's operations were exclusively in the
oilfield services business. From fiscal 1994 to the middle of fiscal 1996 the
Company completed eight acquisitions in the oilfield services business and
integrated these acquisitions by consolidating plants, reducing headcount and
centralizing administrative functions. During fiscal 1996, the Company entered
the specialty petrochemical processing business through the merger with Wedco.
Since the Wedco acquisition, the Company has completed six additional
acquisitions in the specialty petrochemical processing business. Since the
acquisitions were consummated at various times, the financial information
contained herein with respect to each fiscal period does not fully reflect the
results of operations of the businesses acquired; thus, this financial
information is not necessarily indicative of the results of operations that
would have been achieved had the acquisitions been consummated by the Company at
the beginning of the periods presented herein or which may be achieved in the
future. See "The Company -- Acquisitions."
The April 1996 Wedco acquisition occurred during a cyclical downturn in the
plastics industry and followed a period during which the domestic management of
Wedco was focused upon the sale of Wedco and related matters. The Company
believes as a result of these factors Wedco experienced declines in the
utilization of machinery and equipment which resulted in the underabsorption of
certain overhead costs in several of Wedco's domestic facilities. As a result,
during its fiscal year ended March 31, 1996, Wedco experienced a decline of both
revenues and gross margins in comparison to its historical performance. As part
of the strategy initiated with the Wedco acquisition, the Company acquired PSI
(which solidified the Company's domestic petrochemical size reduction market
share and added management expertise), continued to emphasize its European
petrochemical processing business, through acquisition and expansion of the
Company's distribution business, and established a domestic sales force. The
Company has also implemented a plan of consolidation involving the closure of
three petrochemical processing plants. Two plants have already been closed (in
Houston, Texas and Long Beach, California) and the third will close during
fiscal 1997 or early fiscal 1998. Due to this timing, the benefits of the
Houston and Long Beach closures were not reflected in the results of the first
quarter and a portion of the second quarter. The Company believes the closures
will reduce operating costs and capital expenditures requirements. As a result
of the above initiatives and the reduction of expenses, overall operating
results of the Company's size reduction business have improved as compared to
the combined results of Wedco and PSI for the year earlier periods, prior to
these companies being acquired by the Company.
The acquisition of Bayshore in December 1996 and the expansion of the
Company's petrochemical powder distribution business has had the effect of
reducing overall petrochemical processing margins as a percentage of revenues.
The gross margin percentage for Bayshore's business is generally significantly
lower than those generated by the Company's size reduction services because
Bayshore typically buys raw materials, improves the material and then sells the
finished product. In contrast, the Company's size reduction services typically
involve processing customer owned material.
The Company's revenue is classified within two categories: oilfield
services and petrochemical processing. Oilfield services revenues include
revenues derived from (i) exploration sales and services (new tubular goods
inspection), (ii) production sales and services (reclamation and reconditioning
of used tubular goods and sucker rods and inspection of new sucker rods), (iii)
corrosion control services (coating of tubular goods and sucker rods), and (iv)
other sales and services (oilfield engine equipment sales and services in
Canada). Petrochemical processing revenues include revenues derived from
grinding petrochemicals into powders (size reduction), including manufacturing
of grinding equipment and other ancillary services, compounding sales and
services, which includes the manufacture and sale of concentrates, and
distributing plastic powders. Revenues are recorded as the services are
performed or the product is shipped to third-parties.
28
<PAGE> 30
Cost of sales and services is primarily comprised of compensation and
benefits to non-administrative employees, occupancy costs, repair and
maintenance, electricity and equipment costs and supplies, and, in the case of
Bayshore and the Company's distribution business, purchased raw materials.
Selling, general and administrative expenses consist primarily of compensation
and related benefits to the sales and marketing, executive management,
accounting, human resources and other administrative employees of the Company,
other sales and marketing expenses, communications costs, systems costs,
insurance costs and legal and accounting professional fees.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- ----------------------------------
% OF % OF % OF % OF % OF
1994 TOTAL 1995 TOTAL 1996 TOTAL 1996 TOTAL 1997 TOTAL
------- ----- ------- ----- -------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES (000'S)
Exploration sales and services....... $30,096 40 $34,953 40 $ 34,545 39 $25,872 39 $ 27,621 38
Production sales and services........ 28,919 38 28,745 33 31,087 35 22,758 34 24,440 34
Corrosion control services........... 14,549 19 20,562 23 21,591 24 16,288 24 17,270 24
Other sales and services............. 2,406 3 3,623 4 2,167 2 1,808 3 2,779 4
------- --- ------- --- -------- --- ------- --- -------- ---
Total oilfield sales and services
revenues........................... 75,970 100 87,883 100 89,390 100 66,726 100 72,110 100
------- ------- -------- ------- --------
Grinding services and other sales and
services........................... -- -- -- -- 17,567 91 6,109 91 33,014 51
Compounding sales and services....... -- -- -- -- 1,706 9 635 9 25,765 40
Distribution......................... -- -- -- -- -- -- -- -- 6,156 9
------- ------- --- -------- --- ------- --- -------- ---
Total petrochemical processing....... -- -- -- -- 19,273 100 6,744 100 64,935 100
------- ------- -------- ------- --------
Total............................ $75,970 $87,883 $108,663 $73,470 $137,045
======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- ---------------------------------
% OF % OF % OF % OF % OF
1994 TOTAL 1995 TOTAL 1996(1) TOTAL 1996 TOTAL 1997 TOTAL
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INCOME (LOSS) (000'S)
Oilfield sales and services........... $ 8,934 100 $12,085 100 $ 11,541 154 $ 8,998 93 $11,356 68
Petrochemical processing sales and
services............................ -- -- -- -- (4,070) (54) 641 7 5,414 32
------- --- ------- --- -------- --- ------- --- ------- ---
Total operations...................... 8,934 100 12,085 100 7,471 100 9,639 100 16,770 100
General corporate expenses............ (6,714) (7,039) (9,555) (5,096) (6,581)
------- ------- -------- ------- -------
Total............................. $ 2,220 $ 5,046 $ (2,084) $ 4,543 $10,189
======= ======= ======== ======= =======
</TABLE>
- ---------------
(1) Fiscal 1996 operating income includes various fourth quarter charges, see
"Costs and Expenses" and "Unusual Items" below.
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Revenues. Consolidated revenues increased $63,575,000 or 86.5% during the
nine months ended June 30, 1997, as compared to the same period last year. The
improvement was primarily due to the acquisitions of Wedco, PSI, Bayshore, the
Micropowders Business, Rotec, Micronyl and growth in the Company's oilfield
service business.
Oilfield service revenues increased $5,384,000 or 8.1% during the nine
months ended June 30, 1997 compared to the same period of fiscal 1996. Revenues
from exploration services increased $1,749,000 or 6.8% from the nine months
ended June 30, 1996 compared to the same period of fiscal 1997. The increase was
driven primarily by increased sales volumes and modest pricing improvements of
the Company's Houston, Texas tubular service facility. Demand for the Company's
exploration services is driven, in part, by the average domestic rig count which
has increased during the nine months ended June 30, 1997, as compared to the
comparable period in fiscal 1996. Revenues from production services increased
$1,682,000 or 7.4% for the nine months ended June 30, 1997 compared to the same
period in fiscal 1996. The demand for these services has been favorably impacted
by generally higher oil prices in fiscal 1997 versus fiscal 1996. The increases
in
29
<PAGE> 31
production services revenues were due in large part to increased oil and gas
production activity in Western Canada and increased sales volumes in West Texas.
Corrosion control revenues increased $982,000 or 6.0% during the nine months
ended June 30, 1997 compared to the same period of fiscal 1996. This change was
primarily due to increased drilling activity, the success of the Company's new
product lines and, to a lesser extent, higher average sales prices. Other sales
and services consist of revenues generated by the Company's Canadian subsidiary
relating to the reconditioning and selling of engines used in connection with
oil well pumping units. These revenues increased due to the increased production
activity in Western Canada during fiscal 1997 versus the comparable period in
fiscal 1996.
Petrochemical Processing sales and services included only the operations of
Wedco in the fiscal 1996 period, which was acquired on April 30, 1996.
Petrochemical revenues have increased due to the timing of the Wedco
acquisition, the purchase of PSI in the fourth quarter of fiscal 1996 and the
acquisitions made in fiscal 1997. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements". During the quarter ended June 30, 1997,
sales to Dow Chemical Company and its affiliates accounted for approximately 11%
of the Company's consolidated revenues.
Costs and Expenses. Gross profit (calculated as net revenues minus cost of
sales and thus before sales, general and administrative, depreciation and
amortization, interest expenses and other income and expenses) as a percentage
of revenues were 29.5% during the nine months ended June 30, 1997 versus 30.5%
for the nine months ended June 30, 1996. Within the oilfield services business,
gross profits as a percentage of revenues increased 1.2% during the nine months
ended June 30, 1997 compared to the year earlier period. This improvement is due
to an overall increase in sales volumes and modest price improvements (in part
due to a change in customer and product mix), within some of the Company's
oilfield services markets without a proportionate increase in costs and
expenses. The overall decline in gross profits as a percentage of revenues in
fiscal 1997 versus the comparable 1996 period resulted from the increase in
Bayshore revenues (acquired December 1996) and distribution revenues, which
generate lower gross profits (as defined above) as a percentage of revenues.
Gross profits as a percentage of revenues of the Company's size reduction
operations are generally higher than the gross profits of the oilfield service
operations. Conversely, the gross profits, as a percentage of sales, of the
Company's concentrate manufacturing and distribution businesses are generally
significantly lower due to the raw material cost component included in these
revenues as compared to the Company's other petrochemical services, which are
performed on a toll basis. The Company anticipates that as the concentrate and
distribution businesses expand, consolidated gross profits, as a percentage of
sales, will decline.
Selling, general and administrative costs increased $9,132,000 during the
nine months ended June 30, 1997 versus the same period of fiscal 1996 from
$13,050,000 in fiscal 1996 to $22,182,000 in fiscal 1997. Selling, general and
administrative costs as a percentage of sales decreased to 16.2% during the nine
months ended June 30, 1997 from 17.7% for the nine months ended June 30, 1996,
resulting primarily from the acquisitions made in the latter part of fiscal 1996
and during fiscal 1997. The overall increase in selling, general and
administrative costs during the nine months ended June 30, 1997 compared to the
nine months ended June 30, 1996 was also due to the late fiscal 1996 and fiscal
1997 acquisitions and to a lesser extent higher employee compensation expenses
and higher legal costs which was partially offset by lower costs relating to the
Company's workers' compensation insurance program.
Depreciation and amortization expense increased to $8,012,000 for the nine
months ended June 30, 1997 from $4,826,000 for the nine months ended June 30,
1996. The increase resulted from additions of property, plant and equipment and
goodwill primarily due to the acquisitions made during fiscal 1996 and 1997.
Operating Income. Operating income increased to $10,189,000 for the nine
months ended June 30, 1997 from $4,543,000 for the same period of fiscal 1996.
The increase is due to the changes in revenues and costs and expenses discussed
above. Particularly significant were lower insurance costs relating to workers'
compensation within the oilfield service operations.
Interest Income/Expense. Net interest expense was $1,532,000 during the
nine months ended June 30, 1997. For the nine months ended June 30, 1996, the
Company had net interest income of $752,000. This increase was due to the June
1997 issuance of the $120,000,000 Senior Notes due 2007, bearing an interest
30
<PAGE> 32
rate of 10 3/8%, the utilization of cash balances and the assumption of debt in
connection with the fiscal 1996 and 1997 acquisitions.
Income Taxes. The Company's effective tax rate increased to 40.7% during
the nine months of fiscal 1997, compared to 12.9% during the same period of
fiscal 1996. This change was due to the Company decreasing its valuation
allowance through the provision for income taxes to reflect its ability to
benefit from temporary differences during fiscal 1996. In connection with the
April 1996 acquisition of Wedco, the Company reversed the remaining valuation
allowance against net tax assets expected to be realized, resulting in a
decrease of acquired goodwill. As a result of the reversal of the valuation
allowance in April 1996 and increased goodwill amortization, which is not tax
deductible, provisions for income taxes for periods subsequent to the Wedco
acquisition will be higher as a percentage of pre-tax income than reported in
fiscal 1996. The Company's effective tax rate will also vary as a result of the
mix of domestic and foreign pre-tax income since, currently, the Company's
domestic effective tax rate is higher than the effective tax rate of foreign
operations.
Net Income. For the nine months ended June 30, 1997, the Company had net
income of $5,207,000, as compared to net income of $4,702,000 for the same
period in fiscal 1996, due to the factors described above.
Foreign Currency Translation. The fluctuation of the dollar against the
Dutch Guilder, the British Pound, the French Franc and the Swedish Krona, has
immaterially impacted the translation of revenues and income of the Company's
European operations into U.S. Dollars for the nine months ended June 30, 1997.
Gains and losses from the translation of certain balance sheet accounts are not
included in determining net income, but are accumulated as a separate component
of stockholders' equity. These unrealized gains and losses are subject to
deferred income taxes. As a result of the dollar's fluctuation against these
currencies and changes in the net assets of foreign subsidiaries, stockholders'
equity decreased net of deferred income taxes by $1,082,000 during the nine
months ended June 30, 1997. This change was due primarily to fluctuations of the
Dutch Guilder to U.S. Dollar exchange rate.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
Revenues. Revenues increased $20,780,000, or 23.6%, in the fiscal year
ended September 30, 1996 from the same period in fiscal 1995. The increase was
primarily the result of the Company's entry into the specialty petrochemical
processing business via the acquisitions of Wedco (April 1996) and PSI (July
1996).
Exploration revenues decreased $408,000, or 1.2% in fiscal 1996 versus
fiscal 1995. The decrease was primarily due to a shift in the classification of
the services provided to customers within the Company's Lone Star, Texas
facility. Historically, the Lone Star facility provided mostly new pipe
inspection. During late fiscal 1995, the Company began providing mostly used
tubular goods inspection at this facility. Accordingly, in fiscal 1996, Lone
Star revenues were classified as production services revenues versus fiscal
1995, when these revenues were included in exploration services revenues. After
eliminating the effect of this reclassification, fiscal 1996 revenues increased
$1,280,000 or 3.7% versus fiscal 1995. Demand for exploration services is
affected by domestic drilling activity. The domestic rig count averaged 762 for
the fiscal year ended September 30, 1996 versus 738 during fiscal 1995, an
increase of 3.3%. In addition, the Company's exploration revenues increase in
fiscal 1996 was due in part to the full-year effect of the acquisition of Spinco
in June 1995.
Production revenues increased $2,342,000, or 8.1% in fiscal 1996 from
fiscal 1995, primarily due to the reclassification of Lone Star, Texas revenues
discussed above. After eliminating the effect of the reclassification of Lone
Star revenues, production services revenues would have increased $654,000 or
2.3%. The increase resulted from generally high oil prices in fiscal 1996 which
increased the demand for production services. Oil prices ranged from a high of
$25 per barrel to a low of $17 per barrel during fiscal 1996 compared to a high
of $21 and a low of $17 per barrel during fiscal 1995.
Revenues from corrosion control services increased $1,029,000, or 5.0%, in
fiscal 1996 versus fiscal 1995. The increase resulted primarily from greater
demand for the Company's services in the Louisiana and West Texas corrosion
control markets.
31
<PAGE> 33
Revenues from other services decreased $1,456,000, or 40.2% from fiscal
1995 versus fiscal 1996. Half the decrease resulted from a decline in oilfield
engine sales and reconditioning revenues in Canada, due to a slowdown in
oilfield activity in Western Canada. The remaining decrease was the result of
recognizing an equipment sale in fiscal 1995, with no comparable sale in fiscal
1996.
Costs and Expenses. Cost of sales and services, as a percentage of net
revenues increased to 68.7% during fiscal 1996 versus 68.1% for the same period
in fiscal 1995. Such costs exclude sales, general and administrative expenses,
depreciation and amortization, interest costs and expenses, other income and
expense and the following fiscal 1996 operating expenses: non-recurring
compensation arrangements, non-recurring litigation and writedown of
inventories. Within the oilfield service business, costs of sales and services
increased to 70.3% (calculated as costs of sales and services divided by
revenues) in fiscal 1996 versus 68.1% in fiscal 1995. The gross margin decline
within the oilfield services segment is due to (in order of magnitude): a
softening of prices in the Houston inspection and West Texas coating markets,
the recognition of $2.1 million in product sales during fiscal 1995 which
carried gross margins greater than the Company's traditional oilfield sales and
services and the reclassification of certain employee expenses to cost of sales
during fiscal 1996 which were recognized as selling, general and administrative
expenses during fiscal 1995. The reclassification of the employee expenses was
based upon the applicable employees' job functions. The effects of lower margins
in the Company's oilfield service business were partially offset by the higher
margins generated by the specialty petrochemical processing business. This
business generally generates higher gross margins (defined above) as a
percentage of net revenues than the Company's oilfield services business.
Selling, general and administrative expenses increased from $17,736,000
during fiscal 1995 to $19,996,000 during fiscal 1996. Selling, general and
administrative expenses as a percentage of revenues decreased to 18.4% in fiscal
1996 versus 20.2% in fiscal 1995. These changes are primarily due to the Wedco
and PSI acquisitions which increased revenues and selling, general and
administrative expenses, but had the effect of lowering these costs as a
percentage of revenues. The Company also incurred the following lower expenses
for fiscal 1996 versus fiscal 1995 (in order of magnitude): lower insurance
costs, lower moving expenses (primarily related to several employee relocations
in 1995) and lower payroll costs due to the reclassification of certain employee
costs explained above. These lower costs were offset by $490,000 in expenses
relating to litigation costs incurred in fiscal 1996. The $490,000 in costs
relate to litigation reserves established because, during the fourth quarter and
subsequent to year-end, the Company determined that it was probable that certain
legal matters of the Company would result in a charge to income and that these
charges could be reasonably estimated.
Depreciation and amortization increased from $5,112,000 for the year ended
September 30, 1995 to $7,230,000 for the year ended September 30, 1996. The
increase was primarily due to increases in property, plant and equipment and
goodwill due to the Wedco acquisition as well as capital expenditures made
during the year.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS No. 121), which the Company adopted in
the first quarter of fiscal 1996. SFAS No. 121 established "accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of." The new statement
requires the value of long-lived assets, certain identifiable intangibles, and
goodwill to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If this change in circumstances or other initial indication has
occurred, the next step in determining whether an asset has been impaired is
performed using the expected future undiscounted cash flows of assets, grouped
at the lowest level for which there are identifiable cash flows, compared to the
carrying value of those assets. If the undiscounted cash flow value is less than
the net carrying value, the amount of impairment is then measured by comparing
the discounted cash flows with the corresponding carrying values of the assets
evaluated. The Company's previous policy was to evaluate the realizability of
long-term assets on an aggregate basis based on undiscounted cash flows. The
Company accumulated cash flow information at the lowest asset grouping levels
for which there were identifiable cash flows. These levels were represented by
separate operating locations. In the fourth quarter of fiscal 1996, based
32
<PAGE> 34
on the consolidation plans, the Company was required to consider impairment
which resulted in a write-down of long-lived assets of $5,025,000. The SFAS No.
121 write-down related entirely to the Wedco facilities which, during the fourth
quarter of fiscal 1996, the Company decided to close in fiscal 1997. More than
two-thirds of the write-down reduced the carrying value of goodwill created by
the April 1996 acquisition of Wedco. The remaining charge related to machinery
and equipment within the facilities to be closed. See "Business -- Petrochemical
Processing -- Size Reduction Services" and note 15 to the Consolidated Financial
Statements of the Company and notes thereto incorporated by reference herein.
Non-recurring compensation charges of $1,812,000 in fiscal 1996 related to
previous acquisitions made by the Company. Most of the expense consists of
severance and consulting fee obligations resulting from the Wedco acquisition.
During the fourth quarter of fiscal 1996, the Company determined these expenses
would not benefit the Company in the future. Inventory writedowns of $868,000 in
fiscal 1996 consisted of a reduction in the carrying value of inventory, within
the oilfield service operations, which partially related to the acquisition of
Baker Hughes Tubular Services, Inc. ("BHTS") in September 1992.
In fiscal 1996, the Company incurred $1,112,000 in non-recurring litigation
charges. During the fourth quarter and subsequent to year-end, the Company
determined that it was probable that certain legal matters of the Company would
result in a charge to income and that these charges could be reasonably
estimated. Eight-five percent (85%) of the charge relates to the settlement of
the litigation of a dispute concerning the assumption of certain liabilities in
connection with the acquisition of BHTS in September 1992. Of the remaining
charges, $150,000 related to a personal injury claim made against the Company.
See "Business -- Legal Proceedings."
Operating Income. Operating Income decreased from operating income of
$5,046,000 for the year ended September 30, 1995 to an operating loss of
$2,084,000 for the year ended September 30, 1996. The decrease is due to the
changes in revenues, selling, general and administrative, depreciation and
amortization and unusual items during fiscal 1996 versus fiscal 1995 as
explained above.
Net interest income decreased from $1,307,000 in fiscal 1995 to $608,000
during fiscal 1996. This change resulted from the debt assumed in connection
with the Wedco acquisition, a lower average cash balance and lower yields on the
Company's high-quality commercial paper portfolio.
Provision (Benefit) for Income Taxes. The Company decreased its valuation
allowance through the fiscal 1996 provision to reflect its ability to benefit
from temporary differences. In connection with the purchase price accounting for
the Wedco acquisition, the Company reversed the remaining valuation allowance
against net tax assets expected to be realized, resulting in a decrease of
acquired goodwill. As a result of the reversal of the valuation allowance,
provisions for income taxes in future years will increase as a percentage of net
income and will be greater than the Company's effective tax rate. See note 10 to
the Consolidated Financial Statements and notes incorporated by reference in
this Prospectus for the detail of temporary differences between income for
financial reporting purposes and income for federal income tax purposes.
The Company has for tax return purposes $6,306,000 and $1,078,000 in net
operating and capital loss carryforwards, respectively, which expire between
2000 and 2008, and $1,532,000 in investment, alternative minimum and other tax
credit carryforwards. All of the tax credits are expected to expire unused
except $104,000 in alternative minimum tax credits, which have no expiration.
Net Income. For the year ended September 30, 1996, the Company had a net
loss of $1,060,000 as compared to net income of $5,790,000 for the year ended
September 30, 1995 due to the factors described above.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues. Revenues increased $11,917,000 or 16% from the year ended
September 30, 1994 to the same period in fiscal 1995. Exploration revenues
increased $4,857,000 or 16% from the year ended September 30, 1994 to the same
period in fiscal 1995. Demand for exploration services was affected by domestic
drilling activity. The domestic rig count averaged 770 for the year ended
September 30, 1994 compared to an average of 738 for the year ended September
30, 1995. The adverse impact of the lower domestic rig count, however,
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<PAGE> 35
was more than offset by the Company's increased success in providing in-plant,
new pipe inspection services to steel mill and processing customers.
Production sales and services revenues decreased $174,000 or less than 1%
from the year ended September 30, 1994 to the same period in fiscal 1995. Demand
for these services was affected by changes in oil prices which remained
relatively stable in fiscal 1995 versus fiscal 1994. Oil prices ranged from a
high of $21 per barrel to a low of $17 per barrel for the year ended September
30, 1995 compared to a high of $21 per barrel to a low of $14 per barrel for the
year ended September 30, 1994. The full year impact of fiscal 1994 acquisitions
of Frontier and Shearer and the partial year impact of Kebco acquired in March
1995 had a positive impact on production revenues. The Company believes the
effect of the acquisitions, however, was offset by a temporary decline in
services in the Oklahoma and Wyoming markets. The decrease in California was the
result of production delays following the relocation of the Company's operating
facility to Bakersfield, California, from The City of Industry, California.
Revenues from corrosion control services increased $6,013,000 or 41% from
the year ended September 30, 1994 to the same period in fiscal 1995. The
increase was due to the full year effect of the April 1994 acquisition of
Permian and an increased demand for the Company's corrosion control services at
all of its facilities.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues decreased from 71% for the year ended September 30, 1994 to 68% for the
year ended September 30, 1995. This was due to the cost reduction program
implemented at the beginning of the fiscal 1994 third quarter and the increased
sales volume of the Company's exploration sales and services in fiscal 1995
versus fiscal 1994.
Selling, general and administrative expenses increased from $15,202,000 for
the year ended September 30, 1994 to $17,736,000 for the year ended September
30, 1995. The change is due to increased sales activity, the fiscal 1994
acquisitions of TUC, Shearer, Permian and Frontier and the fiscal 1995
acquisitions of B&W and Spinco. Selling, general and administrative costs as a
percentage of revenues remained relatively consistent for the fiscal year ended
September 30, 1994 as compared to the same period in fiscal 1995.
Depreciation and amortization expense increased from $4,357,000 for the
year ended September 30, 1994 to $5,112,000 for the year ended September 30,
1995. The increase resulted from the additions of property, plant and equipment
during the year including the property, plant and equipment included in the
fiscal 1995 and fiscal 1994 acquisitions.
Operating Income. Operating income increased to $5,046,000 during fiscal
1995 versus $2,220,000 for fiscal 1994. The increase is due to the changes in
revenues and costs and expenses, explained above.
Net interest income increased from $431,000 for the year ended September
30, 1994 to $1,307,000 for the year ended September 30, 1995. This change
resulted from the retirement of indebtedness in early fiscal 1994 and increasing
yields on the Company's high-quality commercial paper portfolio in fiscal 1995
versus fiscal 1994.
Provision (Benefit) For Income Taxes. The Company reduced its valuation
allowance during fiscal 1995 to reflect its ability to benefit from temporary
differences to the extent that regular federal taxes have been paid. See note 10
to the Consolidated Financial Statements and notes thereto incorporated by
reference herein for the detail of temporary differences between income for
financial reporting purposes and federal income tax purposes.
Net Income. For the year ended September 30, 1995 the Company had net
income of $5,790,000 as compared to net income of $1,225,000 for the year ended
September 30, 1994 due to the factors described above. Included in the net
income for the year ended September 30, 1994 is an extraordinary loss of
$1,371,000 resulting from the retirement of indebtedness previously recorded on
the consolidated balance sheet at a discounted value.
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LIQUIDITY AND CAPITAL RESOURCES
The following are considered by management as key measures of liquidity
applicable to the Company:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ------------
<S> <C> <C>
Cash and cash equivalents......................... $13,414,000 $102,278,000
Working capital................................... 29,882,000 127,820,000
Current ratio..................................... 2.3 4.6
Debt-to-capitalization............................ .14 to 1 .52 to 1
</TABLE>
Cash and cash equivalents increased $88,864,000 during the nine months
ended June 30, 1997, primarily as a result of the June 1997 Senior Notes
offering, and cash generated by operating activities offset by cash used for
investing activities.
The Company's working capital and current ratio has increased from
$29,882,000 and 2.3, respectively, at September 30, 1996 to $127,820,000 and
4.6, respectively, at June 30, 1997. These changes are primarily the result of
the June 1997 issuance of $120,000,000 of Senior Notes. The issuance of the
Senior Notes also contributed to the increase in the Company's
debt-to-capitalization ratio from .14 to 1 to .52 to 1.
On June 9, 1997 the Company issued $120,000,000 Senior Notes which bear an
interest rate of 10 3/8%. The Company received proceeds, net of offering costs,
of approximately $115,000,000. The debt matures June 1, 2007 and interest is
payable on June 1 and December 1 of each year, commencing December 1, 1997.
During the quarter ended June 30, 1997 the Company used a portion of the
proceeds to repay approximately $16,700,000 of existing indebtedness. Subsequent
to June 30, 1997 the Company used $18,293,000 of the proceeds to acquire
Verplast. The remaining proceeds will be used for general corporate purposes
including capital expenditures and acquisitions. Pending the use of the
remaining net proceeds, the Company intends to invest the net proceeds of the
offering in short-term, interest-bearing securities, as permitted under the
terms of the notes.
For the nine months ended June 30, 1997 cash provided by operating
activities decreased to $7,151,000 compared to $7,476,000 for the nine months
ended June 30, 1996. The decrease was the result of higher net income and an
increase in depreciation and amortization expense offset by the various changes
in working capital accounts, particularly changes in accounts receivable,
inventory and accrued expenses.
Capital expenditures totaled $9,832,000 during the nine months ended June
30, 1997, of which $3,161,000 related to the oilfield services segment and the
remaining related to the petrochemical processing business. The expenditures
were primarily incurred to enhance and expand existing facilities. For the
remainder of fiscal 1997, capital expenditures are expected to be approximately
$3,100,000 and are expected to be financed through cash generated from
operations and existing cash.
Cash flows from financing activities increased to $101,590,000 during the
first nine months of fiscal year 1997 compared to cash uses of $3,065,000 during
the first nine months of fiscal 1996. The increase was due to the June 1997
issuance of Senior Notes, offset by an increase in common stock dividends
resulting from the increase in the number of common shares outstanding and
increased debt repayments.
During the period commencing on October 1, 1995 and ended on June 30, 1997,
the Company has acquired seven businesses, six within the specialty
petrochemical processing businesses. Since June 30, 1997, the Company has
acquired two additional businesses. These acquisitions required significant
investment by the Company in cash, Company common stock issued to the former
owners of the acquired businesses and indebtedness effectively assumed by the
Company. Many of the changes of the June 30, 1997 balance sheet from September
30, 1996 are a result of these acquisitions. The Company anticipates it will
continue to seek acquisitions in the future, particularly within the next twelve
to eighteen months using the proceeds of the Senior Notes offering.
