<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1996
REGISTRATION NO. 333-285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCCIDENTAL PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2869 95-4035997
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
10889 WILSHIRE BOULEVARD DONALD P. DE BRIER, ESQ.
LOS ANGELES, CALIFORNIA 90024 GENERAL COUNSEL
(310) 208-8800 OCCIDENTAL PETROLEUM CORPORATION
(ADDRESS, INCLUDING ZIP CODE, AND 10889 WILSHIRE BOULEVARD
TELEPHONE NUMBER, INCLUDING AREA CODE, OF LOS ANGELES, CALIFORNIA 90024
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (310) 443-6176
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
</TABLE>
------------------------
COPY TO:
JEROME L. COBEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this
Registration Statement becomes effective.
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. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
OCCIDENTAL PETROLEUM CORPORATION
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT
ON FORM S-4 AND PROSPECTUS
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page of Registration
Statement; Cross-Reference Sheet;
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....................... Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other Information............ Summary of Prospectus; Risk Factors;
Selected Historical Financial
Information of Occidental;
Comparative Per Share Data;
Comparative Market Prices and
Dividends; Projected Financial
Information of INDSPEC; Selected
Historical Financial Information of
INDSPEC
4. Terms of the Transaction.......................... Available Information; Summary of
Prospectus; Purpose of the
Transactions and the Exchange
Offers; The Exchange Offers;
Comparison of Rights of INDSPEC
Stockholders and Occidental
Stockholders; The Exchange
Agreement; The Voting Agreement;
The Enabling Agreement
5. Pro Forma Financial Information................... Not Applicable
6. Material Contacts With the Company Being
Acquired........................................ Purpose of the Transactions and the
Exchange Offers; The Exchange
Offers; Comparison of Rights of
INDSPEC Stockholders and Occidental
Stockholders; The Exchange
Agreement; The Voting Agreement;
The Enabling Agreement
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters... Not Applicable
8. Interests of Named Experts and Counsel............ Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities..................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants....... Available Information; Incorporation
of Certain Documents by Reference
11. Incorporation of Certain Information by
Reference....................................... Available Information; Incorporation
of Certain Documents by Reference
12. Information With Respect to S-2 or S-3
Registrants..................................... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants............... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies......... Not Applicable
16. Information With Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies................. Summary of Prospectus; Comparative
Market Prices and Dividends;
Business of INDSPEC; Selected
Historical Financial Information of
INDSPEC; Management's Discussion
and Analysis of Financial Condition
and Results of Operations;
Management of INDSPEC; Certain
INDSPEC Relationships and Related
Transactions; Principal INDSPEC
Stockholders; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited............................. Not Applicable
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange
Offer........................................... Available Information; Incorporation
of Certain Documents by Reference;
Purpose of the Transactions and the
Exchange Offers; Management of
INDSPEC; Certain INDSPEC
Relationships and Related
Transactions; Principal INDSPEC
Stockholders
</TABLE>
<PAGE> 4
PROSPECTUS
OCCIDENTAL PETROLEUM CORPORATION
OFFER TO EXCHANGE UP TO 1,257,782 SHARES OF COMMON STOCK OF
OCCIDENTAL PETROLEUM CORPORATION FOR UP TO 8,504 SHARES OF
CLASS A COMMON STOCK OF INDSPEC HOLDING CORPORATION
AND
OFFER TO EXCHANGE UP TO 4,362,599 SHARES OF COMMON STOCK OF
OCCIDENTAL PETROLEUM CORPORATION FOR EACH SHARE OF
CLASS B COMMON STOCK OF INDSPEC HOLDING CORPORATION
AND
ISSUANCE OF UP TO 200,000 SHARES OF COMMON STOCK OF
OCCIDENTAL PETROLEUM CORPORATION AS ADDITIONAL CONSIDERATION
THE EXCHANGE OFFERS AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON APRIL 23, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE").
SHARES WHICH ARE TENDERED PURSUANT TO THE EXCHANGE OFFERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFERS.
Occidental Petroleum Corporation, a Delaware corporation ("Occidental"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, (i) to exchange shares
of its common stock, par value $.20 per share ("Occidental Common Stock"), for
up to 8,504 shares of Class A Common Stock, par value $.01 per share ("Class A
Common Stock"), of INDSPEC Holding Corporation, a Delaware corporation
("INDSPEC") (the "Class A Exchange Offer"), and (ii) to exchange shares of
Occidental Common Stock for each share of Class B Common Stock, par value $.01
per share ("Class B Common Stock" and, together with the Class A Common Stock,
the "INDSPEC Common Stock"), of INDSPEC (the "Class B Exchange Offer" and,
together with the Class A Exchange Offer, the "Exchange Offers"). If more than
8,504 shares of Class A Common Stock are validly tendered in the Class A
Exchange Offer and not withdrawn prior to the Expiration Date, then, upon the
terms and subject to the conditions set forth in this Prospectus and the Letter
of Transmittal, Occidental will accept 8,504 shares of Class A Common Stock for
exchange on a pro rata basis.
Promptly following the expiration of the Exchange Offers, but subject to
certain conditions, Occidental will effect the exchange of shares of Occidental
Common Stock for shares of Class A Common Stock and Class B Common Stock
properly tendered and not withdrawn pursuant to the Exchange Offers (the
"Closing"). Occidental currently anticipates that the Closing will occur on the
third New York Stock Exchange trading day following the expiration of the
Exchange Offers.
The number of shares of Occidental Common Stock to be delivered in exchange
for each share of Class A Common Stock and Class B Common Stock accepted in the
Exchange Offers will be equal to (i) the quotient obtained by dividing $131
million by the total number of shares of Class A Common Stock and
(Text continued on the following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DESCRIPTION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY INDSPEC STOCKHOLDERS 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.
------------------------
The date of this Prospectus is March 27, 1996.
<PAGE> 5
(Continued from previous page)
Class B Common Stock outstanding or subject to issuance upon the exercise of
outstanding warrants and options, determined as of the date (the "Closing Date")
of the Closing, divided by (ii) the average of the last reported sales prices of
Occidental Common Stock on the New York Stock Exchange on each of the twenty
consecutive trading days ending on the fifth trading day prior to the Closing
Date (the "Occidental Common Stock Value"). Cash will be paid by Occidental in
lieu of issuing any fractional shares of Occidental Common Stock.
Upon the Closing of the Exchange Offers, Occidental will deliver to each
holder of shares of Class A Common Stock or options to purchase Class A Common
Stock that are not acquired by Occidental pursuant to the Exchange Offers,
whether or not tendered in the Exchange Offers, a pro rata portion of a number
of shares of Occidental Common Stock equal to $3 million divided by the
Occidental Common Stock Value (the "Additional Consideration"). Occidental has
agreed to pay the Additional Consideration to INDSPEC securityholders as
compensation for the redemption features of the Class A Common Stock. The
Federal income tax treatment of the Additional Consideration is subject to
uncertainty. See "The Exchange Offers -- Certain Federal Income Tax
Consequences."
If the Occidental Common Stock Value is less than $15, Occidental will not
be required to consummate the Exchange Offers unless INDSPEC elects to proceed
based on a deemed Occidental Common Stock Value of $15. If INDSPEC elects to
proceed with the Exchange Offers based on a deemed Occidental Common Stock Value
of $15, the Exchange Offers will be extended for at least ten business days from
the date that notice to such effect is first published or sent or given to
INDSPEC stockholders. INDSPEC stockholders who have tendered shares of INDSPEC
Common Stock pursuant to the Exchange Offers will be entitled to withdraw such
shares at any time prior to the Expiration Date, as so extended.
Assuming that (i) the 59,047 shares of INDSPEC Common Stock outstanding or
subject to issuance as of March 22, 1996, remain the only shares outstanding or
subject to issuance, and (ii) the Occidental Common Stock Value is equal to the
closing price of $25.625 per share for Occidental Common Stock on the New York
Stock Exchange on March 22, 1996, if the Closing were to occur on March 27,
1996, each share of Class A Common Stock and Class B Common Stock accepted in
the Exchange Offers would be exchanged for 86.58 shares of Occidental Common
Stock.
Upon consummation of the Exchange Offers, Occidental will own up to 38,000
shares of Class B Common Stock (including up to 8,504 shares of Class B Common
Stock which will have been converted from Class A Common Stock in accordance
with the INDSPEC Certificate of Incorporation), representing approximately 64%
of all INDSPEC shares outstanding, determined on a fully diluted basis, and 45%
of the voting power of all INDSPEC shares outstanding.
Pursuant to a Voting Agreement, dated as of November 10, 1995 (the "Voting
Agreement"), by and among INDSPEC, Roundtable Corp., a Delaware corporation
("Roundtable"), certain INDSPEC stockholders and the Roundtable stockholders,
the holders of 1,886 shares of Class A Common Stock and the holders of all
29,496 outstanding shares of Class B Common Stock, have agreed to tender such
shares to Occidental in the Exchange Offers. The Exchange Offers are subject to
certain conditions, including the performance of the Voting Agreement and the
Occidental Common Stock Value being at least $15. However, the Exchange Offers
are not conditioned upon any minimum number of shares of Class A Common Stock
being tendered for exchange (other than pursuant to the Voting Agreement). See
"The Exchange Offers -- Conditions to the Consummation of the Exchange Offers."
Assuming that (i) the Occidental Common Stock Value is $25.625 and (ii) the
Exchange Offers are fully subscribed, Occidental would issue an aggregate of
3,407,113 shares of Occidental Common Stock pursuant to the Exchange Offers and
as Additional Consideration, representing approximately 1% of the total number
of shares of Occidental Common Stock outstanding as of January 31, 1996.
Occidental Common Stock is listed and principally traded on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol "OXY."
This Prospectus also constitutes notice of the commencement of the Class A
Exchange Offer to the warrantholder under the Warrant Agreement, dated as of
April 20, 1989, pursuant to which warrants were issued that are exercisable to
purchase Class A Common Stock.
<PAGE> 6
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY INDSPEC OR OCCIDENTAL. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF INDSPEC OR OCCIDENTAL SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Occidental 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 statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Occidental with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
can also be inspected at the New York Stock Exchange (the "NYSE"), 20 Broad
Street, New York, New York 10005, and the Pacific Stock Exchange, 115 Sansome
Street, Suite 1104, San Francisco, California.
Occidental has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Such additional information is available for inspection
and copying at the offices of the Commission. Statements contained in this
Prospectus or in any document incorporated by reference herein as to the
contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to, or incorporated by reference
in, the Registration Statement, each such statement being qualified in all
respects by such reference.
A notice has been filed by Occidental with the Pennsylvania Securities
Commission which contains substantial additional information about the Exchange
Offers, which notice is available for inspection during business hours at the
principal offices of the Pennsylvania Securities Commission, 101 North Seventh
Street, Second Floor, Harrisburg, Pennsylvania 17102.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by Occidental with the Commission
pursuant to the Exchange Act (File No. 1-9210), are incorporated herein by
reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1994;
(ii) Quarterly Report on Form 10-Q for the quarterly periods ended March
31, 1995, June 30, 1995 and September 30, 1995;
(iii) Current Reports on Form 8-K, dated January 25, 1995, April 20, 1995,
June 27, 1995, July 20, 1995, August 18, 1995, October 18, 1995,
October 25, 1995, December 21, 1995 and January 24, 1996; and
i
<PAGE> 7
(iv) Registration Statement on Form 8-B, dated June 26, 1986 (as amended
by Form 8, dated December 22, 1986, Form 8, dated February 3, 1988,
Form 8-B/A, dated July 12, 1993, Form 8-B/A, dated March 18, 1994,
and Form 8-B/A, dated November 1, 1995).
All documents filed by Occidental pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination or expiration of the Exchange Offers shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that is
or is deemed to be incorporated by reference herein modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be deemed
to constitute a part of this Prospectus, except as so modified or superseded.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE, WITHOUT CHARGE, TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS HAS BEEN
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO OCCIDENTAL PETROLEUM CORPORATION,
10889 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024, ATTENTION: FREDERICK J.
GRUBERTH, VICE PRESIDENT AND TREASURER, TELEPHONE NUMBER (310) 208-8800. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
APRIL 16, 1996.
ii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary of Prospectus.......................... 1
Risk Factors................................... 7
Absence of Public Market..................... 7
Class A Common Stock Subject to Redemption;
Put Offer.................................. 7
Tax Treatment of Additional Consideration.... 7
Selected Historical Financial Information
of Occidental................................ 9
Comparative Per Share Data..................... 11
Comparative Market Prices and Dividends........ 12
Occidental................................... 12
INDSPEC...................................... 12
The Companies.................................. 13
INDSPEC...................................... 13
Occidental................................... 13
Purpose of the Transactions and the Exchange
Offers....................................... 13
Structure.................................... 13
Background................................... 14
Certain Aspects of the Transactions.......... 14
The Exchange Offers............................ 15
Exchange Offer Consideration................. 15
Additional Consideration..................... 15
Expiration Date; Extensions; Termination..... 16
Closing Date................................. 16
Withdrawal Rights............................ 17
Proration.................................... 17
Conditions to the Consummation
of the Exchange Offers..................... 17
Procedures for Tendering..................... 19
Treatment of Vested Options.................. 20
Correspondence; Requests for Information..... 20
Payment of Expenses.......................... 20
Opinion of Morgan Stanley.................... 21
Regulatory Approvals Required................ 24
Interests of Certain Persons in the Exchange
Offers..................................... 24
Management of INDSPEC After
the Exchange Offers........................ 26
No Appraisal Rights.......................... 26
Certain Federal Income Tax Consequences...... 26
Accounting Treatment......................... 27
ESOP Participation........................... 27
Projected Financial Information of INDSPEC..... 27
Comparison of Rights of INDSPEC Stockholders
and Occidental Stockholders.................. 29
Board of Directors........................... 30
Amendment of Certificate of Incorporation.... 30
Amendment of Bylaws.......................... 30
Nominations of Directors..................... 31
Stockholder Proposal Procedures.............. 31
Special Meetings of Stockholders............. 31
Directors' Liability......................... 31
Indemnification.............................. 32
Certain Voting Rights for Mergers............ 32
Cumulative Voting............................ 32
Removal of Directors......................... 32
Filling Vacancies on the Board of
Directors.................................. 32
Stockholder Action by Written Consent........ 32
Preferred Stock.............................. 33
Common Stock................................. 33
Redemption of Class A Common Stock........... 34
Occidental Rights............................ 36
The Exchange Agreement......................... 37
Representations and Warranties............... 37
Conduct of Business.......................... 38
No Solicitation of Acquisition Proposals..... 38
Expenses..................................... 39
Registration................................. 39
Indemnification and Insurance................ 39
<CAPTION>
PAGE
------
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Amendment.................................... 39
Termination.................................. 39
The Voting Agreement........................... 39
The Enabling Agreement......................... 40
Put Offer.................................... 40
Obligation to Sell Occidental Common Stock... 41
Tag-Along Rights............................. 41
Environmental Matters........................ 41
Funding Obligations.......................... 42
Treatment of Incentive Stock Options......... 42
Other Covenants.............................. 42
Business of INDSPEC............................ 43
INDSPEC...................................... 43
Products..................................... 43
Sales and Marketing.......................... 45
Competition.................................. 45
Raw Materials and Supplies................... 46
Distribution................................. 46
Customers.................................... 46
Research and Development..................... 46
Technology and Licensing..................... 47
Environmental Regulation..................... 47
Employees.................................... 48
Properties................................... 49
Legal Proceedings............................ 49
Selected Historical Financial Information
of INDSPEC................................... 50
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 51
Results of Operations........................ 51
Liquidity and Capital Resources.............. 54
Management of INDSPEC.......................... 56
Directors and Executive Officers of
INDSPEC.................................... 56
Executive Compensation....................... 58
Summary Compensation Table................... 58
Options/SAR Grants in Last Fiscal Year....... 59
Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR
Values..................................... 59
Pension Plan................................. 60
Pension Plan Table........................... 60
Compensation of Directors.................... 61
Employment and Other Agreements.............. 61
Certain INDSPEC Relationships and Related
Transactions................................. 62
Principal INDSPEC Stockholders................. 64
Legal Matters.................................. 65
Experts........................................ 65
Index to Financial Statements.................. F-1
Report of Independent Auditors................. F-2
INDSPEC Holding Corporation Consolidated
Balance Sheets............................... F-3
INDSPEC Holding Corporation Consolidated
Statements of Operations..................... F-4
INDSPEC Holding Corporation Consolidated
Statements of Common Stockholders' Equity.... F-6
INDSPEC Holding Corporation Consolidated
Statements of Cash Flows..................... F-7
INDSPEC Holding Corporation and Subsidiaries
Consolidated Condensed Statement of Cash
Flows........................................ F-8
INDSPEC Holding Corporation Notes to Financial
Statements................................... F-9
Annex I -- Agreement and Plan of
Share Exchange............................... I-1
Annex II -- Voting Agreement................... II-1
Annex III -- Enabling Agreement................ III-1
Annex IV -- Opinion of Morgan Stanley & Co.
Incorporated................................. IV-1
</TABLE>
iii
<PAGE> 9
SUMMARY OF PROSPECTUS
The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is intended only to highlight certain information
contained in this Prospectus. It is not intended to be complete in itself and is
qualified in its entirety by reference to the detailed information contained
elsewhere herein, the documents referred to herein and the Annexes hereto,
including the Agreement and Plan of Share Exchange attached hereto as Annex I.
As used herein, unless the context indicates otherwise, "INDSPEC" refers to
INDSPEC Holding Corporation and its subsidiaries, and "Occidental" refers to
Occidental Petroleum Corporation and its subsidiaries and affiliates. ALL
INFORMATION WITH RESPECT TO INDSPEC CONTAINED IN THIS PROSPECTUS HAS BEEN
PROVIDED TO OCCIDENTAL BY INDSPEC. INDSPEC STOCKHOLDERS ARE URGED TO READ THIS
PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
<TABLE>
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INDSPEC Holding Corporation........ INDSPEC Holding Corporation is a Delaware corporation.
411 Seventh Avenue, Suite 300 INDSPEC Chemical Corporation is the operating subsidiary
Pittsburgh, Pennsylvania 15219 of INDSPEC. INDSPEC believes that it is the largest
(412) 765-1200 producer of resorcinol in the world and the sole
commercial producer of resorcinol in the United States.
Resorcinol is a chemical used primarily as a bonding and
stiffening agent in the manufacture of tires and tread
rubber. In addition, resorcinol is used in the
manufacture of high performance wood adhesives,
ultraviolet light stabilizers, sunscreens, dyestuffs,
pharmaceuticals, agrichemicals, carbonless paper and
fire retardant plastic additives. See "The
Companies -- INDSPEC" and "Business of INDSPEC."
Occidental Petroleum Corporation... Occidental is a Delaware corporation that explores for,
10889 Wilshire Boulevard develops, produces and markets crude oil and natural
Los Angeles, California 90024 gas; engages in interstate and intrastate natural gas
(310) 208-8800 transmission and marketing; and manufactures and markets
a variety of basic chemicals, petrochemicals and
polymers and plastics. Occidental conducts its principal
operations through three subsidiaries: Occidental Oil
and Gas Corporation, MidCon Corp. and Occidental
Chemical Corporation. See "The Companies -- Occidental."
The Exchange Offers................ Occidental hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal, (i) to exchange
shares of Occidental Common Stock for up to 8,504 shares
of Class A Common Stock, and (ii) to exchange shares of
Occidental Common Stock for each share of Class B Common
Stock. See "The Exchange Offers."
Purpose of the Transactions and the
Exchange Offers.................. The Exchange Offers are part of a series of transactions
(the "Transactions") contemplated by an Agreement and
Plan of Share Exchange, dated as of November 10, 1995
(the "Exchange Agreement"), by and between Occidental
and INDSPEC, and an Enabling Agreement, dated as of
November 10, 1995 (the "Enabling Agreement"), by and
between Occidental and INDSPEC. The purpose of the
Transactions (including the Exchange Offers) is for
Occidental to acquire a significant interest in INDSPEC
and arrange for the possible acquisition, under certain
circumstances, of the interests in INDSPEC not initially
acquired by Occidental in the Exchange Offers pursuant
to (i) an offer (the "Put Offer") by Occidental to
exchange all outstanding shares of Class A Common Stock
for shares of Occidental Common Stock, or (ii) the
redemption (a "Redemption") of all outstanding shares of
Class A Common Stock for shares of Occidental Common
Stock. Occidental believes that its investment in
INDSPEC will
</TABLE>
1
<PAGE> 10
<TABLE>
<S> <C>
provide it with holdings in a specialty chemical
business that is complementary to Occidental's existing
chemical businesses. Occidental and INDSPEC structured
the Transactions to satisfy the following objectives:
(i) to facilitate the acquisition by Occidental of
substantially all of the INDSPEC Common Stock owned by
non-management and non-employee stockholders (primarily
Castle Harlan Partners II, L.P. ("CHPII") and certain
persons associated with CHPII), (ii) to provide some
immediate liquidity to INDSPEC's management and employee
stockholders through the Exchange Offers, and (iii) to
provide incentives for INDSPEC's management and employee
stockholders to improve INDSPEC's financial performance
and reduce its indebtedness through the timing, pricing
and other terms and conditions of the Put Offer and the
redemption provisions applicable to the Class A Common
Stock. See "Purpose of the Transactions and the Exchange
Offers." "The Exchange Offers," "Comparison of Rights of
INDSPEC Stockholders and Occidental
Stockholders -- Redemption of Class A Common Stock" and
"The Enabling Agreement -- Put Offer."
Exchange Offer Consideration....... The number of shares of Occidental Common Stock to be
delivered in exchange for each share of Class A Common
Stock and Class B Common Stock accepted in the Exchange
Offers will be equal to (i) the quotient obtained by
dividing $131 million by the total number of shares of
Class A Common Stock and Class B Common Stock
outstanding or subject to issuance upon the exercise of
all outstanding warrants and vested and unvested
options, determined as of the Closing Date, divided by
(ii) the Occidental Common Stock Value, which is the
average of the last reported sales price of Occidental
Common Stock on the New York Stock Exchange on each of
the twenty consecutive trading days ending on the fifth
trading day prior to the Closing Date. Cash will be paid
by Occidental in lieu of issuing any fractional shares
of Occidental Common Stock. If the Occidental Common
Stock Value is less than $15, Occidental will not be
required to consummate the Exchange Offers unless
INDSPEC elects to proceed based on a deemed Occidental
Common Stock Value of $15. Assuming that (i) the 59,047
shares of INDSPEC Common Stock outstanding or subject to
issuance as of March 22, 1996, remain the only shares
outstanding or subject to issuance, and (ii) the
Occidental Common Stock Value is equal to the closing
price of $25.625 per share for Occidental Common Stock
on the New York Stock Exchange on March 22, 1996, if the
Closing were to occur on March 27, 1996, each share of
Class A Common Stock and Class B Common Stock accepted
in the Exchange Offers would be exchanged for 86.58
shares of Occidental Common Stock. See "The Exchange
Offers -- Exchange Offer Consideration."
Additional Consideration........... On the Closing Date, Occidental will issue and deliver
to each holder of options to purchase shares of Class A
Common Stock (the "Retained Options") or shares of Class
A Common Stock (the "Retained Stock" and, together with
the shares of Class A Common Stock for which any
Retained Options are exercisable, the "Retained
Securities") that are not acquired by Occidental
pursuant to the Exchange Offers, whether or not tendered
in the
</TABLE>
2
<PAGE> 11
<TABLE>
<S> <C>
Exchange Offers, that number of shares of Occidental
Common Stock determined by multiplying (i) the number of
Retained Securities held by such holder by (ii) the
quotient obtained by dividing (a) $3 million divided by
the total number of Retained Securities held by all
holders, by (b) the Occidental Common Stock Value. Cash
will be paid by Occidental in lieu of issuing fractional
shares of Occidental Common Stock. See "The Exchange
Offers -- Additional Consideration." Occidental has
agreed to pay the Additional Consideration to holders of
Retained Securities as compensation for the redemption
features of the Class A Common Stock. The Federal income
tax treatment of the Additional Consideration is subject
to uncertainty. See "The Exchange Offers -- Certain
Federal Income Tax Consequences."
Opinion of Financial Advisor to
INDSPEC.......................... INDSPEC has engaged Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Castle Harlan, Inc. ("Castle
Harlan"), which acts as investment manager to CHPII, to
act as financial advisors in connection with the
Transactions. Morgan Stanley has advised INDSPEC's Board
of Directors that, as of the date of such opinion and
subject to the various considerations set forth therein,
the consideration to be received by the INDSPEC
stockholders pursuant to the Exchange Agreement (and
related documents) is, in the aggregate, fair from a
financial point of view to such stockholders. See "The
Exchange Offers -- Opinion of Morgan Stanley" and Annex
IV hereto.
Risk Factors....................... Occidental urges each INDSPEC stockholder to evaluate
carefully all information in this Prospectus, to consult
his or her investment and tax advisors and to make his
or her own decision whether to tender INDSPEC Common
Stock and, if so, the number of shares to tender, based
on such stockholder's financial position and
requirements. In deciding whether or not to tender
shares of INDSPEC Common Stock in the Exchange Offers,
INDSPEC stockholders should be aware that there is
currently no public market for the INDSPEC Common Stock.
The shares of INDSPEC Common Stock are restricted
securities under the Securities Act and applicable state
securities laws, and may not be resold unless they are
registered under the Securities Act and applicable state
securities laws or exemptions from such laws are
available. There can be no assurance as to when, if
ever, the Put Offer or a Redemption will occur.
Consequently, INDSPEC stockholders' ability to dispose
of shares of INDSPEC Common Stock, other than pursuant
to the Exchange Offers, is limited. The consideration
that would be received by INDSPEC stockholders in the
event of the Put Offer or a Redemption may be greater or
less, on a per share basis, than that received by
stockholders in the Exchange Offers, and such difference
could be material. See "Risk Factors."