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<PAGE> 37
The Company believes the net proceeds of the Offering, cash from operations
and credit available under the Bank Credit Facility and other credit lines are
sufficient to meet anticipated capital and operating expenditures for the next
eighteen to twenty-four months.
As of August 31, 1997 the Company had approximately $21,603,000 in
additional borrowing capacity available under various credit arrangements.
$15,000,000 of this amount is available under the Company's domestic credit
facility and the remaining is available under various foreign facilities. See
"Description of Certain Credit Facilities."
SEASONALITY
Much of the Company's oilfield services business is seasonal in nature and
reflects the general pattern of oilfield drilling and workovers, with the first
and fourth quarters of the fiscal year generally having higher levels of
activity and the second and third quarters generally having lower levels of
activity. The Company does not believe its specialty petrochemical processing
business generally follows a seasonal pattern.
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<PAGE> 38
BUSINESS
GENERAL
The Company provides specialized oilfield and petrochemical processing
services. In the oilfield services segment, ICO is a leading provider of
inspection, reconditioning and coating services for new and used tubular goods
and sucker rods utilized in the oil and gas industry. The Company's oilfield
services are designed to reduce the customers' cost of drilling and production
by preventing faulty tubular goods from being placed downhole (exploration
services), reclaiming and reconditioning used tubular goods and sucker rods
(production services), and preventing premature failure of tubular goods and
sucker rods from occurring due to the corrosive downhole drilling environment
(corrosion control services). Although comprehensive industry statistics are not
readily available, ICO believes it is one of the two largest providers of
inspection, reconditioning and coating services for tubular goods in the United
States. The Company's customers in the oilfield services segment include many of
the leading integrated oil companies and major independent oil and gas
exploration and production companies. In the petrochemical processing segment,
the Company provides grinding and ancillary services for petrochemical resins
produced in pellet form (size reduction services) and formulates and
manufactures concentrated products for blending with petrochemical resins to
give finished products desired characteristics such as color or ultraviolet
protectants (concentrates manufacturing). The Company's specialty petrochemical
processing customers include major chemical companies and petrochemical
production affiliates of major oil production companies.
ICO STRATEGY
The Company's goal is to be a leading provider of specialized services to
the oil and gas, plastics and steel industries. The Company seeks to achieve
steady growth in its oilfield services business by (i) providing high-quality
services at competitive prices, (ii) developing new products that meet its
customers needs, and (iii) selectively pursuing complementary acquisitions in
the oilfield services business. The Company intends to seek growth in its
petrochemical processing niche by (i) opportunistically pursuing additional
strategic acquisitions to increase market share and enable it to provide
additional and complementary products and services, (ii) streamlining acquired
operations to improve margins and (iii) increasing the sales and marketing
effort of acquired operations.
From the beginning of fiscal 1994 to the middle of fiscal 1996, the Company
completed and integrated eight acquisitions in the oilfield services segment to
increase market share and expand its service capabilities. These acquisitions
allowed the Company to streamline manufacturing facilities, reduce headcount,
and centralize administration functions to improve operating margins. In April
1996, ICO entered the petrochemical processing industry through the Wedco merger
to take advantage of opportunities in that market. Since the Wedco merger, the
Company has completed six additional acquisitions in the petrochemical
processing industry and has recently implemented a consolidation program which
has resulted in the closure of two manufacturing facilities with a third
facility to close during fiscal 1997 or early fiscal 1998.
The Company seeks growth through internal expansion, capital investments
and acquisitions. The primary focus of the Company's growth strategy is to:
Increase Penetration of Oilfield Services Markets -- The Company seeks to
increase its market share in oilfield services based upon the breadth of its
service line and the strength of its reputation in the industry. ICO believes
that it has a reputation for providing a wide range of services utilizing
advanced technologies at competitive prices while maintaining high levels of
quality and customer service. The Company intends to continue to introduce new
products, develop innovative solutions for customers, and pursue customized
marketing approaches to build market share.
Continue to Consolidate the Petrochemical Processing Market -- The Company
believes that the petrochemical processing segment presents opportunities
similar to those which existed in the oilfield services business in the early
1990's. The Company entered the industry in April 1996 with the Wedco merger and
has subsequently acquired six businesses that have allowed the Company to
increase its market share and expand its product line, both domestically and
internationally. The Company is actively seeking strategic acquisitions of
companies, technologies or service lines which will complement its existing
operations. Acquisition
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<PAGE> 39
opportunities will be evaluated based on the Company's perception of strategic
fit, the expected return on capital invested and the ability of management to
improve the profitability of acquired operations through cost reductions, plant
consolidations and other synergies with existing operations. While the Company
considers such acquisition opportunities from time to time, the Company has not
entered into any agreement or arrangement for any such acquisition.
Expand International Distribution of Specialty Petrochemical
Products -- The Company believes that the trend toward outsourcing of non-core
operations is creating an opportunity for ICO to expand into the distribution of
specialized petrochemical products in international markets. Historically, the
Company has provided petrochemical processing services for its customers, and
during fiscal 1997 the Company acquired the Micropowder Business and entered
into supply agreements with Exxon Chemical Belgium and Borealis to distribute
specified rotational molding powders in Europe. Additionally, Rotec and
Verplast, which were acquired on April 30, 1997, and July 21, 1997,
respectively, are currently providing distribution services within the markets
they serve. The Company believes that it is well positioned to develop its
international specialty petrochemicals distribution business.
Selectively Pursue Complementary Acquisitions in the Oilfield Services
Business -- Although ICO anticipates that its acquisition efforts will primarily
focus on the petrochemical processing business, the Company plans to continue to
evaluate strategic acquisitions in the oilfield services segment that complement
its existing business. Acquisition opportunities will be evaluated based on
criteria similar to those discussed above, with particular emphasis on
acquisitions which would expand the Company's geographic coverage, technological
base or provide complementary products or services. The Company has not entered
into any agreement or arrangement for any such acquisition.
OILFIELD SERVICES
The Company's inspection, reconditioning and coating services for new and
used tubular goods and sucker rods include exploration services, production
services and corrosion control services. These services include a variety of
processes designed to reduce the customer's cost of drilling and production. The
Company also sells equipment and supplies used in the inspection, reconditioning
and coating of tubular goods and sucker rods.
Tubular goods include various forms of casing, tubing, drill pipe and line
pipe. Casing is used to seal off fluids and prevent collapse of the bore holes
of oil and natural gas wells. After production casing is set, a string of tubing
is suspended from the surface inside the casing to serve as a conduit for the
extraction of oil and natural gas. Drill pipe is heavy seamless pipe used to
rotate the drill bit and circulate drilling fluids. Line pipe is used for waste
disposal lines, flow lines, gathering systems and pipelines through which oil,
natural gas and liquid hydrocarbons are transported. Removal of casing or tubing
for repair or replacement is expensive and results in an interruption of
production and loss of revenues to the well owner. Sucker rods are steel rods
which are joined together in a "string" by couplings to form a mechanical link
from a downhole pump at the bottom of an oil well to the pumping unit on the
surface. Removal of a sucker rod string for repair or replacement of rods,
couplings or the downhole pump requires a well to be shut down and the entire
string of sucker rods to be removed, resulting in additional expenses and loss
of revenues to the well owner due to interruption of production.
Exploration Services. The Company provides inspection services designed to
identify new tubular goods which are defective or which do not meet American
Petroleum Institute ("API") standards or other specifications set by the
customer. The API standards require pipes to be inspected to meet specified
standards and are generally employed as a benchmark in the petroleum industry.
Customers, however, generally require pipe to meet more rigorous standards.
These inspection services are used by the mills which manufacture pipe, pipe
suppliers and end users, such as oil and gas exploration and production
companies, as a quality assurance and control measure to reduce the risk of
costs associated with defective tubular goods and to reduce the risk of downhole
failure, especially when drilling deep oil and natural gas wells with high
downhole temperatures and pressures and when drilling in environmentally
sensitive areas such as offshore waters. The Company operates its own inspection
facilities for new tubular goods which provide (in contrast to field inspection)
a
38
<PAGE> 40
controlled environment which permits more efficient and consistent inspection
procedures, facilitates supervision of personnel and electronic equipment and
avoids problems associated with inclement weather. The Company also performs
inspection services on site at the manufacturing plants of 12 major producers
and processors of tubular goods, reducing transportation and handling costs to
the customer, and provides mobile inspection services in the field. ICO also
manufactures inspection and quality control equipment which is sold or leased
from time to time to steel producers and processors.
The Company offers a wide range of tubular services including
electro-magnetic inspection ("EMI"), ultrasonic inspection, tubular maintenance
and storage, inventory management and associated services such as threading and
hydrostatic testing, providing "one-stop shopping" for customers. EMI is a
process which identifies flaws through magnetic flux leakage and is generally
used on pipe of less than 500 mil. in thickness. The Company designed and uses
an EMI system, the AGS system, which the Company believes is capable of
identifying and visually displaying natural and man-made flaws that are not
identifiable using conventional EMI methods. Ultrasonic inspection identifies
flaws which are virtually undetectable by other means, employing high frequency
sound waves, and is used to inspect pipe that is thicker than pipe which EMI can
effectively inspect or which contains alloys of metals other than steel, such as
titanium. The Company expanded its ultrasonic technology and engineering
expertise with the acquisitions of BHTS in September 1992 and TUC in November
1993. See "The Company -- Acquisitions."
Production Services. The Company reconditions and inspects used tubular
goods and new and used sucker rods through the provision of a complete package
of inspection and maintenance services. These services include the testing,
cleaning, reconditioning and electronic inspection of tubular goods. Such
services are performed in a controlled environment at the Company's facilities
(providing many of the advantages previously described for in-plant inspection
of new tubular goods) as well as at the well site, using mobile equipment. These
services reduce the customer's well operating costs because reconditioning used
tubular goods is less expensive than purchasing new tubular goods. Reconditioned
tubular goods generally must meet the same API or customer standards as new
tubular goods. The Company performs these services at nine Company facilities
located in California, Mississippi, New Mexico, North Dakota, Oklahoma, Texas
and Wyoming.
The Company is a provider of the reconditioning and inspection of new and
used sucker rods. Using a patented process, reconditioning involves a number of
steps designed to clean, straighten, inspect and apply protective coating to
sucker rods to guard against corrosion. This process reduces the customer's well
operating costs because reconditioning used sucker rods is less expensive than
purchasing new sucker rods. The Company also inspects new sucker rods before
they are placed in service to reduce the risk of downhole failure, which
requires expensive pulling services and results in loss of production. The
Company's sucker rod reconditioning and inspection services are provided at
seven Company facilities located in California, Oklahoma, Texas, Wyoming and
Canada. The Canadian operations were acquired in the February 1994 acquisition
of Shearer. See "The Company -- Acquisitions."
The Company has a program in which it purchases used tubular goods and
sucker rods from certain customers, reconditions and grades the pipe and sucker
rods for varying degrees of usage and resells the pipe and sucker rods to other
customers in the marketplace.
The Company also operates mobile inspection units utilizing a system known
as Wellhead Scanalog. The Company acquired the rights to Wellhead Scanalog for
use in the United States pursuant to a non-exclusive, royalty free license
assigned to it in connection with the acquisition of BHTS. Wellhead Scanalog is
designed to perform tubular inspection while the tubing is being removed from
the well without interfering with the normal operation of the rig. The Company
believes Wellhead Scanalog inspection is unique because it is not affected by
scale, mud, paraffin or water, which can inhibit the operation of other systems.
Corrosion Control Services. Corrosive conditions exist inside most wells.
Such conditions are particularly extreme in high temperature gas wells and in
oil producing regions where secondary and tertiary recovery techniques are
utilized. Secondary and tertiary recovery techniques are methods by which
natural forces in an oil reservoir are supplemented by means such as water
flooding to increase ultimate oil recovery. Under highly corrosive conditions,
even a microscopic area of uncoated steel can result in a tubular or rod failure
or damage.
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<PAGE> 41
To combat these conditions, the Company offers a variety of corrosion control
services to its customers, using several of the Company's patented processes.
The Company's corrosion control services are designed to reduce well operating
costs by extending the useful life of downhole tubular goods and sucker rods and
by improving the well's hydraulic efficiency and pipe integrity.
The Company internally coats new and used tubular goods with a variety of
powder and liquid coatings. In the coating process, tubular goods are placed in
large burnout ovens to remove foreign substances. The tubular goods are then
grit blasted, primed with phenolic, preheated, coated internally and subjected
to a final baking process. The tubular goods are then inspected visually and
electronically to make certain the coating uniformly covers the entire interior
of the pipe and that no bare spots or thin coverings exist. A similar process is
utilized for cleaning, priming and coating tubular couplings. The selection of
the proper coating for downhole tubular goods requires knowledge and
considerable effort by the Company's experienced coating managers and
technicians. The key to the process is gathering facts concerning the well, its
environment, test procedures and related conditions planned for the life of the
well. The Company has four coating facilities located in Louisiana and Texas.
The Company's patented sucker rod coating process involves applying a
special formula stainless steel to the sucker rods and then coating them with a
phenolic primer and fusion bonded modified epoxy. Sucker rods used in less
corrosive conditions are usually coated only with the phenolic primer and fusion
bonded modified epoxy. The Company's sucker rod coating services are provided at
its facility in Odessa, Texas.
ICO expanded its corrosion control services with the acquisition of Permian
in April 1994. Permian provides internal cement lining for small diameter tubing
through 24-foot line pipe. Cement provides an increased barrier between
corrosive fluids and the tubular product which allows the customer to use a
larger portion of its used pipe with a welded connection, when weight and
torsion strength are not a primary issue. Permian also applies an external
fusion bonded tape which forms a tough protective corrosion barrier for critical
line pipe. The addition of Permian has afforded the Company expanded flexibility
and product offerings for small diameter pipe used in production applications.
See "The Company -- Acquisitions."
In fiscal 1995, the Company introduced five new corrosion control products,
including powder coatings for drill pipe and high temperature production tubing.
These powder coatings have better mechanical and protective capabilities as
compared to liquid coatings without the environmental control expenses normally
associated with their liquid counterparts. The five products the Company
introduced in fiscal 1995 are as follows: IPC 100 -- a powdered, internal
protective coating for drill pipe, IPC 800 -- a high temperature powder coating
for production tubing, Nose-Gard(TM) -- a metalizing process for the end area of
tubing, Weld-Gard(TM) -- a metalizing process for the end area of line pipe, and
Fiber-Line(TM) -- an internal fiberglass lining for tubing.
Oilfield Services Customers and Pricing. The Company's customers include
several of the leading integrated oil companies, as well as major independent
oil and gas exploration and production companies, drilling contractors and steel
producers and processors and supply companies. No single customer of the
oilfield services business segment accounted for over 10% of the Company's
revenues in fiscal 1994, 1995 or 1996 or for the nine months ended June 30,
1997. Sales are generally on an order-by-order basis or under short-term
contracts (i.e., one year or less). Contracts involving the placement of Company
owned equipment in tubular goods manufacturing facilities. These contracts are
generally for three or more years and in some instances provide for fixed
prices, volume discounts and indemnification of customers for certain
liabilities.
Oilfield Services Sales and Marketing. The Company's oilfield services are
marketed by 26 individuals who are responsible for in-depth customer contact and
service knowledge. Oilfield service sales representatives are required to be
technically knowledgeable in inspection and corrosion control services, and to
stay abreast of regional and industry-wide trends in oil and gas exploration,
completion and production.
Competition. The principal competitive factors in the Company's oilfield
services business are price, availability and quality of service. The
consolidation in the tubular inspection, reconditioning and coating industry has
resulted in the elimination of many of the Company's competitors.
Notwithstanding the industry's consolidation, the tubular inspecting,
reconditioning and coating industry continues to be highly competitive.
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The Company's ability to compete effectively is dependent upon timely, reliable
performance and quality of its services at competitive rates. The Company
believes that it has been able to compete effectively because of its efficient
and cost-effective processes and the strong relationships which it maintains
with its customers.
Recent Oilfield Services Acquisition. On September 19, 1997 the Company
acquired the operating assets of Nspection Systems, Inc. for $600,000 in cash
and future royalty payments based on sales. Nspection provides electromagnetic
inspection and related services for new and used tubing, casing and drill pipe
at two locations in Houston, Texas.
The Company believes few competitors provide as wide a variety of tubular
services as those offered by ICO, or in-plant inspection of new tubular goods
outside Houston, Texas. The Company and Tuboscope, Inc. compete with each other
and a number of smaller companies in most domestic markets. Capital and other
requirements for entry into the tubular inspection business are relatively low
and new competition may enter the market from time to time. Potential entrants
may have substantially greater financial or other resources than the Company.
While there can be no assurance, the Company believes it will be able to compete
effectively in the industry, based on the factors described above.
PETROCHEMICAL PROCESSING
The Company's petrochemical processing business segment provides size
reduction services and manufactures concentrates for use in petrochemical
products. The Company conducts its size reduction operations through its Wedco
business unit, which operates in the United States and Europe. The Company's
concentrates manufacturing operations are conducted primarily through Bayshore,
which operates in the United States and Rotec, which operates in Europe. See
"The Company -- Acquisitions."
Petrochemical resins are produced by chemical manufacturers, generally in
the form of pellets. A variety of the manufacturing processes necessary to
produce finished plastic or other petrochemical products require the pellets to
be ground into smaller sizes, or to be mixed with additives and recombined,
before end products having the desired characteristics are produced. The
Company's size reduction services and concentrates manufacturing operations are
an intermediate step between the primary production of petrochemical resins and
the final manufacture of a wide variety of end products, such as paint, garbage
bags or objects made of plastic. The Company's size reduction services involve
the grinding of pellets into smaller sizes or the blending of petrochemical
pellets with other additives or fillers, while the Company's concentrates
manufacturing operations produce additives which, when blended into resin, give
end products desired properties such as flame retardency, color, ultraviolet
stabilization or adhesion.
Size Reduction Services. The Company's size reduction services include
ambient grinding, cryogenic grinding and air jet milling of petrochemical
pellets. Materials processed by the Company's size reduction services include
polyethylene, polyester, polypropylene, nylon, fluorocarbons, cellulose acetate,
vinyls, phenolic, polyurethane, acrylics, epoxies and others.
The majority of size reduction services performed by the Company involve
ambient grinding, a process which passes the petrochemical pellets between two
separated metal grinding disks, one rotating and one fixed, thus breaking down
the pellets. The Company generally performs ambient grinding utilizing Wedco-
manufactured equipment. Ambient grinding is suitable for products which do not
require very fine particle size and are not highly heat sensitive. The powders
resulting from the Company's ambient grinding services are used in the
manufacture of household and automotive items (such as household furniture,
trash receptacles and plastic automobile parts), agricultural products (such as
fertilizer and water tanks), paint and metal coatings, fabric coatings and as
raw material for additional processing involving the addition of additives or
colors. Many of these products are produced by rotational molding, and a
substantial portion of the Company's size reduction services are produced for
customers manufacturing in the rotational molding industry or supplying that
industry.
Rotational molding manufactures plastic products by melting pre-measured
plastic resin in molds which are heated in an oven while being slowly rotated on
both the vertical and horizontal axis. The melting resin sticks to the hot mold
and coats each surface evenly. This process offers design advantages over other
molding
41
<PAGE> 43
processes, such as injection molding, because assembly of multiple parts is
unnecessary, consistent thickness can be maintained, tooling is less expensive
and molds do not need to be designed to withstand the high pressures inherent in
injection molding.
The Company provides air jet milling of resins for products requiring very
fine particle size, such as additives for printing ink, adhesives, waxes and
cosmetics. Air jet milling utilizes high velocity compressed air to reduce
materials to sizes between 0.5 and 50 microns. Materials with special thermal
characteristics (such as heat sensitive plastics) are processed utilizing
cryogenic grinding, which grinds pellets chilled to extremely low temperatures
employing equipment developed by Wedco over the past 20 years.
The Company also offers its customers other related services, such as melt
blending and mixing of plastics and other additives to form pellets
(compounding) and other processing, packaging, warehousing and distribution
services, which are integrated with the size reduction services described above.
From time to time, the Company also sells the ambient grinding equipment
manufactured by Wedco in the United States and Europe. Sales of such equipment
were less than $1.0 million in fiscal 1996.
The Company's size reduction services are conducted at seven locations in
the United States and seven in Europe. The Company's acquisition program,
particularly the acquisition of PSI, resulted in ownership by ICO of multiple
size reduction facilities in the same geographic area. Accordingly, in order to
reduce operating costs and capital expenditure requirements, the Company decided
to discontinue petrochemical size reduction services at three plants, in
Houston, Texas, Long Beach, California and Maywood, Illinois. The Houston and
Long Beach facilities have been closed and the Maywood facility is expected to
be closed during fiscal 1997 or early fiscal 1998. See "The
Company -- Acquisitions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company (through Wedco) also owns 50% of WedTech, Inc. ("WedTech"), a
Canadian company which provides size reduction services and manufactures
concentrates. See "-- Legal Proceedings."
Concentrates Manufacturing. The Company's concentrates manufacturing
operations are conducted primarily at Bayshore's facility in La Porte, Texas,
and were recently augmented by the Company's acquisition of Rotec, described
below, whose Rushden, England facility also manufactures concentrates. ICO's
concentrates manufacturing operations involve the formulation and production of
highly concentrated compounds of additives which are then blended (by the
Company or others) with petrochemical resins to produce products having
specifically desired characteristics, such as flame retardance, color,
ultraviolet stabilization or adhesion. The Company's concentrates are produced
to the detailed specifications of customers and require the combination of up to
25 different additives or fillers in precise proportions. The Company is often
approved as the manufacturer of such concentrates following rigorous
qualification procedures imposed by customers on a product by product basis. The
Company works closely with its concentrates customers to research, develop and
test the formulations necessary to create the desired characteristics of the
concentrates to be produced. Such concentrates are produced in batches which may
range from as little as five pounds (i.e., a lab sample) to as large as 4
million pounds. Bayshore operates a facility in LaPorte, Texas with a present
capacity of up to 100 million pounds per annum, depending upon the density of
the material produced, and is constructing an additional production line at this
location with a capacity of up to 55 million pounds per annum.
In the second quarter of fiscal 1997 the Company began to expand the
distribution component of its specialty petrochemical production services
business through the acquisition, effective April 1, 1997, of the Micropowders
Business, the execution of the supply agreements with Borealis and Exxon
Chemical Holland and the acquisitions of Rotec and Verplast. Under the supply
agreements the Company has received the distribution rights to specific
rotational molding products of Borealis and Exxon Chemical Holland in the
European Union under agreements providing for purchase of the products from the
manufacturers at scheduled prices. These actions will allow ICO to sell a
variety of petrochemical products in Europe under its own name and under the
name of Rotec and Verplast. ICO has established trading companies (under the
name ICO Polymers) in The Netherlands, the United Kingdom and Sweden to engage
in these activities. The Company believes this enhanced distribution capacity
will provide access to new customers and enable it to expand its relationships
with existing petrochemical producer customers by the creation of a vending
relationship with the customer in addition to existing service relationships. In
this activity, the Company will
42
<PAGE> 44
acquire the petrochemical products for its own account from the petrochemical
producer for resale to third parties, and will expand the portion of the
Company's specialty petrochemical processing business which is performed through
product-based pricing rather than on a tolling basis.
Recent Petrochemical Processing Acquisitions. On July 21, 1997 the Company
completed the acquisition of Verplast. Verplast performs size reduction and
distributes plastic powders to customers in Europe under its own brand name
utilizing a sales force of two people and two facilities located in Italy. The
Company believes that the Verplast acquisition will enhance its distribution
capabilities in Europe. See "Unaudited Pro Forma Condensed Financial Statements"
and "The Company -- Acquisitions."
Petrochemical Processing Customers and Pricing. The primary customers of
the Company's petrochemical processing business segment are large producers of
petrochemicals, which include major chemical companies and petrochemical
production affiliates of major oil production companies. In size reduction
services, the number of customers is large and no customer or particular type of
customer is dominant. While the Company has a large number of concentrates
manufacturing customers, sales are focused on a limited number of large chemical
companies and affiliates of oil producers. Dow Chemical Company and its
affiliates accounted for approximately 11% of the revenues of the Company for
the three months ended June 30, 1997.
The Company's size reduction services are generally performed on a tolling
basis, whereby the customer delivers raw materials to the Company, which
processes them for a processing fee and returns the processed materials to the
customer for further processing or sale. The Company has long term contract
arrangements with several customers whereby it has agreed to process
petrochemical products for a multi-year term for a fixed processing fee.
While the Company emphasizes value-added services to customers in both its
size reduction services and its concentrates manufacturing, the Company
generally purchases and takes into inventory the raw materials necessary to
manufacture the concentrates and sells the resulting manufactured products at a
product price, which contrasts with its pricing in its size reduction services
performed on a tolling basis. The Company seeks to minimize the risk of price
fluctuation in raw materials and other supplies by maintaining relatively short
order cycles. The Company's recent expansion into the micropowders distribution
business in Europe will also require the Company to purchase and take raw
materials into inventory, exposing the Company to increased risk of price
fluctuations. See "-- Raw Materials and Backlog."
Petrochemical Processing Sales and Marketing. Prior to its acquisition by
the Company in April 1996, Wedco operated in the United States without a formal
sales and marketing group. As part of its integration of Wedco, the Company has
established a sales force of five full-time individuals dedicated to selling its
size reduction services in the United States. In addition, Wedco has an
established sales force in Europe consisting of six full-time individuals, who
are located in The Netherlands, the United Kingdom and Scandinavia. Bayshore's
concentrates sales force consists of two individuals who sell the Company's
concentrates and related services throughout the United States. Rotec has a
sales force of three individuals located at its facility in Rushden, England who
sell Rotec's products and services primarily in the United Kingdom. Micronyl has
one sales person located in France and Verplast has two sales people in Italy.
Competition. The specialty petrochemical processing business is highly
competitive. Competition is based principally on price, quality of service,
manufacturing technology, proximity to markets and customer service and support.
The Company's competitors in providing size reduction services are generally
smaller and mid-sized companies providing ambient grinding services from
regional locations, as well as larger providers of specialized services such as
cryogenic grinding and air jet milling. Several companies also maintain
significant size reduction facilities for their own use in connection with
products produced by rotational molding. The Company believes that it has been
able to compete effectively in its market based on competitive pricing, its
network of plants in the U.S. and Europe, its technical expertise and equipment
manufacturing capabilities and its range of services, such as flexible storage
and packaging facilities. The Company also believes that its knowledge of the
rotational molding industry, through activities such as participation in the
Association of Rotational Molders, enhances its competitive position with this
key customer group. The Company's competitors in the concentrates industry
include a number of large enterprises, as well as smaller and mid-
43
<PAGE> 45
sized regional companies. The Company believes its technical expertise, high
quality product, customer support and pricing have enabled it to compete
successfully in this market.
The size reduction business lacks substantial barriers to entry. However,
the concentrates manufacturing business requires substantial investment in
equipment, as well as technical expertise. In general, many of the Company's
customers could perform the special petrochemical processing services provided
by the Company for themselves if they choose, and new competitors may enter the
market from time to time. A number of the Company's competitors and potential
competitors in this segment have substantially greater financial and other
resources than the Company. While there can be no assurance, the Company
believes that it will be able to continue to compete effectively in the
industry, based on the factors described above.
ENVIRONMENTAL REGULATION
The Company is subject to numerous and changing local, state, federal and
foreign laws and regulations concerning the use, storage, treatment, disposal
and general handling of hazardous materials, some of which may be considered to
be hazardous wastes, and restricting releases of pollutants and contaminants
into the environment. These laws and regulations may require certain permits and
other authorizations mandating procedures under which the Company shall operate
and restricting emissions. Many of these laws and regulations provide for strict
joint and several liability for the costs of cleaning up contamination resulting
from releases of regulated materials into the environment. Violation of
mandatory procedures under operating permits may result in fines, remedial
actions or, in more serious situations, shutdowns or revocation of permits or
authorizations.
The Company regularly monitors and reviews its operations, procedures and
policies for compliance with environmental laws and regulations and the
Company's operating permits. The Company believes that its current procedures
and practices in its operations, including those for handling hazardous
materials, are substantially in compliance with all material environmental laws
and regulations and its material operating permits. There can be no assurance,
however, that a review of the Company's past, present or future operations by
courts or federal, state, local or foreign regulatory authorities will not
result in determinations that could have a material adverse effect on the
Company. In addition, the revocation of any of the Company's material operating
permits, the denial of any material permit application or the failure to renew
any interim permit, could have a material adverse effect on the Company. While
the Company cannot predict what environmental laws and regulations will be
enacted or adopted in the future or how such future law or regulations will be
administered or interpreted, it believes the impact of any such laws or
regulations is not likely to be more burdensome to the Company than to other
similarly situated companies involved in oilfield services or petrochemical
processing. Compliance with more stringent environmental laws and regulations,
more vigorous enforcement policies, or stricter interpretations of current laws
and regulations, or the occurrence of an industrial accident, could have a
material adverse effect on the Company.
For a description of certain legal proceedings involving the Company and
relating to environmental laws and regulations, see "-- Legal Proceedings."