Expiration of the Exchange
Offers........................... The Exchange Offers will expire at 12:00 midnight, New
York City time, on April 23, 1996, unless extended. The
Exchange Offers may be extended if certain unscheduled
events occur with respect to INDSPEC's Petrolia,
Pennsylvania production facility. In addition, if
INDSPEC elects to proceed with the Exchange Offers based
on a deemed Occidental Common Stock Value of $15, the
Exchange Offers will be extended for at least ten
business days
</TABLE>
3
<PAGE> 12
<TABLE>
<S> <C>
from the date that notice to such effect is first
published or sent or given to INDSPEC stockholders.
INDSPEC stockholders who have tendered shares of INDSPEC
Common Stock pursuant to the Exchange Offers will be
entitled to withdraw such shares at any time prior to
the Expiration Date, as so extended. See "The Exchange
Offers -- Expiration Date; Extensions; Termination."
Closing Date....................... Promptly following the Expiration Date, but subject to
certain conditions, Occidental will effect the exchange
of shares of Occidental Common Stock for shares of Class
A Common Stock and Class B Common Stock properly
tendered and not withdrawn pursuant to the Exchange
Offers. Occidental currently anticipates that the
Closing will occur on the third New York Stock Exchange
trading day following the Expiration Date. See "The
Exchange Offers -- Closing Date."
Withdrawal Rights.................. Tenders of shares of INDSPEC Common Stock made pursuant
to the Exchange Offers are irrevocable, except that
shares tendered pursuant to the Exchange Offers may be
withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for exchange by Occidental
pursuant to the Exchange Offers, may also be withdrawn
at any time after the expiration of 60 days from the
commencement of the Exchange Offers (May 26, 1996). See
"The Exchange Offers -- Withdrawal Rights."
Proration.......................... If more than 8,504 shares of Class A Common Stock are
validly tendered in the Class A Exchange Offer and not
withdrawn prior to the Expiration Date, then, upon the
terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal,
Occidental will accept 8,504 shares of Class A Common
Stock for exchange on a pro rata basis based on the
number of shares validly tendered by each stockholder.
Cash will be paid by Occidental in lieu of issuing any
fractional shares of Occidental Common Stock. See "The
Exchange Offers -- Proration."
Conditions to the Exchange
Offers........................... Pursuant to the Voting Agreement, the holders of 1,886
shares of Class A Common Stock and the holders of all
29,496 outstanding shares of Class B Common Stock have
agreed to tender such shares to Occidental in the
Exchange Offers. The Exchange Offers are subject to
certain conditions, including the performance of the
Voting Agreement and the Occidental Common Stock Value
being at least $15. However, the Exchange Offers are not
conditioned upon any minimum number of shares of Class A
Common Stock being tendered for exchange (other than
pursuant to the Voting Agreement). See "The Exchange
Offers -- Conditions to the Consummation of the Exchange
Offers" and "The Voting Agreement."
Procedures for Tendering........... To be tendered properly, either (i) certificates for
shares of INDSPEC Common Stock, or (ii) with respect to
vested options to purchase Class A Common Stock, a
properly completed Notice of Guaranteed Delivery duly
executed by INDSPEC, in either case, together with a
properly completed and duly executed Letter of
Transmittal (or facsimile thereof), and any other
documents required by the Letter of Transmittal must be
received by Occidental at the address set forth on the
back cover of this Prospectus prior to 12:00 midnight,
New York City time, on the Expiration
</TABLE>
4
<PAGE> 13
<TABLE>
<S> <C>
Date. See "The Exchange Offers -- Procedures for
Tendering" and "The Exchange Offers -- Treatment of
Vested Options."
Treatment of Vested Options........ Holders of vested options to purchase Class A Common
Stock ("Options") may participate in the Exchange Offers
by exercising such Options and tendering the shares of
Class A Common Stock received upon such exercise.
Alternatively, a holder of a vested Option may validly
tender shares of Class A Common Stock by delivery of a
properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with a
properly completed Notice of Guaranteed Delivery duly
executed by INDSPEC indicating that (i) the tendering
party is entitled to receive shares of Class A Common
Stock upon exercise of a vested Option, and (ii) INDSPEC
has received a properly completed and duly executed
Notice of Conditional Exercise exercising such Option
subject only to the condition that Occidental accept the
shares issuable thereunder in the Exchange Offers and
directing INDSPEC to deliver such shares directly to
Occidental upon notice of acceptance thereof from
Occidental. The Exchange Agreement provides that INDSPEC
may, to the extent that it is permitted to do so
pursuant to the terms of its indenture and senior credit
facility, provide to each holder of vested Options for
which the shares issuable upon exercise thereof are
accepted by Occidental in the Exchange Offers, as a
loan, the amount of the exercise price necessary to
exercise such vested Options. INDSPEC has indicated that
if it is able to make such loans, the Notice of
Conditional Exercise will also contain a Conditional
Note to be executed by the holders of such Options. See
"The Exchange Offers -- Treatment of Vested Options."
Payment of Expenses................ Tendering holders 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 INDSPEC Common Stock pursuant to the
Exchange Offers. Occidental will pay all transfer taxes
of tendering stockholders, other than certain applicable
taxes, in connection with the Exchange Offers. See "The
Exchange Offers -- Payment of Expenses."
Regulatory Approvals Required...... The Exchange Offers are subject to the completion of
certain governmental filings and the obtaining of
certain governmental approvals, including the
requirements of the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"), and
the rules and regulations thereunder, which provide that
certain transactions may not be consummated until
required information and materials have been furnished
to the Antitrust Division of the Department of Justice
(the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and certain waiting periods have
expired or been terminated. Occidental and INDSPEC filed
the required information and materials with the
Antitrust Division and the FTC, and the waiting period
expired on January 17, 1996. The Exchange Offers are
also subject to the Takeover Disclosure Law of the State
of Pennsylvania, pursuant to which Occidental has filed
a notice with the Pennsylvania Securities Commission.
See "The Exchange Offers -- Regulatory Approvals
Required."
</TABLE>
5
<PAGE> 14
<TABLE>
<S> <C>
No Appraisal Rights................ No appraisal rights will be available to INDSPEC
stockholders in connection with the Exchange Offers.
Certain Federal Income Tax Conse-
quences.......................... The receipt of Occidental Common Stock in exchange for
shares of Class A Common Stock or Class B Common Stock
pursuant to the Exchange Offers will be a taxable
transaction for Federal income tax purposes. However,
the Federal income tax treatment of the Additional
Consideration is subject to uncertainty. See "The Ex-
change Offers -- Certain Federal Income Tax
Consequences."
Trading Markets.................... Occidental Common Stock is listed and principally traded
on the New York Stock Exchange and the Pacific Stock
Exchange under the symbol "OXY." There is currently no
trading market for the Class A Common Stock or Class B
Common Stock. See "Comparative Market Prices and
Dividends" and "Certain Considerations."
Requests for Information........... All correspondence in connection with the Exchange
Offers and the Letter of Transmittal, including requests
for information or additional copies of this Prospectus,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal, should be
directed to Occidental at the address set forth on the
back cover page of this Prospectus. Requests for
additional information or additional copies of documents
may also be made by calling Occidental's toll-free
information number: (800) 699-5114. In addition, by
calling the toll-free information number, INDSPEC
stockholders may obtain the most recent closing price
for Occidental Common Stock on the New York Stock
Exchange and, after the close of business on April 19,
1996, the Occidental Common Stock Value to be used for
calculating the number of shares of Occidental Common
Stock to be delivered in exchange for each share of
Class A Common Stock and Class B Common Stock in the
Exchange Offers (assuming an April 26, 1996 Closing).
See "The Exchange Offers -- Correspondence; Requests for
Information."
</TABLE>
6
<PAGE> 15
RISK FACTORS
Occidental urges each INDSPEC stockholder to evaluate carefully all
information in this Prospectus, to consult his or her investment and tax
advisors and to make his or her own decision whether to tender INDSPEC Common
Stock and, if so, the number of shares to tender, based on such stockholder's
financial position and requirements.
ABSENCE OF PUBLIC MARKET
In deciding whether or not to tender shares of INDSPEC Common Stock in the
Exchange Offers, INDSPEC stockholders should be aware that there is currently no
public market for the INDSPEC Common Stock. The shares of INDSPEC Common Stock
are restricted securities under the Securities Act and applicable state
securities laws, and may not be resold unless they are registered under the
Securities Act and applicable state securities laws or exemptions from such laws
are available. INDSPEC has no obligation to register such shares and INDSPEC has
indicated that a public offering of such shares is not contemplated.
Consequently, INDSPEC stockholders' ability to dispose of shares of INDSPEC
Common Stock, other than pursuant to the Exchange Offers, is limited.
CLASS A COMMON STOCK SUBJECT TO REDEMPTION; PUT OFFER
After the Exchange Offers have been completed, (i) Occidental may, under
certain circumstances, be required to commence the Put Offer, pursuant to which
it would exchange shares of Occidental Common Stock for shares of Class A Common
Stock and (ii) the shares of Class A Common Stock may, under certain
circumstances, be redeemed for shares of Occidental Common Stock pursuant to a
Redemption. However, there can be no assurance as to when, if ever, any such
exchange or redemption will occur. In the event of the Put Offer or a
Redemption, the value of shares of Occidental Common Stock to be received by
INDSPEC stockholders upon any such exchange or redemption will be based on a
formula specified in the Enabling Agreement (in the case of the Put Offer) or
the INDSPEC Certificate of Incorporation (in the case of a Redemption) and, in
each case, will depend upon certain factors, including the following: (i) the
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
INDSPEC for the 12 months immediately preceding the month in which such exchange
or redemption occurs; (ii) the amount of net debt and other liabilities of
INDSPEC as of the last day of the fiscal month immediately preceding the month
in which such exchange or redemption occurs; and (iii) the number of shares of
Class A Common Stock and Class B Common Stock outstanding or subject to issuance
upon the exercise of options and warrants. See "Comparison of Rights of INDSPEC
Stockholders and Occidental Stockholders -- Redemption of Class A Common Stock"
and "The Enabling Agreement -- Put Offer."
The consideration that would be received by INDSPEC stockholders in the
event of the Put Offer or a Redemption may be greater or less, on a per share
basis, than that received by stockholders in the Exchange Offers, and such
difference could be material. In particular, INDSPEC's EBITDA for any future
period and the amount of INDSPEC's net debt and other liabilities as of any date
in the future are subject to significant risk and uncertainty and may increase
or decrease.
TAX TREATMENT OF ADDITIONAL CONSIDERATION
The Federal income tax consequences of the receipt of shares of Occidental
Common Stock by holders of Retained Stock as Additional Consideration is subject
to uncertainty, particularly with respect to both the timing of income
recognition and the character of the income. The legal authorities that are
potentially applicable to the treatment of the receipt of the Additional
Consideration do not address facts and circumstances sufficiently analogous to
those pertaining to the Additional Consideration to provide definitive guidance
regarding the most appropriate treatment of the receipt of the Additional
Consideration. Accordingly, it is not possible for counsel to render an opinion
regarding the tax treatment that will apply to the Additional Consideration.
There is a substantial risk that the Internal Revenue Service will contend that
the receipt of shares of Occidental Common Stock may be treated as a fee for
consenting to the merger of Roundtable with and into INDSPEC and thus would,
upon receipt, be includible in income as ordinary
7
<PAGE> 16
income in an amount equal to the sum of the fair market value of such shares and
any cash received in lieu of fractional shares. There may, however, be
alternative tax consequences of the receipt of shares of Occidental Common Stock
as Additional Consideration. Holders of Retained Stock should consult their tax
advisors regarding such alternative tax consequences, including whether the
receipt of such shares (i) would give rise to capital gain rather than ordinary
income even if the receipt is treated as a payment for consent, (ii) would be
treated as exchanged for shares of Class A Common Stock, and (iii) would not be
currently includible in income but would be treated as part of an open
transaction that would close (i.e., be subject to tax) upon the sale,
disposition or redemption of such shares, or upon the lapse of Occidental's
rights pursuant to the INDSPEC Certificate of Incorporation to effectuate,
directly or indirectly, a Redemption. See "The Exchange Offers -- Certain
Federal Income Tax Consequences."
8
<PAGE> 17
SELECTED HISTORICAL FINANCIAL INFORMATION OF OCCIDENTAL
(IN MILLIONS, EXCEPT RATIOS)
The following selected historical financial information of Occidental and
its consolidated subsidiaries should be read in conjunction with Occidental's
Consolidated Condensed Financial Statements for the nine months ended September
30, 1995 and 1994, which are included in Occidental's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995, and Occidental's
Consolidated Financial Statements for the year ended December 31, 1994, which
are incorporated by reference in Occidental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, each of which reports is incorporated
herein by reference, and "Management's Discussion and Analysis" included in such
reports. The financial information for the years ended December 31, 1993, 1992,
1991 and 1990, reflects the coal business as a discontinued operation, and the
financial information for the year ended December 31, 1992 reflects the initial
adoption, effective as of January 1, 1992, of Statement of Financial Accounting
Standards (SFAS) No. 106 -- "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 109 -- "Accounting for Income Taxes." The
financial information for the years ended December 31, 1991 and 1990 also
reflects IBP, inc. ("IBP") as a discontinued operation. The information with
respect to the results of operations for the nine months ended, and the
financial position at, September 30, 1995 and 1994 is unaudited, but, in the
opinion of Occidental, reflects all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the consolidated results of
operations for, and the consolidated financial position at the end of, such
periods. The information with respect to the results of operations for the nine
months ended September 30, 1995 should not be regarded as necessarily indicative
of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------- -------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues:
Net sales and operating revenues.... $ 7,950 $ 6,672 $ 9,236 $ 8,116 $ 8,494 $ 9,498 $10,837
Interest, dividends and other
income............................ 78 62 92 347 446 199 242
Gains on asset dispositions, net.... 44 16 15 54 215 1,177 74
Income from equity investments...... 87 48 73 27 22 10 27
------- ------- ------- ------- ------- ------- -------
8,159 6,798 9,416 8,544 9,177 10,884 11,180
------- ------- ------- ------- ------- ------- -------
Costs and other deductions:
Cost of sales....................... 5,945 5,563 7,550 6,809 7,185 7,704 8,645
Selling, general and administrative
and other operating expenses...... 839 677 1,044 818 877 823 1,106
Restructuring charges............... -- -- -- -- -- 260 1,069
Environmental remediation charges... -- -- 4 18 42 149 713
Exploration expense................. 63 71 127 102 112 115 130
Interest and debt expense, net...... 436 434 584 580 640 864 898
Provision for domestic and foreign
income and other taxes............ 372 89 143 143 195 597 38
------- ------- ------- ------- ------- ------- -------
7,655 6,834 9,452 8,470 9,051 10,512 12,599
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations.......................... 504 (36) (36) 74 126 372 (1,419)
Discontinued operations, net.......... -- -- -- 221 (622) (55) (275)
Extraordinary gain (loss), net (1).... -- -- -- (12) (2) 143 (1)
Cumulative effect of changes in
accounting principles, net (2)...... -- -- -- -- (93) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... 504(3) (36)(4) (36)(4) 283(5) (591)(6) 460(7) (1,695)(8)
Preferred dividend requirements....... (70) (56) (76) (39) (3) (7) (7)
------- ------- ------- ------- ------- ------- -------
Earnings (loss) applicable to common
stock............................... $ 434 $ (92) $ (112) $ 244 $ (594) $ 453 $(1,702)
======= ======= ======= ======= ======= ======= =======
Depreciation, depletion and
amortization expense................ $ 708 $ 660 $ 882 $ 892 $ 872 $ 793 $ 927
======= ======= ======= ======= ======= ======= =======
Common stock dividends................ $ 238 $ 233 $ 311 $ 305 $ 302 $ 299 $ 737
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges
(9)................................. 2.54 N/A(10) N/A(10) 1.41 1.30 1.70 N/A(10)
FINANCIAL POSITION (AT END OF PERIOD):
Total assets.......................... $17,446 $17,295 $17,989 $17,123 $17,877 $15,763 $18,202
Senior funded debt, net............... 5,271 5,682 5,823 5,728 5,452 5,478 6,033
Subordinated debt, net................ -- -- -- -- -- -- 1,324
Capital lease liabilities, net........ 269 298 291 319 354 379 60
Preferred stock, common stock and
other stockholders' equity.......... 4,699 4,307 4,457 3,958 3,440 4,340 4,114
</TABLE>
9
<PAGE> 18
- ---------------
(1) The total year 1993, 1992 and 1990 extraordinary losses each resulted from
the early extinguishment of debt. The total year 1991 net extraordinary
gain included a gain of $252 million from the income tax benefit arising
from the application of net operating and capital loss carryforwards,
partially offset by losses of $109 million resulting from the early
extinguishment of debt.
(2) During the fourth quarter of 1992, Occidental adopted SFAS No. 106 and No.
109, effective as of January 1, 1992. The cumulative effect of these
accounting changes on prior years was a net charge of $93 million, which
consisted of a $513 million charge resulting from the adoption of SFAS No.
106 and a $420 million benefit resulting from the adoption of SFAS No. 109.
(3) The 1995 results included pretax charges of $109 million for settlement of
litigation.
(4) The total year 1994 results included pretax charges of $148 million for
environmental and litigation matters and plant closure. Included in these
charges for the nine months ended September 30 was $18 million for a plant
closure reserve.
(5) The total year 1993 results included after-tax benefits of $85 million
resulting from a reversal of foreign tax reserves following the settlement
of tax matters with foreign jurisdictions relating to the disposition of
certain international oil and gas assets in 1991 and the net benefit of a
$154 million reduction in contract impairment reserve at MidCon Corp. The
total year results also included an after-tax benefit of $221 million,
reported as discontinued operations, for the reversal of reserves no longer
required and for recognizing the effect of the sale of the coal business.
(6) The total year 1992 results included a $622 million after-tax charge and
loss from operations related to the discontinued coal operation and a $93
million net charge for changes in accounting principles. These charges were
partially offset by pretax gains of $75 million from the receipt of a
contingent payment related to the 1985 sale of a subsidiary that owned one
half of Occidental's Colombian operations and $128 million from a sale of
12 million Common Shares of Canadian Occidental Petroleum Ltd. The total
year results also included the net benefit of a $209 million reduction in
the contract impairment reserve at MidCon Corp.
(7) The total year 1991 results included net gains of $642 million from major
asset sales, which included Occidental's sale of the U.K. North Sea
interest and the disposition of IBP, partially offset by charges of $466
million for asset value adjustments, environmental remediation, severance
costs and accelerated amortization of original issue discount on a portion
of debt subsequently retired.
(8) In the fourth quarter of 1990, Occidental recorded charges of $2.169
billion, which included charges for restructuring of $1.369 billion, of
which $300 million is reflected in discontinued operations, environmental
remediation charges of $620 million, asset impairment write-offs of $150
million and other charges of $30 million, as part of a restructuring
program announced in January 1991.
(9) Earnings are based on Occidental's consolidated income from continuing
operations, before taxes on income (other than foreign oil and gas taxes)
and before fixed charges. Combined fixed charges consist of interest and
debt expense, including the proportionate share of interest and debt
expense of 50 percent-owned unconsolidated companies, the portion of lease
rentals representative of the interest factor, preferred dividends to
minority stockholders of subsidiaries adjusted to a pretax basis.
(10) For the nine months ended September 30, 1994 and the years ended December
31, 1994 and 1990, earnings were inadequate to cover combined fixed charges
by $19 million, $1 million and $1.547 billion, respectively.
10
<PAGE> 19
COMPARATIVE PER SHARE DATA
Set forth below are historical net income per share, book value per share
and dividend per share data of Occidental and INDSPEC. The information presented
in the table should be read in conjunction with the separate historical
financial statements of Occidental and INDSPEC and the notes thereto appearing
elsewhere herein or incorporated herein by reference.
OCCIDENTAL PETROLEUM CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Primary earnings (loss) per share of common stock.............. $ 1.37 $(0.36)
Book value per common share.................................... $ 10.60 $ 9.88
Dividends per common share..................................... $ 0.75 $ 1.00
</TABLE>
INDSPEC HOLDING CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1995 1995
------------ ----------
<S> <C> <C>
Net income per share of common stock............................ $ 92.17 $ 79.61
Book value per common share..................................... $ 305.20 $ 212.94
Dividends per common share...................................... $ 0.00 $ 0.00
</TABLE>
11
<PAGE> 20
COMPARATIVE MARKET PRICES AND DIVIDENDS
OCCIDENTAL
Occidental Common Stock is listed and principally traded on the New York
Stock Exchange and the Pacific Stock Exchange under the symbol "OXY."
The following table sets forth the high and low sales prices of Occidental
Common Stock, and cash dividends declared thereon, for the periods indicated.
The quotations are as reported in published financial sources.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
Calendar Quarters -- 1994
First Quarter.......................................... 19 1/8 16 1/8 .25
Second Quarter......................................... 20 15 1/8 .25
Third Quarter.......................................... 22 3/8 18 3/4 .25
Fourth Quarter......................................... 22 18 3/8 .25
Calendar Quarters -- 1995
First Quarter.......................................... 22 18 .25
Second Quarter......................................... 24 3/8 21 1/4 .25
Third Quarter.......................................... 23 7/8 21 1/8 .25
Fourth Quarter......................................... 23 1/2 20 1/8 .25
Calendar Quarters -- 1996
First Quarter (through March 22, 1996)................. 26 1/4 20 1/8 .25
</TABLE>
On March 22, 1996, the closing price per share of Occidental Common Stock
on the New York Stock Exchange was $25 5/8.
INDSPEC
There is currently no trading market for INDSPEC Common Stock and no
dividends have ever been paid. INDSPEC's senior credit facility with Bankers
Trust Company, as Agent (the "Senior Credit Facility") and Indenture with United
States Trust Company, as Trustee, with respect to INDSPEC Chemical Corporation's
11 1/2% Senior Subordinated Discount Notes due 2003 (the "Indenture") currently
restrict INDSPEC's ability to pay dividends.
12
<PAGE> 21
THE COMPANIES
INDSPEC
INDSPEC Holding Corporation is a Delaware corporation. INDSPEC Chemical
Corporation ("Chemical") is the wholly owned operating subsidiary of INDSPEC.
INDSPEC believes that it is the largest producer of resorcinol in the world and
the sole commercial producer of resorcinol in the United States. Resorcinol is a
chemical used primarily as a bonding and stiffening agent in the manufacture of
tires and tread rubber. In addition, resorcinol is used in the manufacture of
high performance wood adhesives, ultraviolet light stabilizers, sunscreens,
dyestuffs, pharmaceuticals, agrichemicals, carbonless paper and fire retardant
plastic additives. See "Business of INDSPEC." INDSPEC's principal executive
offices are located at 411 Seventh Avenue, Pittsburgh, Pennsylvania 15219
(telephone (412) 765-1200).
OCCIDENTAL
Occidental explores for, develops, produces and markets crude oil and
natural gas; engages in interstate and intrastate natural gas transmission and
marketing; and manufactures and markets a variety of basic chemicals,
petrochemicals and polymers and plastics. Occidental conducts its principal
operations through three subsidiaries: Occidental Oil and Gas Corporation,
MidCon Corp. and Occidental Chemical Corporation. Occidental's principal
executive offices are located at 10889 Wilshire Boulevard, Los Angeles,
California 90024 (telephone (310) 208-8800).
PURPOSE OF THE TRANSACTIONS AND THE EXCHANGE OFFERS
The purpose of the Transactions (including the Exchange Offers) is for
Occidental to acquire a significant interest in INDSPEC and arrange for the
possible acquisition, under certain circumstances, of the interests in INDSPEC
not initially acquired by Occidental in the Exchange Offers pursuant to the Put
Offer or a Redemption. Occidental believes that its investment in INDSPEC will
provide it with holdings in a specialty chemical business that is complementary
to Occidental's existing chemical businesses. Occidental and INDSPEC structured
the Transactions to satisfy the following objectives: (i) to facilitate the
acquisition by Occidental of substantially all of the INDSPEC Common Stock owned
by non-management and non-employee stockholders (primarily CHPII, and certain
persons associated with CHPII), (ii) to provide some immediate liquidity to
INDSPEC's management and employee stockholders through the Exchange Offers and
(iii) to provide incentives for INDSPEC's management and employee stockholders
to improve INDSPEC's financial performance and reduce its indebtedness through
the timing, pricing and other terms and conditions of the Put Offer and the
redemption provisions applicable to the Class A Common Stock.
STRUCTURE
The first step in the Transactions was the merger (the "Merger") of
Roundtable with and into INDSPEC, with INDSPEC as the surviving corporation. The
Merger became effective on March 26, 1996 (the "Effective Date"). The second
step in the Transactions is the Exchange Offers, which are described in this
Prospectus and the accompanying Letter of Transmittal. The last major step in
the Transactions, if it occurs, would be the Put Offer or a Redemption.
PUT OFFER. The Enabling Agreement obligates Occidental to commence an offer
to exchange shares of Occidental Common Stock for shares of Class A Common Stock
if certain conditions are satisfied, including (i) the expiration of at least
three years after the Closing Date and (ii) INDSPEC's Net Debt (as defined in
the Enabling Agreement) having been reduced to less than $80 million (or such
greater amount as may be determined after the Closing Date by the Board of
Directors). The number of shares of Occidental Common Stock to be exchanged for
each share of Class A Common Stock in the event of a Put Offer will be based on
a formula specified in the Enabling Agreement. Occidental may terminate the Put
Offer upon the occurrence of a Threshold Redemption (as defined below). See "The
Enabling Agreement -- Put Offer."