INSURANCE AND RISK
Except for warranties implied by law, the Company does not generally
warrant the tubular goods or sucker rods it inspects or the specialty
petrochemical processing services it provides. Nonetheless, if the Company were
found to have been negligent, or to have breached its obligations to its
customers, the Company could be exposed to significant liabilities, and its
reputation could be adversely affected. Likewise, the Company's activities as a
vendor of inspection equipment, a reseller of tubular goods and a manufacturer
of specialty petrochemical products, may result in liability on account of
defective products. ICO believes the risks of its business are adequately
covered by its insurance program. However, such coverage is subject to
applicable deductibles, exclusions, limitations on coverage and policy limits.
In addition, the occurrence of a significant adverse event, the risks of which
are not fully covered by insurance, could have a material adverse effect on the
Company's financial condition and results of operations. Moreover, no assurance
can be given that the Company will be able to maintain adequate insurance in the
future at rates it considers reasonable.
44
<PAGE> 46
ICO believes it operates in substantial compliance with applicable laws and
government regulations and in accordance with safety standards which meet or
exceed industry standards.
RAW MATERIALS AND BACKLOG
The Company's specialty petrochemical business uses resins which are
generally supplied to it by its customers in size reduction operations. The
Company purchases and takes into inventory the resins, additives and other
materials used in its concentrates manufacturing and distribution business,
which are subject to fluctuating availability and prices. The Company believes
that other materials used in its operations are available from numerous sources
and are available to meet its needs. The Company believes that backlogs are not
meaningful to the Company operations.
PATENTS AND LICENSES
The Company holds eight United States patents and has six patent
applications pending covering the proprietary technology utilized in its
reconditioning, inspecting, spraymetal and epoxy coating of sucker rods and its
services for used tubular goods. The expiration dates on these patents range
from March 2007 to February 2016. The Company's petrochemical processing
operations are not materially dependent upon any patents or trademarks. The
Company believes that its patents and licenses are valid and that the duration
of its existing patents is satisfactory. However, no assurance can be given that
one or more of the Company's competitors may not be able to develop or produce a
process or system of comparable or greater quality to those covered by the
Company's patents or licenses or, because patent applications are confidential,
that competitors may not have previously filed patent application for the same
inventions covered by the Company's pending applications. In addition, issued
patents may be modified or revoked by the United States Patent and Trademark
Office or in legal proceedings. The Company does not believe any single patent
is essential to the overall successful operation of the Company's business.
In connection with the acquisition of BHTS, the Company acquired
royalty-free exclusive licenses to use Wellhead Scanalog, PipeImage(TM) and
other proprietary technology in the United States. Pursuant to the terms of such
licenses, the Company generally is prohibited from using such proprietary
technology in foreign markets.
EMPLOYEES
As of September 26, 1997, the Company had approximately 1,586 full-time
employees, and approximately 425 full-time contract employees. The acquisition
of Verplast after June 30, 1997 added an additional 59 employees. The Company's
employees working at the facility located in 's-Gravendeel and Verplast, are
parties to a collective bargaining agreement. None of the other employees are
represented by a union. The Company has experienced no strikes or work stoppages
and considers its relations with its employees to be satisfactory. The Company
provides many of its employees with stock options and year-end bonuses.
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<PAGE> 47
PROPERTIES
The location and approximate acreage of the Company's operating facilities
at September 29, 1997, together with an indication of the services performed at
such facilities are set forth below.
<TABLE>
<CAPTION>
OWNERSHIP
OR LEASE
LOCATION SERVICES ACRES EXPIRATION
-------- -------- ----- ----------
<S> <C> <C> <C>
OILFIELD SERVICES
Bakersfield, California.............. Sucker rod reconditioning and inspecting 30 Owned
Amelia, Louisiana.................... Internal coating and inspection of new and used 31 1998
tubular goods
Broussard, Louisiana................. Drill pipe inspection 22 Owned
Brookhaven, Mississippi.............. Inspection of tubular goods 12 2001
Brookhaven, Mississippi.............. Inspection of tubular goods 3 2008
Farmington, New Mexico............... Inspection of new and used tubular goods 14 1997
Williston, North Dakota.............. Used tubular goods services 2 1997
Oklahoma City, Oklahoma.............. Sucker rod reconditioning and inspecting 8 Owned
Oklahoma City, Oklahoma.............. Inspection of new and used tubular goods 22 Owned
Corpus Christi, Texas................ Inspection of new and used tubular goods 10 Owned
Denver City, Texas................... Sucker rod reconditioning and inspecting 10 Owned
Houston, Texas....................... Corporate headquarters N/A 2001
Houston, Texas....................... Inspection of new tubular goods 199 Owned
Houston, Texas....................... Internal coating of tubular goods 49 Owned
Houston, Texas....................... Internal research and development N/A 2003
Lone Star, Texas..................... Inspection of new tubular goods 80 Owned
Odessa, Texas........................ Sucker rod reconditioning and inspecting 13 (1)
Odessa, Texas........................ Sucker rod storage 7 Owned
Odessa, Texas........................ Spraymetal and epoxy coating of sucker rods 3 Owned
Odessa, Texas........................ Used tubular goods services 13 Owned
Odessa, Texas........................ Internal coating of tubular goods 15 Owned
Odessa, Texas........................ Trucking yard 14 Owned
Odessa, Texas........................ Used tubular goods services 22 Owned
Odessa, Texas........................ Facility sub-leased to third party 22 Owned
Odessa, Texas........................ Cement lining/external coating 20 (2)
Odessa, Texas........................ Equipment manufacturing and repair 5 Owned
Casper, Wyoming...................... Sucker rod reconditioning and inspecting; inspection 29 (3)
of new and used tubular goods
Edmonton, Alberta, Canada............ Inspection of new and used sucker rods
Sales and service of new and used oilwell engines 10 2005
PETROCHEMICAL PROCESSING SERVICES
Fontana, California.................. Size reduction 7 Owned
Maywood, Illinois.................... Size reduction 3 Owned
East Chicago, Indiana................ Size reduction 4 1999
Bloomsbury, New Jersey............... Size reduction 15 Owned
Grand Junction, Tennessee............ Size reduction 5 Owned
Memphis, Tennessee................... Engineering N/A 1997
Beaumont, Texas...................... Sales office 2 1997
China, Texas......................... Size reduction 12 Owned
Houston, Texas....................... Idle facility 22 Owned
LaPorte, Texas....................... Concentrate and compounding processing facility 37 Owned
Lovelady, Texas...................... Size reduction 12 Owned
Gainsborough, England................ Size reduction 5 Owned
Rotterdam, The Netherlands........... European headquarters N/A 2001
's-Gravendeel, The Netherlands....... Size reduction 5 Owned
Stenungsund, Sweden.................. Size reduction N/A 2000
Verolanuova, Italy................... Size reduction, compounding and distributing 2 (4)
Verdellino, Italy.................... Size reduction, compounding and distributing 1 2001
Rushden, England..................... Concentrate and compounding facility 1 Owned
Beaucaire, France.................... Size reduction 1 Owned
Montereau, France.................... Size reduction 1 Owned
</TABLE>
- ---------------
(1) Three acres are leased on a month-to-month basis; the remaining ten acres
are owned by the Company.
(2) Eighteen acres are owned; the remaining two acres are leased on a
month-to-month basis.
(3) Seventeen acres are owned; ten acres are leased through 1997; remaining two
acres are leased on a month-to-month basis.
(4) The facility is owned with the exception of one building which is leased
through 2000.
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<PAGE> 48
The Company's facilities and equipment, owned and leased, are considered by
ICO to be well maintained and adequate for the Company's operations. The Company
also leases various sales and administrative offices with various lease
expiration dates through 2002. Utilization of the Company's oilfield service
facilities is subject to fluctuations based in part on oil and gas exploration
and production levels. The Company is currently operating most of its facilities
below full capacity. Most facilities are operating no more than one shift per
day. The Company does not presently intend to close any of its significant
operating facilities other than the Maywood, Illinois petrochemical grinding
facilities. The Company considers its properties to be suitable for its present
needs.
LEGAL PROCEEDINGS
The Company is a named defendant in 14 cases involving 14 plaintiffs, filed
since June 1990, for personal injury claims alleging exposure to silica
resulting in silicosis-related disease. The Company is generally protected under
worker's compensation law from claims under these suits except to the extent a
judgment is awarded against the Company for intentional tort. In 1994, the
Company was dismissed without liability from two suits alleging intentional tort
against the Company for silicosis-related disease. In fiscal 1993, the Company
settled two other suits, both of which alleged wrongful death caused by
silicosis-related diseases, which resulted in a total charge of $605,000. In
1996, the Company obtained a non-suit in two other intentional tort cases and in
early 1997 was non-suited in an additional tort case. Three of the pending
personal injury cases involve three alleged silicosis-related deaths, which are
premised upon allegations of gross negligence. The standard of liability
applicable to the remainder of the pending cases is intentional tort, a stricter
standard than the gross negligence standard applicable to the wrongful death
cases. The Company and its counsel cannot at this time predict with any
reasonable certainty the outcome of any of the remaining suits or whether or in
what circumstances additional suits may be filed. Except as described below, the
Company does not believe, however, that such suits will have a material adverse
effect on its financial condition, results of operations or cash flows. The
Company has in effect in some instances general liability and employer's
liability insurance policies applicable to the referenced suits; however, the
extent and amount of coverage is limited and the Company has been advised by
certain insurance carriers of a reservation of rights with regard to policy
obligations pertaining to the suits because of various exclusions in the
policies. If an adverse judgment is obtained against the Company in any of the
referenced suits which is ultimately determined not to be covered by insurance,
the amount of such judgment could have a material adverse effect on the
financial condition, results of operations or cash flows of the Company.
The Company's agreement with Baker Hughes, Incorporated ("Baker Hughes"),
pursuant to which Baker Hughes Tubular Services ("BHTS") was acquired by the
Company, provides that Baker Hughes will reimburse the Company for 50% of the
BHTS environmental remediation costs in excess of $318,000, with Baker Hughes'
total reimbursement obligation being limited to $1,000,000. BHTS is a
responsible party at two hazardous waste disposal sites that are currently
undergoing remediation pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). Under CERCLA, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas, and
the Sheridan site near Hempstead, Texas. Remediation of the French Limited site
has been completed, with only natural attenuation of contaminants in groundwater
occurring at this time. Remediation has not yet commenced at the Sheridan site;
current plans for cleanup of the site as set forth in the federal Record of
Decision, for cleanup of the site call for bioremediation of the soils and
natural attenuation of contaminants in the groundwater. Based on the completed
status of the remediation at the French Limited site and BHTS's minimal
contribution of wastes at both of the sites, the Company believes that its
future liability under the agreement with Baker Hughes with respect to these two
sites will not be material.
During December of 1996, an agreement was signed by the Company and Baker
Hughes to settle the litigation of a dispute concerning the assumption of
certain liabilities in connection with the acquisition of
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<PAGE> 49
BHTS in 1992. The agreement stipulates that with regard to future occupational
health claims, the parties shall share costs equally with the Company's
obligations being limited to $500,000 for each claim and a maximum contingent
liability of $4,500,000 (net of current accruals) in the aggregate, for all
claims.
Wedco is a plaintiff and a counterclaim defendant and the Company is a
third party defendant in a lawsuit filed by Wedco against Polyvector Corporation
("Polyvector") and John Lefas ("Lefas"), the current president of WedTech and
principal shareholder of Polyvector, which is pending in the federal district
court for the District of New Jersey. An action regarding the same facts and
circumstances is pending in the Ontario Court, General Division. Wedco alleges,
among other things, that the various defendants have breached the terms of the
shareholders' agreement among Wedco and the defendants and seeks performance of
the terms of such agreement. WedTech, Polyvector and Lefas have asserted various
counterclaims and third party claims against the Company allegedly arising out
of the Company's merger with Wedco and the conduct of WedTech's affairs under
the shareholders' agreement. The defendants are seeking, among other things,
injunctive relief, recission of the transfer of WedTech shares in the merger
between Wedco and the Company and reimbursement for alleged damages. The case is
in the preliminary discovery stage. The outcome of this litigation cannot be
predicted, but the Company believes it has meritorious defenses to the
counterclaims and third party claims.
Permian Enterprises, Inc. ("Permian") a wholly owned subsidiary of the
Company, is a defendant in a case filed by Tidelands Oil Production Company
("Tidelands") pending in the Superior Court of Los Angeles County, California
(Long Beach division) alleging Permian is liable for damages exceeding $1.1
million, plus interest, suffered by Tidelands and third parties resulting from
the failure of a pipe owned by Tidelands and which was allegedly lined by
Permian. Discovery in this case is ongoing, and a jury trial in the case is
currently scheduled for 1998. The outcome of this litigation cannot be
predicted, but the Company believes Permian has meritorious defenses in this
matter.
The Company is also named as a defendant in certain lawsuits arising in the
ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, ICO does not expect these matters to have a material
adverse effect on its financial condition or results of operations.
48
<PAGE> 50
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Set forth below are the unaudited pro forma condensed consolidated
statements of operations of the Company for the year ended September 30, 1996
and the nine months ended June 30, 1997 and the unaudited pro forma condensed
consolidated balance sheet of the Company at June 30, 1997. The unaudited pro
forma condensed consolidated statements of operations include the historical
results of the Company and give effect to the fiscal 1996 and 1997 acquisitions
of Wedco, Bayshore, Rotec and Verplast and to the sale of the Old Notes and the
use of proceeds therefrom as if they had occurred as of the beginning of the
periods presented. The unaudited pro forma condensed consolidated balance sheet
gives effect to the fiscal 1997 acquisition of Verplast as if it had occurred on
June 30, 1997. The pro forma financial data do not purport to be indicative of
the Company's financial position or results of operations that would actually
have been obtained had the acquisitions and the sale of the Old Notes and the
use of proceeds therefrom been completed as of the date or for the periods
presented, or to project the Company's financial position or results of
operations at any future date or for any future period. The unaudited pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. The Unaudited Pro Forma Condensed
Consolidated Financial Data should be read in conjunction with "Capitalization",
"Private Placement", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus and
the historical Consolidated Financial Statements of the Company and notes
thereto incorporated by reference herein.
49
<PAGE> 51
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL (NOTE 1)
----------------------------------------------------------------------------------
ACQUISITIONS
----------------------------------------------------------------------------------
ICO WEDCO(1) WEDCO(2) ROTEC(3) BAYSHORE(4) VERPLAST(5) SUBTOTAL
---------- -------- -------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $ 108,663 $20,797 $ 3,060 $9,933 $29,703 $32,001 $204,157
---------- ------- ------- ------ ------- ------- --------
COST AND EXPENSES:
Cost of sales and services... 74,704 13,464 2,141 8,190 26,081 23,327 147,907
Selling, general and
administrative expenses..... 19,996 4,889 1,897 1,016 1,886 1,658 31,342
Depreciation and
amortization................ 7,230 2,058 329 233 392 833 11,075
Impairment of long-term
assets...................... 5,025 -- -- -- -- -- 5,025
Non-recurring compensation
arrangements................ 1,812 -- -- -- -- -- 1,812
Non-recurring litigation
charges..................... 1,112 -- -- -- -- -- 1,112
Write-down of inventories.... 868 -- -- -- -- -- 868
---------- ------- ------- ------ ------- ------- --------
Operating income (loss)...... (2,084) 386 (1,307) 494 1,344 6,183 5,016
---------- ------- ------- ------ ------- ------- --------
Interest expense (income),
net......................... (608) 724 120 45 182 674 1,137
Other (income) expense,
net......................... 216 554 86 35 (14) 98 975
---------- ------- ------- ------ ------- ------- --------
Income (loss) before taxes... (1,692) (892) (1,513) 414 1,176 5,411 2,904
Income taxes (benefit)....... (632) (60) (292) 110 400 2,838 2,364
---------- ------- ------- ------ ------- ------- --------
Net income (loss)............ (1,060) (832) (1,221) 304 776 2,573 540
---------- ------- ------- ------ ------- ------- --------
Preferred stock dividends.... 2,178 -- -- -- -- -- 2,178
---------- ------- ------- ------ ------- ------- --------
Net income (loss) available
for common shareholders..... $ (3,238) $ (832) $(1,221) $ 304 $ 776 $ 2,573 $(1,638)
========== ======= ======= ====== ======= ======= ========
Earnings (loss) applicable to
common and common share
equivalents................. $ (0.24)
==========
Weighted average common and
common equivalent shares
outstanding................. 13,327,855
==========
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 2)
--------------------------------------------------
FOR THE FOR SALE OF
ACQUISITIONS SUBTOTAL OLD NOTES PRO FORMA
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................. $ -- $204,157 $ -- $ 204,157
--------- -------- -------- ----------
COST AND EXPENSES:
Cost of sales and services... -- 147,907 -- 147,907
Selling, general and
administrative expenses..... (1,174)a 29,328 -- 29,328
(712)b
(128)c
Depreciation and
amortization................ 200d 12,679 -- 12,679
1,404e
Impairment of long-term
assets...................... -- 5,025 -- 5,025
Non-recurring compensation
arrangements................ -- 1,812 -- 1,812
Non-recurring litigation
charges..................... -- 1,112 -- 1,112
Write-down of inventories.... -- 868 -- 868
--------- -------- -------- ----------
Operating income (loss)...... 410 5,426 -- 5,426
--------- -------- -------- ----------
Interest expense (income),
net......................... 652f 1,789 11,785i 13,574
Other (income) expense,
net......................... -- 975 -- 975
--------- -------- -------- ----------
Income (loss) before taxes... (242) 2,662 (11,785) (9,123)
Income taxes (benefit)....... 1,594g 3,958 (161)j 3,797
--------- -------- -------- ----------
Net income (loss)............ (1,836) (1,296) (11,624) (12,920)
--------- -------- -------- ----------
Preferred stock dividends.... -- 2,178 -- 2,178
--------- -------- -------- ----------
Net income (loss) available
for common shareholders..... $ (1,836) $(3,474) $(11,624) $ (15,098)
========= ======== ======== ==========
Earnings (loss) applicable to
common and common share
equivalents................. $ (.72)
==========
Weighted average common and
common equivalent shares
outstanding................. 7,639,449h 20,967,304
========= ==========
</TABLE>
- ---------------
(1) Historical information for the six-month period ended March 31, 1996.
(2) Historical information for the one-month period ended April 30, 1996.
(3) Historical information for the twelve-month period ended December 31, 1996,
translated from British Pounds using an average exchange rate of $1.59.
(4) Historical information for the eleven-month, ten-day period ended December
10, 1996.
(5) Historical information for the twelve-month period ended December 31, 1996;
translated from Italian Lira using an average exchange rate of $.000649.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
50
<PAGE> 52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL (NOTE 1) PRO FORMA ADJUSTMENTS (NOTE 2)
------------------------------------------------------------ -------------------------------------
ACQUISITIONS
------------------------------------ FOR THE FOR SALE OF
ICO ROTEC(1) BAYSHORE(2) VERPLAST(3) SUBTOTAL ACQUISITIONS SUBTOTAL OLD NOTES
---------- -------- ----------- ----------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 137,045 $6,395 $8,107 $26,625 $178,172 $ -- $178,172 $ --
---------- ------ ------ ------- -------- ------- -------- -------
COST AND EXPENSES:
Cost of sales and
services................. 96,662 5,170 7,098 19,690 128,620 -- 128,620 --
Selling, general and
administrative
expenses................. 22,182 836 446 1,373 24,837 (128)c 24,709 --
Depreciation and
amortization............. 8,012 158 21 562 8,753 898e 9,651 --
---------- ------ ------ ------- -------- ------- -------- -------
Operating income (loss).... 10,189 231 542 5,000 15,962 (770) 15,192 --
---------- ------ ------ ------- -------- ------- -------- -------
Interest expense (income),
net...................... 1,532 32 56 431 2,051 166f 2,217 8,137i
Other (income) expense,
net...................... (118) (9) -- 31 (96) -- (96) --
---------- ------ ------ ------- -------- ------- -------- -------
Income (loss) before
taxes.................... 8,775 208 486 4,538 14,007 (936) 13,071 (8,137)
Income taxes (benefit)..... 3,568 51 168 2,522 6,309 (208)g 6,101 (2,613)j
---------- ------ ------ ------- -------- ------- -------- -------
Net income (loss).......... 5,207 157 318 2,016 7,698 (728) 6,970 (5,524)
---------- ------ ------ ------- -------- ------- -------- -------
Preferred stock
dividends................ 1,632 -- -- -- 1,632 -- 1,632 --
---------- ------ ------ ------- -------- ------- -------- -------
Net income (loss) available
for common
shareholders............. $ 3,575 $ 157 $ 318 $ 2,016 $ 6,066 $ (728) $ 5,338 $(5,524)
========== ====== ====== ======= ======== ======= ======== =======
Earnings (loss) applicable
to common and common
share equivalents........ $ 0.17
==========
Weighted average common and
common equivalent shares
outstanding.............. 20,911,797 700,211h
========== =======
<CAPTION>
PRO FORMA
----------
<S> <C>
Net revenues............... $ 178,172
----------
COST AND EXPENSES:
Cost of sales and
services................. 128,620
Selling, general and
administrative
expenses................. 24,709
Depreciation and
amortization............. 9,651
----------
Operating income (loss).... 15,192
----------
Interest expense (income),
net...................... 10,354
Other (income) expense,
net...................... (96)
----------
Income (loss) before
taxes.................... 4,934
Income taxes (benefit)..... 3,488
----------
Net income (loss).......... 1,446
----------
Preferred stock
dividends................ 1,632
----------
Net income (loss) available
for common
shareholders............. $ (186)
==========
Earnings (loss) applicable
to common and common
share equivalents........ $ (.01)
==========
Weighted average common and
common equivalent shares
outstanding.............. 21,612,008
==========
</TABLE>
- ---------------
(1) Historical information for the seven-months period ended April 30, 1997,
translated from British Pounds using an average exchange rate of $1.64.
(2) Historical information for the two-month, ten-day period ended December 10,
1996.
(3) Historical information for the nine months ended June 30, 1997, translated
from Italian Lira using an average exchange rate of $.000618.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
51
<PAGE> 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL (NOTE 1) (NOTE 2)
------------------------------------ -----------
VERPLAST VERPLAST
ICO ACQUISITION(1) SUBTOTAL ACQUISITION PRO FORMA
-------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents................................ $102,278 $ 12 $102,290 $(18,592)k $ 83,698
Trade receivables, net.............................. 39,283 13,227 52,510 -- 52,510
Inventories......................................... 14,747 3,239 17,986 -- 17,986
Deferred tax asset.................................. 3,924 -- 3,924 -- 3,924
Prepaid expenses and other.......................... 3,212 245 3,457 -- 3,457
-------- ------- -------- -------- --------
Total current assets........................ 163,444 16,723 180,167 (18,592) 161,575
-------- ------- -------- -------- --------
Property, plant and equipment, net.................. 84,637 5,799 90,436 5,820k 96,256
Goodwill............................................ 41,363 -- 41,363 8,800k 50,163
Investment in joint ventures........................ 2,719 -- 2,719 -- 2,719
Other............................................... 8,498 8 8,506 846k 9,352
-------- ------- -------- -------- --------
TOTAL ASSETS................................ $300,661 $22,530 $323,191 $ (3,126) $320,065
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short term borrowings and current portion of
long-term debt.................................... $ 6,164 $ 5,138 $ 11,302 $ -- $ 11,302
Accounts payable.................................... 16,247 5,315 21,562 -- 21,562
Accrued expenses.................................... 12,938 1,061 13,999 -- 13,999
Income taxes payable................................ 275 544 819 -- 819
-------- ------- -------- -------- --------
Total current liabilities................... 35,624 12,058 47,682 -- 47,682
-------- ------- -------- -------- --------
Long-term debt net of current portion............... 131,003 2,360 133,363 -- 133,363
Deferred income taxes............................... 2,794 1,298 4,092 3,096k 7,188
Other long-term liabilities......................... 3,236 592 3,828 -- 3,828
-------- ------- -------- -------- --------
TOTAL LIABILITIES........................... 172,657 16,308 188,965 3,096 192,061
-------- ------- -------- -------- --------
STOCKHOLDERS' EQUITY................................ 128,004 6,222 134,226 (6,222)k 128,004
-------- ------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........................ $300,661 $22,530 $323,191 $ (3,126) $320,065
======== ======= ======== ======== ========
</TABLE>
- ---------------
(1) Verplast historical amounts were derived from the June 30, 1997 financial
statements of Verplast translated from Italian Lira using an exchange rate
of $.0005885.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
52
<PAGE> 54
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACQUISITIONS INCLUDED IN PRO FORMA FINANCIAL STATEMENTS
Effective April 30, 1996, the Company acquired Wedco. Wedco serves the
petrochemical industry by providing plastics size reduction services and related
machinery. The consideration paid consisted of 10,232,609 shares of Company
Common Stock, $4,637,000 in cash (including transaction fees and expenses) and
the effective assumption in the merger of $29,947,000 in total liabilities.
In December 1996, the Company acquired Bayshore located in LaPorte, Texas
for approximately $6,900,000 in cash, 1,285,012 shares of Company Common Stock
and the effective assumption in the acquisition of $2,616,000 in debt.
In April 1997, the Company acquired Rotec of Rushden, England. Rotec serves
the United Kingdom, Ireland and Continental Europe markets and is a producer of
high quality concentrates for a variety of plastics processes. The Company paid
$2,500,000 in cash and issued 427,353 shares of Company Common Stock. The
purchase price is also subject to an earnout provision, based upon future net
income which is not expected to have a material impact on the results of
operations of the Company.
Rotec's audited financial statements for the year ending December 31, 1996
were used to prepare the Pro Forma Statement of Operations for the year ending
September 30, 1996. Accordingly, Rotec's results for the three months ended
December 31, 1996 have been included in the Pro Forma Statements of Operations
for the year ended September 30, 1996. Revenues and net loss for the three
months ended December 31, 1996 were $2,529,000 and $87,000, respectively.
Revenues and net loss for the three months ending December 31, 1995 were
$1,870,000 and $65,000, respectively. Rotec's financial statements were prepared
using U.K. generally accepting accounting principles ("GAAP") which in the case
of these financial statements, is equivalent to U.S. GAAP, in all material
respects.
In July 1997 the Company acquired Verplast S.p.A. ("Verplast") for
$18,293,000 in cash and the assumption of $7,100,000 in debt. The Company used a
portion of the proceeds of the recently issued Senior Notes due 2007 to acquire
Verplast and accounted for the acquisition using the purchase method of
accounting. Verplast, located in northern Italy, is a supplier of petrochemical
processing services and value-added plastic materials for the rotational molding
market and for other plastic powder applications.
Verplast's audited financial statements for the year ending December 31,
1996 were used to prepare the Pro Forma Statement of Operations for the year
ending September 30, 1996. Accordingly, Verplast's results for the three months
ended December 31, 1996 have been included in the Pro Forma Statements of
Operations for the year ended September 30, 1996. Revenues and net income for
the three months ended December 31, 1996 were $7,778,000 and $502,000
respectively. Revenues and net income for the three months ending December 31,
1995 were $5,375,000 and $470,000, respectively.
All acquisitions were accounted for under the purchase method of
accounting.
NOTE 2 -- PRO FORMA ADJUSTMENTS
Statement of Operations:
(a) To remove compensation expense for director and employee stock options
redeemed in connection with the Wedco merger.
(b) To remove merger costs expensed by Wedco ($423,000) and cost savings
resulting from the retirement of one Wedco executive who retired, will not be
replaced and entered into a consulting agreement with the company ($289,000).
(c) To remove shareholder salaries and bonuses which will no longer be paid
relating to Rotec management.
53
<PAGE> 55
(d) To increase amortization for goodwill ($407,000), amortization for
value allocated to non-compete agreements ($23,000) and reduce depreciation for
machinery and equipment ($230,000) after the purchase price accounting
adjustments for the Wedco acquisition. The machinery and equipment depreciation
adjustment was calculated as the difference between the historical depreciation
prior to the Wedco acquisition and the depreciation included in the Company's
consolidated financial statements subsequent to such dates. Historically, Wedco
depreciated machinery and equipment over 10 years. Select assets which have
useful lives in excess of this time period are now being depreciated over their
estimated useful life. Goodwill is amortized over a useful life of 40 years and
value allocated to a non-compete agreement is amortized over the 10-year term of
the agreement.
ICO has analyzed the past and expected future operating performance of
Wedco, the competitive and regulatory environment in which Wedco operates and
has assessed the expected future life of Wedco's basic technology concluding
that, as of the acquisition date, the future life of goodwill is forty years or
greater. Accordingly, goodwill is amortized over an estimated useful life of 40
years, the maximum allowable life under APB 17. ICO's policy is to periodically
review goodwill and other intangibles to assess recoverability and review the
impact of events and circumstances which may warrant a revision to the estimated
useful life. Impairments would be recognized in operating results if a permanent
diminution in value were to occur.
(e) To increase amortization related to goodwill ($489,000 and $264,000 for
the twelve months ended September 30, 1996, and the nine months ended June 30,
1997, respectively) and amortization for value allocated to non-compete
agreements ($413,000 and $217,000 for the twelve months ended September 30,
1996, and nine months ended June 30, 1997, respectively) and increase
depreciation for machinery and equipment ($502,000 and $417,000 for the twelve
months ended September 30, 1996 and nine months ended June 30, 1997,
respectively) resulting from purchase price accounting adjustments for all the
acquisitions, excluding Wedco. The machinery and equipment depreciation
adjustment was calculated as the difference between the historical depreciation
prior to the applicable acquisition dates and the depreciation included in the
Company's consolidated financial statements subsequent to such dates. Goodwill
is amortized over a useful life of 40 years and value allocated to non-compete
agreements is amortized over the life of the various agreements (four to five
years).