REDEMPTION. INDSPEC's Certificate of Incorporation, as amended and restated
in connection with the Merger (the "INDSPEC Certificate"), provides for the
redemption, under certain circumstances, of shares of
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Class A Common Stock for shares of Occidental Common Stock. The Class A Common
Stock is subject to redemption for shares of Occidental Common Stock (i) upon
INDSPEC's receipt of a written notice from Occidental at any time on or after
the fifth anniversary of the Closing Date and on or before the seventh
anniversary of the Closing Date (the "Notice Redemption") or (ii) if Occidental
acquires 67% or more of the total number of shares of Class A Common Stock and
Class B Common Stock then outstanding (determined on a fully diluted basis but
excluding any shares acquired pursuant to the Put Offer), or if a number of
shares of Class A Common Stock have been tendered pursuant to the Put Offer such
that, upon the acquisition of such shares, Occidental would own 67% or more of
the total number of shares of Class A Common Stock and Class B Common Stock then
outstanding (determined on a fully diluted basis) (the "Threshold Redemption").
The number of shares of Occidental Common Stock to be exchanged for each share
of Class A Common Stock in the event of a Notice Redemption or a Threshold
Redemption will be based on a formula specified in the INDSPEC Certificate. See
"Comparison of Rights of INDSPEC Stockholders and Occidental
Stockholders -- Redemption of Class A Common Stock."
BACKGROUND
On March 28, 1995, INDSPEC engaged a financial advisor regarding a possible
sale of the company. Occidental was one of a number of possible buyers that were
identified and contacted by INDSPEC's financial advisor. On August 15, 1995,
Occidental delivered a proposal to INDSPEC with respect to the negotiation of a
transaction involving INDSPEC and Occidental. Over the next two months,
Occidental conducted due diligence, and the parties negotiated the terms of the
proposed transaction. On November 10, 1995, INDSPEC and Occidental entered into
the Exchange Agreement and the Enabling Agreement, which provide for the
Transactions, including the Exchange Offers.
CERTAIN ASPECTS OF THE TRANSACTIONS
In connection with the Exchange Offers, Occidental will acquire up to
38,000 shares of Class B Common Stock (including up to 8,504 shares that will
have been automatically converted from Class A Common Stock pursuant to the
INDSPEC Certificate) in exchange for up to 5,620,381 shares of Occidental Common
Stock (the actual number of shares to be based on the Occidental Common Stock
Value). If the Exchange Offers are fully subscribed, Occidental will acquire
approximately 64% of all INDSPEC shares outstanding, determined on a fully
diluted basis, and 45% of the voting power of all INDSPEC shares outstanding. As
the only holder of Class B Common Stock, Occidental will be entitled to elect
all three of INDSPEC's Class B Directors, but none of the three Class A
Directors. Prior to the Conversion Date (as defined in the INDSPEC Certificate),
all actions to be taken by INDSPEC's Board of Directors will generally require
the vote of at least five directors. See "Comparison of Rights of INDSPEC
Stockholders and Occidental Stockholders." Under certain circumstances, (i) the
INDSPEC Certificate will enable Occidental to cause a Redemption of the
outstanding Class A Common Stock and (ii) the Enabling Agreement will obligate
Occidental to commence the Put Offer. See "The Enabling Agreement -- Put Offer."
All of the shares of Class B Common Stock properly tendered in the Exchange
Offers will be exchanged for Occidental Common Stock. Upon completion of the
Exchange Offers, CHPII will no longer own any shares of INDSPEC Common Stock
and, therefore, will not participate in any increase or decrease in value of
INDSPEC Common Stock that may be realized in the future. The other holders of
Class B Common Stock will continue to own INDSPEC Common Stock only to the
extent that such persons also own shares of Class A Common Stock. See "Principal
INDSPEC Stockholders." These stockholders will receive the same consideration in
the Transactions with respect to their shares of Class A Common Stock as persons
who are not associated with CHPII.
Holders of Class A Common Stock, including all INDSPEC stockholders who are
not associated with CHPII, will only be entitled to exchange, in the aggregate,
up to 8,504 shares of Class A Common Stock, representing approximately 33% of
the shares outstanding, determined on a fully diluted basis, in the Exchange
Offers. See "Interests of Certain Persons in the Exchange Offers -- Different
Classes of Stock; Treatment in the Exchange Offers." In addition to the shares
of Occidental Common Stock received in exchange for shares of INDSPEC Common
Stock, INDSPEC securityholders remaining after the Exchange
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<PAGE> 23
Offers have been completed will receive, as Additional Consideration, up to an
aggregate of 200,000 shares of Occidental Common Stock (the actual number of
shares to be based on the Occidental Common Stock Value). Shares of Class A
Common Stock that remain outstanding after the Exchange Offers have been
completed will, under certain circumstances, be subject to Redemption in
exchange for Occidental Common Stock, and eligible for exchange, at the option
of the holder, for shares of Occidental Common Stock if Occidental commences the
Put Offer. The consideration that would be received by INDSPEC stockholders in
the event of a Redemption or the Put Offer may be greater or less, on a per
share basis, than that received by INDSPEC stockholders in the Exchange Offers.
In connection with the Transactions, certain officers of INDSPEC will enter
into new employment agreements, intended to provide incentives for such officers
to remain with INDSPEC through December 31, 2000 or the Conversion Date (if
earlier). See "Interests of Certain Persons in the Exchange Offers -- Employment
Agreements" and "Management of INDSPEC -- Employment and Other Agreements."
Except for such employment arrangements, INDSPEC officers will be treated the
same in the Transactions as other INDSPEC stockholders who are not associated
with CHPII.
THE EXCHANGE OFFERS
EXCHANGE OFFER CONSIDERATION
Occidental hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, (i) to
exchange shares of Occidental Common Stock for up to 8,504 shares of Class A
Common Stock and (ii) to exchange shares of Occidental Common Stock for each
outstanding share of Class B Common Stock. The number of shares of Occidental
Common Stock to be delivered in exchange for each share of Class A Common Stock
and Class B Common Stock accepted in the Exchange Offers will be equal to (i)
the quotient obtained by dividing $131 million by the total number of shares of
Class A Common Stock and Class B Common Stock outstanding or subject to issuance
upon the exercise of all outstanding warrants and vested and unvested options,
determined as of the Closing Date, divided by (ii) the Occidental Common Stock
Value. If certain events with respect to the Occidental Common Stock (including
a dividend or recapitalization) occur during the twenty consecutive trading days
during which the Occidental Common Stock Value is determined, then the
Occidental Common Stock Value will be adjusted appropriately in a manner to be
determined by Occidental and consented to by INDSPEC. Cash will be paid by
Occidental in lieu of issuing any fractional shares of Occidental Common Stock.
If the Occidental Common Stock Value is less than $15, Occidental will not be
required to consummate the Exchange Offers unless INDSPEC elects to proceed
based on a deemed Occidental Common Stock Value of $15.
Assuming that (i) the 59,047 shares of INDSPEC Common Stock outstanding or
subject to issuance as of March 22, 1996, remain the only shares outstanding or
subject to issuance, and (ii) the Occidental Common Stock Value is equal to the
closing price of $25.625 per share for Occidental Common Stock on the New York
Stock Exchange on March 22, 1996, if the Closing were to occur on March 27,
1996, each share of Class A Common Stock and Class B Common Stock accepted in
the Exchange Offers would be exchanged for 86.58 shares of Occidental Common
Stock.
ADDITIONAL CONSIDERATION
On the Closing Date, Occidental will issue and deliver to each holder of
Retained Securities that number of shares of Occidental Common Stock determined
by multiplying (i) the number of Retained Securities held by such holder, by
(ii) the quotient obtained by dividing (a) $3 million divided by the total
number of Retained Securities held by all holders, by (b) the Occidental Common
Stock Value. Cash will be paid by Occidental in lieu of issuing fractional
shares of Occidental Common Stock. Occidental has agreed to pay the Additional
Consideration to holders of Retained Securities as compensation for the
redemption features of the Class A Common Stock. Assuming that (i) the 59,047
shares of INDSPEC Common Stock outstanding or subject to issuance as of March
22, 1996, remain the only shares outstanding or subject to issuance, (ii) the
Exchange Offers are fully subscribed, and (iii) the Occidental Common Stock
Value is equal to the closing
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<PAGE> 24
price of $25.625 per share for Occidental Common Stock on the New York Stock
Exchange on March 22, 1996, if the Closing were to occur on March 27, 1996,
Occidental would deliver to each holder of Retained Securities 5.56 shares of
Occidental Common Stock for each share of Class A Common Stock represented by
such Retained Securities. The Federal income tax treatment of the Additional
Consideration is subject to uncertainty. See "The Exchange Offers -- Certain
Federal Income Tax Consequences."
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Exchange Offers will expire at 12:00 midnight, New York City time, on
April 23, 1996, unless extended. In the event of any extension of the Exchange
Offers, the term "Expiration Date" shall mean the date on which the Exchange
Offers, as so extended, shall expire. Occidental will make a public announcement
of extension prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Without limiting the manner in
which Occidental may choose to make a public announcement of any extension,
amendment or termination of the Exchange Offers, Occidental shall have no
obligation to publicly advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
If any damage, destruction or other similar unplanned event (including an
unplanned event which occurs during a planned outage or maintenance) occurs that
results in the cessation of all or substantially all of the production at
INDSPEC's resorcinol production facility in Petrolia, Pennsylvania for a period
that exceeds, or is reasonably likely to exceed, 30 consecutive days, then the
Exchange Offers will be extended until the tenth business day after production
is resumed, but not beyond June 30, 1996. If INDSPEC elects to proceed with the
Exchange Offers based on a deemed Occidental Common Stock Value of $15, the
Exchange Offers will be extended for at least ten business days from the date
that notice to such effect is first published or sent or given to INDSPEC
stockholders. INDSPEC stockholders who have tendered shares of INDSPEC Common
Stock pursuant to the Exchange Offers will be entitled to withdraw such shares
at any time prior to the Expiration Date, as so extended.
Subject to the terms and provisions of the Exchange Agreement, Occidental
reserves the right to extend the Exchange Offers or to terminate the Exchange
Offers and not accept for exchange any shares of Occidental Common Stock not
previously accepted for exchange. Any such delay in acceptance for exchange,
extension or termination will be followed as promptly as practicable by public
announcement thereof. The rights reserved by Occidental in this paragraph are in
addition to Occidental's rights set forth under "Conditions to the Consummation
of the Exchange Offers" below.
CLOSING DATE
Promptly following the Expiration Date, but subject to certain conditions,
Occidental will effect the exchange of shares of Occidental Common Stock for
shares of Class A Common Stock and Class B Common Stock properly tendered and
not withdrawn pursuant to the Exchange Offers. Occidental currently anticipates
that the Closing will occur on the third New York Stock Exchange trading day
following the Expiration Date.
If any tendered shares of INDSPEC Common Stock are not accepted for
exchange because such shares were not tendered properly, the occurrence of
certain other events set forth herein or otherwise, certificates for any such
unexchanged shares of INDSPEC Common Stock will be returned, without expense, to
the tendering holder thereof promptly after the expiration or termination of the
Exchange Offers.
Occidental expressly reserves the right to seek to acquire INDSPEC Common
Stock in the future by means of privately negotiated acquisitions, subsequent
exchange or tender offers (including the Put Offer) or otherwise, at prices and
terms to be determined by Occidental, which prices or terms, depending on a
variety of circumstances that may exist at the time, may be higher or lower or
more or less favorable, as the case may be, than those in the Exchange Offers.
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<PAGE> 25
WITHDRAWAL RIGHTS
Tenders of shares of INDSPEC Common Stock made pursuant to the Exchange
Offers are irrevocable, except that shares tendered pursuant to the Exchange
Offers may be withdrawn at any time prior to the Expiration Date, and, unless
theretofore accepted for exchange by Occidental pursuant to the Exchange Offers,
may also be withdrawn at any time after the expiration of 60 days from the
commencement of the Exchange Offers (May 26, 1996). If Occidental extends the
period of time during which the Exchange Offers are open, is delayed in its
acceptance of shares of INDSPEC Common Stock for exchange or is unable to accept
shares of INDSPEC Common Stock for exchange pursuant to the Exchange Offers for
any reason, then, without prejudice to Occidental's rights under the Exchange
Offers, Occidental may retain all shares of INDSPEC Common Stock tendered, and
such shares of INDSPEC Common Stock may not be withdrawn except as otherwise
provided herein.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by Occidental at its address set forth below
and must specify the name of the person who tendered the shares of INDSPEC
Common Stock to be withdrawn and the number of shares of INDSPEC Common Stock to
be withdrawn precisely as it appears on the Letter of Transmittal.
OCCIDENTAL PETROLEUM CORPORATION
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Coordinator --
INDSPEC Exchange Offers
Telephone: (800) 699-5114
Facsimile: (310) 443-6737
If the shares of INDSPEC Common Stock to be withdrawn have been delivered
to Occidental, a signed notice of withdrawal must be submitted prior to the
release of such shares of INDSPEC Common Stock. In addition, such notice must
specify, in the case of shares of INDSPEC Common Stock tendered by delivery of
certificates, the name of the registered holder (if different from that of the
tendering stockholder) and the serial numbers shown on the particular
certificates evidencing the shares of INDSPEC Common Stock to be withdrawn.
Withdrawals may not be rescinded, and shares of INDSPEC Common Stock withdrawn
will thereafter be deemed not validly tendered for purposes of the Exchange
Offers. However, at any time prior to the Expiration Date, withdrawn shares of
INDSPEC Common Stock may be retendered by again following one of the procedures
described in "The Exchange Offers -- Procedures for Tendering."
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Occidental, in its sole
discretion, which determination shall be final and binding. Neither Occidental
nor any other person will be under any duty to give notification of any defect
or irregularity in any notice of withdrawal and neither Occidental nor any other
person shall incur any liability for failure to give any such notification.
PRORATION
If more than 8,504 shares of Class A Common Stock are validly tendered and
not withdrawn in the Exchange Offers prior to the Expiration Date, then, upon
the terms and subject to the conditions set forth in this Prospectus and the
Letter of Transmittal, Occidental will accept 8,504 shares of Class A Common
Stock for exchange on a pro rata basis based on the number of shares validly
tendered by each stockholder (with the trustee for the ESOP being treated as one
stockholder for these purposes). Cash will be paid by Occidental in lieu of
issuing any fractional shares of Occidental Common Stock.
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFERS
The obligation of Occidental to consummate the Exchange Offers will be
subject to the satisfaction or waiver, at or prior to the Closing Date, of
certain conditions, including the following: (i) the accuracy, as of the date of
the Exchange Agreement and, except in certain cases, as of the Closing Date, of
the representations and warranties of INDSPEC set forth in the Exchange
Agreement; (ii) INDSPEC's receipt
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<PAGE> 26
of agreements, in form and substance reasonably satisfactory to Occidental,
terminating or amending certain management, stockholder and other agreements;
(iii) Occidental's receipt of certain legal opinions; (iv) the accuracy, as of
the date of the Exchange Agreement and as of the Closing Date, of the
representations and warranties of all parties set forth in the Merger Agreement,
dated as of November 10, 1995 (the "Merger Agreement"), between Roundtable and
INDSPEC, and the Voting Agreement, and such parties' compliance with all
agreements set forth therein; (v) either (A) holders of at least 90% of the
shares of INDSPEC common stock outstanding immediately prior to the Merger shall
have voted in favor of, or consented to, the Merger, or (B) holders of less than
10% of the shares of INDSPEC common stock outstanding immediately prior to the
Merger shall be eligible for appraisal rights under Delaware law as a result of
the Merger; (vi) certain directors of INDSPEC having submitted resignations
effective as of the Closing Date; (vii) the average of the last sales prices of
Occidental Common Stock on the New York Stock Exchange on each of the 20
consecutive trading days ending on the fifth trading day prior to the Closing
Date (the "Valuation Period") being at least $15, or INDSPEC's election to
consummate the transactions contemplated by the Exchange Agreement based on a
deemed Occidental Common Stock Value of $15; (viii) the absence of any
requirement that Occidental consolidate in Occidental's consolidated financial
statements the results of operations of INDSPEC or any of its subsidiaries after
giving effect to the Exchange Offers; (ix) Occidental's receipt from INDSPEC of
audited financial statements for the period ended September 30, 1995; (x) the
consummation of the transactions contemplated by INDSPEC's Management Agreement
with Southern Ionics, Inc., dated April 1, 1995; (xi) Occidental's receipt of
comfort letters from INDSPEC's independent public accountants; (xii) the absence
of any ongoing damage or similar unplanned event that results in the cessation
of all or substantially all of the production at INDSPEC'S resorcinol production
facility in Petrolia, Pennsylvania for a period that exceeds, or is reasonably
likely to exceed, 30 days; (xiii) the amendment of INDSPEC'S incentive stock
option plans to provide that INDSPEC's Board of Directors will be authorized, as
of the Closing Date, to administer such plans; (xiv) the amendment, effective as
of the Closing Date, of the certificates of incorporation and bylaws of
INDSPEC's subsidiaries, to include provisions that are the same, or
substantially the same, as the provisions in INDSPEC's certificate of
incorporation and bylaws, other than provisions related to capitalization; (xv)
the completion of all filings required to be made with, and the receipt of all
consents, approvals, permits and authorizations required to be obtained from,
government authorities; (xvi) the effectiveness under the Securities Act of the
registration statements relating to the Occidental Common Stock to be issued in
the Transactions; the registration of the Occidental Common Stock covered by
such registration statements under applicable state securities laws; the absence
of any order suspending the effectiveness of such registration statements or any
post-effective amendments thereto; and the absence of any pending or threatened
proceeding for the issuance of such an order by the Commission or any securities
authority in any jurisdiction; (xvii) the termination or expiration of the
waiting period (and any extension thereof) applicable to the consummation of the
Exchange Offers under the HSR Act; (xviii) the absence of any temporary
restraining order, preliminary or permanent injunction or other order issued by
an governmental authority preventing the consummation of the Exchange Offers,
and the absence of any pending or threatened material litigation that challenges
the validity, legality or enforceability of the Exchange Agreement, the Merger
Agreement, the Voting Agreement or the Enabling Agreement or the transactions
contemplated thereby; (xix) the execution and delivery by certain INDSPEC
employees of an employment agreement or amendment to such employee's existing
employment agreement (see "Management of INDSPEC -- Employment and Other
Agreements"); (xx) the amendment of INDSPEC's Senior Credit Facility or waiver
of certain provisions thereof so that the Transactions do not constitute a
default thereunder; and (xxi) the absence, during the period beginning on the
first day of the Valuation Period and ending on the Closing Date, of (A) any
outbreak or escalation of hostilities involving the United States or (B) any
material adverse change in the financial markets of the United States, including
any general suspension of trading on the New York Stock Exchange or any
declaration of any banking moratorium by any of the federal, California or New
York government authorities, the effect of any of which events set forth in
either clause (A) or (B) is to make it, in the reasonable good faith judgment of
Occidental, impracticable to determine the Occidental Common Stock Value on a
fair basis because of general disruption of trading in equity securities listed
on the New York Stock Exchange. If an event specified in the foregoing clause
(xxi) occurs, the Valuation Period will be suspended and will recommence the day
after such event ceases to have the effects described in the preceding sentence.
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PROCEDURES FOR TENDERING
The participation by a holder of INDSPEC Common Stock in the Exchange
Offers pursuant to one of the procedures set forth below will constitute an
agreement between such holder and Occidental in accordance with the terms and
subject to the conditions set forth herein and in the accompanying Letter of
Transmittal.
To be tendered properly, either (i) certificates for shares of INDSPEC
Common Stock or (ii) with respect to vested Options, a properly completed and
duly executed Notice of Guaranteed Delivery, in either case, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), and any other documents required by the Letter of Transmittal, must be
received by Occidental at the address set forth on the back cover of this
Prospectus prior to 12:00 midnight, New York City time, on the Expiration Date.
Signatures on a Letter of Transmittal must be guaranteed unless the shares
of INDSPEC Common Stock tendered pursuant thereto are tendered by a registered
holder. In the event that signatures on a Letter of Transmittal are required to
be guaranteed, such guarantee must be by an Eligible Institution. An "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities dealer, municipal securities broker,
government securities dealer or government securities broker; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) savings institution that is a participant in a
Securities Transfer Association recognized program. A verification by a notary
public alone is not acceptable.
THE METHOD OF DELIVERY OF SHARES OF INDSPEC COMMON STOCK AND OTHER
DOCUMENTS TO OCCIDENTAL IS AT THE ELECTION AND RISK OF THE HOLDER. Mailing
should be made sufficiently in advance of the Expiration Date to permit delivery
to Occidental prior to 12:00 midnight, New York City time, on the Expiration
Date.
If the Letter of Transmittal is signed by a person other than a registered
holder of any certificate(s) listed, such certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name or names of the registered holder or holders appear on the certificate(s).
If the Letter of Transmittal or Notice of Guaranteed Delivery or any
certificates or stock 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 Occidental, proper evidence satisfactory to
Occidental of their authority so to act must be submitted.
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of tendered shares of INDSPEC Common Stock will be
resolved by Occidental, whose determination will be final and binding.
Occidental reserves the absolute right to reject any or all tenders that are not
in proper form or the acceptance of which would, in the opinion of counsel for
Occidental, be unlawful. Occidental also reserves the right to waive any
irregularities or conditions of tender as to particular shares of INDSPEC Common
Stock. Occidental's interpretation of the terms and conditions of the Exchange
Offers (including the instructions in the Letter of Transmittal) will be final
and binding. Unless waived, any irregularities in connection with tenders must
be cured within such time as Occidental shall determine. Occidental shall not be
under any duty to give notification of defects in such tenders and shall not
incur any liability for failure to give such notification. Tenders of shares of
INDSPEC Common Stock will not be deemed to have been made until such
irregularities have been cured or waived. Any shares of INDSPEC Common Stock
received by Occidental that are not properly tendered and as to which the
irregularities have not been cured or waived will be returned by Occidental to
the tendering holder unless otherwise provided in the Letter of Transmittal,
promptly following the Expiration Date.
If any certificate representing shares of INDSPEC Common Stock has been
destroyed, lost or stolen, the stockholder must (i) furnish to Occidental
evidence, satisfactory to it in its discretion, of the ownership of and the
destruction, loss or theft of such certificate, (ii) furnish to Occidental
indemnity, satisfactory to it in its discretion, and (iii) comply with such
other reasonable requirements as Occidental may prescribe.
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TREATMENT OF VESTED OPTIONS
Holders of vested Options may participate in the Exchange Offers by
exercising such Options and tendering the shares of Class A Common Stock
received upon such exercise. Alternatively, a holder of a vested Option may
validly tender shares of Class A Common Stock if prior to 12:00 midnight, New
York City time, on the Expiration Date, Occidental receives (i) a properly
completed Notice of Guaranteed Delivery duly executed by INDSPEC that (a) sets
forth the name and address of the tendering party, (b) sets forth the number of
shares tendered pursuant thereto, (c) indicates that (x) the tendering party is
entitled to receive shares of Class A Common Stock upon exercise of a vested
Option, and (y) INDSPEC has received a properly completed and duly executed
Notice of Conditional Exercise exercising such Option, subject only to the
condition that Occidental accept the shares issuable thereunder in the Exchange
Offers, and directing INDSPEC to deliver such shares directly to Occidental upon
notice of acceptance thereof from Occidental, and (d) guarantees that the
certificate(s) representing the shares of INDSPEC Common Stock will be deposited
by INDSPEC with Occidental at the Closing; and (ii) a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) and
any required signature guarantees, as well as all other documents required by
the Letter of Transmittal. The Letter of Transmittal permits the tendering party
to indicate the priority of acceptance of the shares it has tendered (among
certificated shares and shares issuable upon exercise of each vested Option) in
the event of proration.
The Exchange Agreement provides that INDSPEC may, to the extent that it is
permitted to do so pursuant to the terms of its Indenture and Senior Credit
Facility, provide to each holder of vested Options for which the shares issuable
upon exercise thereof are accepted by Occidental in the Exchange Offers, as a
loan, the amount of the exercise price necessary to exercise such vested
Options. INDSPEC's loan to each such holder will be evidenced by a promissory
note with a 30 day maturity and an interest rate equal to the lowest rate
necessary under applicable Federal tax law to avoid the accrual of imputed
interest income thereon. INDSPEC has indicated that if it is able to make such
loans, the Notice of Conditional Exercise will also contain a Conditional Note
to be executed by the holder of such Options. If INDSPEC determines not to make
such loans, it may amend the relevant stock option plans to permit the cashless
exercise of the Options on terms mutually acceptable to INDSPEC and Occidental.
CORRESPONDENCE; REQUESTS FOR INFORMATION
All correspondence in connection with the Exchange Offers and the Letter of
Transmittal, including requests for information or additional copies of this
Prospectus, the Letter of Transmittal or any other documents required by the
Letter of Transmittal, should be directed to Occidental at the address set forth
on the back cover page of this Prospectus. Requests for additional information
or additional copies of documents may also be made by calling Occidental's
toll-free information number: (800) 699-5114. In addition, by calling the
toll-free information number, INDSPEC stockholders may obtain the most recent
closing price for Occidental Common Stock on the New York Stock Exchange and,
after the close of business on April 19, 1996, the Occidental Common Stock Value
to be used for calculating the number of shares of Occidental Common Stock to be
delivered in exchange for each share of Class A Common Stock and Class B Common
Stock in the Exchange Offers (assuming an April 26, 1996 Closing).
PAYMENT OF EXPENSES
Occidental will pay all transfer taxes, if any, applicable to the transfer
and sale of INDSPEC Common Stock to it or its order pursuant to the Exchange
Offers. If, however, shares of Occidental Common Stock 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 INDSPEC Common Stock tendered hereby, or if tendered
certificates 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 transfer and sale of INDSPEC Common Stock to Occidental or
its order pursuant to the Exchange Offers, 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 herewith, the amount of such transfer taxes
will be billed directly to such tendering holder.