(f) To reflect interest expense for $2,500,000 of debt incurred to
consummate the acquisition of Rotec with an interest rate of 6.94% and reduce
interest income earned on cash which would have been used to consummate the
acquisitions.
(g) To reflect the tax effect of the pro forma income statement adjustments
for the pro forma periods ended September 30, 1996 and June 30, 1997,
respectively, and to remove the fiscal 1996 income statement effect of the
reversal of a portion of the Company's valuation allowance on deferred tax
assets ($1,365,000). In fiscal 1996, the Company recognized a $1,365,000 ($.10
per share) tax benefit as a reversal of the valuation allowance to the extent
taxes had been paid.
Upon the acquisition of Wedco, the Company changed its assessment of the
valuation allowance to only reserve against tax assets which are not expected to
be utilized. Upon this revaluation, the Company recognized $1,328,000 ($.10 per
share) as a change in net deferred tax assets realized as a reduction of
goodwill attributable to the Wedco acquisition. Had the acquisition occurred on
the first day of fiscal year 1996, the entire reversal of the valuation
allowance would have reduced goodwill attributable to Wedco.
ICO continues to realize a cash savings from $5,056,000 (i.e., a tax
benefit of $1,719,000) in net operating loss carryforwards (at June 30, 1997)
for tax purposes. The benefits resulting from the utilization of the net
operating loss carryforwards, however, are no longer recognized in the income
statements prepared in accordance with generally accepted accounting principles.
(h) To give effect to shares issued in connection with the acquisitions.
54
<PAGE> 56
(i) The pro forma adjustments to Interest expense, net consist of the
following (excludes interest income which would be earned from the proceeds of
the sale of the Old Notes):
<TABLE>
<CAPTION>
INCREASE/(DECREASE)
---------------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
1996 1997
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma interest expense, net, before pro forma
adjustments for the sale of the Old Notes................. $ 1,789 $2,217
------- -------
Elimination of interest relating to debt to be repaid with
proceeds:
Domestic term loans(1).................................... (776) (503)
Domestic credit facility(2)............................... (356) (220)
Interest expense on:
10 3/8% Senior Notes due 2007............................. 12,450 8,577
Amortization of debt issuance costs....................... 467 283
------- -------
Pro forma interest expense, net............................. 13,574 10,354
------- -------
Pro forma adjustment........................................ $11,785 $8,137
======= =======
</TABLE>
- ---------------
(1) Primarily relates to three term loans with interest rates ranging from
7.0% to 8.0%.
(2) Relates to a credit and term facility of a subsidiary of the Company
bearing interest rates ranging from 6.94% to 8.5%.
(j) To reduce income tax expense to reflect pro forma offering adjustments
to the extent of income tax expense related to U.S. operations. Under this
assumption, the Company would have generated a net operating loss carryforwards
(NOLs) for the pro forma periods ending September 30, 1996 and June 30, 1997 of
$11.4 million and $1.6 million, respectively. The pro forma income statements
for the periods presented assume these NOLs are fully offset by a valuation
allowance.
Balance Sheet:
(k) To record ICO's purchase of Verplast for $18,592,000 cash (including
transaction costs of approximately $300,000). Adjustments include: the step-up
to estimated fair value of fixed assets of $5,820,000, establishing the value of
the non-complete agreements of $846,000, increase of deferred tax liabilities of
$3,096,000 (due to the step-up of fixed assets to estimated fair value),
elimination of Verplast's equity accounts and goodwill of $8,800,000 represented
by the excess purchase price over the estimated fair value of net assets and
liabilities acquired.
55
<PAGE> 57
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights under the Registration
Rights Agreement. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights Agreement.
See "Description of Notes -- Registration Rights; Liquidated Damages."
For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Notes will receive $1,000
principal amount of Exchange Notes. Upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, the
Company will accept all Old Notes properly tendered prior to 5:00 p.m., New York
City time, on the Expiration Date. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in integral multiples of $1,000 principal
amount.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the 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 Exchange Notes are
acquired in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Any holder of Old Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes could not rely on the interpretation by the staff of the SEC
enunciated in the Morgan Stanley Letter and similar no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Old Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it are being acquired in the ordinary
course of its business and (iii) it is not participating in, and it has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") who acquired Old Notes for its own account as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The staff of the SEC has
taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), 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 Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date
56
<PAGE> 58
that is 30 days following the commencement of the Exchange Offer. In such event,
holders of Old Notes seeking liquidity in their investment would have to rely on
exemptions to registration requirements under the securities laws, including the
Securities Act.
As of the date of this Prospectus, $120,000,000 aggregate principal amount
of Old Notes are issued and outstanding. In connection with the issuance of the
Old Notes, the Company arranged for the Old Notes to be eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1997 unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on June 1 and
December 1 of each year, commencing December 1, 1997. Holders of Exchange Notes
of record on November 15, 1997 will receive interest on December 1, 1997 from
the date of issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of issuance of the Old Notes, June 9,
1997, to the date of exchange thereof. Consequently, assuming the Exchange Offer
is consummated prior to the record date in
57
<PAGE> 59
respect of the December 1, 1997 interest payment for the Old Notes, holders who
exchange their Old Notes for Exchange Notes will receive the same interest
payment on December 1, 1997 that they would have received had they not accepted
the Exchange Offer. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. The tender by a holder of
Old Notes will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. Delivery of all documents must be made to the
Exchange Agent at its address set forth herein. Holders may also request that
their respective brokers, dealers, commercial banks, trust companies or nominees
effect such tender for such holders.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company or
any other person who has obtained a properly completed stock power from the
registered holder.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on behalf of the registered holder. If such
beneficial holder wishes to tender directly, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the Old Notes
tendered thereby, the signature must correspond with the name(s) written on the
face of the Old Notes without alteration, enlargement or any change whatsoever.
If the Letter of Transmittal is signed by a participant in Depositary Trust
Company ("DTC"), the signature must correspond with the name as it appears on
the security position listing as the holder of the Old Notes. Signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution") unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder (or by a participant in DTC whose name
appears on a security position listing as the owner) who has not completed
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<PAGE> 60
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal and the Exchange Notes are being
issued directly to such registered holder (or deposited into the participant's
account at DTC) or (ii) for the account of an Eligible Institution. If the
Letter of Transmittal is signed by a person other than the registered holder of
any Old Notes listed therein, such Old Notes must be endorsed or accompanied by
appropriate bond powers which authorize such person to tender the Old Notes on
behalf of the registered holder, in either case signed as the name of the
registered holder or holders appears on the Old Notes. If the Letter of
Transmittal or any Old Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by the Company, evidence satisfactory
to the Company of their authority to so act must be submitted with the Letter of
Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes (or a timely confirmation received of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC) with the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date. In addition, the Company reserves the right in its sole
discretion to (i) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under
"-- Termination," to terminate the Exchange Offer and (ii) to the extent
permitted by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an Agent's Message must be transmitted to and
received by the Exchange Agent on or prior to the Expiration Date at one of its
addresses set forth below under "-- Exchange Agent", or the guaranteed delivery
procedure described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this
Prospectus to deposit or delivery of Old Notes shall be deemed to include DTC's
book-entry delivery method.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis and deliver an Agent's Message, may effect a tender if: (i) the
tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the registration number or numbers of such Old Notes
(if applicable), and the total principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, together with the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of such a book-entry transfer) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC) must be received by the Exchange Agent, with the Letter of Transmittal or
an Agent's Message and any other required documents, by the Expiration Date or
within the time periods set forth above pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. Each holder tendering the Old Notes for
exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as
agent of the Company, and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
transferred and exchanged. The holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes and to
acquire the Exchange Notes issuable upon the exchange of such tendered Old
Notes, that the Exchange Agent, as agent of the Company, will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Notes tendered for
exchange are not subject to any adverse claims when accepted by the Exchange
Agent, as agent of the Company. The holder also warrants and agrees that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Notes. All authority
conferred or agreed to be conferred in the Letter of Transmittal by the holder
will survive the death, incapacity or dissolution of the holder and any
obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having
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<PAGE> 62
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including, if applicable, the registration number or
numbers and total principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender, (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor and (v) if applicable because the Old Notes have been
tendered pursuant to the book-entry procedures, specify the name and number of
the participant's account at DTC to be credited, if different than that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of the
SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
State Street Bank and Trust Company, the trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. Questions and requests
for assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
By Mail:
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102-0078
By Hand or Overnight Courier:
State Street Bank and Trust Company
Corporate Trust Department
4th Floor
Two International Place
Boston, Massachusetts 02110
Facsimile Transmission: (617) 664-5395
Confirm by Telephone: (617) 664-5587
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable out-
of-pocket expenses in connection therewith. The Company may also pay brokerage
houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
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DESCRIPTION OF CERTAIN CREDIT FACILITIES
The Company currently has a $15 million revolving credit facility which was
amended on June 9, 1997 (the "Bank Credit Facility"). The amount that can be
borrowed under the Bank Credit Facility is subject to a borrowing base
limitation, equal to the sum of (x) 80% of the balance due on Acceptable
Receivables (as defined therein) and (y) the lesser of 40% of the value of
Acceptable Inventory (as defined) consisting of domestic finished goods and raw
materials and 50% of (x) above. The borrowing base is determined monthly and
calculated using the receivables and inventory of the Company and its
subsidiaries excluding Wedco and its subsidiaries. Borrowings under the Bank
Credit Facility are intended to be used for working capital and general
purposes. The principal will be due at maturity, April 17, 1999.
Interest is payable monthly at either: (i) LIBOR + 1.25% or (ii) the bank's
base rate, at the option of the Company. The Company is required to pay an
unused commitment fee on the unused portion of the Borrowing Base equal to 1/4
of 1% per annum.
The Bank has a current lien on the receivables and inventory of the Company
and certain subsidiaries.
The Bank Credit Facility as amended requires the Company to maintain
certain financial ratios including minimum tangible net worth and profitability
and a maximum total debt to capitalization. The Bank Credit Facility limits the
amount of other debts and liens which may be incurred by the Company. In
addition, the Bank's consent will be required prior to an optional redemption of
the Notes by the Company.
Borrowings under the amended Bank Credit Facility will effectively rank
senior to the Notes in right of payment. At August 31, 1997, after giving pro
forma effect to the acquisition of Rotec and the sale of the Old Notes by the
Company and the application of the proceeds therefrom, the Company would have
had $15.0 million available for borrowing under the amended Bank Credit
Facilities, as described. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements" and "Description of Notes -- Ranking."
Some of the Company's foreign subsidiaries also maintain various credit
facilities which in some cases are guaranteed by the Company. At August 31,
1997, $7,998,000 was outstanding under these foreign facilities and the Company
would have been permitted to incur up to an additional $6,603,000 in
indebtedness under these foreign facilities. Outstanding indebtedness under
these facilities will be effectively senior to the Notes. See "Description of
Notes -- Ranking" and "Capitalization."
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DESCRIPTION OF NOTES
GENERAL
The Notes are issued pursuant to an Indenture (the "Indenture") between the
Company, as issuer, and Fleet National Bank, as trustee (the "Trustee"). 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 Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Notes, the Indenture
and the Registration Rights Agreement does not purport to be complete and is
qualified in its entirety by reference to the Notes, the Indenture and the
Registration Rights Agreement, including the definitions therein of certain
terms used below. Copies of the Indenture and Registration Rights Agreement are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. For purposes of this "Description of Notes" section of this Prospectus,
references to the "Company" are to ICO, Inc., excluding its subsidiaries. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions." Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in the Indenture.
The Notes and the Exchange Notes constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, Holders of
Old Notes who do not exchange their Old Notes for Exchange Notes will vote
together with Holders of Exchange Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
Holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether Holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes that remain outstanding
after the Exchange Offer will be aggregated with the Exchange Notes, and the
Holders of such Old Notes and the Exchange Notes will vote together as a single
series for all such purposes. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Notes shall be
deemed to mean, at any time after the Exchange Offer is consummated, such
percentages in aggregate principal amount of the Old Notes and the Exchange
Notes then outstanding.
The Notes are general senior unsecured obligations of the Company and rank
pari passu in right of payment to all existing and future Senior Indebtedness of
the Company, and senior in right of payment to all future Subordinated
Indebtedness of the Company. See "-- Ranking."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $120.0 million and
mature on June 1, 2007. Interest on the Notes accrues from the Issue Date at the
rate of 10 3/8% per annum and is payable semiannually in arrears on June 1 and
December 1 of each year, commencing on December 1, 1997, to Holders of record on
the immediately preceding May 15 and November 15. Interest on the Notes accrues
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest is computed on the basis
of a 360-day year comprised of twelve 30-day months.
The Notes are payable as to principal, premium, if any, interest and
Liquidated Damages, if any, at the office or agency of the Company maintained
for such purpose within the City and State of New York, which initially is the
corporate trust office or agency of the Trustee maintained at New York, New
York, or, at the option of the Company, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments with respect to Global Notes are required to be made
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof. The Notes will be issued in registered form, without coupons,
and in denominations of $1,000 and integral multiples thereof.
The Trustee will act initially as Paying Agent and Registrar under the
Indenture. The Company may act as Paying Agent or Registrar under the Indenture,
and the Company may change the Paying Agent or Registrar without notice to the
Holders of the Notes.
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RANKING
The Indebtedness evidenced by the Notes are general senior unsecured
obligations of the Company. The Notes rank pari passu in right of payment with
all existing and future Senior Indebtedness of the Company and senior in right
of payment to all future Subordinated Indebtedness of the Company. Holders of
secured Indebtedness of the Company and its Subsidiaries, including under the
Bank Credit Facility, will have claims with respect to assets constituting
collateral for such Indebtedness that are prior to the claims of the Holders of
the Notes. To the extent of pledged collateral, such Indebtedness will have
priority over the Notes. At June 30, 1997, after giving pro forma effect to the
acquisition of Verplast, the Company would have had approximately $1.4 million
of Indebtedness that would rank pari passu with the Notes, of which $900,000 is
secured and would effectively rank senior to the Notes in right of payment. In
addition, at June 30, 1997, the Company would have had $15.0 million available
for borrowing under the Bank Credit Facility on the same pro forma basis.
Subject to certain limitations set forth in the Indenture, the Company and its
Subsidiaries may incur additional Indebtedness. See "Risk Factors -- Ranking of
the Notes; Effective Subordination" and "-- Certain Covenants -- Limitations on
the Incurrence of Indebtedness and Issuance of Disqualified Stock."
The Notes are effectively subordinated to claims of creditors of the
Subsidiaries of the Company (other than the Company) and the claims of secured
creditors of the Guarantors. Claims of creditors of such Subsidiaries (other
than the Company), including, but not limited to, trade creditors, tort
claimants, secured creditors, taxing authorities and creditors holding
guarantees, will generally have priority as to assets of such Subsidiaries over
the claims and equity interest of the Company and, thereby indirectly, the
holders of the Indebtedness of the Company, including the Notes. At June 30,
1997, after giving pro forma effect to the acquisition of Verplast, the
Subsidiaries of the Company would have approximately $22.8 million of
Indebtedness that would be effectively senior to the Notes. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements" and "Description of Certain
Credit Facilities."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to June 1, 2002.
Thereafter, the Notes are subject to redemption at the option of the Company, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on June 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 105.188%
2003........................................................ 103.458%
2004........................................................ 101.729%
2005 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to June 1, 2002, the
Company may, at its option, redeem all or any portion of the Notes at the
Make-Whole Price plus accrued and unpaid interest to the date of redemption. In
addition, on or prior to June 1, 2000, the Company may redeem at any time or
from time to time up to 35% of the aggregate principal amount of the Notes
originally issued at a redemption price of 110.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net proceeds of one or more Public
Equity Offerings; provided that at least $78.0 million of the aggregate
principal amount of the Notes remain outstanding following each such redemption;
provided, further, that such redemption shall occur not earlier than 30 days or
later than 60 days, after the date of the closing of any such Public Equity
Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee
shall, unless otherwise set forth in the Indenture, select the Notes to be
redeemed among the Holders of the Notes pro rata, by lot or in accordance with a
method which the Trustee shall deem fair and appropriate (and in such manner as
complies
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with applicable legal and principal national securities exchanges requirements,
if any). Notes and portions of them selected shall be in face amounts of $1,000
or whole multiples of $1,000. Notices of redemption shall be given 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. If any Note is to
be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed and that,
after the redemption date, a new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date (unless the
Company shall default in the payment of the redemption price, together with
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date), interest ceases to accrue on Notes or portions thereof called for
redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes. However, as described below, the Company may
be obligated, under certain circumstances, to make an offer to repurchase (i)
all outstanding Notes at a redemption price of 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of repurchase, upon a Change of Control; and (ii)
outstanding Notes with a portion of the Net Cash Proceeds of Asset Sales at a
redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase. See "-- Change of Control" and the covenant captioned "Limitation on
Sale of Assets."
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
the Company will be obligated to make an offer (the "Change of Control Offer")
to repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of the Notes as the Holders may elect at a purchase price in cash (the "Change
of Control Price") equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment Date"). Notice of a Change of Control
Offer shall be prepared by the Company and shall be mailed by the Company with a
copy to the Trustee or at the option of the Company and at the expense of the
Company, by the Trustee within 30 days following a Change of Control to each
Holder of the Notes and such Change of Control Offer must remain open for at
least 30 and not more than 40 days (unless otherwise required by applicable
law). In addition, the Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws, rules and regulations
thereunder to the extent such laws, rules and regulations are applicable in
connection with the repurchase of the Notes pursuant to a Change of Control
Offer.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal
to the Change of Control Price in respect of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the amount of the Notes
or portions thereof tendered to the Company. The Paying Agent will promptly mail
or deliver to each Holder of Notes so accepted the Change of Control Price for
such Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book-entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
With respect to the sale of assets referred to in the definition of "Change
of Control," the phrase "all or substantially all" as used in the Indenture
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under New York law (which governs the Indenture)
and is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
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assets of a Person and therefore it may be unclear whether a Change of Control
has occurred and whether the Notes are subject to a Change of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the same times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
GUARANTEES
Under the circumstances described below, the Company's payment obligations
under the Notes may in the future be jointly and severally Guaranteed by
existing or future Restricted Subsidiaries of the Company as Guarantors.
Currently none of the Company's Restricted Subsidiaries have guaranteed the
Notes. Each Guarantor will guarantee to each Holder and the Trustee, the full
and prompt performance of the Obligations of the Company under the Notes,
including the payment of principal of (premium, if any, on) and interest on the
Notes pursuant to its Guarantee. The Obligations of each Guarantor under its
Guarantee will be general senior obligations of such Guarantor, unsecured except
to the extent provided pursuant to the covenant captioned "Limitation on Liens,"
which will rank pari passu with all existing and future unsecured Senior
Indebtedness of such Guarantor and senior in right of payment to all future
Subordinated Indebtedness of such Guarantor.
The Obligations of each Guarantor under its Guarantee will be limited to
such maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under its Guarantee or pursuant to its
contribution Obligations under the Indenture, result in the Obligations of such
Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal, state or foreign law. Each Guarantor that
makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
The Indenture provides that, subject to the following paragraph, each
Guarantor (including any existing or future Restricted Subsidiary that becomes
an additional Guarantor) may not consolidate or merge with or into (whether or
not such Guarantor is the surviving Person) another Person unless (i) the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) (A) in the case of a Guarantor that is a Domestic Subsidiary, is a
corporation organized and existing under the laws of the United States of
America, any state thereof, or the District of Columbia and (B) expressly
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture, in a form reasonably satisfactory to the Trustee, under the Notes and
the Indenture, (ii) immediately before and after giving effect to such
transaction, no Default or Event of Default exists and (iii) such Guarantor or
the Person formed by or surviving any such consolidation or merger on a pro
forma basis will have Consolidated Net Worth (immediately after the transaction)
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction. The foregoing will not apply to a merger
between Guarantors or a merger between the Company and any Guarantor.
The Indenture provides that in the event of a sale or other disposition of
all of the Capital Stock of a Guarantor (by way of merger, consolidation or
otherwise) which is otherwise in compliance with the terms of the Indenture,
then such Guarantor will be unconditionally released from any Obligations under
its Guarantee of the Notes upon the consummation of such transaction provided
that upon such release the Obligations of such Guarantor in respect of any and
all other Guarantees of Indebtedness of the Company or a Guarantor are similarly
released. The Indenture provides that in the event of the unconditional release
of a Guarantor from all Obligations under any and all Guarantees of Indebtedness
of the Company or a Guarantor (other than the Notes), such Guarantor will be
released from any Obligations under its Guarantee of the Notes; provided that
immediately before and after giving effect to such release, no Default or Event
of Default shall have occurred and be continuing.
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Although the Indenture does not contain any requirement that any Subsidiary
execute and deliver a Guarantee, certain covenants described below require a
Restricted Subsidiary in the future to execute and deliver a Guarantee prior to
the Guarantee of other Indebtedness of the Company or a Guarantor. See
"-- Certain Covenants -- Guarantees of Certain Indebtedness."
CERTAIN COVENANTS
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution on account of Equity Interests, other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company, or dividends or distributions payable to the Company or a
Wholly-Owned Restricted Subsidiary of the Company; (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or any
Subsidiary or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or a Wholly-Owned Restricted Subsidiary of the
Company); (iii) purchase, redeem, repay, defease or otherwise acquire or retire
for consideration prior to a scheduled mandatory sinking fund payment or
maturity date, any Subordinated Indebtedness of the Company or Subordinated
Indebtedness of a Guarantor; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable Reference Period,
have been permitted to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant captioned
"Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock;" and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution in an
Officers' Certificate delivered to the Trustee), together with the
aggregate of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of the Indenture (including
Restricted Payments permitted by the next succeeding paragraph), shall not
exceed the sum of (without duplication) (t) $5.0 million plus 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) commencing with the first full fiscal quarter after the
Issue Date and ending on the last day of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, minus 100% of such deficit), plus (u) 100% of the
aggregate Net Cash Proceeds received by the Company for such period from
any Person other than a Restricted Subsidiary of the Company as a result of
the issuance or sale of Equity Interests of the Company (other than
Disqualified Stock), other than in connection with the conversion of
Indebtedness or Disqualified Stock, plus (v) 100% of the aggregate Net Cash
Proceeds received by the Company for such period from any Person other than
a Restricted Subsidiary of the Company as a result of the issuance or sale
of any Indebtedness or Disqualified Stock to the extent that at the time
the determination is made such Indebtedness or Disqualified Stock, as the
case may be, has been converted into or exchanged for Equity Interests of
the Company (other than Disqualified Stock), plus (w) the aggregate cash
received by the Company as capital contributions to the Company after the
Issue Date (other than from a Subsidiary), plus (x) in case any
Unrestricted Subsidiary has been redesignated a Restricted Subsidiary, an
amount (not less than zero) equal to the lesser of (A) the book value
determined in accordance with GAAP) at the date of such redesignation of
the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary and (B) the Fair Market Value
of such Investments in such Unrestricted Subsidiary at the time of such
redesignation (less, in the case of
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each of clauses (A) and (B), the amount of the original Investment (based
upon book value determined in accordance with GAAP at the time of such
Investment) made by the Company or any Restricted Subsidiary pursuant to
clause (ix) of the definition of "Permitted Investment" minus the aggregate
cash dividends paid by such Unrestricted Subsidiary to the Company or any
other Restricted Subsidiary since the date of such original Investment),
minus (y) in case any Restricted Subsidiary has been redesignated an
Unrestricted Subsidiary, the greater of (1) the book value (determined in
accordance with GAAP) at the date or redesignation of the aggregate
Investments made by the Company and its Restricted Subsidiaries and (2) the
Fair Market Value of such Investments in such Restricted Subsidiary at the
time of such redesignation, plus, to the extent not included in the
definition of "Consolidated Net Income," and plus (z) the amount of any
payments of interest on Indebtedness, dividends, repayments of Indebtedness
and other cash distributions, in each case after taxes and to the extent
received by the Company or a Restricted Subsidiary after the date of the
Indenture from any Unrestricted Subsidiary.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the payment of any dividend on any shares of Preferred Stock of
the Company issued and outstanding as of the Issue Date in accordance with the
terms of such Preferred Stock in effect at the Issue Date; (iii) any dividend on
shares of Capital Stock of the Company or any Wholly-Owned Restricted Subsidiary
payable solely in shares of Capital Stock (other than Disqualified Stock); (iv)
the payment of annual dividends on shares of common stock of the Company in an
aggregate amount not to exceed $0.22 per share per annum (as equitably adjusted
by resolution of the Board of Directors of the Company evidenced by an Officers'
Certificate delivered to the Trustee for stock splits, stock dividends and
similar events after the Issue Date); (v) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of the Company in exchange for, or
out of the Net Cash Proceeds of, the substantially concurrent sale (other than
to a Restricted Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that the amount of any
such Net Cash Proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (u) of the
preceding paragraph (c); (vi) the defeasance, redemption or repurchase of any
Subordinated Indebtedness of the Company in exchange for, or out of the Net Cash
Proceeds from an incurrence of Permitted Company Refinancing Indebtedness or the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such Net Cash Proceeds that are utilized for any
such defeasance, redemption or repurchase shall be excluded from clause (u) or
(v) of the preceding paragraph (c), as applicable; (vii) the repurchase,
redemption or retirement by the Company of shares of its Capital Stock (other
than Disqualified Stock) held by an employee or former employee of the Company
or any of its Restricted Subsidiaries issued under the Company's stock option
plans pursuant to the terms of such plans; provided that (A) the repurchase,
redemption or retirement results from the retirement, termination of employment,
death or disability (as defined in the relevant plan) of the employee or former
employee and (B) the aggregate price paid for all such repurchased, redeemed or
retired Capital Stock shall not exceed $2.0 million after the date of the
Indenture; (viii) a Qualified Redemption Transaction; (ix) any Investment in an
Affiliate of the Company engaged in the Business made with the Net Cash Proceeds
of a substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Equity Interests of the Company (other than Disqualified Stock)
provided, that the amount of any such Net Cash Proceeds that are utilized for
any such Investment shall be excluded from clause (u) of the preceding paragraph
(c); and provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (ii), (iii), (iv), (v), (vi), (vii)
and (ix), no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed.
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Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur" and, correlatively, "incurred" and "incurrence") any
Indebtedness (other than Permitted Indebtedness), and the Company will not, and
will not permit any of its Restricted Subsidiaries to, issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of Preferred Stock; provided, however, that the Company and any Guarantor may
incur Indebtedness if the Consolidated Interest Coverage Ratio for the Company's
most recently ended Reference Period immediately preceding the date on which
such additional Indebtedness is incurred, 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 such Reference
Period, would have been at least 2.0 to 1.0.
Limitation on Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Liens (other than Permitted Liens) upon any of their
respective properties or assets, including, without limitation, any Capital
Stock owned by the Company or any Restricted Subsidiary, securing (i) any
Indebtedness of the Company, unless the Notes are equally and ratably secured,
or (ii) any Indebtedness of any Guarantor, unless the Guarantees are equally and
ratably secured, provided, that if such Indebtedness is expressly subordinated
to the Notes or the Guarantees, the Lien securing such Indebtedness will be
subordinated and junior to any Lien securing the Notes or the Guarantees, with
the same relative priority as such Subordinated Indebtedness of the Company or
Subordinated Indebtedness of a Guarantor will have with respect to the Notes or
the Guarantees, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest
or participation in, or measured by, its profits, (ii) pay any Indebtedness owed
to the Company or any of its Restricted Subsidiaries, (iii) make loans or
advances to the Company or any of its Restricted Subsidiaries, (iv) transfer any
of its properties or assets to the Company or any of its Restricted
Subsidiaries, (v) grant Liens or other security interests on any of the
properties or assets of the Company in favor of any Holder of any Note or (vi)
Guarantee the Notes, except for such encumbrances or restrictions existing under
or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Bank Credit Facility as in effect as of the date of the
Indenture and any amendments, modifications, restatements, renewals,
supplements, refundings, replacements or refinancing thereof, provided that such
amendments, modifications, restatements, renewals, supplements, refundings,
replacements or refinancings are no more materially restrictive with respect to
such dividend and other payment restrictions than those contained in the Bank
Credit Facility as in effect at the date of the Indenture, (c) the Indenture and
the Notes, (d) applicable law, (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries on or after the Issue Date as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired, (f)
customary nonassignment provisions in contracts or leases entered into in the
ordinary course of business and consistent with past practices, (g) pursuant to
capital leases and purchase money obligations, in each case, for property
acquired in the ordinary course of business after the date of the Indenture that
impose restrictions of the nature described in clause (iv) above on the property
so acquired, which obligations do not cover any assets other than the asset
acquired, (h) Permitted Liens which are customary limitations on the transfer of
collateral subject to such Permitted Liens, (i) any merger agreements, stock
purchase agreements, asset sale
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agreements and similar agreements limiting the transfer of properties and assets
to be transferred or otherwise disposed pending consummation of the subject
transaction in accordance with the terms thereof, or (j) Permitted Company
Refinancing Indebtedness or Permitted Subsidiary Refinancing Indebtedness,
provided that, in each case, the restrictions contained in the agreements
governing such Permitted Company Refinancing Indebtedness or Permitted
Subsidiary Refinancing Indebtedness, as the case may be, are no more restrictive
with respect to the provisions set forth in clauses (i), (ii), (iii), (iv), (v)
and (vi) above than those contained in the agreements governing the Indebtedness
being refinanced.