Occidental has not retained any dealer-manager, exchange agent, information
agent or similar soliciting agent in connection with the Exchange Offers.
However, INDSPEC has engaged Morgan Stanley and Castle
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Harlan to act as financial advisors in connection with the Transactions. Whether
or not the Exchange Offers are consummated or the Exchange Agreement is
terminated, Occidental and INDSPEC will each pay their respective costs and
expenses incurred in connection with the negotiation and preparation of the
Exchange Agreement and the consummation of the transactions contemplated
thereby; provided, that printing and mailing fees associated with the proxy
statement and registration statements prepared in connection therewith and the
prospectuses included therein (including this Prospectus) and fees incurred in
connection with the preparation of audited consolidated financial statements of
INDSPEC and its subsidiaries for the 12-month period ended September 30, 1995
will be paid equally by Occidental and INDSPEC. Notwithstanding the foregoing,
if the Exchange Offers are consummated, the fees of Morgan Stanley and the fees
and expenses of Castle Harlan will be paid by Occidental.
OPINION OF MORGAN STANLEY
In early 1995, INDSPEC requested that three investment banking firms make
presentations to INDSPEC in connection with an engagement to act as INDSPEC's
financial advisor in a proposed sale of, or business combination involving,
INDSPEC. After reviewing the presentations, on March 28, 1995, INDSPEC entered
into an engagement letter (the "Morgan Stanley Engagement") with Morgan Stanley,
engaging Morgan Stanley to act as INDSPEC's financial advisor. The INDSPEC Board
of Directors selected Morgan Stanley primarily because of its expertise in
transactions of this kind and its familiarity with the industry in which INDSPEC
operates. INDSPEC also engaged Castle Harlan to provide certain financial advice
and assistance of an investment banking nature. As part of the Morgan Stanley
Engagement, the INDSPEC Board of Directors requested that Morgan Stanley render
an opinion to the Board of Directors as to the fairness, from a financial point
of view, of the consideration to be received by holders of the Class A Common
Stock and the Class B Common Stock (collectively, the "INDSPEC Stockholders")
pursuant to the Exchange Agreement (and related documents), in the aggregate.
The Occidental Common Stock to be received pursuant to the Exchange Offers and
the Additional Consideration, and the Put Offer and the Redemption, are referred
to herein, in the aggregate, as the "Transaction Consideration."
On November 10, 1995, Morgan Stanley delivered to the INDSPEC Board of
Directors its written opinion that as of the date of such opinion and subject to
the various considerations set forth therein, the Transaction Consideration to
be received by the INDSPEC Stockholders is, in the aggregate, fair from a
financial point of view to such holders.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED NOVEMBER 10, 1995,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX IV TO THIS PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF INDSPEC COMMON STOCK ARE URGED TO,
AND SHOULD, READ THIS OPINION CAREFULLY IN ITS ENTIRETY. MORGAN STANLEY'S
OPINION IS DIRECTED ONLY TO THE INDSPEC BOARD OF DIRECTORS AND THE FAIRNESS OF
THE TRANSACTION CONSIDERATION TO BE RECEIVED BY THE INDSPEC STOCKHOLDERS, FROM A
FINANCIAL POINT OF VIEW TO SUCH HOLDERS, AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE EXCHANGE OFFERS NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER OR NOT TO EXCHANGE CLASS A COMMON STOCK OR CLASS B
COMMON STOCK IN THE EXCHANGE OFFERS. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information of INDSPEC's operating
subsidiary, INDSPEC Chemical Corporation; (ii) analyzed certain internal
financial statements and other financial and operating data concerning INDSPEC
prepared by the management of INDSPEC; (iii) analyzed financial projections
prepared by the management of INDSPEC; (iv) discussed the past and current
operations and financial condition and the prospects of INDSPEC with senior
executives of INDSPEC; (v) analyzed certain publicly available financial
statements and other information of Occidental; (vi) discussed the past and
current operations and financial condition and the prospects of Occidental with
senior executives of Occidental; (vii) reviewed the reported prices and trading
activity for Occidental Common Stock; (viii) compared certain financial
information of INDSPEC with the financial and trading performance of certain
comparable publicly traded companies and their
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securities; (ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions; (x) participated in discussions
and negotiations among representatives of INDSPEC and Occidental and their legal
advisors, as well as other potential purchasers of INDSPEC; (xi) reviewed the
Exchange Agreement and certain related documents; and (xii) performed other such
analyses as Morgan Stanley deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections (including management's estimates relating to capital
expenditures), Morgan Stanley assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of INDSPEC. With regard to potential environmental
liabilities, Morgan Stanley reviewed a 1993 environmental assessment update
prepared for INDSPEC Chemical Corporation, and did not conduct an independent
appraisal with respect to any environmental liabilities. Morgan Stanley's
opinion is necessarily made based on economic, market and other conditions as in
effect on, and the information made available to them as of, the date of the
opinion.
The following is a brief summary of the analyses performed by Morgan
Stanley and reviewed with the INDSPEC Board on November 10, 1995 in connection
with Morgan Stanley's opinion to the INDSPEC Board:
Discounted Cash Flow Analyses. Morgan Stanley performed discounted cash
flow analyses of INDSPEC for the fiscal years ending 1996 through 2000 based on
certain financial projections prepared by the management of INDSPEC. Unlevered
free cash flows of INDSPEC were calculated as net income plus depreciation,
amortization and other non-cash charges less capital expenditures and investment
in working capital, adjusted to exclude net interest expense and its associated
tax effects. Morgan Stanley calculated terminal values by using two
methodologies, including (i) applying a range of multiples (from 6.0x to 8.0x)
to projected earnings before interest, taxes, depreciation and amortization
("EBITDA") for the fiscal year ending March 31, 2000, and (ii) applying a range
of perpetual growth rates (from 2.0% to 4.0%) to the projected unlevered free
cash flow for the fiscal year ending March 31, 2000. The cash flow streams and
terminal values were then discounted to the present using a range of discount
rates from 12.0% to 14.0%. The present values were subsequently adjusted to
reflect the total debt of INDSPEC at September 30, 1995. Based on these
analyses, Morgan Stanley calculated a range of implied equity values for INDSPEC
from $930 to $3,617 per fully diluted share.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of INDSPEC with that of a group of
publicly traded chemical companies, including Morton International, Inc., Great
Lakes Chemical Corp., Nalco Chemical Co., The Lubrizol Corporation, Loctite
Corp., Ethyl Corp. and Betz Laboratories, Inc. (collectively, the "Specialty
Chemical Comparables") and M.A. Hanna Co., Cytec Industries, Inc., The Dexter
Corporation, H.B. Fuller Co. and Petrolite Corp. (collectively, the "Small Cap
Chemical Comparables"). Such financial information included a price to earnings
multiple, aggregate value to sales percentage, aggregate value to EBITDA
multiple and aggregate value to earnings before interest and income taxes
("EBIT") multiple. Morgan Stanley noted that, based on a compilation of earnings
projections by securities research analysts, the Specialty Chemical Comparables
traded at an average of 14.8 times 1995 forecasted earnings and 12.9 times 1996
forecasted earnings and the Small Cap Chemical Comparables traded at an average
of 14.3 times 1995 forecasted earnings and 12.3 times 1996 forecasted earnings.
Morgan Stanley also noted that, based on the last twelve months as of June 30,
1995, the aggregate values for the Specialty Chemical Comparables and the Small
Cap Chemical Comparables represented an average of (i) 177% of sales and 71% of
sales, respectively, (ii) 8.8 times EBITDA and 5.9 times EBITDA, respectively,
and (iii) 11.8 times EBIT and 9.2 times EBIT, respectively. Using the financial
information and forecasts provided by management of INDSPEC, Morgan Stanley
derived an implied public market trading range for INDSPEC based upon the
application of the average of the financial multiples from the Specialty
Chemical Comparables and Small Cap Chemical Comparables. This analysis indicated
that the implied public market trading range for INDSPEC would have been $601 to
$2,735 per fully diluted share.
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No company utilized in the comparable company analysis is identical to
INDSPEC. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of INDSPEC and other factors that could
affect the public trading value of the Specialty Chemical Comparables or Small
Cap Chemical Comparables or the company to which they are being compared.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the ratio of aggregate value to (i) the
latest twelve months sales, (ii) the latest twelve months EBITDA and (iii) the
latest twelve months EBIT, in each case, for the following six completed
transactions in the chemical industry: Witco Corporation's acquisition of OSi
Specialties Holding Co.; Monsanto Company's acquisition of the Kelco division of
Merck & Co.; Great Lakes Chemical Corporation's acquisition of certain
businesses of Enichem Synthesis SpA; CHPII's acquisition of its interest in
INDSPEC; English China Clays plc's acquisition of the specialty chemicals
businesses of Calgon Corporation (a subsidiary of Merck & Co.); and an affiliate
of Donaldson, Lufkin & Jenrette, Inc.'s acquisition of the organosilicon
division of Union Carbide Corporation. Based on an analysis of these
transactions, Morgan Stanley calculated (i) an average ratio of aggregate value
to latest twelve months sales of 158%, (ii) an average ratio of aggregate value
to latest twelve months EBITDA of 7.1x, and (iii) an average ratio of aggregate
value to latest twelve months EBIT of 10.8x. Such averages were applied to
INDSPEC's corresponding financial statistics to result in implied fully diluted
equity values per share of $770 to $2,888.
None of the transactions utilized in the analysis of selected precedent
transactions is identical to the Transactions contemplated by the Exchange
Agreement. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning the differences in
financial and operating characteristics of INDSPEC and other factors that could
affect the acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or median) is not itself
a meaningful method of using comparable transaction data.
Occidental Common Stock Performance. Morgan Stanley's analysis of
Occidental Common Stock performance consisted of a historical analysis of:
closing prices and trading volumes from October 1, 1990 to October 11, 1995; the
six months forward percentage change in Occidental Common Stock prices from
October 1, 1990 to April 14, 1995; and high and low prices in the twelve months
ended October 9, 1995. From October 1, 1990 to October 11, 1995, the Occidental
Common Stock traded in the range of $15.25 to $25.375 per share (based on its
daily closing prices during such time). From the period October 1, 1990 to April
14, 1995, the six months forward percentage change in Occidental Common Stock
prices ranged from 39.4% to (25.1)%. In the twelve months ended October 9, 1995,
the Occidental Common Stock reached a high of $24.125 per share and a low of
$18.25 per share (based on its daily closing prices during such time).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial or summary description. Morgan Stanley
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering the entirety of the analyses,
would create an incomplete view of the process underlying its opinion. In
addition, Morgan Stanley may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of INDSPEC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of INDSPEC and Occidental.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness from a financial point of view of the
Transaction Consideration to the INDSPEC Stockholders in the aggregate and were
reviewed with the INDSPEC Board in connection with the delivery of Morgan
Stanley's opinion dated November 10, 1995. The analyses do not purport to be
appraisals or to reflect the prices at which INDSPEC might actually be sold.
Because such estimates are inherently subject to uncertainty, none of INDSPEC,
Occidental, Morgan
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Stanley or any other person assumes responsibility for their accuracy. In
addition, as described above, Morgan Stanley's opinion and the information
provided by it to the INDSPEC Board were two of many factors taken into
consideration by the INDSPEC Board in making its determination to approve the
Transactions. Consequently, the Morgan Stanley analyses described above should
not be viewed as determinative of the INDSPEC Board's or INDSPEC management's
opinion with respect to the value of INDSPEC or of whether the INDSPEC Board or
INDSPEC management would have been willing to agree to different Transaction
Consideration.
The consideration to be received by the stockholders of INDSPEC pursuant to
the Transactions was determined through negotiations between INDSPEC and
Occidental and was approved by the INDSPEC Board. Morgan Stanley provided advice
to INDSPEC during the course of such negotiations, but did not make a
recommendation with respect to the form of or the amount of the Transaction
Consideration.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for estate, corporate and other purposes. In the ordinary course of
its business, Morgan Stanley and its affiliates may actively trade the debt
securities of INDSPEC or the debt and equity securities of Occidental for their
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. In the past, Morgan Stanley
has provided financial advisory and investment banking services to INDSPEC and
Occidental, for which services Morgan Stanley has received customary fees.
Pursuant to the Morgan Stanley Engagement, Morgan Stanley is entitled to an
advisory fee for its time and efforts expended in connection with the
engagement, estimated to be between $150,000 and $250,000, which is payable in
the event the transaction is not consummated, and a transaction fee of
approximately $2.3 million, which is payable upon consummation of the Exchange
Offers. The Morgan Stanley fee upon consummation of the Exchange Offers will be
paid by Occidental. INDSPEC has also agreed to reimburse Morgan Stanley for its
out-of-pocket travel and lodging expenses and to indemnify Morgan Stanley and
its affiliates against certain liabilities and expenses, including liabilities
under Federal securities laws.
REGULATORY APPROVALS REQUIRED
The Exchange Offers are subject to the requirements of the HSR Act, and may
not be consummated until required information and materials have been furnished
to the Antitrust Division of the Department of Justice and the FTC and certain
waiting periods have expired or been terminated. Occidental and INDSPEC filed
the required information and materials with the Antitrust Division and the FTC,
and the waiting period expired on January 17, 1996.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Exchange Offers. Moreover, the
expiration of the HSR Act waiting period does not preclude the Antitrust
Division or the FTC from challenging the Exchange Offers on antitrust grounds.
Accordingly, at any time before or after the Closing Date, either the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, or certain other persons could
take action under the antitrust laws, including seeking to enjoin the Exchange
Offers.
The Exchange Offers are also subject to the Takeover Disclosure Law of the
State of Pennsylvania, pursuant to which Occidental has filed a notice with the
Pennsylvania Securities Commission.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE OFFERS
DIFFERENT CLASSES OF STOCK; TREATMENT IN THE EXCHANGE OFFERS. The
stockholders of Roundtable included CHPII, certain persons associated with
CHPII, including Messrs. Dunphy and Siegal, who are all directors of INDSPEC,
and Mr. Frank M. Spinola, the President and a director of INDSPEC. In the
Merger, Roundtable stockholders received shares of Class B Common Stock in
exchange for their shares of Roundtable Common Stock. Stockholders that were not
holders of Roundtable Common Stock were not entitled to receive shares of Class
B Common Stock in the Merger. As a result of the receipt by stockholders
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of Roundtable of Class B Common Stock in the Merger, such stockholders are
entitled to exchange 100% of their 29,496 shares of Class B Common Stock in the
Exchange Offers. In contrast, in the Merger, INDSPEC stockholders other than
Roundtable received Class A Common Stock in exchange for their shares of INDSPEC
Common Stock and such stockholders are entitled to exchange not more than their
pro rata share of up to 8,504 shares, or approximately 33%, determined on a
fully diluted basis, of the shares of Class A Common Stock then expected to be
outstanding or subject to issuance upon the exercise of options (excluding
shares of Class A Common Stock that certain stockholders have agreed not to
tender in the Exchange Offers). See "The Exchange Offers -- Exchange Offer
Consideration" and "The Exchange Offers -- Proration."
Each former stockholder of Roundtable has agreed to tender in the Exchange
Offers (and not withdraw) all Class B Common Stock held by such stockholder in
exchange for Occidental Common Stock. As a result, CHPII and Messrs. Spinola,
Dunphy and Siegal will receive $58,463,993, $4,260,480, $1,233,764 and $68,789,
respectively, in value of Occidental Common Stock (see "The Exchange
Offers -- Exchange Offer Consideration" for a description of the valuation of
Occidental Common Stock in the Exchange Offers) in exchange for their holdings
of Class B Common Stock. CHPII and Mr. Dunphy will hold no shares of INDSPEC
following consummation of the Exchange Offers. Assuming that the Class A
Exchange Offer is fully subscribed and that he does not tender any Class A
Common Stock, Mr. Siegal will receive Occidental Common Stock in exchange for
55% of his aggregate holdings of shares, or options to acquire shares, of
INDSPEC, and will retain 25 shares or options to acquire shares of Class A
Common Stock. In connection with his participation in Roundtable, Mr. Spinola
agreed that he would not tender any of his Class A Common Stock in the Class A
Exchange Offer. Accordingly, Mr. Spinola will receive Occidental Common Stock in
exchange for 33% of his aggregate holdings of shares, or options to acquire
shares, of INDSPEC and will retain 3,753 shares, or options to acquire shares,
of INDSPEC.
Upon consummation of the Merger, all shares of INDSPEC held by Messrs.
Danner, Lee, Todd and Covelli were converted into Class A Common Stock. Mr.
Danner and Mr. Lee have agreed that they will tender (and not withdraw) all
shares of Class A Common Stock held by them in the Class A Exchange Offer.
Assuming that the Class A Exchange Offer is fully subscribed and assuming that
Mr. Todd and Mr. Covelli also tender all shares of Class A Common Stock held by
them, Messrs. Danner, Lee, Todd and Covelli will receive approximately
$1,852,643, $1,416,942, $245,310 and $1,197,261, respectively, in value of
Occidental Common Stock in the Class A Exchange Offer and will retain
approximately 1,695, 1,296, 224 and 1,095 shares, or vested Options to acquire
shares, respectively, of Class A Common Stock following consummation of the
Exchange Offers.
EMPLOYMENT AGREEMENTS. Prior to the Merger, INDSPEC terminated its previous
employment agreements (each, an "Old Employment Agreement") with Messrs.
Spinola, Danner, Lee and Covelli and entered into new employment agreements
(each, a "New Employment Agreement") with such executive officers. The
termination of the Old Employment Agreements and the effectiveness of the New
Employment Agreements is conditioned on, and occurs upon, the Closing of the
Exchange Offers. INDSPEC and Mr. Todd also entered into an amendment to Mr.
Todd's employment agreement, the effectiveness of which is conditioned on the
Closing of the Exchange Offers. Messrs. Spinola and Danner are officers and
directors of INDSPEC and Chemical. Mr. Lee is an officer of INDSPEC and
Chemical, and Messrs. Covelli and Todd are officers of Chemical. See "Management
of INDSPEC." The New Employment Agreements are substantially similar to the Old
Employment Agreements but expire upon the earlier of December 31, 2000 or the
Conversion Date, rather than December 2, 1996. The New Employment Agreements are
described under "Management of INDSPEC -- Employment and Other Agreements." Each
New Employment Agreement also provides for a change in the way that severance
benefits are calculated, which change may result in a severance payment that is
greater or lesser than that provided for pursuant to the Old Employment
Agreements depending upon the date on which employment is terminated. The
amendment to Mr. Todd's employment agreement provides, among other things, (i)
that if Mr. Todd tenders in the Exchange Offers all shares of Class A Common
Stock that he is entitled to receive upon exercise of vested Options and less
than all of such shares are accepted, Mr. Todd may surrender all of such Options
to INDSPEC in exchange for a payment of an amount equal to $1,768.57 multiplied
by the number of shares underlying such Options that were not acquired by
Occidental in the Exchange Offers, and (ii) in the event of Mr. Todd's
retirement after December 31, 1996, if
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Mr. Todd so elects, the surrender by Mr. Todd before June 30, 1997, under
certain circumstances of any remaining Options in consideration for the greater
of $2,218.57 per share or the aggregate dollar value per share of Occidental
Common Stock that would be received in a Put Offer if the date of surrender were
the Put Offer exchange date, minus the aggregate exercise price. The foregoing
amounts would be payable in cash or by delivery of a promissory note or shares
of Occidental Common Stock. See "Management of INDSPEC -- Employment and Other
Agreements."
INDEMNIFICATION AND INSURANCE. Under the Exchange Agreement, all rights to
indemnification and exculpation from liability for acts or omissions occurring
prior to the Closing existing in favor of the present or former directors,
officers or employees, as provided in the respective certificates of
incorporation or bylaws of INDSPEC or its subsidiaries or pursuant to other
agreements, will survive the Closing Date and continue in full force and effect
for a period of at least six years from the Closing Date. Occidental has also
agreed to cause INDSPEC to maintain, for a period of not less than six years
after the Closing Date, directors' and officers' insurance and indemnification
policies for INDSPEC. See "The Exchange Agreement -- Indemnification Insurance."
ADVISORY FEE TO CASTLE HARLAN. On March 7, 1995, INDSPEC entered into an
engagement letter with Castle Harlan, the investment manager to CHPII, pursuant
to which Castle Harlan agreed to provide certain financial advice and assistance
of an investment banking nature. In consideration for these services, INDSPEC
agreed that Castle Harlan would be entitled to reimbursement for its expenses
and, in the event that a sale or other business combination involving INDSPEC
should occur, Castle Harlan would be entitled to receive a fee of $1,250,000.
The agreement is terminable by INDSPEC at any time, but with a provision that
the right to receive fees extends for 18 months thereafter if a transaction
occurs with a party with which discussions were held during the period of the
agreement. Castle Harlan will be entitled to payment of the $1,250,000 fee upon
the closing of the Exchange Offers. This payment will be made by Occidental.
INDSPEC and Castle Harlan intend to enter into an agreement providing for the
satisfaction and release of the Castle Harlan engagement letter, effective as of
the closing date of the Exchange Offers, except for continuation of the
indemnification and contribution provisions of such engagement letter.
MANAGEMENT OF INDSPEC AFTER THE EXCHANGE OFFERS
Upon consummation of the Exchange Offers, it is expected that INDSPEC's
current officers will remain in their current positions. Subsequent to the
Closing Date, it is expected that INDSPEC's current Class A Directors (Messrs.
Spinola, Danner and Scorsone) will remain as Class A Directors and the current
Class B Directors (Messrs. Castle, Dunphy and Siegel) will resign. Occidental,
as the only holder of Class B Common Stock, will then be entitled to elect all
of the Class B Directors. See "Management of INDSPEC."
NO APPRAISAL RIGHTS
No appraisal rights will be available to INDSPEC stockholders in connection
with the Exchange Offers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of
the Exchange Offers to holders of INDSPEC Common Stock and is based on the
Federal income tax law now in effect, which is subject to change, possibly
retroactively. This summary does not discuss all aspects of Federal income
taxation which may be important to particular holders of INDSPEC Common Stock in
light of their individual investment circumstances, including holders who hold,
directly or indirectly, 10% or more of INDSPEC Common Stock, holders who
acquired their INDSPEC Common Stock pursuant to the exercise of Options or
otherwise as compensation, and certain types of holders subject to special tax
rules (e.g., financial institutions, broker-dealers, insurance companies,
tax-exempt organizations, and foreign taxpayers). In addition, this summary does
not address state, local or foreign tax consequences, nor does it address
specific tax consequences that may be applicable to holders of Options or
warrants to purchase INDSPEC Common Stock ("Warrants"). Stockholders are urged
to consult their tax advisors regarding the specific Federal, state, local, and
foreign income and other tax consequences of the Exchange Offers.
The receipt of Occidental Common Stock in exchange for shares of INDSPEC
Class A Common Stock or Class B Common Stock pursuant to the Exchange Offers
will be a taxable transaction for Federal income tax purposes. In general, a
holder of INDSPEC Common Stock will recognize gain or loss for Federal income
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tax purposes equal to the difference between (i) the sum of the fair market
value of the Occidental Common Stock received and any cash received in lieu of a
fractional share, and (ii) the holder's adjusted basis in the shares exchanged.
Assuming the shares exchanged constitute capital assets in the hands of the
holder, such gain or loss will be capital gain or loss and will be long-term
gain or loss if the holder has held the shares for more than one year at the
time of the sale. A holder who receives shares of Occidental Common Stock in
exchange for INDSPEC Common Stock will have a basis in the shares received equal
to the fair market value of such shares on the Closing Date, and the holding
period of such shares will begin on the day immediately following the Closing
Date.
The Federal income tax consequences of the receipt of shares of Occidental
Common Stock by holders of Retained Stock as Additional Consideration is subject
to uncertainty, particularly with respect to both the timing of income
recognition and the character of the income. The legal authorities that are
potentially applicable to the treatment of the receipt of the Additional
Consideration do not address facts and circumstances sufficiently analogous to
those pertaining to the Additional Consideration to provide definitive guidance
regarding the most appropriate treatment of the receipt of the Additional
Consideration. Accordingly, it is not possible for counsel to render an opinion
regarding the tax treatment that will apply to the Additional Consideration.
There is a substantial risk that the Internal Revenue Service will contend that
the receipt of shares of Occidental Common Stock may be treated as a fee for
consenting to the Merger and thus would, upon receipt, be includible in income
as ordinary income in an amount equal to the sum of the fair market value of
such shares and any cash received in lieu of fractional shares. There may,
however, be alternative tax consequences of the receipt of shares of Occidental
Common Stock as Additional Consideration. Holders of Retained Stock should
consult their tax advisors regarding such alternative tax consequences,
including whether the receipt of such shares (i) would give rise to capital gain
rather than ordinary income even if the receipt is treated as a payment for
consent, (ii) would be treated as exchanged for shares of Class A Common Stock,
and (iii) would not be currently includible in income but would be treated as
part of an open transaction that would close (i.e., be subject to tax) upon the
sale, disposition or redemption of such shares, or upon the lapse of
Occidental's rights pursuant to the Restated Certificate to effectuate, directly
or indirectly, a Redemption.
ACCOUNTING TREATMENT
Upon consummation of the Exchange Offers, Occidental intends to account for
its interest in INDSPEC using the equity method until such time as it owns more
than 50% of the aggregate voting power of both classes of INDSPEC common stock,
at which time Occidental intends to account for its interest using the purchase
method of accounting for business combinations.
ESOP PARTICIPATION
Pursuant to the terms of the ESOP, the trustee for the ESOP will determine
whether or not to tender the ESOP's shares of Class A Common Stock in the
Exchange Offers. Participants in the ESOP will not be entitled to direct the
trustee to tender such shares. The trustee for the ESOP will be treated as one
stockholder for purposes of proration in the Exchange Offers. See "The Exchange
Offers -- Proration."