Limitation on Merger, Consolidation or Sale of Assets
The Indenture provides that the Company shall not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made, is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made, expressly assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before and immediately after giving effect to such transaction
(including any Indebtedness incurred or anticipated to be incurred in connection
with the transaction), no Default or Event of Default shall have occurred and be
continuing; (iv) except in the case of a consolidation or merger of the Company
with or into a Wholly-Owned Restricted Subsidiary of the Company, immediately
after giving effect to such transaction on a pro forma basis, the Consolidated
Net Worth of the Company or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made, is equal to or greater
than the Consolidated Net Worth of the Company immediately preceding such
transaction; and (v) except in the case of a consolidation or merger of the
Company with or into a Wholly-Owned Restricted Subsidiary of the Company,
immediately after giving pro forma effect to such transaction as if such
transaction had been made at the beginning of the applicable Reference Period,
the Company or any Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made, would have been permitted to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant captioned "Limitation on the Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Limitation on Sale of Assets
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale unless:
(i) the Company (or its Restricted Subsidiary, as the case may be)
receives consideration at the time of such sale or other disposition at
least equal to the Fair Market Value thereof;
(ii) at least 75% of the consideration received by the Company (or its
Restricted Subsidiary, as the case may be) from such Asset Sale consists of
cash or Cash Equivalents provided, however, that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) of the Company or such
Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated in right of payment to the Notes or
any Guarantee thereof) from which the Company and its Restricted
Subsidiaries are expressly released in connection with such sale, and (b)
any notes or other non-cash consideration received by the Company or such
Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash or Cash Equivalents within
30 days of receipt thereof (to the extent of the cash or Cash Equivalents
so received (net of costs relating thereto)), shall be deemed to be cash
for purposes of this provision; and
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(iii) the Net Cash Proceeds received by the Company (or its Restricted
Subsidiary, as the case may be) from such Asset Sale are applied in
accordance with the following two paragraphs.
The Company may apply such Net Cash Proceeds, within 365 days after any
Asset Sale, to: (a) the repayment of Indebtedness of the Company under the Bank
Credit Facility or other Senior Indebtedness of the Company or any Senior
Indebtedness of a Guarantor, that results in a permanent reduction in any
revolving credit or other commitment relating thereto or the maximum principal
amount that may be borrowed thereunder in an amount equal to the principal
amount so repaid or (b) make an Investment in assets or properties used in the
Business. Pending the final application of any such Net Cash Proceeds, the
Company or any such Restricted Subsidiary may invest such Net Cash Proceeds in
any manner that is not prohibited by the Indenture.
If, upon completion of the 365-day period, the Net Cash Proceeds of any
Asset Sale less the aggregate amount applied by the Company during such period
as described in clauses (a) or (b) in the immediately preceding paragraph,
together with any Net Cash Proceeds in excess of amounts similarly applied by
the Company from any prior Asset Sale after the date of receipt of such Net Cash
Proceeds (such aggregate constituting "Excess Proceeds"), exceeds $7.5 million,
then the Company will be obligated to make an offer to all Holders of Notes (the
"Asset Sale Offer") to repurchase the Notes having an aggregate principal amount
equal to the Excess Proceeds (and not solely the amount in excess of $7.5
million) (such repurchase to be made on a pro rata basis if the amount available
for such repurchase is less than the principal amount of the Notes tendered in
such Asset Sale Offer) at a repurchase price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of such repurchase, in accordance with
the procedures set forth in the Indenture; provided, however, that, if the
Company is required to apply such Excess Proceeds to repurchase, or to offer to
repurchase, any Pari Passu Indebtedness, the Company shall only be required to
offer to repurchase the maximum principal amount of Notes that may be purchased
out of the amount of such Excess Proceeds multiplied by a fraction, the
numerator of which is the aggregate principal amount of Notes outstanding and
the denominator of which is the aggregate principal amount of Notes outstanding
plus the aggregate principal amount of such Pari Passu Indebtedness outstanding.
To the extent that the aggregate amount of Notes tendered pursuant to an offer
is less than the Excess Proceeds, the Company may use the amount of such
deficiency, or a portion thereof, in any manner permitted by the Indenture. Upon
the completion of the Asset Sale Offer, the amount of Excess Proceeds will be
reset to zero, subject to further increase resulting from subsequent Asset
Sales. The Asset Sale Offer must be commenced within 30 days following the Asset
Sale that triggers the Company's obligation to make the Asset Sale Offer and
remain open for at least 30 and not more than 40 days (unless otherwise required
by applicable law).
Any Asset Sale Offer will be conducted in substantially the same manner as
a Change of Control Offer. The Company will comply with Rule 14e-1 of the
Exchange Act and any other securities laws, rules and regulations thereunder to
the extent such laws, rules and regulations are applicable in connection with
the repurchase of the Notes pursuant to an Asset Sale Offer.
Notwithstanding the foregoing, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, make any Asset Sale of any
of the Capital Stock of a Restricted Subsidiary except pursuant to an Asset Sale
of all of the Capital Stock of such Restricted Subsidiary.
Limitation on Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, enter into any
transaction or series of transactions (including, without limitation, the sale,
purchase, license, transfer, exchange, lease or otherwise dispose of any assets
or properties or the rendering of any services, or entering into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of) with any Affiliate (other than transactions among the Company and its
Wholly-Owned Restricted Subsidiaries) (each of the foregoing, an "Affiliate
Transaction"), on terms that are less favorable to the Company or the relevant
Restricted Subsidiary, as the case may be, than those that would have been
obtained in a comparable arms' length transaction by the Company or such
Restricted Subsidiary
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with an unrelated Person. In addition, the Company will not, and will not permit
any Restricted Subsidiary of the Company to, enter into an Affiliate
Transaction, or any series of related Affiliate Transactions involving aggregate
payments (a) in excess of $1.0 million, unless a majority of the Board of
Directors of the Company (including a majority of the Company's Disinterested
Directors) determines in good faith, as evidenced by a resolution of such Board,
that such Affiliate Transaction or series of related Affiliate Transactions is
fair to the Company and in compliance with the first sentence of this paragraph;
or (b) equal to or greater than $5.0 million, unless the Company complies with
the preceding clause (a) and receives a written opinion from a nationally
recognized investment banking firm with total assets in excess of $1.0 billion
that such transaction or series of transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view, provided, however, that
this covenant will not restrict the Company from (1) paying reasonable and
customary regular compensation and fees to directors of the Company who are not
employees or consultants of the Company or any Restricted Subsidiary or
Affiliate of the Company, (2) paying dividends on, or making distributions with
respect to, shares of Capital Stock of the Company on a pro rata basis to the
extent permitted by the covenant captioned "Limitation on Restricted Payments,"
(3) other Restricted Payments that are permitted by the provisions of the
Indenture described above under the covenant captioned "Limitation on Restricted
Payments," (4) loans or advances to employees of the Company or any Restricted
Subsidiary to the extent permitted by clause (vi) of the definition of
"Permitted Investments," (5) any indemnification payment made to any director or
officer of the Company or any Restricted Subsidiary (A) in accordance with the
corporate charter or by-laws of the Company or such Restricted Subsidiary, (B)
under any customary agreement providing for such indemnification payment, or (C)
under applicable law, and (6) obligations of the Company or any Restricted
Subsidiary under employee compensation and other benefit arrangements entered
into or provided for in the ordinary course of business.
Limitation on Sale/Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any Sale/Leaseback Transaction
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be able to incur Indebtedness in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction or (ii) the Company
or such Restricted Subsidiary receives cash proceeds from such Sale/Leaseback
Transaction at least equal to the Fair Market Value of the assets subject
thereto and such proceeds are applied in the same manner and to the same extent
as Net Cash Proceeds and Excess Proceeds from an Asset Sale.
Guarantees of Certain Indebtedness
The Company will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee any Indebtedness of the Company or a Guarantor, unless
each such Restricted Subsidiary simultaneously executes and delivers to the
Trustee a supplemental indenture, in form reasonably satisfactory to the
Trustee, providing for the Guarantee by such Restricted Subsidiary of the
payment of the Obligations of the Company under the Notes in the manner set
forth under "-- Guarantees." Neither the Company nor any such Guarantor shall be
required to make a notation on the Notes to reflect any such Guarantee. Nothing
in this covenant shall be construed to permit any Restricted Subsidiary of the
Company to incur Indebtedness otherwise prohibited by the covenant captioned
"Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock."
Conduct of Business
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in any business or activity other than
the Business.
Rule 144A Information Requirement
The Company has agreed to furnish to the Holders or beneficial Holders of
Old Notes and prospective purchasers of Notes designated by the Holders of
Notes, upon their request, the information required to be delivered pursuant to
Rule 144A (d) (4) under the Securities Act until such time as the Company either
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exchanges all of the Old Notes for the Exchange Notes or has registered all of
the Old Notes for resale under the Securities Act.
Reports
The Indenture provides that whether or not required by the rules and
regulations of the Commission, including the reporting requirements of Section
13 or 15(d) of the Exchange Act, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's independent certified public
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to investors or prospective
investors who request it in writing.
Payments for Consent
The Indenture prohibits the Company and any of its Subsidiaries from,
directly or indirectly, paying or causing to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any terms or provisions of the
Notes unless such consideration is offered to be paid or agreed to be paid to
all Holders of the Notes which so consent, waive or agree to amend in the time
frame set forth in solicitation documents relating to such consent, waiver or
agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, any of the Notes; (ii) default in
payment when due (whether at maturity, upon redemption or repurchase, or
otherwise) of the principal of or premium, if any, on any of the Notes
(including the failure to make a payment to repurchase Notes tendered pursuant
to a Change of Control Offer or an Asset Sale Offer); (iii) failure by the
Company to comply with the provisions described under the covenant captioned
"Limitation on Merger, Consolidation or Sale of Assets" or a Guarantor to comply
with the provisions described in the third paragraph under the caption
"-- Guarantees"; (iv) failure by the Company or, with respect to any Guarantee,
any Guarantor, for 30 days after notice by the Trustee or by the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding to comply
with any of the covenants or agreements in, in the case of the Company, the
Indenture or the Notes or, in the case of a Guarantor, the Guarantee of such
Guarantor (other than those referred to in clauses (i), (ii) and (iii) above);
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries or any Guarantor
(or the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries or any Guarantor) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case described in
clauses (a) and (b) of this subsection (v), the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $3.0 million or more; provided that if any such
Payment Default is cured or waived or any such acceleration rescinded, or such
Indebtedness is repaid, within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration, as the case may be, such Event of Default under the Indenture and
any consequential acceleration of the Notes shall
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be automatically rescinded, so long as such rescission does not conflict with
any judgment or decree; (vi) the failure of a Guarantee by a Guarantor to be in
full force and effect (other than a release of a Guarantee in accordance with
the Indenture), or the denial or disaffirmance by such Guarantor thereof; (vii)
failure by the Company or any of its Restricted Subsidiaries or any Guarantor to
pay final judgments or orders rendered against the Company or any Restricted
Subsidiary or any Guarantor aggregating in excess of $3.0 million, and (x) such
judgments or orders are not paid, discharged or stayed for a period of 60 days
after their entry or (y) an enforcement proceeding shall have been commenced
(and not discharged or settled) by any creditor upon any such judgments or
orders; and (viii) certain events of bankruptcy, insolvency or reorganization
with respect to the Company or any of its Restricted Subsidiaries or any
Guarantor.
If any Event of Default occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare by notice to the Company and the Trustee all of
the principal amount of the Notes, accrued and unpaid interest, premium and
Liquidated Damages, if any, thereon and all other Obligations thereunder to be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Restricted Subsidiary or any
Guarantor occurs, then all outstanding Notes will become due and payable without
further action or notice. 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 principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, interest or Liquidated Damages, if any) if it determines
that withholding notice is in their interest.
Subject to certain limitations, the Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of principal, premium, interest or Liquidated
Damages, if any on the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, agent or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes, by accepting a Note, waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver shall not be effective to waive or release liabilities to the extent
required by applicable law. It is the view of the Commission that such a waiver
or release is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such Notes when such payments are due, (ii) the
Company'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 payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith, and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant
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Defeasance occurs, certain events (not including nonpayment, bankruptcy,
receivership, rehabilitation 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, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable U.S. Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent certified public
accountants or a nationally recognized investment bank, to pay the principal of,
premium, if any, interest and Liquidated Damages, if any, on the outstanding
Notes on the Stated Maturity or on the applicable redemption date, as the case
may be; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (a) the Company 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; (iii) in the case of Covenant
Defeasance, the Company 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 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; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Restricted Subsidiaries is a party or by which the
Company or any of its Restricted Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company shall have delivered to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company; and (viii) the Company 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.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture,
subject to the restrictions described under "Notice to Investors." The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company is
not required to transfer or exchange any Note selected for redemption. Also, the
Company is not required to transfer or exchange any Note for a period of 15 days
before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs and in the Indenture,
the Indenture or the Notes may be amended or supplemented by the Company and the
Trustee with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the
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then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenant captioned "Limitation on Sale of
Assets") or reduce the prices at which the Company shall repurchase such Notes
pursuant to the provisions of "Change of Control" and the covenant captioned
"Limitation on Sale of Assets," (iii) reduce the rate of or change the time for
payment of interest on any Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, interest or Liquidated Damages, if
any, on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Note payable in money other than that stated in the Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, interest or Liquidated Damages, if any, on the Notes, (vii)
impair the right to institute suit for the enforcement of any payment of
principal of, or premium, if any, or interest or Liquidated Damages, if any, on,
any Note, (viii) waive a redemption payment with respect to any Note or (ix)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency; provided that such amendment or
supplement does not adversely affect the rights of any Holder, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger, consolidation or sale of assets, to secure the Notes as
contemplated by the covenant captioned "Limitation on Liens," to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to reflect the release of any Guarantor from its Guarantee, or the
addition of any Subsidiary of the Company as a Guarantor, in the manner provided
in the Indenture, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as initial Registrar and Paying Agent with
respect to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case a Default or an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care and skill of a prudent man
in the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
GOVERNING LAW
The Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York, but without regard to
principles of conflicts of law.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person. Acquired
Indebtedness shall be deemed incurred at the time such other Person is merged
with or into or becomes a Restricted Subsidiary of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (i) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under its
Guarantee, of such Guarantor at such date and (ii) the present fair saleable
value of the assets of such Guarantor at such date exceeds the amount that will
be required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the obligations of such Subsidiary under the
Guarantee of such Guarantor), excluding debt in respect of its Guarantee, as
they become absolute and matured.
"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"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), 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.
"Asset Sale" means (i) the sale, lease, conveyance, transfer, exchange or
other disposition (collectively, "dispositions") of any assets (including by way
of a Sale/Leaseback Transaction) other than dispositions of inventory in the
ordinary course of business, (ii) the issuance by any Restricted Subsidiary of
the Company of Equity Interests of such Restricted Subsidiary (other than
directors' qualifying shares) and (iii) the disposition by the Company or any of
its Restricted Subsidiaries of Equity Interests of any Restricted Subsidiary of
the Company, in the case of either clause (i), (ii) or (iii), whether in a
single transaction or a series of related transactions (a) that have a Fair
Market Value in excess of $2.0 million or (b) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing, the following will not be deemed to be
Asset Sales: (i) a disposition of assets by a Restricted Subsidiary of the
Company to the Company or a Wholly-Owned Restricted Subsidiary of the Company or
by the Company to a Wholly-Owned Restricted Subsidiary of the Company, (ii) an
issuance of Equity Interests by a Restricted Subsidiary of the Company to the
Company or to a Wholly-Owned Restricted Subsidiary of the Company, (iii) a
disposition consisting of a Restricted Payment permitted by the covenant
captioned "Limitation on Restricted Payments," (iv) the disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole governed by the provisions of the provisions captioned "Change
of Control" and/or "Limitation on Merger, Consolidation or Sale of Assets," (v)
any trade or exchange by the Company or any Restricted Subsidiary of (A)
properties and assets used in the Business for properties and assets used in the
Business owned or held by another Person or (B) shares of Capital Stock in any
Person engaged in the Business for shares of Capital Stock in any Person engaged
in the Business owned or held by another Person, provided that (1) the Fair
Market Value of the properties, assets or shares traded or exchanged by the
Company or such Restricted Subsidiary (including any cash or Cash Equivalents,
not to exceed 15% of such Fair Market Value, to be delivered by the Company or
such Restricted Subsidiary) is reasonably equivalent to the Fair Market Value of
the properties, assets and shares (together with any cash or Cash Equivalents,
not to exceed 15% of such Fair Market Value) to be received by the Company or
such Restricted Subsidiary, provided that if such
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Fair Market Value is equal to or in excess of $5.0 million, the resolution of
the Board of Directors of the Company evidenced by an Officers' Certificate
delivered to the Trustee shall be accompanied by a written appraisal by a
nationally recognized investment banking firm or appraisal firm, in each case
specializing or having a specialty in the Business and (2) such exchange is
approved by a majority of the Disinterested Directors, (vi) any sale, transfer
and other disposition of defaulted receivables for collection in the ordinary
course of business, (vii) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property, (viii) any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with the
covenant captioned "Limitation on Liens" above, (ix) any disposition of
equipment or materials in the ordinary course of business consistent with past
practices which, in the reasonable judgment of the Company, are obsolete, worn
out or no longer useful in the Company's or any Restricted Subsidiaries'
business and (x) the factoring or securitization of equipment receivables by the
Company or a Restricted Subsidiary with a financial institution in connection
with the sale by the Company or such Restricted Subsidiary of such equipment in
the ordinary course of business, provided that, such equipment was sold by the
Company or such Restricted Subsidiary subsequent to the date of the Indenture
and within eighteen months of such factoring or securitization.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date at the rate of
interest per annum implicit in the terms of the lease. As used in the preceding
sentence, the net amount of rent under any lease for any such period shall mean
the sum of rental and other payments required to be paid with respect to such
period by the lessee thereunder excluding any amounts required to be paid by
such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the product of (x) the
number of years (calculated to the nearest one-twelfth) from such date to the
date of each successive scheduled principal payment, including payment at final
maturity, of such Indebtedness multiplied by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the Amended and Restated Business Loan
Agreement (Receivables and Inventory), dated as of February 21, 1997, as amended
by the First Amendment thereto, dated as of the Issue Date, by and among the
Company and Bank of America, Texas, N.A., including any related notes,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, supplemented, modified, renewed, or
refunded, replaced or refinanced by a revolving credit, term and/or letter of
credit facility, from time to time.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to act on behalf of the Board of Directors of such
Person.
"Business" means the business of providing services and products to the oil
and gas industry and the petrochemicals industry.
"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 so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, including each class of common stock
and preferred stock of such Person, (ii) with respect to any Person that is not
a corporation,
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any and all, partnership interests (whether general or limited) or limited
liability company interests, and (iii) any other interest 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.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than 180
days from the date of acquisition (provided that the full faith and credit of
the United States is pledged in support thereof), (iii) certificates of deposit
with maturities of 180 days or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 180 days and overnight bank deposits,
in each case with any domestic commercial bank having capital and surplus in
excess of $500.0 million or any commercial bank organized under the laws of any
other country that is a member of the Organization for Economic Cooperation and
Development and that has total assets in excess of $500.0 million, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (ii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least P-1 (or higher) by Moody's Investors
Service, Inc. or A-1 (or higher) by Standard & Poor's Ratings Services and in
each case maturing within six months after the date of acquisition, and (vi)
shares of any money market mutual fund, or similar fund, in each case having
assets in excess of $500.0 million, which invests solely in investments of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, directly or indirectly, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries to any Person or group (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) any Person or group (as defined above), 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 shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of the Voting Stock of the Company, including
by way of merger, consolidation or otherwise, or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Restricted Subsidiaries designed to protect the Company or any of its
Restricted Subsidiaries against fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries.
"Consolidated Interest Coverage Ratio" means, for any Reference Period, the
ratio on a pro forma basis of (a) the sum of (without duplication) (i)
Consolidated Net Income of such Person for such period, plus an amount equal to
any extraordinary, nonrecurring or unusual loss plus any net loss realized in
connection with an asset sale, to the extent such losses were deducted or
otherwise excluded in computing Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) Consolidated Tax Expense, (iv) depreciation and
amortization (including amortization of goodwill, amortization of deferred debt
expense and other intangibles and amortization of deferred compensation in
respect of non-cash compensation but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other extraordinary, unusual or
non-recurring non-cash charges (excluding any such non-cash charge to the extent
it represents an accrual of a reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period, to the extent such
depreciation and amortization were deducted or otherwise excluded in computing
Consolidated Net Income, as determined in accordance with GAAP on a consolidated
basis in each case as determined for the Reference Period to (b) Consolidated
Interest Expense for such Reference Period; provided, that, in calculating each
of the items set forth in the foregoing (i) acquisitions which occurred during
the Reference Period or subsequent to the Reference Period and on or prior to
the date of the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio (the "Transaction Date") shall be assumed
to have occurred on the first day of the Reference
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Period, (ii) the incurrence of any Indebtedness (including the issuance of the
Notes) or issuance of any Disqualified Stock during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of such Reference Period, (iii) any
Indebtedness that had been outstanding during the Reference Period that has been
repaid on or prior to the Transaction Date shall be assumed to have been repaid
as of the first day of such Reference Period, (iv) the Consolidated Interest
Expense attributable to interest on any Indebtedness or dividends on any
Disqualified Stock bearing a floating interest (or dividend) rate shall be
computed on a pro forma basis as if the rate in effect on the Transaction Date
was the average rate in effect during the entire Reference Period and (v) in
determining the amount of Indebtedness pursuant to the covenant captioned
"Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock," the incurrence of Indebtedness giving rise to the need to calculate the
Consolidated Interest Coverage Ratio and, to the extent the net proceeds from
the incurrence thereof are used to retire Indebtedness, the application of the
proceeds therefrom shall be assumed to have occurred on the first day of the
Reference Period.
"Consolidated Interest Expense" means, with respect to any Person for any
Reference Period, the aggregate amount (without duplication) of (a) consolidated
interest, whether expensed or capitalized, paid, accrued or scheduled to be paid
or accrued, of such Person and its Restricted Subsidiaries for such period
(including (i) amortization of original issue discount and non-cash interest
payments and accruals, (ii) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method and
(iii) the interest component of any payments associated with Capital Lease
Obligations and net payments (if any) pursuant to Hedging Obligations, in each
case, to the extent attributable to such period, but excluding (x) commissions,
discounts and other fees and charges incurred with respect to letters of credit
and bankers' acceptances financing and (y) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or secured by a Lien on
assets of such Person) determined in accordance with GAAP, and (b) with respect
to any Disqualified Stock, cash dividends paid (other than to the Company or any
of its Restricted Subsidiaries), declared, accrued or accumulated during such
period, divided by one minus the applicable actual combined federal, state,
local and foreign income tax rate of the Company and its Restricted Subsidiaries
(expressed as a decimal), on a consolidated basis, for the Reference Period
preceding the date of the transaction giving rise to the need to calculate
Consolidated Interest Expense, in each case to the extent attributable to such
period and excluding items eliminated in consolidation. Consolidated Interest
Expense of the Company shall not include any prepayment premiums or amortization
of original issue discount or deferred financing costs, to the extent such
amounts are incurred as a result of the prepayment on the date of the Indenture
of any Indebtedness of the Company with the proceeds of the Notes.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
adjusted to exclude (only to the extent included and without duplication) (i)
all net gains which are extraordinary, unusual or are non-recurring (including
any gain from the sale or other disposition of assets outside the ordinary
course of business or from the issuance or sale of capital stock), (ii) all
gains resulting from currency or hedging transactions not in the ordinary course
of business consistent with past practice, (iii) the Net Income (if positive) of
any Person acquired after the Issue Date in a pooling of interests transaction
for any period prior to the date of such acquisition, (iv) the cumulative effect
of a change in accounting principles and (v) the Net Income of any Restricted
Subsidiary of any Person to the extent that such Restricted Subsidiary has any
restrictions or encumbrances on making distributions to such Person; provided,
that the Net Income of any Person that is not a Subsidiary or that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of cash dividends or cash distributions actually paid during such
period to the referent Person or a Restricted Subsidiary thereof.
"Consolidated Net Worth" means, with respect to the Company and its
Restricted Subsidiaries, and at any date of determination, the sum of Capital
Stock (other than Disqualified Stock) and additional paid-in capital plus
retained earnings (or minus accumulated deficit) minus all intangible assets,
including, without limitation, organization costs, patents, trademarks,
copyrights, franchises, research and development costs, and any amount reflected
in treasury stock, of the Company and its Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP.
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"Consolidated Tax Expense" means, with respect to any Person for any
period, the provisions for federal, state, local and foreign income taxes
(including state franchise taxes accounted for as income taxes in accordance
with GAAP) of such Person and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries in the ordinary course of business
against fluctuation in the values of the currencies of the countries (other than
the United States) in which the Company or its Restricted Subsidiaries conduct
business.
"Default" means any event that is, or with the passage of time or the
giving of notice, or both, would be, an Event of Default.
"Disinterested Director" means, with respect to an Affiliate Transaction or
series of related Affiliate Transactions or an Asset Sale, a member of the Board
of Directors of the Company who has no financial interest, and whose employer
has no financial interest, in such Affiliate Transaction or series of related
Affiliate Transactions or in such Asset Sale.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event or with the passing of time,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable or is convertible or exchangeable for Indebtedness
at the option of the Holder thereof, in whole or in part, on or prior to June 1,
2007.
"Domestic Subsidiary" shall mean each Subsidiary of the Company
incorporated or organized under the laws of the United States or any state or
territory thereof.
"Eligible Foreign Inventory" means the consolidated finished goods, raw
materials and work-in-process of the Wholly-Owned Foreign Subsidiaries of the
Company (excluding finished goods, raw materials and work-in-process of
Unrestricted Subsidiaries of the Company) less any applicable reserves, each of
the foregoing determined in accordance with GAAP.
"Eligible Foreign Receivables" means the consolidated trade receivables of
the Wholly-Owned Foreign Subsidiaries of the Company (excluding trade
receivables of Unrestricted Subsidiaries of the Company) less the allowance for
doubtful accounts, each of the foregoing determined in accordance with GAAP.
"Eligible Inventory" means the consolidated finished goods, raw materials
and work-in-process of the Company and its consolidated Subsidiaries (excluding
finished goods, raw materials and work-in-process of Foreign Subsidiaries and
their Subsidiaries and Unrestricted Subsidiaries of the Company) less applicable
reserves located in the United States and Canada, each of the foregoing
determined in accordance with GAAP.
"Eligible Receivables" means the consolidated trade receivables of the
Company and its consolidated Subsidiaries (other than the trade receivables of
Foreign Subsidiaries and their Subsidiaries and Unrestricted Subsidiaries of the
Company) less the allowance for doubtful accounts and less sales to account
debtors outside the United States and Canada, each of the foregoing determined
in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights exercisable for, exchangeable for or convertible into Capital Stock (but
excluding any debt security that is convertible into, or exchangeable for,
Capital Stock).
"Exchange Act" means the Securities and Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
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"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Bank Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, including a majority of the Company's Disinterested Directors, acting
in good faith, and which determination shall be evidenced by an Officers'
Certificate delivered to the Trustee.
"Foreign Subsidiary" shall mean each Subsidiary of the Company that is
incorporated or organized under the laws of any jurisdiction other than the
United States of America or any state or territory thereof.
"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 have been approved by a significant segment of the accounting
profession, which are in effect in the United States on the date of the
Indenture.
"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 (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means any Restricted Subsidiary of the Company which becomes a
guarantor of the Notes pursuant to the covenant captioned "Guarantees of Certain
Indebtedness," until such time, if any, as such Restricted Subsidiary is
released from the Guarantee pursuant to the provisions of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) Interest Rate Agreements, (ii) Currency Agreements and
(iii) Commodity Agreements.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, (a) all obligations of
such Person, whether or not contingent, (i) in respect of borrowed money
(whether or not the recourse of the lender is to be the whole of the assets of
such Person or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments (including, but not limited to, purchase money
obligations), (iii) representing the balance deferred and unpaid of the purchase
price of any property or services (other than trade accounts payable or other
obligations arising in the ordinary course of business), (iv) representing any
Hedging Obligations, (v) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (vi) for the payment of money relating
to a Capital Lease Obligation, or (vii) evidenced by a letter of credit or a
reimbursement obligation of such Person with respect to any letter of credit, if
and to the extent any of the foregoing obligations referred to in this clause
(a) (other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP;
(b) all liabilities of others of the kind described in the preceding clause (a)
that such Person has Guaranteed or that are otherwise its legal liability; (c)
Indebtedness (as otherwise defined in this definition) of another Person secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person, the amount of such obligations being deemed to be the
lesser of (1) the full amount of such obligations so secured and (2) the Fair
Market Value of such asset; (d) with respect to such Person, the liquidation
preference or any mandatory redemption payment obligations in respect of
Disqualified Stock; and (e) the aggregate preference in respect of amounts
payable on the issued and outstanding shares of Preferred Stock of any of the
Company's Restricted Subsidiaries in the event of any voluntary or involuntary
liquidation, dissolution or winding up (excluding any such preference
attributable to such shares of Preferred Stock that are owned by such Person or
any of its Restricted Subsidiaries; provided, that if such Person is the
Company, such exclusion shall be for such preference attributable to such shares
of Preferred Stock that are owned by the Company or any of its Restricted
Subsidiaries).