PROJECTED FINANCIAL INFORMATION OF INDSPEC
In the course of discussions with Morgan Stanley and Occidental, INDSPEC
provided Morgan Stanley and Occidental with certain projected financial data for
the fiscal years ending March 31, 1996, 1997, 1998, 1999, and 2000. This data
was not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections, and is included
in this Prospectus only because it was provided to Morgan Stanley and
Occidental. INDSPEC's independent auditors have not examined, compiled or
applied any procedures with respect to this data and express no opinion or any
kind of assurance thereon. None of INDSPEC, Occidental or Morgan Stanley, or any
of their respective advisors, assumes any responsibility for the validity,
reasonableness, accuracy or completeness of this projected financial data. While
presented with
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<PAGE> 36
numerical specificity, this projected financial data is based on a variety of
assumptions relating to the business of INDSPEC (some of which are listed below)
which, although considered appropriate by INDSPEC, may not be realized.
Moreover, the data, and the assumptions upon which it is based, are subject to
significant uncertainties and contingencies, many of which are beyond the
control of INDSPEC. Consequently, this projected data and the underlying
assumptions are necessarily speculative in nature and inherently imprecise, and
there can be no assurance that projected financial results will be realized. It
is expected that there will be differences between actual and projected results
and actual results may vary materially from those shown. Neither INDSPEC nor
Occidental intends to update or otherwise revise this projected data. The
inclusion of the projections herein should not be regarded as an indication that
INDSPEC, Occidental or Morgan Stanley considers it an accurate prediction of
future results. INDSPEC stockholders are cautioned not to place undue reliance
on the projections, which should be read together with the other information
relating to the business, assets and financial condition of INDSPEC, and the
consolidated financial statements of INDSPEC, included herein. See "Business of
INDSPEC," "Selected Historical Financial Information of INDSPEC," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Index to Financial Statements." Set forth below is a summary of the projected
financial data prepared by INDSPEC in April 1995 and subsequently provided to
Morgan Stanley and Occidental.
<TABLE>
<CAPTION>
FOR THE YEAR ENDING MARCH 31,
------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $129.4 $137.9 $148.6 $175.7 $192.1
Operating expenses (excluding depreciation and
amortization)............................... 84.5 87.9 93.1 111.4 120.4
Depreciation and amortization................. 15.2 15.8 16.5 21.1 21.7
Operating profit.............................. 29.7 34.2 39.0 43.2 50.0
Interest expense and debt amortization
costs....................................... 18.2 17.3 17.2 14.5 15.4
Income taxes.................................. 4.8 7.0 8.2 11.6 15.9
Net income (before extraordinary items)....... 6.7 9.9 13.6 17.1 18.7
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Accounts receivable........................... $ 18.0 $ 19.2 $ 20.7 $ 24.4 $ 26.7
Inventory..................................... 16.4 17.5 18.8 22.3 24.3
Net fixed assets.............................. 99.9 126.5 130.0 121.1 111.5
Long-term debt (including current portion).... 158.7 165.2 150.6 127.1 127.1
</TABLE>
INDSPEC prepared the projected financial data in April 1995 based on the
following assumptions:
1. Global assumptions. The projections assume that no significant
technological, environmental or regulatory developments occur, of either a
favorable or unfavorable nature, that would affect INDSPEC's chemical
operations, although it is assumed that INDSPEC is successful in developing
hydroperoxidation technology for the production of resorcinol at a plant
(the "New Plant") to be constructed in the future. The projections assume
that no new competitive resorcinol plants (other than the New Plant) are
completed during the projection period. The projections also assume no
significant interruption of the operation of the Petrolia plant, or of its
significant suppliers or customers. It is assumed that worldwide economic
growth is 2.5% per year, inflation is 4% per year and that the value of the
U.S. Dollar remains stable with respect to other currencies throughout the
projection period. The projections do not take into account any of the
potential effects of the Transactions contemplated by the Exchange
Agreement, including the Merger and the Exchange Offers.
2. Net sales. It is assumed that INDSPEC will increase capacity at
its Petrolia plant from a proven capacity of 47 million pounds per year to
50 million pounds per year in fiscal 1996. The projections
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<PAGE> 37
assume that the New Plant is completed in fiscal 1999, and net sales for
that year include $23 million of additional revenue attributable to the New
Plant. However, completion of the New Plant is dependent on a number of
factors that are beyond the control of INDSPEC, as well as the successful
development of INDSPEC's new hydroperoxidation technology. As of March
1996, INDSPEC expects that the New Plant will be completed in fiscal 2000.
3. Operating expenses. Production costs, not including raw material
costs, are assumed to increase by 8% per year at the Petrolia plant until
the New Plant is completed and then are assumed to remain constant as
production is shifted to the New Plant. Raw material costs are assumed to
increase 26% in 1996 due to a 65% increase in caustic soda prices and then
to decline 8% in 1997 as caustic soda prices are projected to decline 17%
and then remain constant for the balance of the projection period. Selling,
research, general and administrative costs are assumed to increase 4% per
year throughout the projection period plus an additional $1 million per
year of overhead is added for each of 1999 and 2000 due to the addition of
the New Plant. Operating expenses include, among other items, forecasts of
profit sharing expense and bonuses to officers of $4.7 million, $5.3
million, $5.7 million, $6.3 million and $6.8 million, respectively, for
each of the five years ending March 31, 2000; management fees to Castle
Harlan of $1 million for each of the five years ending March 31, 2000; and
research and development expenses incurred in connection with the New Plant
of $1 million for the year ending March 31, 1996.
4. Depreciation and amortization. The depreciation rate on new
capital assets is assumed to be 10 years utilizing the straight line method
of depreciation.
5. Interest expense and debt amortization costs. INDSPEC has the
option of borrowing under the Senior Credit Facility at LIBOR plus
approximately 2.5% or at the prime rate plus approximately 1.5%. To date,
substantially all of the borrowing has occurred under the LIBOR-based
option. The projections assume that all the borrowing will occur under the
LIBOR option at an effective rate of 8.5% to 8.75%. It is assumed that
$127.1 million face amount of the senior subordinated notes are outstanding
for the entire projection period.
6. Income taxes. Statutory income tax rates are assumed to remain at
the rates in effect in March 1995 throughout the projection period (34%
Federal, 10% in Pennsylvania).
7. Capital spending. INDSPEC is projected to spend approximately $6
million per year in capital expenditures for maintenance and improvements.
The New Plant is assumed to require additional capital expenditures of $2
million in fiscal 1996, $30 million in fiscal 1997, and $8 million in
fiscal 1998.
COMPARISON OF RIGHTS OF INDSPEC STOCKHOLDERS
AND OCCIDENTAL STOCKHOLDERS
Pursuant to the Exchange Offers, INDSPEC Stockholders who elect to receive
shares of Occidental Common Stock in exchange for shares of INDSPEC Common Stock
will become stockholders of Occidental. The following is a summary of certain
similarities and material differences between the rights of INDSPEC Stockholders
and the rights of holders of Occidental Common Stock. INDSPEC and Occidental are
both organized under the General Corporation Law of the State of Delaware (the
"DGCL"). Any differences, therefore, in the rights of INDSPEC stockholders and
the rights of holders of Occidental Common Stock arise solely from differences
in their respective certificates of incorporation and bylaws and the Rights
Agreement, dated as of October 17, 1986 (the "Rights Agreement"), between
Occidental and Chemical Bank. This summary does not purport to be a complete
description of the similarities and differences between the rights of such
holders, and is subject, and qualified in its entirety by reference, to the
INDSPEC Certificate, the bylaws of INDSPEC (the "INDSPEC Bylaws"), the amended
and restated certificate of incorporation of Occidental (the "Occidental
Certificate"), the bylaws of Occidental (the "Occidental Bylaws") and the Rights
Agreement. The identification of specific differences is not meant to indicate
that other equally or more significant differences do not exist.
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<PAGE> 38
BOARD OF DIRECTORS
Under Delaware law, the number of directors shall be fixed by or in the
manner provided in the bylaws, unless the certificate of incorporation fixes the
number of directors, in which case a change in the number of directors shall be
made only by amendment to the certificate. Pursuant to the Occidental
Certificate, Occidental's Board of Directors is divided into three classes,
consisting initially of four Class I directors, five Class II directors and five
Class III directors. The directors of each class serve three-year terms, with
the term for each class of directors ending in different years. The number of
directors may be changed from time to time in accordance with the Occidental
Bylaws, provided that any increase or decrease in the number of directors is
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible.
Pursuant to the INDSPEC Certificate and INDSPEC Bylaws, prior to the
Conversion Date (as defined below), and subject to any rights to elect
additional directors that may be granted to the holders of any series of INDSPEC
Preferred Stock, the INDSPEC Board of Directors will continue to consist of six
members, three of whom are Class A Directors elected by the holders of Class A
Common Stock, voting as a separate class, and three of whom are Class B
Directors, elected by the holders of Class B Common Stock, voting as a separate
class. The INDSPEC Bylaws provide that, from and after the Conversion Date, the
INDSPEC Board of Directors will consist of not less than one nor more than 15
members, the exact number of which will initially be six and will thereafter be
fixed from time to time by the Board of Directors.
The "Conversion Date" is the earliest to occur of (i) the fifth anniversary
of the first date on which Occidental acquires 67% or more of the total number
of shares of INDSPEC Class A Common Stock and Class B Common Stock outstanding,
determined on a fully diluted basis, (ii) the consummation of the Put Offer or
the redemption of Class A Common Stock in accordance with the INDSPEC
Certificate, (iii) the first day after the Closing Date on which Occidental owns
no shares of Class B Common Stock and (iv) the termination of the Exchange
Agreement prior to the closing of the Exchange Offers, unless the holders of a
majority of the Class B Common Stock otherwise agree in writing.
Except as otherwise provided in the INDSPEC Certificate, prior to the
Conversion Date, all actions to be taken by the INDSPEC Board of Directors
require the affirmative vote of the greater of (i) five directors or (ii) a
majority of the directors then in office. Prior to the Conversion Date, the
INDSPEC Bylaws prohibit INDSPEC from taking certain specified actions, and
require INDSPEC to cause its subsidiaries not to take any of such actions,
unless such action has been authorized by INDSPEC's Board of Directors.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Occidental Certificate may be amended upon (i) the approval of
Occidental's Board of Directors and (ii) the affirmative vote of the holders of
a majority of the Occidental Common Stock then outstanding. The INDSPEC
Certificate may be amended only upon (i) the approval of INDSPEC's Board of
Directors, (ii) the affirmative vote of holders of a majority of the shares of
Class A Common Stock and Class B Common Stock outstanding and (iii) the
affirmative vote of holders of a majority of the outstanding stock of each class
entitled to vote thereon as a class. Under the DGCL, the holders of the
outstanding shares of Class A Common Stock or Class B Common Stock will be
entitled to vote as a class upon a proposed amendment if the amendment would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely.
AMENDMENT OF BYLAWS
Under Delaware law, the power to adopt, amend or repeal bylaws is vested in
the stockholders unless the certificate of incorporation confers the power to
adopt, amend or repeal bylaws upon the directors as well. Both the Occidental
Certificate and the INDSPEC Certificate confer such power on their respective
boards of directors. However, prior to the Conversion Date, the INDSPEC Bylaws
may be adopted, amended or repealed by the stockholders of INDSPEC only if the
holders of a majority of the shares of Class A Common
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<PAGE> 39
Stock then outstanding and the holders of a majority of the shares of Class B
Common Stock then outstanding have approved such adoption, amendment or repeal.
NOMINATIONS OF DIRECTORS
Under the Occidental Bylaws, nominations of persons for election to the
Occidental Board of Directors may be made at a meeting of stockholders by any
stockholder, provided that the Secretary of Occidental receives written notice
not less than 50 days nor more than 75 days prior to the meeting. If less than
60 days' notice or prior public disclosure of the date of the meeting is given
or made by Occidental to stockholders, the notice of a nomination must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or public disclosure
was made. Notices of nominations, among other things, must state the nominee's
name, age, business and residential address and principal occupation and
employment, as well as the class and number of shares of capital stock of
Occidental beneficially owned by such nominee and any other information about
the nominee required to be disclosed in solicitations for proxies for the
election of directors pursuant to Section 14 of the Exchange Act. In addition,
the notice must state the name and record address of the nominating stockholder
and the class and number of shares of Occidental beneficially owned by the
stockholder. The INDSPEC Bylaws do not contain any similar advance notice
provisions for the nomination of directors of INDSPEC. However, prior to the
Conversion Date, only Class A Directors and holders of Class A Common Stock may
nominate a candidate for election as a Class A Director and only Class B
Directors and holders of Class B Common Stock may nominate a candidate for
election as a Class B Director.
STOCKHOLDER PROPOSAL PROCEDURES
Under the Occidental Bylaws, business is properly brought before an annual
meeting if the Secretary of Occidental receives written notice not less than 50
days nor more than 75 days prior to the annual meeting. If less than 60 days'
notice or prior public disclosure of the date of the annual meeting is given or
made by Occidental to stockholders, notice by the stockholder must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure
was made, whichever first occurs. Stockholder notices must state, among other
things, a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, the name and record address of the stockholder proposing the business,
the class and number of shares of Occidental beneficially owned by the
stockholder and any material interest in such business. The INDSPEC Bylaws do
not contain any similar advance notice provisions for stockholder proposals.
SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware law, special meetings of the stockholders may be called by
the board of directors or such other persons as may be authorized by the
certificate of incorporation or bylaws. Special meetings of Occidental's
stockholders may only be called by Occidental's Board of Directors or its
Chairman. Under the INDSPEC Bylaws, special meetings may be called by INDSPEC's
Chairman (if any), President, any Vice President, the Secretary or any Assistant
Secretary and must be called by any such officer at the request in writing of a
majority of INDSPEC's directors or at the request in writing of stockholders
owning a majority of the capital stock issued and outstanding and entitled to
vote at such meeting.
DIRECTORS' LIABILITY
The Occidental Certificate and the INDSPEC Certificate both contain
provisions which eliminate the personal liability of their directors for
monetary damages resulting from breaches of their fiduciary duty other than
liability, to the extent provided by applicable law, for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or any transaction from which the director derived an improper personal
benefit.
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<PAGE> 40
INDEMNIFICATION
Both the Occidental Bylaws and the INDSPEC Bylaws provide for the
indemnification of directors, officers and persons serving at the request of the
respective corporations as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise to the
fullest extent authorized by the DGCL.
CERTAIN VOTING RIGHTS FOR MERGERS
Under Delaware law, any merger, consolidation or sale of all or
substantially all of the assets of a corporation requires the approval of the
holders of a majority (unless the certificate of incorporation requires a higher
percentage) of the outstanding shares of such corporation entitled to vote
thereon. Neither the Occidental Certificate nor the INDSPEC Certificate requires
a higher percentage.
CUMULATIVE VOTING
Under Delaware law, stockholders of a corporation are not entitled to
cumulate their votes in the election of directors unless the corporation's
certificate of incorporation so provides. Neither the Occidental Certificate nor
the INDSPEC Certificate provides for cumulative voting.
REMOVAL OF DIRECTORS
Pursuant to Delaware law, any or all directors of a corporation which does
not have cumulative voting or a classified board may be removed, with or without
cause, by the holders of a majority of the shares entitled to vote at an
election of directors. Occidental's Board of Directors is divided into three
classes. Consequently, members of Occidental's Board of Directors may be removed
by Occidental stockholders only for cause. Under the INDSPEC Certificate, prior
to the Conversion Date, Class A Directors may be removed only by an affirmative
vote of the holders of a majority of the shares of Class A Common Stock then
outstanding, and Class B Directors may be removed only by an affirmative vote of
the holders of a majority of the shares of Class B Common Stock then
outstanding.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. The Occidental Bylaws require the majority vote of a
quorum of the directors then in office in order to fill any newly-created
directorship resulting from an increase in the number of directors. Under the
INDSPEC Certificate, prior to the Conversion Date, during the interval between
annual meetings of INDSPEC stockholders for the election of directors, (i) any
vacancy or vacancies in the Class A Directors may, subject to applicable law, be
filled by a majority vote of the remaining Class A Directors then in office,
even though less than a quorum, and (ii) any vacancy or vacancies in the Class B
Directors may, subject to applicable law, be filled by a majority vote of the
remaining Class B Directors then in office, even though less than a quorum. Any
Class A Director or Class B Director so elected to fill a vacancy will hold
office for the unexpired term in respect of which the vacancy occurred and until
his successor has been elected and qualified or until his earlier death,
resignation or removal in the manner provided by the INDSPEC Certificate.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken at any annual or special meeting
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Any action required or
permitted to be taken by the stockholders of Occidental must be effected at an
annual or special meeting of stockholders of Occidental and may not be effected
by any consent in writing of such stockholders. The INDSPEC Certificate does not
contain any provisions that would prohibit stockholder action by written
consent.
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<PAGE> 41
PREFERRED STOCK
The Occidental Certificate and the INDSPEC Certificate both expressly
authorize the Board of Directors to provide for the issuance of shares of
preferred stock in one or more classes or series, and to fix for each such class
or series such voting powers, full or limited, or no voting powers, and such
distinctive designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the board of directors providing for the issuance of such class or
series and as may be permitted by the DGCL.
COMMON STOCK
Occidental has only one class of common stock and each holder of Occidental
Common Stock is entitled to one vote per share on each matter upon which
stockholders have the right to vote. The INDSPEC Certificate provides for two
classes of common stock -- Class A Common Stock and Class B Common Stock. Except
as otherwise provided in the INDSPEC Certificate, each share of Class A Common
Stock and Class B Common Stock is identical in all respects and has equal
powers, preferences, rights and privileges. Holders of Class A Common Stock and
Class B Common Stock vote together as a single class on every matter submitted
to a vote of the stockholders of INDSPEC, except as to those matters on which
separate class voting is required by applicable law or by the INDSPEC
Certificate. Prior to the Conversion Date, every holder of Class A Common Stock
is entitled to 4.8 votes for each share of Class A Common Stock standing in such
holder's name in the transfer books of INDSPEC, and every holder of Class B
Common Stock is entitled to one vote for each share of Class B Common Stock
standing in such holder's name in the transfer books of INDSPEC. Prior to the
Conversion Date, holders of Class A Common Stock and holders of Class B Common
Stock vote as separate classes in the election of Class A Directors and Class B
Directors, respectively. From and after the Conversion Date, every holder of
Class A Common Stock and Class B Common Stock will be entitled to one vote for
each share standing in such holder's name in the transfer books of INDSPEC.
Pursuant to the INDSPEC Certificate, INDSPEC may not effect a stock split
(whether by dividend or otherwise), reverse stock split, reclassification or
other similar event with respect to the Class A Common Stock or the Class B
Common Stock unless it effects at the same time an identical stock split,
reverse stock split, reclassification or other similar event with respect to
both the Class A Common Stock and the Class B Common Stock.
Subject to the rights of holders of any series of preferred stock,
dividends will be paid on the Class A Common Stock and Class B Common Stock
when, as and if declared by the INDSPEC Board of Directors and may be payable in
cash, property or securities of INDSPEC; provided, that (i) the holders of Class
A Common Stock and Class B Common Stock are entitled to share equally, share for
share, in such dividends; and (ii) if dividends or distributions are declared
that are payable in shares of, or in subscription or other rights to acquire
shares of, Class A Common Stock or Class B Common Stock, dividends or
distributions will be declared that are payable at the same rate per share on
Class A Common Stock and Class B Common Stock, and the dividends or
distributions payable in shares of, or in subscription or other rights to
acquire shares of, any particular class of INDSPEC common stock will be made
available to each holder of Class A Common Stock and Class B Common Stock.
Prior to the Conversion Date, each share of Class A Common Stock acquired
by Occidental will, without any action on the part of Occidental, be
automatically converted into one share of Class B Common Stock. Prior to the
Conversion Date, INDSPEC is required to reserve and keep available out of the
authorized and unissued shares of Class B Common Stock, solely for the purpose
of effecting the conversion of the outstanding Class A Common Stock, such number
of shares of Class B Common Stock as shall from time to time be sufficient to
effect a conversion of all shares of Class A Common Stock, and INDSPEC may not
take any action that would cause the total number of shares of Class B Common
Stock then outstanding or issuable upon the conversion of the shares of Class A
Common Stock then outstanding or reserved for issuance for any other purpose to
exceed the total number of shares of Class B Common Stock authorized.
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<PAGE> 42
REDEMPTION OF CLASS A COMMON STOCK
The Occidental Common Stock is not subject to redemption. Pursuant to the
INDSPEC Certificate, at any time on or after the fifth anniversary of the
Closing Date and on or before the seventh anniversary of the Closing Date, upon
receipt of a written notice from Occidental requesting the redemption of Class A
Common Stock, all shares of Class A Common Stock then outstanding will be
redeemed (the "Notice Redemption") for that number of shares of Occidental
Common Stock equal to (i) the number of shares of Class A Common Stock so
redeemed, multiplied by (ii) the Notice Redemption Ratio (as defined below). The
Notice Redemption will occur on the date specified by Occidental in its notice
but must be the last business day of a fiscal month and a date not less than 45
days after the date of Occidental's notice.
In addition, if (i) Occidental acquires 67% or more of the total number of
shares of Class A Common Stock and Class B Common Stock then outstanding
(determined on a fully diluted basis but excluding any shares acquired pursuant
to the Put Offer), or (ii) a number of shares of Class A Common Stock have been
tendered pursuant to the Put Offer such that, upon the acquisition of such
shares, Occidental would own 67% or more of the total number of shares of Class
A Common Stock and Class B Common Stock then outstanding (determined on a fully
diluted basis), then at any time during the 90-day period beginning on the first
business day after such acquisition (or, in the case of clause (ii), the tender
of such shares), upon receipt by INDSPEC from Occidental of a written notice to
such effect, INDSPEC is required to redeem (the "Threshold Redemption") all of
the shares of Class A Common Stock then outstanding for that number of shares of
Occidental Common Stock equal to (A) the number of shares of Class A Common
Stock so redeemed, multiplied by (B) the Threshold Redemption Ratio (as defined
below).
In the event of a Notice Redemption or Threshold Redemption, INDSPEC will
mail each record holder of shares of Class A Common Stock, not less than thirty
(30) days nor more than sixty (60) days prior to the redemption date, a notice
which will include or be accompanied by all information required by law and will
specify the method of calculating the Notice Redemption Ratio or the Threshold
Redemption Ratio, as the case may be, the redemption date, and the place or
places at which the shares of Class A Common Stock will be redeemed.
No fractional shares or scrip representing fractional shares of Occidental
Common Stock will be issued upon redemption of shares of Class A Common Stock.
The number of full shares of Occidental Common Stock issuable upon redemption of
shares of Class A Common Stock will be computed on the basis of the aggregate
number of shares of Class A Common Stock surrendered by each record holder
thereof. In lieu of any fractional shares of Occidental Common Stock that would
otherwise be issuable upon redemption of any shares of Class A Common Stock, the
holder thereof will be entitled to a cash payment with respect to such
fractional share.
INDSPEC will not be required to pay any tax that may be payable in respect
of any issuance or delivery of shares of Occidental Common Stock issuable upon
redemption of Class A Common Stock, and no such issuance or delivery will be
made unless and until the holder of shares of Class A Common Stock being
redeemed has paid the amount of any such tax or has established, to the
satisfaction of INDSPEC, that such tax has been paid.
The "Notice Redemption Ratio" is equal to (i) (a) an amount equal to (x)
the EBITDA Multiple (as defined below) multiplied by 95% of the LTM Operating
EBITDA (as defined below), minus (y) Net Debt (as defined below) plus Other
Liabilities (as defined below), in each case calculated as of the last day of
the fiscal month immediately preceding the fiscal month in which the redemption
date occurs, divided by (b) the aggregate number of shares of Class A Common
Stock and Class B Common Stock outstanding on the redemption date, determined on
a fully diluted basis, divided by (ii) the average of the closing prices of
Occidental Common Stock on the New York Stock Exchange on the 20 consecutive
trading days immediately preceding the fifth trading day next preceding the
redemption date (subject to adjustment for certain events, including a dividend
on, or subdivision, reclassification, combination or other recapitalization
affecting, the Occidental Common Stock).
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<PAGE> 43
The "Threshold Redemption Ratio" is equal to (i) (a) (x) an amount equal to
(1) the EBITDA Multiple multiplied by the LTM Operating EBITDA, minus (2) Net
Debt plus Other Liabilities, in each case calculated as of the last day of the
fiscal month immediately preceding the fiscal month in which the redemption date
occurs, divided by (y) the aggregate number of shares of Class A Common Stock
and Class B Common Stock outstanding on the redemption date, determined on a
fully diluted basis, or (b) if (x) the Threshold Redemption is being made as a
result of Occidental's acquisition of 67% or more of the total number of shares
of Class A Common Stock and Class B Common Stock then outstanding and (y) the
highest purchase price per share of Class A Common Stock paid by Occidental in
acquiring any shares of Class A Common Stock during the 12 months immediately
preceding the redemption date (excluding any shares acquired on or prior to the
Closing Date) is greater than the amount of clause (a) above, such purchase
price, divided by (ii) the average of the closing prices of Occidental Common
Stock on the New York Stock Exchange on the 20 consecutive trading days
immediately preceding the fifth trading day next preceding the redemption date
(subject to adjustment for certain events, including a dividend on, or
subdivision, reclassification, combination or other recapitalization affecting,
the Occidental Common Stock).
For purposes of determining the Notice Redemption Ratio, the Threshold
Redemption Ratio and certain other matters arising under the Enabling Agreement
discussed below, the following terms have the meanings set forth below:
"Corporation Accounting Practices" means the principles, methods and
practices used by INDSPEC and its consolidated subsidiaries in the preparation
of financial statements of INDSPEC and its consolidated subsidiaries as of, and
for the twelve months ended, September 30, 1995.