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement entered into by the Company or any of its
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Restricted Subsidiaries designed to protect the Company or any of its Restricted
Subsidiaries in the ordinary course of business against fluctuations in interest
rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including, without limitation, any guarantee), advances or other
extensions of credit or capital contributions to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others) (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), all
acquisitions (whether by purchase, merger, consolidation or otherwise) for
consideration by such Person of any Indebtedness, capital stock, bonds, notes,
debentures or other securities (including, without limitation, any interests in
any partnership or joint venture) issued or owned by any other Person and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means the date on which the Notes are originally issued under
the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, easement, restriction, covenant, right-of-way, adverse claim, security
interest or encumbrance of any kind in respect of such asset, whether or not
filed, recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to grant a security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction),
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Make-Whole Amount" with respect to a Note means an amount equal to the
excess, if any, of (i) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on June 1,
2002, computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (ii) the outstanding principal amount of such Note. "Treasury Rate"
is defined as the yield to maturity at the time of the computation of United
States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15(519),
which has become publicly available at least two Business Days prior to the date
of the redemption notice or, if such Statistical Release is no longer published,
any publicly available source of similar market data) most nearly equal to the
then remaining maturity of the Notes assuming redemption of the Notes on June 1,
2002; provided, however, that if the Make-Whole Average Life of such Note is not
equal to the constant maturity of the United States Treasury securities for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Make-Whole Average Life of such Notes is less than
one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Make-Whole Average Life" means the number of years (calculated to the
nearest one-twelfth) between the date of redemption and June 1, 2002.
"Make-Whole Price" with respect to a Note means the greater of (i) the sum
of the outstanding principal amount and the Make-Whole Amount of such Note, and
(ii) the redemption price of such Note on June 1, 2002, determined pursuant to
the Indenture (105.188% of the principal amount).
"Net Cash Proceeds" means (a) with respect to any Asset Sale or
Sale/Leaseback Transaction of any Person, an amount equal to aggregate cash
proceeds received (including any cash proceeds received by way of deferred
payment in principal pursuant to a note or installment receivable or otherwise,
but only as and when received, and excluding any other consideration until such
time as such consideration is converted into cash) therefrom, in each case net
of all legal, title and recording tax expenses, commissions, accounting and
investment banking and other fees and expenses incurred, and all federal, state
or local taxes required to be accrued as a liability as a consequence of such
Asset Sale or Sale/Leaseback Transaction, and in each case net of all
Indebtedness which is secured by such asset or assets (including Equity
Interests) which are the subject of such Asset Sale, in accordance with the
terms of any Lien upon or with respect to such asset or assets, or
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which must, by its terms or in order to obtain a necessary consent to such Asset
Sale or Sale/Leaseback Transaction or by applicable law, be repaid out of the
proceeds from such Asset Sale or Sale/Leaseback Transaction and which is
actually so repaid and (b) in the case of any sale by the Company of securities
relevant to the covenant captioned "Limitation on Restricted Payments," the
amount of aggregate net cash proceeds received by the Company, after payment of
expenses, commissions, discounts and any other transaction costs incurred in
connection therewith.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however (only to the extent
included and without duplication), (i) any gain (but not loss), together with
any related provision for taxes on such gain (but not loss), realized in
connection with (a) any sale of assets (including, without limitation,
dispositions pursuant to Sale/Leaseback Transactions), or (b) the disposition of
any securities or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries, and (ii) any extraordinary, non-recurring or
unusual gain (but not loss), together with any related provision for taxes on
such extraordinary, non-recurring or unusual gain (but not loss).
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company or any of its Restricted Subsidiaries (a) provides credit support of any
kind (including any undertaking, agreement or instrument that would constitute
Indebtedness) or (b) is directly or indirectly liable (as a guarantor or
otherwise), (ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, President or Vice President and the Chief
Financial Officer, chief accounting officer, Treasurer or Assistant Treasurer of
such Person.
"Pari Passu Indebtedness" means, with respect to any Net Cash Proceeds from
Asset Sales, Senior Indebtedness of the Company or a Guarantor the terms of
which require the Company or such Guarantor to apply such Net Cash Proceeds to
offer to repurchase such Indebtedness.
"Permitted Company Refinancing Indebtedness" means Indebtedness of the
Company, the net proceeds of which are used to renew, extend, refinance, refund
or repurchase outstanding Indebtedness of the Company, provided that (i) if the
Indebtedness (including the Notes) being renewed, extended, refinanced, refunded
or repurchased is pari passu with or subordinated in right of payment to the
Notes, then such Indebtedness is pari passu or subordinated in right of payment
to, as the case may be, the Notes at least to the same extent as the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (ii)
such Indebtedness is scheduled to mature no earlier than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iii) such
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is equal to or greater than the Average Life of the Indebtedness being renewed,
extended, refinanced, refunded or repurchased; provided, further, that such
Indebtedness (to the extent that such Indebtedness constitutes Permitted Company
Refinancing Indebtedness) is in an aggregate principal amount (or, if such
Indebtedness is issued at a price less than the principal amount thereof, the
aggregate amount of gross proceeds therefrom is) not in excess of the aggregate
principal amount then outstanding of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased (or if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased was issued at a price less than
the principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) (plus the amount of
reasonable fees and expenses incurred in connection therewith).
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"Permitted Indebtedness" means (i) Indebtedness incurred by the Company
under the Bank Credit Facility in an aggregate principal amount not to exceed
(a) the greater of (x) $25.0 million at any time outstanding or (y) the sum of
85% of the amount of Eligible Receivables and 50% of the amount of Eligible
Inventory, at any time outstanding minus (b) the amount of Net Cash Proceeds
from any Asset Sale applied pursuant to the covenant captioned "Limitation on
Sale of Assets" to repay or prepay such Indebtedness that results in a permanent
reduction in any revolving credit or other commitment relating thereto or the
maximum amount that may be borrowed thereunder provided that the aggregate
amount of applied Net Cash Proceeds shall not permanently reduce the principal
amount of Permitted Indebtedness under this clause (i) below $10.0 million; (ii)
Existing Indebtedness outstanding on the date of the Indenture; (iii)
Indebtedness represented by the Notes and the Indenture; (iv) Hedging
Obligations; provided, that the notional principal amount of any Interest Rate
Agreement does not significantly exceed the principal amount of the Indebtedness
to which such agreement relates; provided, further, that any Currency Agreement
does not increase the outstanding loss potential or liabilities other than as a
result of fluctuations in foreign currency exchange rates; (v) Purchase Money
Indebtedness of the Company and its Restricted Subsidiaries incurred on or after
the date of the Indenture, provided, that (A) the aggregate amount of such
Purchase Money Indebtedness (including any Permitted Company Refinancing
Indebtedness and Permitted Subsidiary Refinancing Indebtedness issued to
refinance, replace or refund such Indebtedness) incurred on or after the date of
the Indenture and outstanding at any time pursuant to this clause (v) shall not
exceed $5.0 million, and (B) in each case, such Purchase Money Indebtedness
shall not constitute more than 100% of the cost (determined in accordance with
GAAP) to the Company or such Restricted Subsidiary, as applicable, of the
property so acquired or leased; (vi) Indebtedness of the Company to any of its
Wholly-Owned Restricted Subsidiaries, and Indebtedness of any Restricted
Subsidiary of the Company to the Company or any of its Wholly-Owned Restricted
Subsidiaries (the Indebtedness incurred pursuant to this clause (vi) being
hereinafter referred to as "Intercompany Indebtedness"); provided, that, in the
case of Intercompany Indebtedness of the Company such Indebtedness shall be
unsecured and (except to a Guarantor) subordinated in all respects to the Notes;
provided, further, that an incurrence of Indebtedness shall be deemed to have
occurred upon (A) any sale or other disposition of Intercompany Indebtedness to
a Person other than the Company or any of its Wholly-Owned Restricted
Subsidiaries, (B) any sale or other disposition of Equity Interests of any
Wholly-Owned Restricted Subsidiary of the Company which holds Intercompany
Indebtedness such that such Restricted Subsidiary ceases to be a Wholly-Owned
Restricted Subsidiary after such sale or other disposition, or (C) designation
of a Restricted Subsidiary which holds Intercompany Indebtedness as an
Unrestricted Subsidiary; (vii) Permitted Company Refinancing Indebtedness;
(viii) Permitted Subsidiary Refinancing Indebtedness; (ix) Indebtedness of a
Restricted Subsidiary pursuant to a Guarantee of the Notes; (x) to the extent
that such incurrence does not result in the incurrence by the Company or any
Restricted Subsidiary of any obligation for the payment of borrowed money of
others, Indebtedness incurred solely as a result of the execution by the Company
or its Restricted Subsidiaries of letters of credit relating to workers'
compensation or self insurance, performance bonds or similar instruments;
provided, however, that the foregoing exception shall not be applicable to
Indebtedness incurred in connection with the performance by the Company or its
Restricted Subsidiaries of such bonds or instruments or payments of such letters
of credit; (xi) Acquired Indebtedness incurred by the Restricted Subsidiaries on
or after the date of the Indenture, provided, that (A) the aggregate amount of
such Acquired Indebtedness (including any Permitted Subsidiary Refinancing
Indebtedness issued to refinance, replace or refund such Indebtedness)
outstanding at any time pursuant to this clause (xi) shall not exceed $10.0
million, (B) immediately before and after giving effect to the incurrence of
such Acquired Indebtedness, no Default or Event of Default shall have occurred
and be continuing and after giving effect to the incurrence of such Acquired
Indebtedness the Company could incur at least $1.00 of additional Indebtedness
under the first paragraph of the covenant captioned "Limitation on the
Incurrence of Indebtedness and Issuance of Disqualified Stock" and (C) such
Acquired Indebtedness was not incurred in connection with or in contemplation of
the subject transaction; (xii) Indebtedness incurred by the Wholly-Owned Foreign
Subsidiaries of the Company in an aggregate principal amount not to exceed the
sum of (1) 85% of the amount of Eligible Foreign Receivables and 50% of the
amount of Eligible Foreign Inventory, at any time outstanding minus (2) the
amount of any such Indebtedness retired with Net Cash Proceeds from any Asset
Sale (any Indebtedness incurred pursuant to this clause (xii) is referred to as
the "Permitted Foreign Subsidiary Indebtedness"); and (xiii) in addition to
Indebtedness specified in clauses
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(i) through (xii) above, additional Indebtedness in an aggregate principal
amount not to exceed $5.0 million at any time outstanding.
"Permitted Investments" means (i) Investments in any assets or property to
be used in the Business of the Company or any of its Restricted Subsidiaries;
(ii) any Investments in the Company or in a Wholly-Owned Restricted Subsidiary
of the Company; (iii) any Investments in Cash Equivalents; (iv) any Investment
acquired solely in exchange for Equity Interests (other than Disqualified Stock)
of the Company; (v) without duplication of clause (iv) hereof, Investments by
the Company or any Restricted Subsidiary of the Company in a Person engaged
principally in the Business of the Company or any of its Restricted
Subsidiaries, if as a result of such Investment (a) such Person becomes a
Wholly-Owned Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly-Owned
Restricted Subsidiary of the Company; (vi) loans and advances by the Company or
any Restricted Subsidiary to their respective employees made in the ordinary
course of business and consistent with customary practices, which loans and
advances do not exceed in the aggregate $1.0 million at any one time
outstanding; (vii) Investments acquired by the Company or any of its Restricted
Subsidiaries (A) in exchange of any other Investment or accounts receivable held
by the Company or such Restricted Subsidiary in connection with or as a result
of a bankruptcy workout, reorganization or recapitalization of the issuer of
such Investment or accounts receivable or (B) as a result of a foreclosure by
the Company or such Restricted Subsidiary or other transfer of title with
respect to any secured Investment in default; (viii) Investments permitted under
the covenants captioned "Limitation on Sale of Assets" and "Limitation on
Sale/Leaseback Transactions"; and (ix) any Investment in an Unrestricted
Subsidiary of the Company or in an entity (except a Wholly-Owned Restricted
Subsidiary of the Company) in which the Company or any Wholly-Owned Restricted
Subsidiary of the Company has an Equity Interest together with one or more other
Persons, and which is formed after the date of the Indenture for the purpose of
engaging in the Business, provided, that, at the date any such Investment is
made and after giving effect thereto, such Investment, together with all other
such Investments by the Company and its Restricted Subsidiaries since the date
of the Indenture, does not in the aggregate exceed $15 million.
"Permitted Liens" means (i) Liens in favor of the Company; (ii)(A) Liens
securing Indebtedness of the Company in an amount not in excess of that
permitted to be incurred in accordance with clause (i) of the definition of
"Permitted Indebtedness" and (B) Liens securing Indebtedness of the Wholly-Owned
Foreign Subsidiaries of the Company which are Restricted Subsidiaries incurred
pursuant to clause (xii) of the definition of "Permitted Indebtedness;" (iii)
Liens existing on the date of the Indenture; (iv) Liens securing Indebtedness,
the proceeds of which are used to refinance secured Indebtedness of the Company
or any of its Restricted Subsidiaries, provided that (a) such Liens are on terms
at least as favorable to the Holders of the Notes as those governing the
Indebtedness being refinanced, (b) such Liens shall not extend to property other
than that encumbered to secure the Indebtedness being refinanced and (c) the
principal amount of the Indebtedness secured by such Liens is not increased; (v)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company,
provided that such Liens were not created in connection with or in contemplation
of such merger or consolidation and do not extend to any property or assets
other than those of the Person merged into or consolidated with the Company or
such Restricted Subsidiary; (vi) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not created in connection with or in contemplation
of such acquisition and do not extend to any property or assets other than those
being acquired; (vii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds, leases or other obligations of a like
nature incurred in the ordinary course of business (other than obligations for
borrowed money); (viii) 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, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens imposed by law,
such as mechanics', carriers', warehousemen's, materialmen's, and vendors'
Liens, incurred in good faith in the ordinary course of business with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings if a reserve or other appropriate provisions, if any, as shall be
required by
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GAAP shall have been made therefor; (x) zoning restrictions, easements,
licenses, covenants, reservations, restrictions on the use of real property or
minor irregularities of title incident thereto that do not, in the aggregate,
materially detract from the value of the property or the assets of the Company
or impair the use of such property in the operation of the Company's business;
(xi) judgment Liens to the extent that such judgments do not cause or constitute
a Default or an Event of Default; (xii) Liens arising from Purchase Money
Indebtedness provided that each such Lien shall encumber only the assets or
property (or portions thereof) which is subject to such Purchase Money
Indebtedness and shall attach to such property within 120 days of the
acquisition or lease thereof; and (xiii) precautionary filings of any financial
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction made in connection with Capital Lease Obligations permitted to be
incurred under the covenant captioned "Limitation on the Incurrence of
Indebtedness and Issuance of Disqualified Stock," provided that such Lien does
not violate clause (xii) hereof and provided that clauses (ii), (iii) and (iv)
shall not permit Liens on Capital Stock of a Restricted Subsidiary.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Restricted Subsidiary, the net proceeds of which are used to renew, extend,
refinance, refund or repurchase outstanding Indebtedness of such Restricted
Subsidiary, provided that (i) if the Indebtedness (including any Guarantee)
being renewed, extended, refinanced, refunded or repurchased is pari passu with
or subordinated in right of payment to such Guarantee, then such Indebtedness is
pari passu with or subordinated in right of payment to, as the case may be, such
Guarantee at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (ii) such Indebtedness is
scheduled to mature no earlier than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iii) such Indebtedness has an Average
Life at the time such Indebtedness is incurred that is equal to or greater than
the Average Life of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, provided, further, that such Indebtedness (to the
extent that such Indebtedness constitutes Permitted Subsidiary Refinancing
Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) (plus the amount of
reasonable fees and expenses incurred in connection therewith); provided,
however, that a Restricted Subsidiary shall not incur refinancing Indebtedness
to renew, extend, refinance, refund or repurchase outstanding Indebtedness of
another Subsidiary.
"Person" means any individual, corporation, limited liability company,
general or limited partnership, joint venture, association, joint-stock company,
trust, estate, charitable foundation, unincorporated organization or government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated), which is preferred
as to the payment of dividends, or upon any voluntary or involuntary liquidation
or dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation.
"Public Equity Offering" means a bona fide underwritten sale to the public
of Common Stock of the Company pursuant to a registration statement (other than
on Form S-8 or any other form relating to securities issuable under any benefit
plan of the Company) that is declared effective by the Commission.
"Public Market" exists at any time with respect to the Capital Stock of the
Company if such Capital Stock of the Company is then (a) registered with the
Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and (b) traded
either on a national securities exchange or on the NASDAQ Stock Market.
"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition (including in the
case of a Capital Lease Obligation, the lease) of any real or personal tangible
property which, in the good faith judgment of the Board of Directors of the
Company, is directly related to the Business and which is incurred substantially
concurrently with such acquisition and is secured only by the assets so
financed.
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"Qualified Redemption Transaction" means a redemption of any Capital Stock
or Subordinated Indebtedness of the Company (including any Subordinated
Indebtedness of the Company accounted for as a minority interest of the Company
that is held by a Subsidiary that is a business trust or similar entity formed
for the primary purpose of issuing preferred securities the proceeds of which
are loaned to the Company or a Restricted Subsidiary) that by its terms is
convertible into Capital Stock of the Company if on the date of notice of the
call for such redemption (A) a Public Market exists in the shares of such
Capital Stock of the Company and (B) the average closing price on the Public
Market for shares of such Capital Stock of the Company for the twenty trading
days immediately preceding the date of such notice exceeds 120% of the
conversion price per share (determined by reference to the redemption price) of
such Capital Stock of the Company issuable upon conversion of such Capital Stock
or Subordinated Indebtedness of the Company called for redemption.
"Reference Period" means, with respect to any Person, the four full
consecutive fiscal quarters ended with the last full fiscal quarter for which
financial information is available immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Notes or the Indenture.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the Indenture, among the Company and the
Initial Purchaser, as amended or supplemented from time to time.
"Restricted Investment" means an Investment other than a Permitted
Investment. With respect to Unrestricted Subsidiaries or Restricted
Subsidiaries, the amount of Restricted Investments shall be calculated as the
greater of (i) the book value of assets contributed by the Company or a
Restricted Subsidiary or (ii) the Fair Market Value of the assets contributed by
the Company or a Restricted Subsidiary.
"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the date of the Indenture, (ii) any Subsidiary of the Company
(other than a Subsidiary that is also a Subsidiary of an Unrestricted
Subsidiary) organized or acquired after the date of the Indenture, unless such
Subsidiary shall have been designated as an Unrestricted Subsidiary by
resolution of the Board of Directors of the Company as provided in and in
compliance with the definition of "Unrestricted Subsidiary" and (iii) any
Unrestricted Subsidiary which is designated as a Restricted Subsidiary by the
Board of Directors of the Company as provided in and in compliance with the
definition of "Unrestricted Subsidiary." Any Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be incurred by such
Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Sale/Leaseback Transaction" means with respect to the Company or any of
its Restricted Subsidiaries, any arrangement with any Person providing for the
leasing by the Company or any of its Restricted Subsidiaries of any property
acquired or placed into service more than 180 days prior to such arrangement,
whereby such property has been or is to be sold or transferred by the Company or
any of its Restricted Subsidiaries to such Person.
"Senior Indebtedness" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter incurred), unless such
Indebtedness is contractually subordinate or junior in right of payment of
principal, premium and interest to the Notes.
"Senior Indebtedness of a Guarantor" means any Indebtedness of such
Guarantor (whether outstanding on the date of the Indenture or thereafter
incurred), unless such Indebtedness is contractually subordinate or junior in
right of payment of principal, premium and interest to the Guarantees.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable, 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.
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"Subordinated Indebtedness of a Guarantor" means any Indebtedness of such
Guarantor (whether outstanding on the date of the Indenture or thereafter
incurred) which is contractually subordinate or junior in right of payment of
principal, premium and interest to the Guarantees.
"Subordinated Indebtedness of the Company" means any Indebtedness of the
Company (whether outstanding on the date of the Indenture or thereafter
incurred) which is contractually subordinate or junior in right of payment of
principal, premium and interest to the Notes.
"Subsidiary" means, with respect to any Person (i) any corporation,
association or other business entity of which more than 50% of the total general
voting power of shares of Capital Stock entitled under ordinary circumstances
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person or a combination thereof and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Persons or one or more Subsidiaries of such Person or any combination thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be or continue to be designated an Unrestricted
Subsidiary by the Board of the Company in the manner provided below and (ii) any
Subsidiary of any Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary of the Company by
resolution of the Board of Directors, provided that, (a) immediately after
giving effect to such designation, no Default or Event of Default shall have
occurred and be continuing, (b) any such designation shall be deemed, at the
election of the Company at the time of such designation, to be either (but not
both) (x) the making of a Restricted Payment at the time of such designation in
an amount equal to the Investment in such Subsidiary subject to the restrictions
contained in the covenant captioned "Limitation on Restricted Payments" or (y)
the making of an Asset Sale at the time of such designation in an amount equal
to the Investment in such Subsidiary subject to the restrictions contained in
the covenant captioned "Limitation on Asset Sales", and (c) such Subsidiary or
any of its Subsidiaries does not own any Capital Stock or Indebtedness of, or
own or hold any Lien on any property of, the Company or any other Subsidiary of
the Company that is not a Subsidiary of the Subsidiary to be so designated. The
Company shall be deemed to make an Investment in an amount equal to the greater
of the book value (as determined in accordance with GAAP) and the Fair Market
Value of the net assets of any Restricted Subsidiary (or, if the Company has not
theretofore made an Investment in such Restricted Subsidiary, in an amount equal
to the Investments being made), at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, and any property transferred to an
Unrestricted Subsidiary from the Company shall be deemed an Investment valued at
an amount equal to the greater of its book value (as determined in accordance
with GAAP) and its Fair Market Value at the time of such transfer. A Person may
be designated as an Unrestricted Subsidiary only if and for so long as such
Person (i) has no Indebtedness other than Non-Recourse Indebtedness; (ii) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to make any payment to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and (iii) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries. Any Unrestricted Subsidiary of
the Company may be designated as a Restricted Subsidiary of the Company by
resolution of the Board of Directors of the Company; provided that, immediately
after giving effect to such designation, no Default or Event of Default shall
have occurred and be continuing and the Company could incur at least $1.00 of
additional Indebtedness under the first paragraph of the covenant captioned
"Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock." The Company shall evidence any such designation to the Trustee by filing
with the Trustee within 45 days of such designation a copy of the resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation has been made and stating that such designation complies with
the foregoing provisions.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances (without regard to the occurrence of any contingency)
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to elect at least a majority of the board of directors, managers, or trustees of
any Person or, with respect to a partnership (whether general or limited), any
general partner interest in such partnership.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any Person, any
Wholly-Owned Restricted Subsidiary of such Person which is a Foreign Subsidiary.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person 100% of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall be
at the time beneficially owned by such Person either directly or indirectly
through Wholly-Owned Subsidiaries.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall be at the time beneficially
owned by such Person either directly or indirectly through Wholly-Owned
Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes will initially be
issued in the form of one or more Global Notes (the "Global Notes"). The Global
Notes will be deposited with, or on behalf of, the Depositary and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder").
Notes that are issued as described below under "-- Certificated
Securities," will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that 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 Notes evidenced by the Global
Notes will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole owner or holder of such Notes
outstanding under the Indenture. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. The ability of
a Person having a beneficial interest in Notes represented by a Global Note to
pledge such interest to Persons or entities that do not participate in the
Depositary's system or to otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate evidencing such interest.
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Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of a Global Note
Holder on the applicable record date will be payable to or at the direction of
such Global Note Holder in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
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 the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if
any, interest and Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Notes and each
such Person may conclusively rely on, and shall be protected in relying on,
instructions from the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the Notes to
be issued).
CERTIFICATED SECURITIES
Notes originally purchased by or transferred to Accredited Investors who
are not QIBs will be issued in the form of Certificated Securities. In addition,
subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons. All such
Certificated Securities would be subject to the legend requirements described
herein under "Notice to Investors." In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to appoint a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Notes in the form of Certificated Securities
under the Indenture, then, upon surrender by the relevant Global Note Holder of
its Global Note, Notes in such form will be issued to each Person that the
Depositary identifies as the beneficial owner of the related Notes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) be made by
wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. The Old Notes are eligible to trade in the PORTAL market and
to trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in the Notes will therefore be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Notes also will be settled in
immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company has agreed pursuant to the Registration Rights Agreement to use
its best efforts to cause to be filed with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to an offer to exchange the Old Notes for Exchange Notes. The Exchange
Notes will be substantially identical to the Old Notes, except that the Exchange
Notes will not contain terms with
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respect to transfer restrictions (other than those that might be imposed by
state securities laws) or provide for the payment of Liquidated Damages. In the
event that (i) the Exchange Offer registration is not available to any Holder or
may not be consummated because, in either case, it would violate applicable
securities laws or because the applicable interpretations of the staff of the
Commission would not permit the Company to effect the Exchange Offer or (ii) the
Exchange Offer is not for any other reason consummated within 180 days of the
Closing Date, the Company will use its best efforts to cause to be filed with
the Commission a Shelf Registration Statement.
Based on no-action letters issued by the staff of the Commission, the
Exchange Notes would, in general, be freely transferable after the Exchange
Offer without further registration under the Securities Act; provided, that
broker-dealers receiving Exchange Notes in the Exchange Offer will have a
prospectus delivery requirement with respect to resales of Exchange Notes. The
staff of the Commission has taken the position that such 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
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. The Company has agreed, for a period of 180 days after consummation
of the Exchange Offer, to make available a prospectus meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any resale
of any Exchange Notes acquired.
Each Holder (other than certain specified holders) who wishes to exchange
such Old Notes for Exchange Notes in the Exchange Offer will be required to make
certain representations, including representations that (i) any Exchange Notes
to be received by it will be acquired in the ordinary course of its business,
(ii) at the time of the commencement of the Exchange Offer, it had no
arrangement with any Person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company.
The Registration Rights Agreement provides that, to the extent not
prohibited by any applicable law or applicable interpretation of the staff of
the Commission, (i) the Company will use its best efforts to cause to be filed
with the Commission an Exchange Offer Registration Statement on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
such Exchange Offer Registration Statement declared effective under the
Securities Act by the Commission on or prior to 120 days after the Closing Date
and (iii) the Company shall have commenced the Exchange Offer and shall use its
best efforts to cause the Exchange Offer to be consummated on or prior to 45
days after the date on which the Exchange Offer Registration Statement was
declared effective under the Securities Act by the Commission (the
"Effectiveness Target Date") and (iv) if obligated to cause to be filed with the
Commission the Shelf Registration Statement, the Company will (a) cause to be
filed with the Commission a Shelf Registration Statement on or prior to 60 days
after such filing obligation arises, (b) use its best efforts to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises and (c) use its best efforts to cause the Shelf
Registration Statement to remain effective until the earlier of (x) two years
after the Issue Date and (y) the consummation of the Exchange Offer; provided,
that if the Company has not consummated the Exchange Offer within 180 days of
the Closing Date, then the Company will cause to be filed with the Commission a
Shelf Registration Statement on or prior to 60 days thereafter. The Company
shall use its reasonable best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the second anniversary of
the Closing Date 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. If (1) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
prior to the date specified for such filing, (2) any of such Registration
Statements are not declared effective by the Commission on or prior to
Effectiveness Target Date, (3) the Company fails to consummate the Exchange
Offer on or prior to 45 days after the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (4) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (1)
through (4) above a "Registration Default"), then the Company will be required
to pay Liquidated Damages to each Holder affected by such Registration Default
on each interest payment date. Liquidated Damages shall accrue from and after
the date of each Registration Default, and shall continue to
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accrue thereafter until such Registration Default has been cured or waived as
set forth in the Registration Rights Agreement, at a rate equal to 0.25% per
annum of the principal amount of Notes during (x) in the case of a Registration
Default under clause (1) above, the first 30-day period, and (y) in the case of
any other Registration Default other than under clause (1) above, the first
90-day period, in each case immediately following the occurrence of such
Registration Default, which rate shall increase by an additional 0.25% per annum
during each subsequent 30-day period or 90-day period, as the case may be, up to
a maximum rate equal to 1% per annum. The Exchange Offer Registration Statement
was filed with the Commission on June 17, 1997 and it was declared effective on
, 1997.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
no par value, 21,443,477 shares of which were issued and outstanding at June 30,
1997. In addition, the Company is authorized to issue up to 500,000 shares of
preferred stock, no par value. The Company's outstanding 322,500 shares of
preferred stock have been divided into a series, 322,500 of which underlie the
Company's Depositary Shares (the "Depositary Shares"). Each of the Company's
Depositary Shares Outstanding represents ownership of 1/4 of a share of the
Company's $6.75 Convertible Exchangeable Preferred Stock (the "Convertible
Preferred Stock").