"Debt" as of any date means the sum (without duplication) of (i) long-term
debt (including the current portion of long-term debt) of INDSPEC and its
consolidated subsidiaries on such date, (ii) capitalized lease obligations of
INDSPEC and its consolidated subsidiaries on such date, (iii) reimbursement
obligations of INDSPEC and its consolidated subsidiaries on such date with
respect to drawings under letters of credit and (iv) all liabilities of others
of the kind described in clauses (i), (ii) and (iii), above, that INDSPEC or any
of its consolidated subsidiaries has guaranteed or otherwise expressly assumed,
in the case of clause (i), (ii) or (iii), above, as determined in accordance
with GAAP and the Corporation Accounting Practices applied on a consistent
basis, and in the case of clause (iv), above, in an amount equal to the maximum
liability thereunder upon the occurrence of the contingency giving rise to the
obligation thereunder.
"EBITDA Multiple" means 6.26.
"GAAP" means generally accepted accounting principles, as in effect in the
United States on September 30, 1995.
"LTM Operating EBITDA" means, as of any date, the operating profit of
INDSPEC and its consolidated subsidiaries, for the last twelve fiscal months
ending on or prior to such date (the "measurement period"), plus, to the extent
deducted in calculating such operating profit (or minus, to the extent added in
calculating such operating profit), (i) depreciation and amortization expense,
(ii) profit sharing expense and bonuses to officers, (iii) research and
development expenses (and other expenses not in excess of $1,000,000 in the
aggregate for the measurement period) incurred in connection with the New Plant;
provided, that the amounts referred to in this clause (iii) will be added back
to operating profit only with respect to expenses incurred prior to the New
Plant Start-up Date, (iv) management fees to Castle Harlan attributable to the
Castle Harlan Management Agreement (as defined in the Exchange Agreement), all
determined in accordance with GAAP and Corporation Accounting Practices applied
on a consistent basis; provided, however, that to the extent that there is a
change in Corporation Accounting Practices during the measurement period in
order to conform Corporation Accounting Practices to GAAP, then that amount of
revenue or expense arising as a result of such change in Corporation Accounting
Practices shall be added or subtracted, as the case may be, to LTM Operating
EBITDA, but only to the extent that such revenue or expense is attributable to
the measurement period.
"Net Debt" means, as of any date, (i) the sum (without duplication) of all
Debt of INDSPEC and its consolidated subsidiaries as of such date, plus all
accrued but unpaid interest thereon as of such date, plus the
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Working Capital Adjustment, if any, as of such date, less (ii) the sum of (a)
cash and cash equivalents of INDSPEC and its consolidated subsidiaries as of
such date, plus (b) the aggregate amount of all payments to be received by
INDSPEC upon the exercise of any unexercised options (whether vested or
unvested) as of such date, plus (c) the amount of New Plant Capital Expenditures
as of such date, all determined in accordance with GAAP and Corporation
Accounting Practices applied on a consistent basis.
"New Plant" means INDSPEC's proposed new resorcinol production facility.
"New Plant Capital Expenditures" means the aggregate expenditures with
respect to the New Plant (including construction period interest) that are
capitalized on INDSPEC's financial statements prepared for, or as of the last
day of, the fiscal month in which the New Plant Start-up Date occurs, but only
to the extent such expenditures are required or permitted to be so capitalized
by or in accordance with GAAP and Corporation Accounting Practices applied on a
consistent basis; provided, however, that for purposes of determining the Notice
Redemption Ratio, the Threshold Redemption Ratio and the Put Offer Ratio, and
for no other purpose, the amount of New Plant Capital Expenditures shall be
subject to adjustment as follows: (i) as of the last day of the first full
fiscal month following the fiscal month in which the New Plant Start-up Date
occurs, the amount of New Plant Capital Expenditures shall be reduced by an
amount equal to one-twelfth of the amount thereof as of the last day of the
fiscal month in which the New Plant Start-up Date occurs, and (ii) for each of
the eleven fiscal months thereafter, the amount of New Plant Capital
Expenditures shall be reduced by an additional one-twelfth of the amount thereof
as of the last day of the fiscal month in which the New Plant Start-up Date
occurs.
"New Plant Start-up Date" means the first to occur of (i) the date
following the first 30 consecutive days of production at the New Plant during
which period such facility produces not less than 90% of its nameplate capacity
or (ii) the date 120 days after the date on which the New Plant produces one
pound of commercial grade resorcinol.
"Other Liabilities" means, as of any date, the sum (without duplication) of
all liabilities (other than current liabilities, Debt and net deferred income
taxes) of INDSPEC and its consolidated subsidiaries as of such date (including,
without limitation, all environmental and other reserves and pension and post
retirement obligations), in each case, that are required to be recorded as of
such date in accordance with GAAP and Corporation Accounting Practices applied
on a consistent basis.
"Working Capital" means, as of any date, (i) current assets (excluding cash
and cash equivalents) of INDSPEC and its consolidated subsidiaries, as of such
date, less (ii) current liabilities (excluding the current portion of long-term
debt and accrued but unpaid interest thereon) of INDSPEC and its consolidated
subsidiaries, as of such date, all determined in accordance with GAAP and the
Corporation Accounting Principles applied on a consistent basis.
"Working Capital Adjustment" means, with respect to any determination of
the amount of Net Debt, the amount equal to (i) (a) the sum of the amounts of
Working Capital as of the last day of each of the four fiscal quarters preceding
the date of such determination of the amount of Net Debt, divided by (b) four,
minus (ii) the amount of Working Capital as of such date of determination of the
amount of Net Debt; provided, however, that if the amount of such difference is
less than 10% of the amount in the foregoing clause (i), the Working Capital
Adjustment shall be equal to zero.
OCCIDENTAL RIGHTS
On October 17, 1986, Occidental's Board of Directors declared a dividend of
one right (the "Rights") for each outstanding share of the Occidental Common
Stock to stockholders of record at the close of business on November 7, 1986
(the "Rights Record Date"). The Rights also will be issued in respect of each
share of Occidental Common Stock issued by Occidental between the Rights Record
Date and the earliest of (i) the Distribution Date, (ii) the time at which the
Rights are redeemed as provided in the Rights Agreement, and (iii) the close of
business on October 16, 1996. Subject to the right of the Occidental Board of
Directors to shorten or to lengthen any time period or to make other permitted
changes under the Rights Agreement, the "Distribution Date" is the earlier of
(i) the close of business on the tenth day after the Stock Acquisition Date
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<PAGE> 45
(as defined below), and (ii) the close of business on the tenth business day
after the commencement of a tender or exchange offer which would result in the
offeror beneficially owning 30% or more of the shares of Occidental Common Stock
then outstanding. The "Stock Acquisition Date" is the first date of the public
announcement that a person or group of affiliated or associated persons has
acquired, or generally obtained the right to acquire, beneficial ownership of
20% or more of the shares of Occidental Common Stock then outstanding.
Each Right entitles the registered holder initially to purchase from
Occidental a unit consisting of one one-hundredth of a share (a "Unit") of
Junior Participating Preferred Stock at a purchase price of $80 per Unit (the
"Purchase Price"), subject to adjustment. The Junior Participating Preferred
Stock will rank junior to all other series of Occidental's preferred stock with
respect to declaration and payment of dividends and as to distribution of assets
in liquidation, unless the terms of any such series of preferred stock shall
provide otherwise. The Purchase Price may be paid, at the option of the holder,
in cash or shares of Occidental Common Stock having a value equal to the
Purchase Price. The terms of the Rights are set forth in the Rights Agreement.
Initially, the Rights will be deemed to be attached to all certificates
evidencing shares of Occidental Common Stock then outstanding, and no separate
rights certificates will be distributed. Until the Distribution Date, (i) the
Rights will be evidenced by the Occidental Common Stock certificates and will be
transferred with and only with such certificates, (ii) new Occidental Common
Stock certificates issued after November 7, 1986 will contain a notation
incorporating the Rights Agreement by reference, and (iii) the surrender for
transfer of any certificate for Occidental Common Stock outstanding will also
constitute the transfer of the Rights associated with the Occidental Common
Stock evidenced by such certificate. The Rights are not exercisable until the
Distribution Date and will expire at the close of business on October 16, 1996,
unless earlier redeemed by Occidental.
THE EXCHANGE AGREEMENT
The following is a summary of certain provisions of the Exchange Agreement
not summarized elsewhere in this Prospectus. A copy of the Exchange Agreement is
attached hereto as Annex I and incorporated herein by reference. The following
summary is qualified in its entirety by reference to the full text of the
Exchange Agreement.
REPRESENTATIONS AND WARRANTIES
The Exchange Agreement contains representations and warranties of INDSPEC
relating to, among other things, the following matters (subject, in certain
cases, to specified exceptions): (i) the due organization, existence and good
standing of INDSPEC and its subsidiaries; (ii) financial statements and reports
of INDSPEC and INDSPEC Chemical Corporation; (iii) the absence of certain
changes or events subsequent to June 30, 1995; (iv) INDSPEC's capitalization;
(v) the authorization, execution, delivery and performance by INDSPEC of the
Exchange Agreement and the enforceability of the Exchange Agreement against
INDSPEC; (vi) the absence of any conflict with the certificate of incorporation,
bylaws or other organizational document of INDSPEC or its subsidiaries or with
applicable law or certain material contracts and the absence of any material
liens, charges or encumbrances that would arise as a result of the transactions
contemplated by the Exchange Agreement; (vii) the absence of any governmental or
regulatory authorization, consent or approval required to consummate the
Transactions; (viii) the effectiveness of governmental approvals, consents and
permits necessary for INDSPEC's business; (ix) the absence of certain actions,
suits and proceedings; (x) material contracts; (xi) properties and assets; (xii)
patents, licenses, trademarks, service marks and trade names; (xiii) employee
relations; (xiv) compliance with environmental laws; (xv) certain tax matters;
(xvi) employee benefits; (xvii) the absence of brokers and finders; (xviii)
insurance coverage; (xix) compliance with applicable laws; and (xx) the
non-applicability of certain regulations.
The Exchange Agreement also includes representations and warranties of
Occidental relating to, among other things, the following matters (subject, in
certain cases, to specified exceptions): (i) the due organization, existence and
good standing of Occidental; (ii) Occidental's capitalization; (iii) the
authoriza-
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tion, execution, delivery and performance by Occidental of the Exchange
Agreement and the enforceability of the Exchange Agreement against Occidental;
(iv) the absence of any conflict with the certificate of incorporation or bylaws
of Occidental or with applicable law or certain material contracts; (v) the
absence of any governmental or regulatory authorization, consent or approval
required to consummate the Transactions; (vi) the absence of certain actions,
suits and proceedings; (vii) the availability to Occidental of sufficient funds
to satisfy any change of control payments required under INDSPEC's Indenture;
(viii) the absence of brokers and finders; (ix) financial statements and reports
of Occidental; and (x) Occidental's investment intent with respect to the
INDSPEC Common Stock to be acquired by it in the Exchange Offers.
CONDUCT OF BUSINESS
Upon the terms and subject to the conditions of the Exchange Agreement,
INDSPEC has agreed that during the period from the date of the Exchange
Agreement up to and including the Closing Date, unless otherwise specified,
INDSPEC will conduct its business only in the ordinary course and consistent
with past practice, and will use its best efforts to preserve intact its
business organization and material assets and maintain the rights, franchises
and business and customer relations used in or necessary to conduct its business
in the ordinary course consistent with past practice. In addition, during the
period from the date of the Exchange Agreement to the Closing Date, INDSPEC has
agreed that it will not and will not permit any of its subsidiaries to: (i)
declare, set aside or pay any dividend or other distribution with respect to any
of its outstanding capital stock or the capital stock of any of its subsidiaries
other than wholly owned subsidiaries (subject to certain exceptions) or make any
redemption, purchase or other acquisition of such capital stock; (ii) split,
combine or reclassify any of its outstanding capital stock or issue or authorize
any issuance of any other securities in substitution for shares of its
outstanding capital stock other than by reason of any exercise of certain
Options; (iii) issue or sell its capital stock or authorize any such action or
issue or grant any options, warrants or other rights to subscribe for, purchase
or otherwise acquire any of its capital stock or the capital stock of its
subsidiaries; (iv) change its accounting methods, principles or practices in a
way materially affecting its assets, liabilities or business, except as may be
required by a change in generally accepted accounting principles; (v) increase
the compensation payable or to become payable to executive officers or
employees; (vi) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, executive officer or
employee; or (vii) establish, adopt, enter into or amend in any material
respect, or take action to accelerate any rights or benefits under, any stock
option plan or agreement, employee benefit plan, agreement or policy, except as
specifically contemplated by the Exchange Agreement.
NO SOLICITATION OF ACQUISITION PROPOSALS
INDSPEC has agreed that it will not, and will not permit any of its
subsidiaries, affiliates or any other person acting for or on behalf of any of
them to solicit, or entertain offers from, negotiate with, or in any manner
discuss, encourage, recommend or agree to any proposal relating to (i) the sale
of the stock or assets of INDSPEC or any of its subsidiaries or any interest
therein, (ii) the merger, consolidation or other combination of INDSPEC or any
of its subsidiaries with any entity, or (iii) the liquidation, dissolution or
reorganization of INDSPEC or any of its subsidiaries, except as specifically
contemplated by the Exchange Agreement. In addition, INDSPEC has agreed that it
will not, and will not permit any of its subsidiaries, affiliates or any other
person acting for or on behalf of any of them to furnish or cause to be
furnished any information with respect to INDSPEC or any of its subsidiaries to
any person (other than Occidental and its employees and agents). Notwithstanding
the foregoing, if the Board of Directors of INDSPEC is advised by counsel in
writing that its fiduciary duties require it to take certain actions with
respect to any proposal, INDSPEC may take such actions. INDSPEC is obligated to
deliver to Occidental copies of all communications received from or made to any
person who has made any such proposal within one day after the Chief Executive
Officer of INDSPEC is notified thereof.
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EXPENSES
Whether or not the Exchange Offers are consummated or the Exchange
Agreement is terminated, Occidental and INDSPEC will each pay their respective
costs and expenses incurred in connection with the negotiation and preparation
of the Exchange Agreement and the consummation of the transactions contemplated
thereby; provided, that printing and mailing fees associated with the proxy
statement and registration statements prepared in connection therewith and the
prospectuses included therein (including this Prospectus) and fees incurred in
connection with the preparation of audited consolidated financial statements of
INDSPEC and its subsidiaries for the 12-month period ended September 30, 1995
will be paid equally by Occidental and INDSPEC. Notwithstanding the foregoing,
if the Exchange Offers are consummated, the fees of Morgan Stanley and the fees
and expenses of Castle Harlan will be paid by Occidental.
REGISTRATION
The Exchange Agreement obligates Occidental to file with the Commission, as
soon as practicable after the date of the Exchange Agreement, (i) a registration
statement under the Securities Act relating to the shares of Occidental Common
Stock issuable upon the redemption of the Class A Common Stock, and (ii) a
registration statement under the Securities Act relating to the shares of
Occidental Common Stock issuable upon consummation of the Exchange Offers.
INDSPEC is obligated to provide Occidental with all information concerning
INDSPEC as Occidental may reasonably request in connection with the preparation
of such registration statements.
INDEMNIFICATION AND INSURANCE
Occidental has agreed that all rights to indemnification and exculpation
from liability for acts or omissions occurring prior to the Closing in existence
as of the date of the Exchange Agreement in favor of current or former
directors, officers or employees of INDSPEC and its subsidiaries, as provided in
their respective certificates of incorporation or bylaws or in indemnification
agreements to which they are a party, will survive the Closing Date and will
continue in full force and effect in accordance with their respective terms for
a period of not less than six years from the Closing Date. Occidental has also
agreed to cause INDSPEC to maintain, for a period of not less than six years
after the Closing Date, directors and officers' insurance and indemnification
policies for INDSPEC.
AMENDMENT
The Exchange Agreement may be amended only by a written instrument executed
by Occidental and INDSPEC.
TERMINATION
The Exchange Agreement may be terminated on or prior to the Closing Date
(i) by mutual written consent of Occidental and INDSPEC or (ii) at the election
of Occidental or INDSPEC if the Effective Date has not occurred by March 31,
1996 or if the Closing Date has not occurred by June 30, 1996, unless the
failure to consummate the Merger or the Exchange Offers, as the case may be, is
the result of a willful breach of the Exchange Agreement by the party seeking to
terminate the Exchange Agreement.
THE VOTING AGREEMENT
The following is a summary of the material provisions of the Voting
Agreement, which is attached as Annex II to this Prospectus and is incorporated
herein by reference. The following summary does not purport to be complete and
is qualified in its entirety by reference to the Voting Agreement.
The Voting Agreement provides, among other things, that, while the Voting
Agreement is in effect, at any meeting of the INDSPEC Stockholders, and in any
action by written consent of the INDSPEC Stockholders, the Stockholders that are
parties to the Voting Agreement will vote all of their shares of INDSPEC Common
Stock (i) in favor of any proposal for the adoption or approval of the Merger
Agreement
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and (ii) against any proposal relating to (A) the sale of the stock or assets of
INDSPEC or any interest therein, (B) the merger, consolidation or other
combination of INDSPEC with any person, or (C) the liquidation, dissolution or
reorganization of INDSPEC, except as specifically contemplated by the Exchange
Agreement.
As of the date of this Prospectus, the parties to the Voting Agreement own
31,952 shares of INDSPEC Common Stock, representing approximately 68% of the
outstanding voting shares of INDSPEC.
Pursuant to the Voting Agreement, the holders of all 29,496 outstanding
shares of Class B Common Stock have agreed to tender such shares to Occidental
in the Exchange Offers. In addition, Mr. Danner and Mr. Lee, the holders of
1,886 shares of Class A Common Stock, have agreed to tender all of their shares
of Class A Common Stock to Occidental in the Exchange Offers, subject to the
termination or waiver of the Stockholders Agreement between INDSPEC Chemical
Corporation and certain other parties named therein (the "Stockholders
Agreement").
CHPII and the other Stockholders party to the Voting Agreement have agreed
that they will not, and will not permit any of their subsidiaries, affiliates,
or any person acting for or on behalf of any of them to, solicit, entertain
offers from, negotiate with, or in any manner discuss, encourage, recommend or
agree to any proposal relating to (a) the sale of the stock or assets of INDSPEC
or any of its subsidiaries or any interest therein, (b) the merger,
consolidation or other combination of INDSPEC or any of its subsidiaries with
any person, or (c) the liquidation, dissolution or reorganization of INDSPEC or
any of its subsidiaries, except as specifically contemplated by the Exchange
Agreement. CHPII and the other Stockholders party to the Voting Agreement have
also agreed that they will not, and will not permit any of their subsidiaries,
affiliates, or any person acting for or on behalf of any of them to, furnish or
cause to be furnished any information with respect to INDSPEC or any of its
subsidiaries to any person (other than Occidental and its employees and agents).
THE ENABLING AGREEMENT
The following is a summary of certain provisions of the Enabling Agreement
by and between INDSPEC and Occidental, which is attached as Annex III to this
Prospectus and is incorporated herein by reference. The following summary does
not purport to be complete and is qualified in its entirety by reference to the
Enabling Agreement.
PUT OFFER
Within five business days after the date on which INDSPEC's Net Debt is
less than $80 million (or such greater amount as may be determined after the
Closing Date by the Board of Directors), INDSPEC is obligated to give written
notice thereof to Occidental (the "Debt Notice"). As soon as practicable after
the later of (i) the third anniversary of the Closing Date or (ii) the date on
which Occidental receives the Debt Notice (such later date being the "Trigger
Date"), Occidental is obligated to use commercially reasonable efforts to (A)
prepare and file a registration statement (the "Put Offer Registration
Statement") under the Securities Act relating to the Put Offer and (B) cause the
Put Offer Registration Statement to become effective as soon as practicable
after its filing; provided, however, that Occidental may delay such filing or
effectiveness for a valid business purpose. As soon as practicable after the Put
Offer Registration Statement has been declared effective, Occidental is
obligated to make an offer (the "Put Offer") to the holders of shares of Class A
Common Stock to exchange all or a portion of such shares for that number of
shares of Occidental Common Stock equal to the number of shares of Class A
Common Stock so exchanged, multiplied by the Put Offer Ratio (as defined below).
In lieu of any fractional share of Occidental Common Stock that would otherwise
be issuable upon exchange of shares of Class A Common Stock pursuant to the Put
Offer, the holder thereof will be entitled to cash representing such fractional
shares.
The "Put Offer Ratio" is equal to (i) (a) an amount equal to (x) the EBITDA
Multiple multiplied by the LTM Operating EBITDA, minus (y) Net Debt plus Other
Liabilities, in each case, (1) calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the exchange date occurs or (2)
if the Put Offer Registration Statement has not been declared effective within
120 days after the Trigger
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Date, and such amount would be greater, calculated as of the last day of the
fiscal month in which the Trigger Date occurred, divided by (b) the aggregate
number of shares of Class A Common Stock and Class B Common Stock outstanding on
the exchange date, determined on a fully diluted basis, divided by (ii) the
average of the closing prices of Occidental Common Stock on the New York Stock
Exchange on the 20 consecutive trading days immediately preceding the fifth
trading day next preceding the exchange date (subject to adjustment for certain
events, including a dividend on, or subdivision, reclassification, combination
or other recapitalization affecting, the Occidental Common Stock). See
"Comparison of Rights of INDSPEC Stockholders and Occidental
Stockholders -- Redemption of Class A Common Stock" for definitions of certain
terms used to determine the Put Offer Ratio.
If a sufficient number of shares of Class A Common Stock are tendered
pursuant to the Put Offer, all of the outstanding shares of Class A Common Stock
may be redeemed pursuant to the Threshold Redemption in accordance with the
INDSPEC Certificate, and Occidental may terminate the Put Offer. See "Comparison
of Rights of INDSPEC Stockholders and Occidental Stockholders -- Redemption of
Class A Common Stock."
OBLIGATION TO SELL OCCIDENTAL COMMON STOCK
If INDSPEC redeems the Class A Common Stock in accordance with the INDSPEC
Certificate, Occidental will sell to INDSPEC such number of shares of Occidental
Common Stock as INDSPEC is obligated to deliver to holders of Class A Common
Stock in satisfaction of its redemption obligations. The purchase price for each
share of Occidental Common Stock so purchased will be the price of Occidental
Common Stock used to determine the number of shares of Occidental Common Stock
exchanged for Class A Common Stock pursuant to the redemption. See "The Restated
Certificate and Restated Bylaws -- Redemption of Class A Common Stock."
TAG-ALONG RIGHTS
Occidental will not, and will not permit any of its affiliates subject to
its control to, sell any shares of Class A Common Stock or Class B Common Stock
unless adequate provision is made in connection therewith so that all holders of
Class A Common Stock have the right (the "Tag-Along Right") to participate in
such sale on substantially the same terms, based on the number of shares owned
by each other stockholder. The Tag-Along Rights will not apply to (i) any sale
of shares solely among Occidental and those of its affiliates subject to its
control, (ii) any sale of shares to the public pursuant to an effective
registration statement under the Securities Act or (iii) any sale of shares that
has been approved by the affirmative vote of the greater of (A) five members of
INDSPEC's Board of Directors or (B) a majority of INDSPEC's directors then in
office.
The Tag-Along Rights will terminate upon the earlier to occur of (i) the
consummation of the Put Offer or the redemption of Class A Common Stock or (ii)
the date on which the market value of outstanding shares of Class A Common Stock
and Class B Common Stock (or any capital stock of INDSPEC issued to holders of
INDSPEC common stock) that have been effectively registered under the Securities
Act and disposed of in accordance with a registration statement or statements
under the Securities Act covering such shares equals or exceeds $50 million.
ENVIRONMENTAL MATTERS
INDSPEC has agreed that, not later than 30 months after the Closing Date,
it will complete certain tasks related to environmental matters (the
"Environmental Tasks"). At any time, or from time to time, on or after the first
anniversary of the Closing Date, Occidental may perform a review and audit of
INDSPEC properties and facilities in order to determine (i) INDSPEC's compliance
with all environmental laws and (ii) whether or not the Environmental Tasks have
been completed. If additional actions are required in order for INDSPEC to
comply with environmental laws or complete the Environmental Tasks, INDSPEC will
promptly take all such required actions, and will reserve or increase reserves
to the extent necessary to reflect on all balance sheets prepared as of any
subsequent date, (i) the aggregate amount of expected expenditures (excluding
salaries, wages, employee benefits, utilities, and recurring repairs and
maintenance to equipment
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caused by ordinary wear and tear, and any other similar allocation of overhead)
required in order for INDSPEC to take the actions specified less (ii) the
aggregate amount of claims for indemnification, contribution or other recovery
against third parties to the extent such recovery could be reflected on
INDSPEC's balance sheet as an asset in accordance with GAAP. In preparing any
subsequent income statement, however, INDSPEC's operating income will not be
reduced by the amount of such expenditures. Disputes between Occidental and
INDSPEC as to such matters will be settled by an independent environmental
consultant.
FUNDING OBLIGATIONS
INDSPEC has agreed to use commercially reasonable efforts to keep available
or obtain sufficient funds to (i) make payments required by law to satisfy
claims of Stockholders who have the right to appraisal of and payment for their
shares of INDSPEC Common Stock pursuant to Delaware law as a result of the
Merger ("Dissenters' Rights Obligations"), and (ii) satisfy obligations of
INDSPEC in respect of notes tendered to INDSPEC pursuant to a change of control
offer made by INDSPEC pursuant to its Indenture ("Change of Control Obligations"
and, together with Dissenters' Rights Obligations, the "Funding Obligations").