COMPANY COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all other
matters submitted to a vote of shareholders. Such holders do not have the right
to cumulate their votes in the election of directors. Holders of Common Stock
have no redemption or conversion rights and no preemptive or other rights to
subscribe for securities of the Company. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share equally and ratably in all of the assets remaining, if any, after
satisfaction of all debts and liabilities of the Company, and of the
preferential rights of any series of preferred stock then outstanding. The
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. Holders of Common Stock are entitled to receive dividends when,
as and if declared by the Company's Board of Directors out of funds legally
available therefor. Harris Bank is transfer agent and registrar for the Common
Stock.
COMPANY PREFERRED STOCK
The Company is authorized to issue, without any action on the part of its
shareholders, 500,000 shares of preferred stock, no par value per share. The
Board of Directors has the authority to divide the preferred stock into one or
more series and to fix and determine the relative rights and preference of the
shares of each such series, including dividend rates, terms of redemption,
sinking funds, the amount payable in the event of voluntary liquidation,
dissolution or winding up of the affairs of the Company, conversion rights and
voting powers.
The Company has authorized the issuance of a series, consisting of 345,000
shares of Convertible Preferred Stock in connection with the issuance and sale
by public offering of the Depositary Shares in November 1993, prior to which no
shares of preferred stock were outstanding. Only 322,500 shares of Convertible
Preferred Stock are issued and outstanding. The shares of Convertible Preferred
Stock underlying the Depositary Shares have been deposited with Harris Bank as
depositary. Depositary receipts issued by the depositary evidence the Depositary
Shares. There is no public trading market for the Convertible Preferred Stock
except as represented by the Depositary Shares. The following is a summary
description of the Convertible Preferred Stock.
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Dividend Rights
Holders of the Convertible Preferred Stock are entitled to receive when and
if declared by the Company's Board of Directors, out of the funds of the Company
legally available therefor, an annual cash dividend of $6.75 per share, payable
quarterly in each year. Dividends on the Convertible Preferred Stock are
cumulative. Unless full cumulative dividends on all outstanding shares of the
Convertible Preferred Stock have been paid, no dividends may be paid, declared
or set aside for payment, or any other distributions made on the Common Stock or
on any other stock of the Company ranking junior to the Convertible Preferred
Stock as to dividends.
Conversion Rights; Redemption
Each share of Convertible Preferred Stock is convertible, at any time, at
the option of the holder thereof, into Common Stock, at a conversion rate of
10.96 shares of Common Stock for each share of Convertible Preferred Stock
(equivalent to 2.74 shares of Common Stock for each Depositary Share) and at an
initial conversion price of $9.125 per share. The conversion price is subject to
adjustment upon certain events. In addition, the Convertible Preferred Stock has
special conversion rights that become effective upon the occurrence of certain
types of significant transactions affecting ownership or control of the Company
or the market for the Common Stock. In such situations, the special conversion
right would, for a limited period, reduce the then prevailing conversion price
to the market value of the Common Stock, subject to a minimum conversion price
of $5.17 per share of Common Stock (subject to certain adjustments). Such
provisions may in certain circumstances discourage persons from making a tender
offer or a bid to acquire the Company. The Depositary Shares, as such, are not
convertible into Common Stock. Nevertheless, the depositary receipts may be
surrendered by holders to the depositary to cause conversion of the Convertible
Preferred Stock represented by the Depositary Shares into whole shares of Common
Stock.
The Convertible Preferred Stock may be redeemed for cash, in whole or in
part, at the option of the Company at any time or from time to time, at
redemption prices beginning at $105.00 per share on or after December 31, 1996
and reducing to $100.00 on or after December 31, 2001, in each case, with an
amount equal to all dividends (whether or not declared) accrued and unpaid to
the date fixed for redemption.
Voting Rights
Except as required by law or in certain instances with respect to (i) the
election of directors, where dividends on the Preferred Convertible Stock are in
arrears; (ii) the creation, issuance or increase in the number of authorized
shares of any class or classes or series of stock ranking senior to the
Convertible Preferred Stock; or (iii) the alteration, change or repeal any of
the powers, rights or preferences of the holders of the Convertible Preferred
Stock so as to affect adversely such powers, preferences or rights, holders of
Convertible Preferred Stock have no voting rights. The limited voting rights of
the holders of Convertible Preferred Stock could, under certain circumstances,
operate to restrict the flexibility the Company would otherwise have in
connection with any future issuances of equity securities or changes to its
capital structure.
COMPANY OPTIONS AND WARRANTS
At September 29, 1997, warrants for the purchase of 801,750 shares of
Common Stock and options covering an aggregate of 1,353,068 shares of Company
Common Stock were outstanding. The warrants have exercise prices of $5.00 per
share and expire July 2002. The options have exercise prices ranging from $3.75
per share to $9.75 per share and expiration dates ranging from October 1997 to
July 2007.
REGISTRATION RIGHTS
Certain warrant holders of the Company presently possess registration
rights with respect to 801,750 shares of Common Stock issuable upon exercise of
warrants. In addition, certain stockholders of the Company have registration
rights granted in connection with the Company's acquisitions. See "The
Company -- Acquisitions."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United Stated Federal income tax
consequences of the Exchange Offer is for general information only. It is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative determinations, all of which are subject to change at any time,
possibly on a retroactive basis. The following relates only to the Old Notes,
and the Exchange Notes received therefor, that are held as "capital assets"
within the meaning of Section 1221 of the Code. It does not discuss state, local
or foreign tax consequences, nor, except as otherwise noted, does it discuss tax
consequences to categories of holders that are subject to special rules, such as
foreign persons, tax-exempt organizations, insurance companies, banks and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor. No rulings will be sought from the Internal
Revenue Service ("IRS") with respect to the Federal income tax consequences of
the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE THE NOTES.
EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION
OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION
BEFORE DETERMINING WHETHER TO EXCHANGE THE NOTES.
PAYMENTS OF INTEREST AND SPECIAL INTEREST
In general, interest on a Note will be taxable to a beneficial owner who or
which is (i) a citizen or resident of the United States, (ii) a corporation
created or organized under the laws of the United States or any State thereof
(including the District of Columbia), (iii) a person otherwise subject to United
States Federal income taxation on its worldwide income (a "U.S. Holder") as
ordinary income at the time it is received or accrued, depending on the U.S.
Holder's method of accounting for tax purposes.
The Company is obligated to pay Special Interest to the U.S. Holders of Old
Notes under certain circumstances described under "Description of
Notes -- Registration Rights Liquidated Damages." It is believed that any such
payments should be taxable to U.S. Holders at the time it is received or
accrued, depending on the U.S. Holder's method of accounting for tax purposes.
OPTIONAL REDEMPTION OR REPURCHASE
The Notes are subject to redemption at the option of the Company, on or
after June 1, 2002, at the applicable redemption price plus any accrued, unpaid
interest and Liquidated Damages, if any, and to purchase at the option of each
holder thereof upon a Change of Control for 101% of the principal amount plus
any accrued, unpaid interest and Liquidated Damages, if any. Furthermore, under
certain circumstances, the Company may become obligated to purchase all or a
portion of the Notes at 101% of the principal amount plus any accrued, unpaid
interest and Liquidated Damages, if any, with the proceeds of certain Asset
Sales. See "Description of Notes." Upon the optional redemption or purchase of a
Note, it is expected that the difference between the amount received by such
holder and the holder's adjusted tax basis in the Note will be taxable as
capital gain or loss, if the Note is held as a capital asset (subject to the
market discount rules discussed below).
PAYMENTS OF PRINCIPAL; DISPOSITIONS
Subject to the discussion of the Exchange Offer below, upon the sale,
exchange, redemption, retirement at maturity or other disposition of a Note, a
U.S. Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued but unpaid interest or market discount,
which will be taxable as ordinary income) and such U.S. Holder's adjusted tax
basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will
equal the cost of the Note to such U.S. Holder (increased for accrued original
issue discount, if any), less any principal payment received by such U.S.
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Holder. Gain or loss realized by a U.S. Holder on the sale, redemption or other
disposition of a Note or an Exchange Note generally will be long-term capital
gain or loss if, at the time of the disposition, the Note has been held for more
than one year.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's stated redemption price at
maturity at the time of its acquisition ("Bond Premium"), the U.S. Holder will
not be required to include original issue discount, if any, in his income and
may elect to amortize Bond Premium. If Bond Premium is amortized, the amount of
interest that must be included in the U.S. Holder's income from each period
ending on an interest payment date or stated maturity, as the case may be, will
be reduced by the portion of the Bond Premium allocable to such period based on
the Note's yield to maturity and the U.S. Holder's adjusted basis in the Notes
will be reduced accordingly. This election applies to all Notes acquired by the
U.S. Holder during the year of election and thereafter.
ACQUISITION PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's adjusted issue price at
the time of its acquisition ("Acquisition Premium"), but less than its stated
redemption price at maturity, the U.S. Holder may be entitled to a reduction, in
the daily portion of any original issue discount includable in such U.S.
Holder's income, for such Acquisition Premium. The reduction will be an amount
equal to the daily portion of original issue discount for that day multiplied by
a fraction, the numerator of which is equal to the Acquisition Premium, and the
denominator of which is the excess of the stated redemption price at maturity
over the adjusted issue price of the Note on the date of purchase.
MARKET DISCOUNT
A U.S. Holder, other than an initial Holder, will be treated as holding a
Note at a market discount (a "Market Discount Note") if the amount for which
such U.S. Holder purchased the Note is less than the Note's stated redemption
price at maturity, or, in the case of a Note issued with original issue
discount, the "revised issue price," as defined in Section 1278 of the Code,
subject to a de minimis rule.
In general, any partial payment of principal on, or gain recognized on the
maturity, optional redemption or repurchase, or disposition of, a Market
Discount Note will be treated as ordinary interest income to the extent that
such gain does not exceed the accrued market discount on such Note.
Alternatively, a U.S. Holder of a Market Discount Note may elect to include
market discount in income currently over the life of the Market Discount Note.
Such an election applies to all debt instruments with market discount acquired
by the electing U.S. Holder on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
IRS.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue such discount on a constant yield to maturity basis. Such an
election is applicable only to the Note with respect to which it is made and is
irrevocable. A U.S. Holder of a Market Discount Note that does not elect to
include market discount in income currently generally will be required to defer
deductions for interest on borrowings allocable to such Note, in an amount not
exceeding the accrued market discount on such Note, until the maturity or
disposition of such Note. If such Note is disposed of in a non-taxable
transaction (other than a nonrecognition transaction described in Section
1276(c) of the Code) accrued market discount will be includable as ordinary
income to the U.S. Holder as if such U.S. Holder had sold the Note at its then
fair market value.
THE EXCHANGE OFFER
Pursuant to recently-issued Treasury regulations, the exchange of Old Notes
for Exchange Notes pursuant to the Exchange Offer should not constitute a
significant modification of the terms of the Old Notes and, accordingly, such
exchange should be treated as a "non-event" for Federal income tax purposes.
Therefore, such exchange should have no Federal income tax consequences to
Holders of Old Notes, and each
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Holder of Old Notes would continue to be required to include interest on the Old
Notes in its gross income in accordance with its method of accounting for
Federal income tax purposes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on payments of principal, premium (if any) or interest
(including original issue discount, if any) on a Note, provided in the case of
interest that (i) the beneficial owner does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the beneficial owner is not a controlled foreign
corporation that is related to the Company through stock ownership, (iii) the
beneficial owner is not a bank which receives interest on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course of its
trade or business, (iv) the beneficial owner provides the ownership statement
described below, and (v) such interest is not contingent interest under Section
871(h)(4)(A) of the Code and the regulations thereunder. To qualify for the
exemption from taxation, the last United States payor in the chain of payment
prior to payment to a non-U.S. Holder (the "Withholding Agent") must have
received in the year in which a payment of interest or principal occurs, or in
either of the two preceding calendar years, a statement that (i) is signed by
the beneficial owner of the Note under penalties of perjury, (ii) certifies that
such owner is not a U.S. Holder and (iii) provides the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the Withholding
Agent of any change in the information on the statement within 30-days of such
change. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide a
signed statement under penalties of perjury to the Withholding Agent. In such
case, however, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form provided by the beneficial owner to the
organization or institution. The Treasury Department is considering
implementation of further certification requirements aimed at determining
whether the issuer of a debt obligation is related to holders thereof.
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on any amount which constitutes capital gain upon
retirement or disposition of a Note.
If a non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described above, payments of premium and interest (including
original issue discount) made to such non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Note provides the Company or
its paying agent, as the case may be, with a properly executed (1) IRS Form 1001
(or successor form) claiming an exemption from withholding under the benefit of
a tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
If a non-U.S. Holder is engaged in a trade or business in the United States
and interest (including original issue discount) on the Note is effectively
connected with the conduct of such trade or business, the non-U.S. Holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on such interest and original issue discount on
a net income basis in the same manner as if it were a U.S. Holder. In addition,
if such non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or lower treaty rate) of its effectively connected
earnings and profits for the taxable year, including such premium, if any, and
interest (including original issue discount) on a note or Exchange Note.
Any gain realized upon the sale, exchange, retirement or other disposition
of a Note generally will not be subject to United States federal income tax
unless (i) such gain is effectively connected with a trade or business in the
United States of the non-U.S. Holder, or (ii) in the case of a non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange, retirement or other
disposition, and certain other conditions are met.
The Notes will not be includible in the estate of a non-U.S. Holder
provided that such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the company
entitled to vote and provided that at the time of such individual's death,
payments in respect of the
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Notes would not have been effectively connected with the conduct of such
individual of a trade or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments of principal, interest, original issue discount or premium
made in respect of the Notes to registered owners who are not "exempt
recipients" and who fail to provide certain identifying information (such as the
registered owner's taxpayer identification number) in the required manner.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in respect
of the Notes to a U.S. Holder must be reported to the IRS, unless the U.S.
Holder is an exempt recipient or establishes and exemption. Compliance with the
identification procedures described in the preceding section would establish an
exemption from backup withholding and information reporting for those non-U.S.
Holders who are not exempt recipients and the payor does not have actual
knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, original issue discount or premium on a
Note are paid or collected by a foreign office of a custodian, nominee or other
foreign agent on behalf of the beneficial owner of such Note, or if a foreign
office of a broker pays the proceeds of the sale of a Note to the owner thereof.
If, however, such nominee, custodian, agent or broker is a United States person,
a controlled foreign corporation or a foreign person that derives 50% or more of
its gross income from the conduct of a trade or business in the United States,
such payments will not be subject to backup withholding but will be subject to
information reporting, unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a United
States person and certain other conditions are met or (2) the beneficial owner
establishes an exemption. Temporary Treasury regulations provide that the
Treasury is considering whether backup withholding will apply with respect to
such payments of principal, interest or the proceeds of a sale that are not
subject to backup withholding under the current regulations.
Payments of principal, interest, original issue discount and premium on a
Note paid to the beneficial owner of a Note by a United States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Note will be subject to both backup
withholding and information reporting unless the beneficial owner provides the
statement referred to above and the payer does not have actual knowledge that
the beneficial owner is a United States person, or the beneficial owner
otherwise establishes as exemption.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange 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 Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period of 180
days after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker-dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
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The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to 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 Exchange 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 negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. For a period of 180 days after consummation of the Exchange Offer, or such
shorter period as will terminate when all Old Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for Exchange Notes and resold by such
broker-dealers, the Company 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. The
Company has agreed in the Registration Rights Agreement to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
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TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES BY THE INITIAL PURCHASERS
The Old Notes were not registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Notes were offered and
sold only (i) in the United States to QIBs under Rule 144A under the Securities
Act and other Institutional Accredited Investors who, prior to their purchase of
Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements, in a private sale exempt from the registration
requirements of the Securities Act, and (ii) outside the United States to
non-U.S. persons ("foreign purchasers") in reliance upon Regulation S under the
Securities Act.
INVESTOR REPRESENTATIONS AND RESTRICTIONS ON RESALE
Each purchaser of the Old Notes was deemed to have represented and agreed
as follows (terms used in this paragraph that are defined in Rule 144A are used
herein as defined therein):
(1) The purchaser (A) is a Qualified Institutional Buyer and is aware
that the sale to it is being made in reliance on Rule 144A and (B) is
acquiring such Notes for its own account or for the account of another
Qualified Institutional Buyer.
(2) The purchaser understands that the Notes are being offered in a
transaction not involving any public offering in the United States within
the meaning of the Securities Act, that the Notes have not been registered
under the Securities Act and that (A) the Notes may be offered, resold,
pledged or otherwise transferred only (i) to a person who the seller
reasonably believes is a Qualified Institutional Buyer in a transaction
meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 under the Securities Act, outside the United
States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act or in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (ii) to the Company or
(iii) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction and (B) the purchaser will, and
each subsequent holder is required to, notify any subsequent purchaser from
it of the resale restrictions set forth in (A) above.
(3) The purchaser confirms that (A) such purchaser has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing Notes, and such purchaser and
any accounts for which it is acting are each able to bear the economic
risks of its or their investment, (B) such purchaser is not acquiring Old
Notes with a view to any distribution thereof in a transaction that would
violate the Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction; provided that the
disposition of its property and the property of any accounts for which such
purchaser is acting as fiduciary shall remain at all times within its
control, and (C) such purchaser has received a copy of the Offering
Memorandum and acknowledges that such purchaser has had access to such
financial and other information, and has been afforded the opportunity to
ask such questions of representatives of the Company and receive answers
thereto, as it deemed necessary in connection with its decision to purchase
Old Notes.
(4) The purchaser understands that the certificates evidencing the
Notes will, unless otherwise agreed by the Company and the holder thereof,
bear a legend substantially to the following effect:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED
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HEREBY (1) BY ITS ACQUISITION HEREOF REPRESENTS THAT (A) IT IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL
ACCREDITED INVESTOR") AND (2) IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND
THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS NOTE (THE "RESALE RESTRICTION TERMINATION DATE") (X) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i)(a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (ii) TO THE
ISSUER OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (Y) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (X) ABOVE. THE FOREGOING RESTRICTIONS ON RESALE
WILL NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE."
Each purchaser of Old Notes that is an Institutional Accredited Investor
but not a Qualified Institutional Buyer must execute and deliver a purchaser's
letter for the benefit of the Initial Purchasers and the Company, whereby such
institutional Accredited Investor (a) agrees to the restrictions on transfer set
forth in clause (2) above, (b) confirms that it (i) is an Institutional
Accredited Investor or an entity in which all of the equity owners are
Institutional Accredited Investors, (ii) is acquiring such Old Notes, for its
own account or for the account of one or more other Institutional Accredited
Investors as to which it exercises sole investment discretion, (iii) is not
acquiring the Old Notes with a view to distribution thereof in a transaction
that would violate the Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction; provided that the
disposition of its property and the property of any accounts for which it is
acting as fiduciary shall remain at all times within its control, (iv) has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing Notes, and it and any accounts for
which it is acting are able to bear the economic risks of its or their
investment, and (v) has received a copy of the Offering Memorandum and
acknowledges that it has had access to such financial and other information, and
has been afforded the opportunity to ask such questions of representatives of
the Company and receive answers thereto, as it deems necessary in connection
with its decision to purchase Old Notes, and (c) acknowledges that the registrar
and transfer agent for the Old Notes will not be required to accept for
registration of transfer any Old Notes, except upon presentation of evidence
satisfactory to the Company that the restrictions on transfer set forth in
clause (2) above have been complied with, and that any such Old Notes will be in
the form of definitive physical certificates bearing the legend set forth in
clause (4) above.
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The Old Notes may not be sold or transferred to, and each purchaser, by its
purchase of the Old Notes shall be deemed to have represented and covenanted
that it is not acquiring the Notes for or on behalf of, and will not transfer
the Notes to, any pension or welfare plan (as defined in Section 3 of the
Employee Retirement Income Security Act of 1974 ("ERISA")), except that such a
purchase for or on behalf of a pension or welfare plan shall be permitted:
(1) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which no plan
(together with any other plans maintained by the same employer or employee
organization) at any time while the Notes are held by such collective
investment fund has an interest in excess of 10% of the total assets in
such collective investment fund and the conditions of Prohibited
Transaction Class Exemption 91-38 issued by the Department of Labor are
satisfied;
(2) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchaser in
which, at any time while the Notes are held by such account, no plan
(together with any other plans maintained by the same employer or employee
organization) has an interest in excess of 10% of the total of all assets
in such pooled separate account and the conditions of Prohibited
Transaction Class Exemption 90-1 issued by the Department of Labor are
satisfied;
(3) to the extent such purchase is made on behalf of a plan, such
purchase and the continued holding of the Notes is directed by (i) an
investment advisor registered under the Investment Advisers Act of 1940
that had as of the last day of its most recent fiscal year total client
assets under its management and control in excess of $50,000,000 and had
stockholders' or partners' equity in excess of $750,000, as shown in its
most recent balance sheet prepared in accordance with generally accepted
accounting principles, or (ii) a bank as defined in Section 202(a)(2) of
the Investment Advisers Act of 1940 with equity capital in excess of
$1,000,000 as of the last day of its most recent fiscal year, or (iii) an
insurance company which is qualified under the laws of more than one state
to manage, acquire or dispose of any assets of a plan, which insurance
company has as of the last day of its most recent fiscal year net worth in
excess of $1,000,000 and which is subject to supervision and examination by
state authority having supervision over insurance companies and, in any
case, such investment adviser, bank or insurance company is otherwise a
qualified professional asset manager, as such term is used in Prohibited
Transaction Class Exemption 84-14 issued by the Department of Labor, and
the assets of such plan when combined with the assets of other plans
established or maintained by the same employer (or affiliated thereof) or
employee organization and managed by such investment adviser, bank or
insurance company do not represent more than 20% of the total client assets
managed by such investment adviser, bank or insurance company, and the
conditions of Section I of such exemption are satisfied;
(4) to the extent such plan is a governmental plan (as defined in
Section 3 of ERISA) which is not subject to the provisions of Title I of
ERISA or Section 4975 of the Internal Revenue Code;
(5) to the extent such purchase is made by or on behalf of an
insurance company with assets in its insurance company general account, and
the conditions of Prohibited Transaction Class Exemption 95-60 issued by
the Department of Labor are satisfied at the time of purchase and
thereafter while the Notes are held by such account; or
(6) to the extent such purchase is made on behalf of a plan, such
purchase and the continued holding of the Notes is directed by an in-house
asset manager and the conditions of Part I of Prohibited Transactions Class
Exemption 96-23 issued by the Department of Labor are satisfied.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby is being
passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
103
<PAGE> 105
EXPERTS
The consolidated financial statements of the Company incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
September 30, 1996, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Wedco Technology, Inc. for the
year ended March 31, 1996 incorporated in this Prospectus by reference to the
current report on Form 8-K/A dated July 15, 1996 have been so incorporated in
reliance on the report of Coopers and Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Rotec Chemicals Limited for the year ended
December 31, 1996, incorporated in this Prospectus by reference to the current
report on Form 8-K dated May 12, 1997 have been so incorporated in reliance on
the report by Grant Thornton, independent chartered accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Verplast SpA as of and for the two years ended
December 31, 1996 incorporated in this Prospectus by reference to the current
report on Form 8-K/A dated October 2 have been so incorporated in reliance on
the report of Price Waterhouse SpA, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
104
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides:
(1) A corporation may indemnify any officer or director from and
against any judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by him in an action, suit, investigation or
other proceeding to which he is, was, or is threatened to be a party;
provided that it is determined by the board of Directors, a committee
thereof, special legal counsel, or a majority of the stockholders that such
officer or director: (a) acted in good faith; (b) reasonably believed that
his conduct was in the best interest of the corporation or was, in some
circumstances, not opposed to the corporations' interest, and (c) in a
criminal case, had no reasonable cause to believe his conduct was unlawful.
Such indemnity is limited to the reasonable expenses actually incurred in
matters as to which the officer or director is found liable to the
corporation or is found liable on the basis that a personal benefit was
improperly received by him. No indemnification is permitted with respect to
any proceeding in which the officer or director is found liable for willful
or intentional misconduct in the performance of his duty to the
corporation.
(2) A corporation shall indemnify a director against reasonable
expenses incurred by him in connection with an action, suit, investigation,
or other proceeding to which he is, was, or was threatened to be a party if
he has been wholly successful in its defense.
(3) A corporation may advance an officer or director the reasonable
costs of defending an action, suit, investigation or other proceeding in
certain cases.
(4) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Article.
Article 7, Section 7.01 of the Registrant's Bylaws provides for
indemnification of directors and officers, and such Article 7, Section 7.01 is
hereby incorporated herein be reference.
The Registrant has purchased a directors and officers liability and
corporation reimbursement policy in the amount of $10,000,000 which, subject to
certain exceptions, protects the officers and directors of the Registrant
against liabilities arising from any claim for breach of duty, neglect, error,
misstatement, misleading statement, omission or other act attempted, committed
or allegedly committed by reason of the director or officer acting in such
capacity.
Article 302-7.06 of the Texas Miscellaneous Corporation Laws Act permits a
corporation to provide in its articles of incorporation that a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for an act or omission in the director's
capacity as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which the director
derived an improper personal benefit, or (iv) an act or omission for which
liability of a director is expressly provided by applicable statute.
Article Twelve of the Articles of Incorporation of the Registrant provides
that to the full extent that the Texas Miscellaneous Corporation Laws Act, as it
now exists or may hereafter be amended, permits the limitation or elimination of
the liability of directors, a director of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment to or repeal of such Article Twelfth shall not
adversely affect any right or protection of a director of the Registrant for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
II-1
<PAGE> 107
ITEM 21. EXHIBITS
The following instruments and documents are included as Exhibits to this
Registration Statement. Exhibits incorporated by reference are so indicated by
parenthetical information.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3(i) -- Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 4 to Form S-3 dated September
13, 1993)
3(ii) -- By-Laws of the Company (filed as Exhibit 3(ii) to Form
10-Q for the quarter ended June 30, 1996)
4.1* -- Indenture dated as of June 9, 1997 between the Company,
as issuer, and Fleet National Bank, as trustee
4.2* -- Registration Rights Agreement dated June 9, 1997 by and
between the Company and Bear, Stearns & Co. Inc.
4.3 -- Warrant Agreement -- Series A, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as Exhibit 4 of the Registrant's Annual Report on
Form 10-K for 1992).
4.4 -- Warrant Agreement Series B, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as Exhibit 4 of the Registrant's Annual Report on
Form 10-K for 1992).
4.5 -- Stock Registration Rights Agreement dated April 30, 1996
by and between the Company, a subsidiary of the Company
and the Wedco Shareholders Group, as defined (filed as
Exhibit 4.4 to Form S-4 dated May 15, 1996)
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Amended and Restated Business Loan Agreement dated
February 21, 1997 between the Registrant and Bank of
America, Texas, N.A. (filed as Exhibit 10 to Form 10-Q
dated May 14, 1997)
10.2 -- Substituted First Amendment to Amended and Restated
Business Loan Agreement by and between the Company and
Bank of America Texas, N.A. dated June 6, 1997 (filed as
Exhibit 10 to Form 10-Q dated August 14, 1997).
10.3** -- Second Amendment to Amended and Restated Business Loan
Agreement between the Registrant and Bank of America,
Texas, N.A. dated August 29, 1997.
10.4 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as
Exhibit B to the Registrant's Definitive Proxy Statement
dated April 27, 1987 for the Annual Meeting of
Shareholders).
10.5 -- 1993 Stock Option Plan for Non-Employee Directors of ICO,
Inc. (filed as Exhibit 99 to the Registrant's Form S-8
dated September 13, 1993).
10.6 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A
to Registrant's Definitive Proxy Statement dated June 24,
1994 for the Annual Meeting of Shareholders).
10.7 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 10,
1995 for the Annual Meeting of Shareholders).
10.8 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's definitive proxy statement dated August 29,
1996 for the Annual Meeting of Shareholders)
10.9 -- Willoughby International Stockholders Agreement dated
April 30, 1996 (filed as Exhibit 10.9 to Form S-4 dated
May 15, 1996).
10.10 -- Consulting Agreement -- William E. Willoughby (filed as
Exhibit 10.13 to Form S-4 dated May 15, 1996).
10.11 -- Salary Continuation Agreement -- William E. Willoughby
(filed as Exhibit 10.14 to Form S-4 dated May 15, 1996).
10.12 -- Addendum to Salary Continuation Agreement -- William E.
Willoughby (filed as Exhibit 10.15 to Form S-4 dated May
15, 1996).
</TABLE>
II-2
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.13 -- Non-Competition Covenant William E. Willoughby (filed as
Exhibit 10.11 to Form S-4 dated May 15, 1996).
10.14 -- Stockholders Agreement (respecting voting of shares of
certain former Wedco common shareholders) (filed as
Exhibit 10.21 to Form S-4 dated May 15, 1996).
10.15 -- Stockholders Agreement (respecting voting of shares of
certain ICO common shareholders) (filed as Exhibit 10.22
to Form S-4 dated May 15, 1996).
12.0** -- Ratio of Earnings to Fixed Charges
21.1** -- Subsidiaries of the Company
23.1** -- Consent of Price Waterhouse LLP
23.2** -- Consent of Coopers and Lybrand L.L.P.
23.3** -- Consent of Grant Thornton
23.4** -- Consent of Price Waterhouse SpA
23.5* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1* -- Power of Attorney
25.1** -- Statement of Eligibility of State Street Bank and Trust
Company
99.1** -- Form of Letter of Transmittal
</TABLE>
- ---------------
* Previously filed
** Filed herewith.
ITEM 22. UNDERTAKINGS
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 20 above, or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act 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 Company 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 Company will, unless, in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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 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 a
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.