If, notwithstanding compliance with the foregoing sentence, INDSPEC does not
have sufficient funds to satisfy the Funding Obligations, Occidental is
obligated to provide INDSPEC with funds in an amount sufficient to enable
INDSPEC to satisfy all Funding Obligations for which INDSPEC has timely notified
Occidental. With respect to Dissenters' Rights Obligations, (i) Occidental will
lend funds to INDSPEC pursuant to a fully amortizing promissory note with an
annual interest rate of 8% and the shortest practicable maturity but not greater
than five years and (ii) to the extent that INDSPEC cannot borrow the full
amount of any funds necessary to satisfy the Dissenters' Rights Obligations,
Occidental will purchase preferred stock of INDSPEC. With respect to Change of
Control Obligations, Occidental will lend funds to INDSPEC pursuant to a
promissory note with substantially the same terms as the notes issued pursuant
to the Indenture or, at Occidental's option and if the Indenture permits, by
purchasing from INDSPEC the notes tendered to INDSPEC pursuant to the change of
control offer.
TREATMENT OF INCENTIVE STOCK OPTIONS
After consummation of the Put Offer or the redemption of Class A Common
Stock, INDSPEC and Occidental will convert outstanding INDSPEC stock options
into, or replace such options with, options to purchase Occidental Common Stock
in accordance with Section 424(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
OTHER COVENANTS
In addition to the foregoing provisions, the Enabling Agreement contains
covenants relating to: (i) INDSPEC's provision of certain financial information
to Occidental; (ii) INDSPEC's provision to Occidental of access to INDSPEC's
books, records and properties; (iii) INDSPEC's performance of certain tasks with
respect to environmental matters; (iv) a prohibition against share repurchases
by INDSPEC without Occidental's prior written consent; (v) INDSPEC's hiring of
three additional employees (currently expected to be mid-level managers)
nominated by Occidental, subject to INDSPEC's right to accept, reject or
terminate any such employees; and (vi) the sharing of technological information.
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BUSINESS OF INDSPEC
INDSPEC
INDSPEC was formed as a holding company on October 25, 1993. INDSPEC
Chemical Corporation, a Delaware corporation ("Chemical"), is the operating
subsidiary of INDSPEC. Chemical was formed on October 25, 1993 under the name
Specialty Acquisition Sub, Inc. and after a series of transactions (the "1993
Transactions") succeeded to, and now operates, the business previously operated
by INDSPEC Chemical Corporation ("Predecessor"), and was renamed INDSPEC
Chemical Corporation. Chemical is a wholly owned subsidiary of INDSPEC
Technologies, Ltd., a Pennsylvania business trust (the "Business Trust"), which
is in turn 100% owned by INDSPEC. Predecessor was formed in 1988 by management
and an investor group to acquire in a leveraged transaction (the "Original
Acquisition") the business of the Industrial Specialty Chemicals division of
Koppers Company, Inc., now known as Beazer East, Inc. ("Koppers" or "BEI").
Throughout this Prospectus, the term "INDSPEC" refers to INDSPEC and its
subsidiaries, unless the context otherwise requires, and is also used to include
the operations of Predecessor, where appropriate, unless such inclusion would be
confusing. Unless otherwise indicated, a reference herein to a particular year
relates to the fiscal year of INDSPEC ended on March 31 of the referenced year.
INDSPEC is the largest producer of resorcinol in the world and the sole
commercial producer of resorcinol in the United States. Resorcinol is a chemical
used primarily as a bonding and stiffening agent in the manufacture of tires and
tread rubber. In addition, resorcinol is used in the manufacture of high
performance wood adhesives, ultraviolet light stabilizers, sunscreens,
dyestuffs, pharmaceuticals, agrichemicals, carbonless paper and fire retardant
plastic additives.
During the calendar year ended December 31, 1994, INDSPEC supplied
approximately 90% of the resorcinol sold in the United States. Similar
information with respect to calendar year ended December 31, 1995 is not yet
available. In addition, INDSPEC is a leading supplier of resorcinol and
resorcinol-based products in Europe and Asia. Resorcinol and resorcinol-based
products accounted for approximately $112.4 million, or 96%, of the net sales of
INDSPEC for the twelve months ended March 31, 1995.
PRODUCTS
RESORCINOL AND RESORCINOL-BASED PRODUCTS
Resorcinol and resorcinol-based products are used primarily in the
manufacture of tires, in the wood products industry and in the manufacture of
specialty chemicals. Resorcinol and resorcinol-based products accounted for 92%,
95%, and 96% of INDSPEC's net operating revenues (on a combined basis) in 1993,
1994, and 1995, respectively.
Tire and Rubber. Management believes that all manufacturers of automobile
tires use resorcinol in the manufacturing process, primarily as a high
performance adhesive to bond reinforcing fabrics to rubber. In 1993, 1994, and
1995, approximately 57%, 56% and 54%, respectively, of INDSPEC's net sales were
made directly or indirectly to tire and rubber manufacturers.
The resorcinol-based adhesive system was developed in the early 1940's when
nylon began to be used as a tire cord fabric. Fabric tire cords were dipped into
a resorcinol-formaldehyde latex resin to apply a coating to enhance adhesion of
the fabric to the rubber. Over the years INDSPEC has developed various
formulations of resorcinol-based resins that are compatible with various tire
cord fabrics. Rayon, nylon, fiberglass, aramid and polyester tire cords have all
been successfully bonded to rubber using resorcinol.
A resorcinol-based system also is used as a bonding agent in steel cord
radial tires. Resorcinol or resorcinol resins are incorporated directly into the
tire's rubber compound to enhance adhesion of the brass plated steel cord to the
rubber. Production of steel cord radial tires requires more resorcinol per tire
than synthetic fiber cord tires. In the United States and Europe, essentially
all tires are now steel cord radials; however, in much of the rest of the world,
a large percentage of tires are still produced using older technologies which
require somewhat less resorcinol as a bonding agent.
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<PAGE> 52
The resorcinol-based system for bonding steel cords to rubber competes with
a cobalt-based system. The cobalt-based technology is used predominantly by four
major tire manufacturers outside the United States. Management believes that
INDSPEC's resorcinol resins will enhance the performance of steel cord radial
tires made with the cobalt-based system if the formulations for bonding the
steel cord to rubber are adjusted to include a resorcinol resin. Adhesives
formulated with resorcinol resins also are used in other fiber-reinforced rubber
mechanical goods such as fabricated belting, rubberized hose and rubberized
textile sheets.
Wood Products. The wood products industry uses resorcinol-based adhesives
primarily for specialty applications demanding the following characteristics:
structural integrity under extreme conditions, moderate temperature curing,
waterproof qualities or resistance to fungus. Examples of applications are the
production of laminated structural beams, wooden "I" beams, marine wood
products, specialty laminations (such as for sports equipment), scarfed or
finger-jointed structural lumber and laminated arches. The uses of resorcinol-
based resins in the wood products industry have historically been limited to
high performance wood products due to competition from lower cost adhesives,
although INDSPEC's research and development laboratory has developed new
formulations to permit faster gluing times and the use of less expensive types
of woods for the manufacture of linear veneer lumber ("LVL") and oriented strand
board. INDSPEC believes that the relatively high cost of lumber offers a
significant opportunity for the use of resorcinol in these applications. A
significant new use for resorcinol was developed over the past two years as
INDSPEC began providing resorcinol to major manufacturers of oriented strand
board to activate adhesives with resorcinol. Approximately 16% of INDSPEC's net
sales were to the wood products industry for the twelve months ended March 31,
1995.
Specialty Chemicals. Resorcinol is also used as a chemical intermediate in
the manufacture of specialty chemicals, such as ultraviolet light screening
agents for the protection of plastics and in some suntanning lotions. In
addition, resorcinol serves as a chemical intermediate in the production of
dyestuffs, pharmaceuticals, reprographic chemicals, fire retardant plastics,
fungicidal creams and lotions, agricultural chemicals and herbicides, explosive
primers, antioxidants, chain extenders for urethane elastomers and as a
treatment to improve the mechanical and chemical resistance of papier-mache
fabrics. In all, the use of resorcinol as a chemical intermediate accounted for
approximately 26% of INDSPEC's net sales for the twelve months ended March 31,
1995.
BY-PRODUCT SODIUM SULFITE AND SALTCAKE
INDSPEC produces sodium sulfite and saltcake as by-products of resorcinol.
The primary application of by-product sulfite is in the pulping and bleaching of
paper, primarily corrugated packaging materials. Saltcake is primarily used in
the paper and glass industries. It is employed as an agent for reducing wood
chips in the pulping process to produce kraft pulp and paper which is
principally used for packaging materials. Saltcake is also used in the glass
industry as a chemical reagent in the manufacture of glass. Because several of
INDSPEC's customers for by-product sodium sulfite in the paper industry switched
to processing recycled paper and because the price of caustic soda, a component
of many competing products (including synthetic sodium sulfite), was low
throughout calendar 1994 and year to date 1995, INDSPEC has experienced
difficulty selling all of its by-product sodium sulfite and saltcake. As the
price of caustic soda has risen, demand for by-product sulfite has increased,
but substantial inventory remains to be sold. Approximately 2% of INDSPEC's net
sales for the twelve months ended March 31, 1995 were of by-product sulfite and
saltcake.
SYNTHETIC SODIUM SULFITE
Prior to September 30, 1991, INDSPEC produced synthetic sodium sulfite at
its Tuscaloosa Plant. Synthetic sodium sulfite is of higher quality than
by-product sodium sulfite and is used primarily in water treatment and as a
pulping agent in paper mills employing chemi-mechanical pulping methods. INDSPEC
transferred its customer list to Solvay Minerals Company in 1990 and after a
period of production exclusively for Solvay, INDSPEC closed its facility in
1992.
Because of market conditions existing in January 1994 for synthetic sodium
sulfite and bisulfite solutions and lower caustic soda prices, INDSPEC entered
into agreements with suppliers of caustic soda, a principal
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<PAGE> 53
component of synthetic sodium sulfite, which provides INDSPEC with low cost
caustic soda through December 1995. As a result, in October 1993 INDSPEC began
the process of reopening the Tuscaloosa Plant and INDSPEC began marketing
synthetic sodium sulfite produced at the Tuscaloosa Plant in March 1994. Sales
from the Tuscaloosa Plant represented approximately 2% of INDSPEC's net revenue
in 1995. In April 1995, INDSPEC entered into an agreement to transfer operations
of the Tuscaloosa Plant to Southern Ionics, Inc.
SALES AND MARKETING
INDSPEC markets its products on a worldwide basis through its direct sales
force and through independent sales representatives. INDSPEC markets resorcinol
and resorcinol-based products to customers in approximately 50 countries
throughout the world. Resorcinol and resorcinol-based products and sodium
sulfite are marketed through INDSPEC's Pittsburgh, Pennsylvania office to
domestic customers and to customers in Asia and through INDSPEC's office in
Rotterdam, Holland to customers in Europe, Africa and the Near East. Saltcake is
marketed through a wholesaler and other distributors and through INDSPEC's
employees.
To reduce production and transportation costs of resorcinol products for
customers in the western United States and western Europe, INDSPEC has
selectively granted licenses to use its technology to produce resorcinol-based
resins and adhesives on INDSPEC's behalf. Pursuant to an exclusive license
ending in March 1997, subject to renewal, INDSPEC has provided such a license to
a producer in Oregon. Another license was provided to a producer in Norway,
which ends in July 1997. INDSPEC purchases all such production on a cost-plus
basis. Products manufactured by these contract producers accounted for 3% of
INDSPEC's net sales for the twelve months ended March 31, 1995.
For the year 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995,
approximately 47%, 44%, 47%, and 44%, respectively, of INDSPEC's net sales were
attributable to export sales. Export sales of resorcinol are generally
characterized by lower margins than domestic sales due to higher transportation
costs and import duties. The margins on export sales denominated in foreign
currencies generally improve during periods when the U.S. dollar is weak
relative to foreign currencies and may be adversely affected by a relative
increase in the value of the U.S. dollar. INDSPEC maintains a policy of entering
into foreign exchange contracts to hedge against currency fluctuations that
could affect the value of INDSPEC's non-U.S. dollar receivables.
COMPETITION
According to published industry data, prior to December 1991 there were
four major worldwide commercial producers of resorcinol -- INDSPEC in the United
States, Hoechst AG ("Hoechst") in Germany, and Sumitomo Chemical Company, Ltd.
("Sumitomo") and Mitsui Petrochemical Industries ("Mitsui") in Japan. INDSPEC's
capacity accounted for approximately 50% of the total estimated capacity of the
four major producers. In December 1991, Hoechst announced that it was closing
its 11,000 ton resorcinol plant in Frankfurt, Germany. The plant had been
restricted to producing 8,000 tons per year of resorcinol since 1987 by
regulatory authorities. In February 1992, Sumitomo announced plans to increase
its capacity for resorcinol production in Japan from 9,000 tons to 18,000 tons.
Sumitomo cited increasing demand for resorcinol in office automation products
and the Hoechst plant shutdown as the reasons for its expansion. The new
Sumitomo plant began production in January 1994.
Resorcinol can be produced using either a sulfonation fusion or
hydroperoxidation process. INDSPEC uses the sulfonation fusion process, while
Sumitomo and Mitsui use the hydroperoxidation process. INDSPEC believes that the
cost to produce resorcinol is comparable under either process.
INDSPEC is the largest domestic producer of sodium sulfite. The total
domestic capacity for production of sodium sulfite is estimated to be 149,000
tons, with INDSPEC's by-product sulfite accounting for approximately 33% of this
capacity. The aggregate annual capacity of the two other major producers is
estimated to be 91,000 tons. The domestic capacity of saltcake is estimated to
be 160,000 tons per year, with
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<PAGE> 54
INDSPEC's capacity of 32,000 tons accounting for approximately 20% of the total
domestic capacity in calendar 1994.
RAW MATERIALS AND SUPPLIES
INDSPEC's major raw materials are chemical feedstocks that have widespread
applications. The major raw materials in the production of resorcinol are
benzene, caustic soda and oleum. While there are alternative suppliers for these
raw materials, INDSPEC currently purchases each of these raw materials from a
single supplier. Management believes that benzene, caustic soda and oleum are,
and will remain for the foreseeable future, in adequate supply. INDSPEC produces
resorcinol-based resins and adhesives by combining phenol, formaldehyde and
other chemicals with resorcinol. Although phenol is available from many
suppliers, INDSPEC purchases phenol from a single supplier. Management believes
that phenol and formaldehyde are, and will remain for the foreseeable future, in
adequate supply. Historically, INDSPEC has increased the prices of its products
to compensate for increases in raw material and other direct costs.
DISTRIBUTION
Resorcinol is typically supplied in flake or powder form and generally
packaged in bags or drums, although an increasing amount of resorcinol is
delivered in liquid form. Resorcinol products are warehoused at the Petrolia
Plant and at a nearby leased warehouse. INDSPEC's resorcinol and
resorcinol-based products are shipped to domestic customers primarily by truck
from its Petrolia Plant, while most export shipments are sent by ship to and
distributed from leased warehouses in Rotterdam, Holland. Resorcinol products
are also shipped to customers in the western United States from INDSPEC's
licensee in Oregon and to customers in western Europe from INDSPEC's licensee in
Norway. Most sodium sulfite and saltcake is shipped directly to consumers by
bulk rail, barge and truck from the Petrolia Plant. INDSPEC utilizes railcars,
silos and an independent warehouse to store and ship some sodium sulfite and
saltcake.
CUSTOMERS
In 1995, INDSPEC's products were sold to customers in over 50 countries.
Only one customer accounted for 10% or more of INDSPEC's net sales during fiscal
1995. The Goodyear Tire & Rubber Company has acquired resorcinol and
resorcinol-based resins from INDSPEC for over forty years, the most recent ten
years of which have been pursuant to a series of contracts whereby, pursuant to
a pricing formula, INDSPEC converts benzene supplied by or acquired for the
account of Goodyear. All other raw materials and labor are supplied by INDSPEC.
The current toll conversion agreements are renewable automatically for
successive one-year periods and are in effect until at least December 31, 1996.
Net sales of resorcinol and resorcinol-based resins to Goodyear represented
approximately 22%, 20%, 19%, and 19% of total net sales of INDSPEC for the year
ended March 31, 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995,
respectively.
RESEARCH AND DEVELOPMENT
INDSPEC's management believes that an active research and development
effort is important to the expansion of commercial applications of resorcinol.
INDSPEC works actively with its customers to develop applications to solve
customers' problems. INDSPEC continues to develop enhanced techniques for
bonding new materials to tire bodies and linings to be incorporated into
longer-wearing tires. In addition, INDSPEC is involved in a long-term effort to
work with steel-belted tire manufacturers that use cobalt-based adhesive systems
to encourage them to integrate resorcinol and cobalt to create an adhesive
system that INDSPEC believes is superior to that afforded by cobalt alone. After
undertaking extensive tire tests, some major international tire manufacturers
have begun using the INDSPEC resin in combination with the cobalt-based system
in the manufacture of truck tires.
INDSPEC's research also focuses on the uses of resorcinol and its
derivatives in the herbicide, color reprographics and fiber industries and on
developing flame-retardant, resorcinol-based resins with reduced
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<PAGE> 55
smoke emission characteristics as a substitute for some polyester products.
Further, INDSPEC is continuing to develop wood adhesives for application in
composite lumber products.
INDSPEC leases laboratory space in a facility in Harmarville, Pennsylvania
for research and development. INDSPEC has 20 research and development personnel,
substantially all of whom have been with INDSPEC and its predecessors for an
average of 15 years. Research and development expenses, including depreciation
and allocated corporate charges, incurred by INDSPEC for the year ended March
31, 1993, the period April 1, 1993 to December 2, 1993, the period December 3,
1993 to March 31, 1994, and the year ended March 31, 1995 were $2.2 million,
$1.5 million, $.7 million and $3.2 million, respectively. The increase in 1995
is due to INDSPEC's expenditures related to a pilot process that is part of
INDSPEC's continuing efforts to develop its hydroperoxidation process for the
production of resorcinol. See "Technology and Licensing."
TECHNOLOGY AND LICENSING
INDSPEC acquired from Koppers the material patents, patent applications,
trademarks, copyrights, transferable licenses, inventions, trade secrets,
proprietary processes and formulae previously used in the business by Koppers.
Among the trademarks acquired by INDSPEC was the Penacolite trademark which has
been used to market resorcinol-based resins and adhesives since 1941. INDSPEC
recently patented a new process for the manufacture of resorcinol, and holds
approximately 65 patents covering resorcinol resins, adhesives and other
resorcinol derivatives. INDSPEC believes that its patents concerning tire resins
will help INDSPEC to maintain its leading market position in the tire industry.
INDSPEC believes that these resins should have commercial appeal as tire
manufacturers place greater emphasis on the low-fuming characteristics possessed
by these resins.
INDSPEC has developed and patented a modified hydroperoxidation process
which INDSPEC would utilize if it decided to increase its capacity and build a
new plant, since the construction cost of a hydroperoxidation plant is
significantly less than that of a new plant using sulfonation fusion, the
process currently used by INDSPEC to manufacture resorcinol. Since management
expects long-term demand for resorcinol to continue to grow as new applications
are developed, INDSPEC is continuing work on construction and operation of a
pilot plant to commercialize INDSPEC's hydroperoxidation technology. As part of
the 1993 Transactions, the Business Trust retained the patents for the
hydroperoxidation process, but granted Chemical a non-exclusive license to use
such process. The license provides that Chemical must expend not less than $1.0
million during the first five years of the term of the license to develop the
process to produce resorcinol using the hydroperoxidation technology. In 1995,
Chemical expended $1.4 million on the hydroperoxidation pilot plant project. In
addition, Chemical must pay royalties to the Business Trust based on the lesser
of certain percentages of gross revenues or net profits attributable to sales of
resorcinol made by Chemical using the hydroperoxidation technology. Payment of
the royalties is subject to certain limitations under INDSPEC's Senior Credit
Facility and the Indenture. Additionally, the Senior Credit Facility and the
Indenture contain restrictions on INDSPEC's ability to incur additional
indebtedness which could limit INDSPEC's ability to construct a full-scale
production facility to utilize the hydroperoxidation technology. The license
agreement also grants Chemical a right of first refusal to purchase the patents
if the Business Trust should ever desire to sell them.
INDSPEC has granted to licensees in Oregon and Norway the right to use its
technology to produce resorcinol-based resins and adhesives on INDSPEC's behalf.
See "Sales and Marketing."
ENVIRONMENTAL REGULATION
INDSPEC believes that its operations are in compliance in all material
respects with applicable environmental laws and regulations. However, chemical
manufacturing companies are subject to extensive environmental, health and
safety laws and regulations, many of which provide for potential fines and
criminal penalties of a significant nature. Accordingly, the normal operations
of a chemical manufacturing plant and the transportation, storage and disposal
of products and wastes necessarily involve a risk that a violation of
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<PAGE> 56
these laws and regulations could result in a material penalty or other
sanctions. INDSPEC is not aware of any adverse environmental occurrences of a
material nature in 1995.
No claims have been made against INDSPEC relating to Koppers operations
prior to the Original Acquisition. As described below, the Asset Purchase
Agreement relating to the Original Acquisition (the "Asset Purchase Agreement")
provides an indemnity from Koppers with regard to such claims, in the event any
may occur in the future.
According to the Asset Purchase Agreement, Koppers (now BEI) is obligated
to indemnify INDSPEC against any environmental liability or obligation arising
from the failure to comply with environmental laws prior to the closing of the
Original Acquisition in 1988; agreements, orders and decrees in effect at such
time; claims for environmental liability for acts or omissions relating to the
Petrolia Plant or the Tuscaloosa Plant (collectively, the "Plants") occurring
prior to closing of the Original Acquisition; and activities of Koppers and its
predecessors occurring at any time at properties not acquired by INDSPEC. The
environmental indemnification obligation survives until December 2000, except
for claims arising from off-site activities prior to December 1988, for which
the indemnification obligation survives indefinitely. Beazer PLC of Great
Britain, the parent of BEI, has guaranteed performance of the environmental
indemnification obligation. Beazer PLC is currently a subsidiary of Hanson
Industries, Ltd. Subject to certain limitations, INDSPEC is obligated to
indemnify Koppers against any environmental liability or obligation arising from
acts or omissions relating to the Plants occurring after the Original
Acquisition and any expense necessary to comply with any law relating to the
physical structure of the facilities acquired from Koppers, including the
removal of asbestos or polychlorinated biphenyls. INDSPEC also is obligated to
indemnify Koppers against any on-site environmental liability or obligation for
any matter for which a claim has not been made before December 2000.
Prior to the Original Acquisition, Koppers encountered environmental
compliance problems and potential liabilities arising from wastewater
discharges, the contamination of soils and groundwater, excessive emissions of
particulates and other air pollutants, and the disposal of potentially hazardous
waste materials in connection with the operation of the Plants. INDSPEC
understands that BEI is responding to claims regarding disposal of material
which could relate to the Petrolia Plant. INDSPEC has not been named in any such
claims. On November 13, 1995, INDSPEC filed a notice of claim with Beazer
seeking indemnification for the cost of remediation of the release of pollutants
at the Petrolia Plant, which INDSPEC preliminarily estimated would cost up to
$2.1 million. As part of its on-going clean-up at the site, BEI has constructed
and operates a groundwater collection system and treatment facility on the
Petrolia Plant site to clean up groundwater contamination relating to the period
prior to the Original Acquisition. In addition, Koppers implemented, and INDSPEC
has continued, a program designed to ensure that its operations comply with
applicable environmental regulations and permits.
INDSPEC monitors federal, state and local regulations governing air
emissions, wastewater discharges, waste management and disposal and land use;
the manufacturing, use and distribution of chemical products; employee health
and safety; and other activities that may affect the environment, all of which
may affect INDSPEC's operations. In particular, additional capital expenditures
may be required as a result of (i) regulations to be issued pursuant to the
Clean Air Act Amendments of 1990, (ii) regulations recently issued concerning
Process Safety Management, (iii) proposed regulations concerning exposure limits
for benzene and formaldehyde and (iv) regulations to be issued pursuant to the
Pennsylvania Residual Waste Regulations. These regulations will also likely
require some additional ongoing compliance costs, although the extent of the
impact on INDSPEC cannot be estimated yet. INDSPEC has identified anticipated
capital expenditures relating to these and other environmental requirements of
up to $1.2 million to be spent over the next two fiscal years, although it is
not certain how much of this amount will actually be required.
EMPLOYEES
As of December 1, 1995, INDSPEC employed 372 persons. The employees fall
into four general categories based on the nature of their employment: research
and product development; operations; marketing; and administration and support.
Currently, 20 employees are involved in research and product development, 323
employees (5 of whom are based in Pittsburgh) are involved in the operations of
the Petrolia Plant,
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19 employees are assigned to marketing functions, and 10 employees perform
administrative and support services. Management considers relations with its
employees to be satisfactory.
Of INDSPEC's 318 employees located at the Petrolia Plant, 227 are
represented by Local 13300 of the United Steelworkers of America (the "USWA").
In April 1995, INDSPEC and the USWA reached agreement on a revision and renewal
of their collective bargaining agreement extending to April 1999 with increases
of approximately 4-5% for each year of the agreement. This agreement
automatically renews annually, subject to termination or modification by either
party upon 60 days notice given prior to April 1999 or any anniversary thereof.
PROPERTIES
INDSPEC's principal facilities consist of the Petrolia Plant and the
Harmarville research facility. The Petrolia Plant is situated on a 262-acre
tract owned by INDSPEC. The Harmarville research and development facility
contains 16,500 square feet and is currently leased on a month-to-month basis,
although INDSPEC is continuing negotiations for a long-term lease renewal. As of
December 1, 1995, INDSPEC also owns or leases storage facilities and leases
approximately 452 railcars. In addition, INDSPEC has entered into a lease of
approximately 12,000 square feet of office space in Pittsburgh, Pennsylvania for
its principal executive offices which expires in March 1999. INDSPEC also has a
sales office in Rotterdam, Holland which it rents pursuant to a lease expiring
in May 1999. Previously, INDSPEC operated the Tuscaloosa Plant which was located
on a 7.5-acre site held pursuant to a prepaid lease that expires in 1999. This
lease was assigned to Southern Ionics, Inc. in January 1996.