II-3
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, the State of
Texas on October 3, 1997.
ICO, INC.
By: /s/ Sylvia A. Pacholder
----------------------------------------
Sylvia A. Pacholder
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ Sylvia A. Pacholder Chief Executive Officer, October 3, 1997
- --------------------------------------------------- President, Secretary & Director
Sylvia A. Pacholder (Principal Executive Officer)
/s/ Asher O. Pacholder Chairman of the Board, Chief October 3, 1997
- --------------------------------------------------- Financial Officer & Director
Asher O. Pacholder (Principal Financial Office)
/s/ Robin E. Pacholder Senior Vice President and General October 3, 1997
- --------------------------------------------------- Counsel; Director
Robin E. Pacholder
/s/ Jon C. Biro Senior Vice President and October 3, 1997
- --------------------------------------------------- Treasurer
Jon C. Biro (Principal Accounting Officer)
* Director October 3, 1997
- ---------------------------------------------------
William E. Cornelius
* Director October 3, 1997
- ---------------------------------------------------
James E. Gibson
* Director October 3, 1997
- ---------------------------------------------------
Walter L. Leib
* Director October 3, 1997
- ---------------------------------------------------
William J. Morgan
* Director October 3, 1997
- ---------------------------------------------------
George S. Sirusas
* Director October 3, 1997
- ---------------------------------------------------
John F. Williamson
* Director October 3, 1997
- ---------------------------------------------------
William E. Willoughby
* /s/ Sylvia A. Pacholder October 3, 1997
- ---------------------------------------------------
Attorney-in-fact
</TABLE>
II-4
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3(i) -- Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 4 to Form S-3 dated September
13, 1993)
3(ii) -- By-Laws of the Company (filed as Exhibit 3(ii) to Form
10-Q for the quarter ended June 30, 1996)
4.1* -- Indenture dated as of June 9, 1997 between the Company,
as issuer, and Fleet National Bank, as trustee
4.2* -- Registration Rights Agreement dated June 9, 1997 by and
between the Company and Bear, Stearns & Co. Inc.
4.3 -- Warrant Agreement -- Series A, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as Exhibit 4 of the Registrant's Annual Report on
Form 10-K for 1992).
4.4 -- Warrant Agreement Series B, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as to Exhibit 4 of the Registrant's Annual Report
on Form 10-K for 1992).
4.5 -- Stock Registration Rights Agreement dated April 30, 1996
by and between the Company, a subsidiary of the Company
and the Wedco Shareholders Group, as defined (filed as
Exhibit 4.4 to Form S-4 dated May 15, 1996)
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Amended and Restated Business Loan Agreement dated
February 21, 1997 between the Registrant and Bank of
America, Texas, N.A. (filed as Exhibit 10 to Form 10-Q
dated May 14, 1997)
10.2 -- Substituted First Amendment to Amended and Restated
Business Loan Agreement by and between the Company and
Bank of America Texas, N.A. dated June 6, 1997 (filed as
Exhibit 10 to Form 10-Q dated August 14, 1997).
10.3** -- Second Amendment to Amended and Restated Business Loan
Agreement between the Registrant and Bank of America,
Texas, N.A. dated August 29, 1997.
10.4 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as
Exhibit B to the Registrant's Definitive Proxy Statement
dated April 27, 1987 for the Annual Meeting of
Shareholders).
10.5 -- 1993 Stock Option Plan for Non-Employee Directors of ICO,
Inc. (filed as Exhibit 99 to the Registrant's Form S-8
dated September 13, 1993).
10.6 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A
to Registrant's Definitive Proxy Statement dated June 24,
1994 for the Annual Meeting of Shareholders).
10.7 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 10,
1995 for the Annual Meeting of Shareholders).
10.8 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's definitive proxy statement dated August 29,
1996 for the Annual Meeting of Shareholders)
10.9 -- Willoughby International Stockholders Agreement dated
April 30, 1996 (filed as Exhibit 10.9 to Form S-4 dated
May 15, 1996).
10.10 -- Consulting Agreement -- William E. Willoughby (filed as
Exhibit 10.13 to Form S-4 dated May 15, 1996).
10.11 -- Salary Continuation Agreement -- William E. Willoughby
(filed as Exhibit 10.14 to Form S-4 dated May 15, 1996).
10.12 -- Addendum to Salary Continuation Agreement -- William E.
Willoughby (filed as Exhibit 10.15 to Form S-4 dated May
15, 1996).
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.13 -- Non-Competition Covenant William E. Willoughby (filed as
Exhibit 10.11 to Form S-4 dated May 15, 1996).
10.14 -- Stockholders Agreement (respecting voting of shares of
certain former Wedco common shareholders) (filed as
Exhibit 10.21 to Form S-4 dated May 15, 1996).
10.15 -- Stockholders Agreement (respecting voting of shares of
certain ICO common shareholders (filed as Exhibit 10.22
to Form S-4 dated May 15, 1996).
12.0** -- Ratio of Earnings to Fixed Charges
21.1** -- Subsidiaries of the Company
23.1** -- Consent of Price Waterhouse LLP
23.2** -- Consent of Coopers and Lybrand L.L.P.
23.3** -- Consent of Grant Thornton
23.4** -- Consent of Price Waterhouse SpA
23.5* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1* -- Power of Attorney
25.1** -- Statement of Eligibility of State Street Bank and Trust
Company
99.1** -- Form of Letter of Transmittal
</TABLE>
- ---------------
* Previously filed
** Filed herewith.
<PAGE> 1
EXHIBIT 10.3
[BANK OF AMERICA LOGO]
AMENDMENT TO DOCUMENTS
================================================================================
SECOND AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
This Second Amendment to Amended and Restated Business Loan Agreement
(Receivables and Inventory) is entered into as of August 29, 1997, between Bank
of America Texas, N.A. ("Bank") and ICO, Inc. ("Borrower").
RECITALS
A. WHEREAS, Bank and Borrower have entered into that certain Amended and
Restated Business Loan Agreement (Inventory and Equipment) dated February 21,
1997, and amended on June 2, 1997 and June 6, 1997 (collectively the
"Agreement"); and
B. WHEREAS, Borrower and Bank desire to amend certain terms and
provisions of said Agreement as more specifically hereinafter set forth.
AGREED
NOW, THEREFORE, in consideration of the foregoing recitals and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower mutually agree to amend said Agreement as follows:
1. Paragraph 9.2(e) (Financial Information) of the Agreement is deleted
in its entirety.
2. Paragraph 9.3 (Tangible Net Worth) of the Agreement is amended in its
entirety to read as follows:
9.3 NET WORTH. To maintain on consolidated basis tangible net
worth equal to at least One Hundred Twenty Million and No/100
Dollars ($120,000,000.00), which amount shall be increased on
the last day of each fiscal year of the Borrower, beginning
September 30, 1998, by an amount equal to 25% of the positive
net income for such fiscal year.
"Net Worth" means the gross book value of the Borrower's
assets less total liabilities, including but not limited to
accrued and deferred income taxes, and any reserves against
assets.
This Amendment will become effective as of the date first written above,
provided that each of the following conditions precedent have been satisfied in
a manner satisfactory to Bank:
The Bank has received from the Borrower a duly executed original of
this Amendment.
Except as provided in this Amendment, all of the terms and provisions of the
Agreement and the documents executed in connection therewith shall remain in
full force and effect. All references in such other documents to the Agreement
shall hereafter be deemed to be references to the Agreement as amended hereby.
THIS WRITTEN AMENDMENT AND THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
1
<PAGE> 2
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as
of the date first written above.
BANK OF AMERICA TEXAS, N.A. ICO, INC.
/s/ VICTOR N. TEKELL /s/ JON C. BIRO
_________________________________ ____________________________________
Victor N. Tekell, Vice President Jon C. Biro, Treasurer
2
<PAGE> 1
EXHIBIT 12.0
ICO, INC.
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------------------------- ----------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997
------ ------- ------ ------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before
income taxes and
extraordinary items..... $ (462) $(2,001) $2,651 $6,357 $(1,692) $(9,123) $5,399 $ 8,775 $ 4,934
Undistributed income in
joint ventures.......... -- -- -- -- 80 80 43 14 14
------ ------- ------ ------ ------- ------- ------ ------- -------
Total Earnings
(Loss)........... (462) (2,001) 2,651 6,357 (1,772) (9,203) 5,356 8,761 4,920
------ ------- ------ ------ ------- ------- ------ ------- -------
Fixed Charges
Interest expense.......... 741 2,414 471 117 669 14,411 294 2,148 10,904
Portion of rental expense
which relates to
interest................ 279 523 502 536 590 590 443 560 560
------ ------- ------ ------ ------- ------- ------ ------- -------
Total fixed
charges.......... 1,020 2,937 973 653 1,259 15,001 737 2,708 11,464
------ ------- ------ ------ ------- ------- ------ ------- -------
Earnings (Loss) before
income taxes,
extraordinary items,
undistributed income in
joint ventures and fixed
charges................... $ 558 $ 936 $3,624 $7,010 $ (513) $ 5,798 $6,093 $11,469 $16,384
====== ======= ====== ====== ======= ======= ====== ======= =======
Ratio of earnings to fixed
charges(1)................ -- -- 3.7x 10.7x -- -- 8.3x 4.2x 1.4x
====== ======= ====== ====== ======= ======= ====== ======= =======
</TABLE>
- ---------------
(1) As a result of incurring a net loss for the fiscal years ended September 30,
1992, 1993, 1996, and pro forma 1996, earnings did not cover fixed charges
by $462,000, $2,001,000, $1,772,000 and $9,203,000, respectively.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Permian Enterprises, Inc.
Shearer Supply Ltd.
The Innovation Company, S.A. de C.V.
B&W Equipment Sales and Mfg., Inc.
Wedco Technology, Inc.
Wedco, Inc.
Wedco Manufacturing Systems, Inc.
Tri-Delta Technology, Inc.
Wedco A.G. (Switzerland)
Wedco Sales, Inc.
Wedco Design & Development, Inc.
Polymer Services, Inc.
Polymer Services of Indiana, Inc.
Bayshore Industrial, Inc.
ICO Europe B.V.
Wedco Holland B.V.
Wedco Technology U.K. Ltd.
Willoughby Engineering and Development Corporation A.B.
Rotec Chemicals Ltd.
Micronyl -- Wedco S.A.
Wedco Italy Srl
Verplast SpA
ICO Italy Srl
ICO Polymers
ICO Polymers U.K., Ltd.
ICO U.K., Ltd.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of ICO, Inc. of our
report dated December 20, 1996 appearing on page F-2 of ICO, Inc. Annual Report
on Form 10-K for the year ended September 30, 1996. We also consent to the
references to us under the headings "Experts" and "Selected Historical Financial
Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP
has not prepared or certified such "Selected Historical Financial Data."
/s/ PRICE WATERHOUSE LLP
Houston, Texas
September 29, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report, dated June 25, 1996, on our audits of the consolidated financial
statements of Wedco Technology, Inc. as of March 31, 1996 and 1995, and for the
years ended March 31, 1996, 1995 and 1994. We also consent to the reference to
our Firm under the caption "Experts" in such registration statement.
/s/ COOPERS AND LYBRAND L.L.P.
Princeton, New Jersey
September 29, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our report dated March 20, 1997 (except for Note
28 -- Subsequent Event as to which the date is April 29, 1997) accompanying the
financial statements of Rotec Chemicals Limited for the year ended December 31,
1996 included in form 8-K (File No. 001-08327, effective May 12, 1997) of ICO
Inc. which is incorporated by reference in this registration statement. We
consent to the incorporation by reference in the Registration Statement of the
aforementioned report and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON
Kettering, United Kingdom
September 30, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus part
of this registration Statement on Form S-4 of ICO, Inc. of our report dated
September 22, 1997 appearing in Amendment No. 1 to the Current Report on Form
8-K dated July 21, 1997. We also consent to the references to us under the
headings "Experts" and "Selected Historical Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse SpA has not prepared or
certified such "Selected Historical Financial Data."
PRICE WATERHOUSE SpA
/s/ LUIGI MANELLI
Luigi Manelli
(Partner)
September 29, 1997
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
---------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices) (Zip Code)
</TABLE>
JOHN R. TOWERS, ESQ. EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
ICO, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1619554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
11490 WESTHEIMER
SUITE 100
HOUSTON, TX 77077
(Address of principal executive offices) (Zip Code)
---------------------
10 3/8% SENIOR NOTES DUE 2007
(Title of indenture securities)
================================================================================
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Boston Corporation. (See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of ICO, Inc. (File No. 75-1619554) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of ICO, Inc. (File No. 75-1619554) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange Commission
as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of ICO, Inc. (File No. 75-1619554) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of ICO Inc. (File No.
75-1619554) and is incorporated herein by reference thereto.
1
<PAGE> 3
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 30th day of September, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ KATHY A. LARIMORE
---------------------------------------
Kathy A. Larimore
Assistant Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by ICO, Inc. of
its 10 3/8% Senior Notes due 2007, we hereby consent that reports of examination
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ KATHY A. LARIMORE
---------------------------------------
Kathy A. Larimore
Assistant Vice President
Dated: September 30, 1997
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
THOUSANDS OF
DOLLARS
------------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........ $ 1,665,142
Interest-bearing balances................................. 8,193,292
Securities.................................................. 10,238,113
Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and its Edge
subsidiary................................................ 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income.................. 4,936,454
Allowance for loan and lease losses....................... 70,307
Allocated transfer risk reserve........................... 0
Loans and leases, net of unearned income and allowances... 4,866,147
Assets held in trading accounts............................. 957,478
Premises and fixed assets................................... 380,117
Other real estate owned..................................... 884
Investments in unconsolidated subsidiaries.................. 25,835
Customers' liability to this bank on acceptances
outstanding............................................... 45,548
Intangible assets........................................... 158,080
Other assets................................................ 1,066,957
-----------
Total assets................................................ 33,450,737
===========
LIABILITIES
Deposits:
In domestic offices....................................... 8,270,845
Noninterest-bearing.................................... 6,318,360
Interest-bearing....................................... 1,952,485
In foreign offices and Edge subsidiary.................... 12,760,086
Noninterest-bearing.................................... 53,052
Interest-bearing....................................... 12,707,034
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge subsidiary........................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading
Liabilities............................................... 926,821
Other borrowed money........................................ 671,164
Subordinated notes and debentures........................... 0
Bank's liability on acceptances executed and outstanding.... 46,137
Other liabilities........................................... 745,529
Total liabilities........................................... 31,637,223
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............... 0
Common stock................................................ 29,931
Surplus..................................................... 360,717
Undivided profits and capital reserves/Net unrealized
holding gains (losses).................................... 1,426,881
Cumulative foreign currency translation adjustments......... (4,015)
Total equity capital........................................ 1,813,514
-----------
Total liabilities and equity capital........................ $33,450,737
===========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE> 1
EXHIBIT 99.1
ICO, INC.
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
10 3/8% SENIOR NOTES DUE 2007, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE")
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
STATE STREET BANK AND TRUST COMPANY
By Hand/Overnight Courier: By Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
4th Floor P.O. Box 778
Two International Place Boston, Massachusetts 02102-0078
Boston, Massachusetts 02110
By Facsimile:
(617) 664-5395
Confirm by Telephone:
(617) 664-5587
---------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated __________, 1997 (the "Prospectus") of ICO, Inc., a Texas corporation
(the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together describe the Company's offer (the "Exchange Offer") to exchange
its 10 3/8% Senior Notes due 2007, Series B (the "Exchange Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for a like principal amount of its issued and outstanding 10 3/8% Senior Notes
due 2007, Series A (the "Old Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension by oral or
written notice and will mail to the record holders of Old Notes an announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a holder of Old Notes if
original Old Notes, if available, are to be forwarded herewith or an Agent's
Message is to be used if delivery of Old Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering" and "Book-Entry Transfer." Holders of Old Notes whose Old Notes
are not immediately available, or who are unable to deliver their Old Notes and
all other documents required by this Letter of Transmittal to the Exchange
Agent on or prior to the Expiration Date, or who are unable to complete the
procedure for book-entry transfer on a timely
basis, must tender their Old Notes according to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery
<PAGE> 2
Procedures." See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) Exactly as Name(s)
Appear(s) on Old Notes
(Please Fill In, If Blank) Old Note(s) Tendered
- ---------------------------------------------------------------------------------------------------------------------------------
Aggregate Principal Principal
Registered Amount Represented by Amount
Number(s)* Note(s) Tendered**
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Old Notes will be deemed to have tendered the entire aggregate principal
amount represented by such Old Notes. All tenders must be in integral multiples of $1,000.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
--------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered holder(s) of Old Notes:
-----------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
<PAGE> 3
Window Ticket Number (if available):
-------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------------
Account Number (if delivered by book-entry transfer):
--------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent, the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the Exchange Notes issuable upon the exchange of
such tendered Old Notes, and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not participating in, and have no arrangement
with any person to participate in, the distribution of such Exchange Notes.
The undersigned specifically represent(s) to the Company that (i) any Exchange
Notes acquired in exchange for Old Notes tendered hereby are being acquired in
the ordinary course of business of the person receiving such Exchange Notes,
whether or not the undersigned, (ii) the undersigned is not participating in,
and has no arrangement with any person to participate in, the distribution of
Exchange Notes, and (iii) neither the undersigned nor any such other person is
an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company
or a broker-dealer tendering Old Notes acquired directly from the Company for
its own account.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account pursuant to
the Exchange Offer, the undersigned acknowledges that it or such other person
will deliver a prospectus in connection with any resale of such Exchange Notes.
The undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the SEC in the Morgan
Stanley Letter and similar SEC no-action letters, and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, in which case the registration statement
must contain the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
<PAGE> 4
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged, in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the Exchange Notes issued in
exchange for the Old Notes accepted for exchange and any Old Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in exchange
for the Old Notes accepted for exchange in the name(s) of, and return any Old
Notes not tendered or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered for exchange.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
<S> <C>
To be completed ONLY (i) if Old Notes in a To be completed ONLY if Old Notes in a principal
principal amount not tendered, or Exchange Notes amount not tendered, or Exchange Notes issued in
issued in exchange for Old Notes accepted for exchange for Old Notes accepted for exchange, are to be
exchange, are to be issued in the name of someone mailed or delivered to someone other than the
other than the undersigned, or (ii) if Old Notes undersigned, or to the undersigned at an address other
tendered by book-entry transfer which are not than that shown below the undersigned's signature.
exchanged are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility. Issue Mail or deliver Exchange Notes and/or Old Notes to:
Exchange Notes and/or Old Notes to:
Name: Name:
-------------------------------------------------- --------------------------------------------------
(Please Type or Print) (Please Type or Print)
------------------------------------------------------- -------------------------------------------------------
Address: Address:
----------------------------------------------- -----------------------------------------------
------------------------------------------------------- -------------------------------------------------------
(include Zip Code) (include Zip Code)
------------------------------------------------------- -------------------------------------------------------
(Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
<PAGE> 5
Book-Entry Transfer Facility Account Number:
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X
-----------------------------------------------------------------------------
X
-----------------------------------------------------------------------------
(Signature(s) of Registered Holders or Old Notes)
Dated ,1997
----------------------------------------------
(The above lines must be signed by the registered holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed bond
power from the registered holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Old Notes to which this Letter of Transmittal
relate are held of record by two or more joint holders, then all such holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.)
Name(s):
----------------------------------------------------------------------
(Please Type or Print)
Capacity:
---------------------------------------------------------------------
Address:
----------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
-----------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
---------------------------
(Authorized Signature)
------------------------------------------------------------------------------
(Title)
------------------------------------------------------------------------------
(Name of Firm)
------------------------------------------------------------------------------
(Address, Include Zip Code)
------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: ,1997
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or Agent's Message or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. The method of delivery of the tendered Old
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it
is recommended that the holder use an overnight or hand delivery service. In
all cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Old Notes should
be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and whose Old Notes are not immediately available or who cannot deliver
their Old Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date or who cannot
complete the procedure for book-entry transfer on a time basis and deliver an
Agent's Message, must tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(1) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers Inc., a commercial bank or a trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes,
the registration number(s) of such Old Notes and the total principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the Old Notes in
proper form for transfer (or a Book-Entry Confirmation) and any other documents
required hereby, must be deposited by the Eligible Institution with the
Exchange Agent within five business days after the Expiration Date; and (iii)
the certificates for all physically tendered shares of Old Notes, in proper
form for transfer (or Book-Entry Confirmation, as the case may be) and all
other documents required hereby are received by the Exchange Agent within five
business days after the Expiration Date.
Any holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Old Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a holder of Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such holder's name or obtain a properly completed bond power from
the registered holder.
4. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering holder should fill in the principal amount
tendered in the third column of the box entitled "Description of Old Notes
Tendered" above. The entire principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, then Old Notes
for the principal amount of Old Notes not tendered and Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted
for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and
Endorsements; Medallion Guarantee of Signatures. If this Letter of Transmittal
(or facsimile hereof) is signed by the record holder(s) of the Old Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal (or facsimile hereof) is signed by a
participant in the Book-Entry Transfer Facility, the signature must correspond
with the name as it appears on the security position listing as the holder of
the Old Notes.
<PAGE> 7
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the registered holder, the
said holder need not and should not endorse any tendered Old Notes, nor provide
a separate bond power. In any other case, such holder must either properly
endorse the Old Notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement
or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered holder or holders appears on the Old
Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered Old
Notes) and the Exchange Notes are to be issued directly to such registered
holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility,
deposited to such participant's account at such Book-Entry Transfer Facility)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal (or facsimile hereof)
must be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which Exchange Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered hereby, or if tendered Old Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by Internal Revenue Service.
(If withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Old Notes are registered in more than one name or are not
in the name of the actual owner, see the enclosed "Guidelines for Certification
of Taxpayer Identification Number of Substitute Form W-9" for information on
which TIN to report.
<PAGE> 8
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of the Company or its
counsel, be unlawful. The Company also reserves the absolute right to waive
any conditions of the Exchange Offer or defects or irregularities in tenders as
to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (includes this Letter of Transmittal and the
instructions hereto) shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Neither the Company,
the Exchange Agent nor any person shall be under any duty to give notification
of defects or irregularities with regard to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal
will be accepted.
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
<PAGE> 9
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
BOX AT RIGHT AND CERTIFY BY SIGNING AND OR Employer Identification Number
FORM W-9 DATING BELOW
------------------------------------
-----------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PART 2 -- Certification -- Under penalties of PART 3 --
perjury, I certify that:
(1) The number shown on this form is my correct Awaiting TIN [ ]
Taxpayer Identification Number (or I am waiting
for a number to be issued to me) and
(2) I am not subject to backup withholding either Please complete the
PAYER'S REQUEST FOR TAXPAYER because I have not been notified by the Certificate of Awaiting
IDENTIFICATION NUMBER (TIN) Internal Revenue Service ("IRS") that I am Taxpayer Identification
subject to backup withholding as a result of Number below.
failure to report all interest or dividends, or
the IRS has notified me that I am no longer
subject to backup withholding.
-----------------------------------------------------------------------------------
Certificate Instructions -- You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
SIGNATURE DATE , 1997
--------------------------------------------------- -------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number to the payor within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
, 1997
- ---------------------------- --------------------------
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 10
- --------------------------------------------------------------------------------
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States
citizen or resident (or I am signing for a foreign corporation, partnership,
estate or trust).
, 1997
- ---------------------------- --------------------------
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 11
ICO, INC.
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
10 3/8% SENIOR NOTES DUE 2007, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated __________, 1997, of
ICO, Inc., a Texas corporation (the "Company") and a related Letter of
Transmittal, which together constitute (the "Exchange Offer") relating to the
offer by the Company, to exchange its 10 3/8% Senior Notes due 2007, Series B
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 10 3/8% Senior Notes due 2007, Series A (the "Old
Notes"), upon the terms and subject to the conditions set forth in the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
We are the holder of record of Old Notes held by us for your own
account. A tender of such Old Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is
furnished to you for your information only and cannot be used by you to tender
Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Old Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations and warranties contained in the Letter of
Transmittal.
Very truly yours,
<PAGE> 12
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN
AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE
EXPIRATION DATE.
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1997 (the "Prospectus") of ICO, Inc., a Texas corporation (the
"Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its 10 3/8% Senior Notes due 2007, Series B (the "Exchange
Notes"), for all of its outstanding 10 3/8% Senior Notes due 2007, Series A
(the "Old Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Old Notes held by you for the account of
the undersigned.
The aggregate face amount of the Old Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$____________________ of the 10 3/8% Senior Notes due 2007, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX):
[ ] To TENDER the following Old Notes held by your for the
account of the undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE
TENDERED) (IF ANY): $_______________________.
[ ] NOT to TENDER any Old Notes held by you for the account
of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned by its signature below,
hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i)
the Exchange Notes acquired in exchange for Old Notes pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not the undersigned, (ii) the
undersigned is not participating in, and has no arrangement with any person to
participate in, the distribution of Exchange Notes within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and (iii) neither
the undersigned nor any such other person is an "affiliate" (within the meaning
of Rule 405 under the Securities Act) of the Company or a broker-dealer
tendering Old Notes acquired directly from the Company. If the undersigned is
a broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s):
-------------------------------------------------------------------
Name(s) (please print):
---------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Date:
---------------------------------------------------------------------------
<PAGE> 13
ICO, INC.
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS
FOR
TENDER OF ALL OUTSTANDING 10 3/8% SENIOR NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
10 3/8% SENIOR NOTES DUE 2007, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1997. UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the
offer by ICO, Inc., a Texas corporation (the "Company"), to exchange its 10
3/8% Senior Notes due 2007, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 10 3/8% Senior Notes
due 2007, Series A (the "Old Notes") upon the terms and subject to the
conditions set forth in the Company's Prospectus, dated __________, 1997, and
the related Letter of Transmittal (which together constitute the "Exchange
Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated __________, 1997;
2. Letter of Transmittal (together with accompanying
Substitute Form W-9 Guidelines);
3. Notice of Guaranteed Delivery;
4. Letter which may be sent to your clients for whose account
you hold Old Notes in your name or in the name of your nominee; and
5. Letter which may be sent from your clients to you with
such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the Exchange Notes acquired in exchange for
Old Notes pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
the holder, (ii) the holder is not participating in, and has no arrangement
with any person to participate in, the distribution of Exchange Notes within
the meaning of the Securities Act, and (iii) neither the holder nor any such
other person is an "affiliate" (within the meaning of Rule 405 under the
Securities Act) of the Company or a broker-dealer tendering Old Notes acquired
directly from the Company. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes, it acknowledges
that it will deliver a prospectus in connection with any resale of such
Exchange Notes.
The enclosed Letter to Clients contains an authorization by the
beneficial owners of the Old Notes for you to make the foregoing
representations.
The Company will not pay any fee or commission to any broker or dealer
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Old Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
ICO, INC.
<PAGE> 14
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
10 3/8% SENIOR NOTES DUE 2007, SERIES B
This form, or one substantially equivalent hereto, must be used by a
holder to accept the Exchange Offer of ICO, Inc., a Texas corporation (the
"Company"), and to tender 10 3/8% Senior Notes due 2007, Series A (the "Old
Notes") to the Exchange Agent pursuant to the guaranteed delivery procedures
described in "The Exchange Offer --Guaranteed Delivery Procedures" of the
Company's Prospectus, dated __________, 1997 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to
the Expiration Date (as defined below) of the Exchange Offer. Capitalized
terms used but not defined herein have the meanings ascribed to them in the
Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
By Hand/Overnight Courier: By Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
4th Floor P.O. Box 778
Two International Plaza Boston, Massachusetts 02102-0078
Boston, Massachusetts 02110
By Facsimile:
(617) 664-5395
Confirm by Telephone:
(617) 664-5587
----------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE IN THE BOX PROVIDED ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 15
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
Certificate Number(s) (if known) of Old Notes Aggregate Principal Amount Aggregate Principal Amount
or Account Number at the Book-Entry Facility Represented Tendered
- ------------------------------------------------- -------------------------- ---------------------------
<S> <C> <C>
</TABLE>
PLEASE SIGN AND COMPLETE
Names of Record Holders: Signatures:
------------------ ---------------------
Address:
---------------------------------- --------------------------------
- ------------------------------------------ Dated: ,1997
---------------------
Area Code and Telephone Numbers:
----------
- ------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Old Notes or on a security
position listing as the owner of Old Notes, or by person(s) authorized to
become holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 16
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17 Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Old Notes tendered hereby
in proper form for transfer (or confirmation of the book-entry transfer of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
described in the Prospectus under the caption "The Exchange Offer -- Book-Entry
Transfer" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, within three business days following the
Expiration Date.
Name of Firm:
-------------------------- -----------------------------------
(AUTHORIZED SIGNATURE)
Address:
-------------------------------
(INCLUDE ZIP CODE) Name:
--------------------------------
Title:
Area Code and Tel. Number: -------------------------------
(PLEASE TYPE OR PRINT)
- ---------------------------------------
Date: , 1997
--------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE> 17
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be received
by the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole risk
of the holder, and the delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedures, see
Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice
of Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Old Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in- fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and submit with the Letter of Transmittal
evidence satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus
may be directed to the Exchange Agent at the address specified in the
Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Exchange Offer.