LEGAL PROCEEDINGS
INDSPEC is a party to certain claims and legal proceedings, none of which
INDSPEC believes will have a material adverse effect on its financial condition
or its results of operations.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF INDSPEC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR INDSPEC
-------------------------------------------------- -----------------------------------------------------------
YEAR YEAR YEAR PERIOD PERIOD YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED APRIL 1, 1993- DECEMBER 3, 1993- ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 2, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1994 1995 1994 1995
--------- --------- --------- -------------- ----------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net
Sales(1).... $ 98,719 $93,267 $99,829 $ 70,778 $33,094 $117,352 $ 82,907 $ 95,012
Operating
Expenses(1)... 66,679 63,532 64,641 45,635 22,648 78,584 56,123 62,046
Provision for
loss
(recovery)
on
Soviet
receivable(2)... -- -- 1,300 (737) -- -- -- --
Provision for
loss
(recovery)
on
Tuscaloosa
facility(1)... -- -- 2,270 (1,000) -- -- -- --
Depreciation
and
amortization(3) 17,115 12,349 14,064 8,291 4,423 15,484 10,901 11,445
-------- ------- ------- ------- ------- --------- ------- ---------
Income before
interest,
taxes,
extraordinary
items, and
accounting
method
changes..... 14,925 17,386 17,554 18,589 6,023 23,284 15,883 21,521
Interest
expense..... 21,880 19,040 16,895 10,822 6,029 18,407 13,615 13,603
Income
taxes....... -- -- 378 2,621 -- 450 (217) 3,135
-------- ------- ------- ------- ------- --------- ------- ---------
Income (loss)
before
extraordinary
items and
accounting
method
changes..... (6,955) (1,654) 281 5,146 (6) 4,427 2,485 4,783
Extraordinary
gain on note
redemption... -- -- -- -- -- -- -- 342
Extraordinary
credit --
utilization
of tax loss
carryforward... -- -- 302 -- -- -- -- --
Extraordinary
loss on
reorganization... -- -- -- (8,470) -- -- -- --
Cumulative
effect of
changes in
accounting
methods..... -- -- -- 2,232 -- -- -- --
-------- ------- ------- ------- ------- --------- ------- ---------
Net income
(loss)...... $ (6,955) $(1,654) $ 583 $ (1,092) $ (6) $ 4,427 $ 2,485 $ 5,125
======== ======= ======= ======= ======= ========= ======= =========
(Loss) income
per share of
common stock
before
extraordinary
items and
changes in
accounting
methods..... $(106.40) $(39.80) $(36.52) $ 24.52 $ (0.13) $ 79.61 $ 47.86 $ 86.02
Earnings per
share effect
of gain on
redemption
of notes.... -- -- -- -- -- -- -- 6.15
Earnings per
share effect
of
extraordinary
items....... -- -- 3.46 (97.25) -- -- -- --
Earnings per
share effect
of
accounting
method
changes..... -- -- -- 25.63 -- -- -- --
-------- ------- ------- ------- ------- --------- ------- ---------
Net income
(loss) per
common
share....... $(106.40) $(39.80) $(33.06) $ (47.10) $ (0.13) $ 79.61 $ 47.86 $ 92.17
======== ======= ======= ======= ======= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, DECEMBER 2, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1994 1995 1994 1995
--------- --------- --------- -------------- ----------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts
receivable... $ 11,792 $ 12,709 $ 14,014 $ 14,483 $ 15,621 $ 16,317 $ 16,338 $ 15,814
Inventory..... 16,176 15,266 15,505 14,879 14,369 14,863 13,963 20,028
Net fixed
assets(4)... 80,845 76,308 69,885 68,784 104,178 100,202 102,124 97,704
Total
assets(4)... 183,172 172,372 161,895 171,267 238,288 228,358 230,822 224,901
Long term debt
(including
current
portion)(4)... 160,355 152,052 143,067 134,866 189,738 174,808 181,246 162,582
Redeemable
preferred
stock....... 14,699 16,417 16,505 17,750 -- -- -- --
- ---------------
(1) In 1993, Predecessor closed the synthetic sulfite production facility in
Tuscaloosa, Alabama, established a reserve for loss on disposal of $2.3
million and accounted for the transaction as a discontinuance of a portion
of a business segment. In October 1993, Predecessor restarted the facility,
reversed $1.0 million of the aforementioned reserve, and restated the
financials to include all historical results of the Tuscaloosa operation in
sales and revenue.
(2) In 1993, Predecessor established a reserve of $1.3 million for the possible
uncollectibility of a receivable from the Soviet Union. In September 1993,
Predecessor accepted a reduced payment amount that netted the Predecessor
$.7 million in income.
(3) The decrease in depreciation and amortization in the year ended March 31,
1992 is due to the extension of useful lives on various assets.
(4) The increase in assets as of March 31, 1994 relates to the step-up in basis
of assets for the purchase accounting of INDSPEC and the increase in
liabilities reflects the new debt structure of INDSPEC as a result of the
financing of the acquisition.
</TABLE>
50
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion, no distinction is made between the
operations of Predecessor and INDSPEC, except where the distinction is required
so as not to be confusing.
RESULTS OF OPERATIONS
Set forth below is a discussion of the results of operations of INDSPEC for
the three- and nine-month periods ended December 31, 1995 compared to the
corresponding periods of the previous year, and for the twelve-month periods
ended March 31, 1995, 1994 and 1993, each compared to the respective preceding
twelve-month period.
THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1995
Total revenue increased 4% and 15% for the quarter and nine-month periods
ended December 31, 1995, respectively. Compared to the prior year period,
revenue from the sale of resorcinol declined 1% for the quarter as a 21%
increase in unit pricing offset a 19% decline in unit volume. Year-to-date
revenue from the sale of resorcinol increased 15% due to an 18% increase in unit
pricing and a 3% decline in unit volume. Revenue from resorcinol-based tire
resins had increased 17% for the year and 14% for the quarter due principally to
increased unit pricing. Revenue from resorcinol-based wood adhesives also
increased 14% compared to the prior year period due to increased unit pricing.
Revenue from the sale of by-product sodium sulfite increased 14% for the
nine-month period due to a large export shipment while unit pricing has declined
6%.
Cost of goods sold (excluding depreciation and amortization) as a percent
of sales declined from 57% to 50% compared to the same quarter of the prior year
due to higher unit prices for resorcinol and the profitable liquidation of the
Company's inventory of raw materials at its synthetic sulfite plant in
Tuscaloosa, Alabama. For the nine months ended December 31, 1995, the average
production cost of a pound of resorcinol increased 10% compared to the prior
year as the Company encountered production problems due to supply interruptions
of oleum, a key raw material, and the continued effect of higher caustic soda
prices. Benzene prices were lower in the quarter and helped offset the increase
in caustic prices. The Company completed its scheduled maintenance turnaround in
October in the normal time and cost required for the Petrolia Plant to complete
a turnaround.
Selling, research, general, and administrative expenses increased 15% in
the quarter and 16% year-to-date due to higher profit sharing paid to all
employees and research and development costs related to the Company's on-going
research in the area of hydroperoxidation technology for the production of
resorcinol. The Company expects that selling, research, general and
administrative expenses will continue to be higher than the prior year as the
Company continues to reward its employees for increased performance via
quarterly profit sharing payments.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1995
Revenue from the sale of resorcinol and resorcinol-based products increased
12% for the twelve-month period ended March 31, 1995 compared to the prior year.
For the twelve-month period ended March 31, 1995, revenue from domestic sales of
resorcinol increased 22% compared to the prior year and unit pricing declined
2%. Average pricing for the quarter ended March 31, 1995 increased 14% and 10%
over the average pricing for domestic resorcinol achieved in the quarters ended
December 31, 1994 and March 31, 1994, respectively. The large volume increase is
principally due to increasing use of resorcinol as a fire retardant additive to
plastics. Revenue from export sales of resorcinol increased 6% due to a 3%
increase in unit pricing and a 3% increase in unit volume. Unit pricing on
export sales for the quarter ended March 31, 1995 increased 13% and 20% compared
to the quarters ended December 31, 1994 and March 31, 1994, respectively, due to
a combination of the weaker U.S. dollar and increased pricing to the end user.
Revenue from toll production increased 8% over the prior year due to higher
volume. For fiscal 1995, revenue from the sale of tire resins increased 20% due
to increases in unit volume. Revenue from the sale of adhesives to the
specialized wood products industry increased 11% for the twelve-month period
ended March 31, 1995 due to higher unit prices.
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<PAGE> 60
Cost of sales (before depreciation and amortization) as a percent of sales
declined from 57% in 1994 to 55% in 1995. For fiscal 1995, cost of sales was
favorably affected by lower average caustic soda prices and, to a lesser degree,
lower benzene prices. However, caustic soda prices increased dramatically in the
last two quarters of fiscal 1995, and INDSPEC expects its average cost of
caustic soda to be higher in fiscal 1996. This has been offset by higher
manufacturing costs and lower by-product credits due to the decreased value of
by-product sulfite and saltcake. During the year ended March 31, 1995,
modifications were made to the Petrolia Plant that increased its capacity by 8%.
For fiscal 1995, the Tuscaloosa Plant operated at a net loss of $1.4 million due
principally to depreciation and amortization expense of $1.1 million. Effective
April 1, 1995, INDSPEC entered into an agreement with Southern Ionics, Inc.
pursuant to which Southern Ionics has hired substantially all INDSPEC's
Tuscaloosa employees and will assume responsibility for substantially all the
operations of the Tuscaloosa Plant.
Revenue from the sale of by-product sodium sulfite declined 9% from the
prior year. The volume of sulfite sales declined 4% in the period, and there was
a 5% decline in unit prices due to higher freight costs. In March 1994, INDSPEC
entered into a long-term agreement with a pulp and paper manufacturer for the
sale of saltcake. As a result of this contract, INDSPEC sold all its excess
saltcake inventory, although at lower unit pricing than in prior years. INDSPEC
continues to experience difficulty selling all of its by-product sulfite due to
the switch by several of its paper customers to processing recycled paper and
competition from other producers of by-product sulfite. This has negatively
affected earnings due to the higher storage and handling costs for the excess
inventory.
Selling, research, general and administrative expenses increased 60% from
the prior year due to higher fees paid to Castle Harlan for management services;
higher employee compensation costs, principally compensation for officers;
expenses related to the pilot work to develop INDSPEC's patented
hydroperoxidation technology; and increased profit sharing to all employees.
During the year, INDSPEC changed the discount rate assumed in calculating
its pension and postretirement costs from 7% to 8.25%. This change in assumption
decreased INDSPEC's accumulated benefit obligation on its retirement plans by
$2.1 million as of March 31, 1995 and decreased its accumulated postretirement
benefit obligation by $1.4 million as of March 31, 1995.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1994
Revenue from the sale of resorcinol and resorcinol-based products increased
7% for the twelve-month period ended March 31, 1994 compared to the prior year.
For the twelve-month period ended March 31, 1994, revenue from domestic sales of
resorcinol increased 35% compared to the prior year and unit pricing increased
2%. The large volume increase is principally due to increasing use of resorcinol
as a fire retardant additive to plastics. Revenue from export sales of
resorcinol declined 1% due to a 4% decline in unit pricing. The decline in unit
pricing is attributable to the stronger U.S. dollar in the second half of
calendar 1993. Revenue from toll production declined 2% over the prior year due
to lower unit pricing. For the year, revenue from the sale of tire resins
increased 7% due to a 4% increase in unit volume and a 3% increase in unit
prices. Revenue from the sale of adhesives to the specialized wood products
industry (including INDSPEC's new adhesive system that utilizes a liquid
hardener) increased by 20% for the twelve-month period ended March 31, 1994 due
to higher volume. The increase in volume is due to increased acceptance of
INDSPEC's new line of wood adhesives.
Cost of sales (before depreciation and amortization) as a percent of sales
was unchanged from the prior year. For the year, cost of sales has been
favorably affected by lower caustic soda prices and, to a lesser degree, lower
benzene prices. This has been offset by higher manufacturing costs as the plant
ran close to capacity, increased costs due to the accrual for retiree medical
costs, and lower by-product credits due to the decreased value of by-product
sulfite and saltcake.
Revenue from the sale of by-product sodium sulfite was 17% lower than the
prior year. The volume of sulfite sales increased 15% in the period, but this
was offset by a 27% decline in unit prices due to higher freight costs. INDSPEC
continues to experience difficulty selling all of its by-product sulfite and
saltcake due to the switch by several of its paper customers to processing
recycled paper and to low caustic soda prices, a component of many competing
products. This has negatively affected earnings due to the higher storage and
52
<PAGE> 61
handling costs for the excess inventory. In March 1994, INDSPEC entered into a
long-term agreement with a pulp and paper manufacturer for the sale of saltcake
(see "Results of Operations -- Twelve-Month Period Ended March 31, 1995").
After the close of the quarter ended September 30, 1993, Predecessor made
the decision to restart its idled synthetic sulfite operation at the Tuscaloosa
Plant. Predecessor closed this facility in 1991 due to the start-up of a
competing plant by Solvay Minerals Company (formerly Tenneco Soda Ash Company)
("Solvay") in Green River, Wyoming. The principal raw materials for the
Tuscaloosa Plant to produce synthetic sodium sulfite are caustic soda and
sulfur. In 1991, due to Solvay's raw material position, Predecessor concluded
that Solvay had a significant cost advantage over Predecessor more than
offsetting the additional freight Solvay would incur to service Predecessor's
market in the southeastern United States. At that time, Predecessor entered into
an arrangement with Solvay to sell Solvay a copy of Predecessor's customer list
in return for a royalty and to produce synthetic sodium sulfite on Solvay's
behalf until Solvay's plant became operational. In January 1993, Predecessor
made a final determination to terminate its efforts to find alternative uses for
the facility. Consequently, Predecessor recognized a provision for loss on
disposal of $2.3 million in order to reduce Predecessor's carrying value to $.5
million as of March 31, 1993. Subsequently, Predecessor was approached by a
number of caustic soda producers with very low, multi-year pricing on caustic
soda. Based on these proposals, Predecessor's management concluded that
Predecessor could again profitably produce and deliver synthetic sodium sulfite
to customers in the Southeast. Predecessor has negotiated agreements with
suppliers that will keep this cost advantage for a minimum of two years.
Predecessor commenced efforts to reopen the Tuscaloosa Plant in October 1993 and
began producing and marketing synthetic sodium sulfite in March 1994. The cost
to reopen the Tuscaloosa Plant was approximately $400,000. Due to the decision
to restart the Tuscaloosa Plant, in October 1993, Predecessor reversed $1.0
million of the aforementioned $2.3 million provision in October 1993.
In the twelve-month period ended March 31, 1994, INDSPEC booked income from
royalty payments from Solvay of $150,000 compared to $1.3 million in the prior
year.
Selling, research, general and administrative expenses increased 13% due to
higher fees paid to Castle Harlan for management services and to higher employee
compensation costs, principally compensation for officers.
In September 1993, Predecessor accepted from the Russian government an
amount that netted Predecessor approximately $700,000 after all expenses as
final payment for an outstanding receivable in the amount of $1.3 million. This
receivable related to sales of resorcinol to the former Soviet Union in February
and March of 1990. After attempting to collect the receivable for three years,
Predecessor elected to reflect an expense of $1.3 million to fully reserve
against the probable loss on this receivable. Due to the collection of a portion
of this receivable, Predecessor reflected an increase in other income of
$737,000.
As part of the 1993 Transactions and early retirement of debt, Predecessor
incurred transaction expenses during the period April 1, 1993 to December 2,
1993. These transaction expenses totaled $14.0 million (before tax benefit of
$5.5 million) and consisted of $8.1 million in premiums for the early retirement
of debt and preferred stock, $3.6 million to write off unamortized financing
costs and to properly reflect the face amount of junior subordinated debentures
that were originally issued at a discount, $.6 million to unwind interest rate
swap agreements, and $1.7 million of net interest cost for the defeasance of the
debt and junior subordinated debentures of Predecessor. These costs are
reflected as an extraordinary expense of Predecessor. Additionally, INDSPEC
incurred $11.2 million of transaction costs as follows: fees associated with the
subordinated debentures of $4.2 million, fees associated with the term debt of
$4.2 million, and other fees of $2.8 million. These fees have been capitalized
and are being amortized over the life of the related debt or goodwill.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1993
Revenue from products produced at the Petrolia Plant for 1993 increased 12%
due principally to a 10% increase in the volume of resorcinol sold. Domestic
volume for resorcinol increased 14% due to higher usage of resorcinol as a fire
retardant and generally improved conditions in the tire industry. Unit pricing
on resorcinol declined 4% compared to the average for 1992. Export volume
increased 6% due to increased volume in
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<PAGE> 62
Europe. Unit pricing on export sales of resorcinol increased 12% over the prior
year levels. Revenue from toll production of resorcinol for Goodyear increased
9% due to a 12% volume increase. Revenue from the sale of resorcinol resins
increased 17% due to a 13% increase in volume and a 4% price increase. The
increase in volume was due to higher production levels at domestic tire plants.
Revenue from sales of resorcinol adhesives declined 2% with an 8% increase in
volume offsetting a 10% decline in unit pricing. In 1993, INDSPEC developed a
new resorcinol adhesive system that utilizes a liquid hardener and has gained
excellent acceptance in the adhesive industry. Net revenue from the sale of
by-product sulfite declined 17% due entirely to lower average net selling
prices. INDSPEC continued to sell more of its sulfite in export markets which
require higher freight costs. Revenue from the sale of saltcake increased 7% due
to higher volume; however, in the fourth quarter of 1993 INDSPEC began
experiencing difficulty selling all its saltcake. The principal reasons for the
lower demand were the low cost of alternate materials and lower demand for
saltcake as more paper companies switched to recycled materials as their
principal feedstock. Revenue from the sale of other resorcinol derivatives
increased 15%. These products comprised approximately 2% of sales.
Revenue from synthetic sodium sulfite declined from $5.2 million to $1.3
million due to the termination of production for Solvay from the Tuscaloosa
Plant.
Overall cost of sales as a percent of revenue before depreciation and
amortization on products produced at the Petrolia Plant declined from 60% to 57%
due to generally high operating rates at the Petrolia Plant. Net raw material
costs increased 5% due to lower by-product credits. During the fourth quarter
caustic soda prices began declining. Plant costs excluding depreciation and
amortization increased 5% over 1992; however, since the plant produced 7% more
resorcinol than in 1992, the per unit cost of producing resorcinol was
unchanged. The termination of production of synthetic sodium sulfite at the
Tuscaloosa Plant resulted in a $3.4 million reduction in cost of goods sold.
Selling, research, general and administrative expenses increased by $1.1
million during 1993 due to payment of profit sharing expenses in the quarters
ended June 30 and September 30, 1992 in the aggregate amount of $546,000.
LIQUIDITY AND CAPITAL RESOURCES
NINE-MONTH PERIOD ENDED DECEMBER 31, 1995
INDSPEC generated $33.0 million of earnings before depreciation, interest,
taxes and amortization for the nine months ended December 31, 1995 compared to
$26.8 million for the same period of the prior year, an increase of 23%. During
the nine months ended December 31, 1995, INDSPEC repaid $13.6 million of
borrowings from its term lenders. INDSPEC also recognized interest expense of
$7.3 million related to Chemical's subordinated discount notes, none of which
was payable in cash. In May 1995, INDSPEC utilized its credit facility to redeem
$8.3 million of Chemical's subordinated notes at a pre-tax gain of $589,000.
These notes were originally acquired by Lehman Brothers, Inc. as part of a swap
agreement discussed more fully below. Inventory increased from $14.9 million as
of March 1995 to $20.0 million as of December 31, 1995 as INDSPEC increased its
inventory of resorcinol through September in anticipation of a maintenance
turnaround in October and then experienced lower than anticipated demand
following the turnaround.
During the nine months ended December 31, 1995, INDSPEC expended a total of
$4.6 million on capital expenditures to maintain the plant and make necessary
environmental and production improvements. INDSPEC has established a budget of
approximately $7.0 million for capital expenditures for the fiscal year ended
March 1996. INDSPEC anticipates that internally generated funds, coupled with
short-term borrowings under its $20 million credit facility will continue to be
sufficient to fund domestic and international operations, capital investment,
and research and development.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1995
INDSPEC generated $38.8 million of EBITDA in fiscal 1995 compared to $35.6
million in the prior twelve months, an increase of 9%. INDSPEC utilized these
earnings to fund $5.6 million of capital expenditures, to pay $8.4 million of
cash interest expense, to retire $14.3 million of term debt (including
revolver), to retire $10.2 million of Chemical's subordinated notes and the
balance to fund working capital
54
<PAGE> 63
requirements. After giving effect to accretion on the subordinated discount
notes, INDSPEC retired $14.9 million of debt in 1995. In December 1994, INDSPEC
entered into an interest rate swap agreement with Lehman Brothers, Inc. that
allowed INDSPEC to pay interest on a current basis on $12.9 million face amount
($8.3 million of accreted value) of subordinated notes at the floating rate of
LIBOR plus 2 1/4 points for a six-month period. As part of that transaction,
Lehman and INDSPEC agreed that INDSPEC would bear the economic risk of any gain
or loss during the six-month swap period and that INDSPEC would have the right,
but not the obligation, to repurchase the notes at Lehman's basis during the
swap period.
Sales denominated in foreign currencies and the related accounts receivable
are recognized in U.S. dollars using the exchange rates in effect at the date of
the sale (measurement dates). INDSPEC had $4,300,000 and $5,100,000 of trade
receivables denominated in foreign currencies at March 31, 1994 and March 31,
1995, respectively. In addition, at March 31, 1995, INDSPEC had forward exchange
contracts, which mature throughout 1995, to purchase $7,400,000 with Dutch
guilders. Unrealized gains and losses are recognized in income for the effect of
fluctuations in exchange rates from the measurement dates to the end of
INDSPEC's reporting period.
The income tax rate is less than the statutory rate in both the 1995 and
1994 periods principally as a result of changes in net deferred tax assets and
liabilities. The differences between pre-tax income and taxable income relate
primarily to depreciation and amortization. Deferred tax assets include all net
operating loss (NOL) carryforwards available to INDSPEC. Under SFAS No. 109,
which INDSPEC adopted as of April 1, 1993, INDSPEC was required to record the
net realizable value of these NOL carryforwards as an asset for book purposes.
The reserve remained unchanged for 1995. These NOL carryforwards expire in the
years 2004 through 2009.
INDSPEC anticipates that internally generated cash flow, together with the
revolving loan facility, will be sufficient to fund domestic and international
operations, research and development and its obligations to its creditors,
including any early retirement of debt.
INDSPEC expects to spend $7.0 million on capital expenditures in 1996
compared to expenditures of $5.1 million, $3.0 million, $1.5 million, and $5.6
million for 1993, for the period April 1, 1993 to December 2, 1993, for the
period December 3, 1993 to March 31, 1994, and 1995, respectively. The planned
expenditures relate principally to improvements at the Petrolia Plant and
include expenditures designed to increase its annual capacity by an additional
2-3 million pounds. The Senior Credit Facility contains a covenant that
restricts capital expenditures to $8.5 million per year plus up to $3.0 million
of unutilized allowance to be carried forward to the next year.
The Senior Credit Facility and the Indenture also contain limitations on
INDSPEC's ability to incur additional indebtedness, transfer assets, pay
dividends, and guarantee the indebtedness of others. In addition, the Senior
Credit Facility provides for mandatory prepayments of the term loans and,
following repayment of the term loans, reductions to the commitments under the
revolving loan facility, in amounts equal to 100% of the net proceeds from the
issuance of any additional debt and sales of stock of INDSPEC, 100% of the net
proceeds from any asset sales by INDSPEC, subject to certain exceptions, and 50%
of annual excess cash flow of INDSPEC. Each of these provisions could limit
INDSPEC's ability to expand its operations. The consent of the lenders under the
Senior Credit Facility is required to permit consummation of the Transactions
contemplated by the Exchange Agreement.
55
<PAGE> 64
MANAGEMENT OF INDSPEC
DIRECTORS AND EXECUTIVE OFFICERS OF INDSPEC
The directors and executive officers of INDSPEC, each of whom has served
INDSPEC in the capacities indicated since consummation of the 1993 Transactions
on December 2, 1993, are as follows:
<TABLE>
<CAPTION>
POSITION WITH INDSPEC POSITION WITH INDSPEC
NAME AGE CHEMICAL CORPORATION HOLDING CORPORATION
- ---------------------- ---- --------------------------------- ------------------------
<S> <C> <C> <C>
Frank M. Spinola 51 President, Chief Executive President and Class A
Officer and Director Director
Ernie L. Danner 41 Executive Vice President, Chief Vice President,
Financial Officer and Director Treasurer and Class A
Director
Donald V. Todd 60 Vice President, Sales and
Marketing
Fred M. Covelli 53 Vice President, Research and
Development
William S. Lee 43 General Counsel, Vice President Secretary
and Secretary
Jerome W. Wagoner 53 Assistant Vice President,
Petrolia Plant Operations
Barbara B. Buchner 43 Assistant Vice President, Quality
Assurance
Jan Roozenbeek 63 Assistant Vice President-Europe
John K. Castle 55 Director Class B Director
T. J. Dermot Dunphy 63 Director Class B Director
Vincent R. Scorsone 60 Director Class A Director
Jeffrey M. Siegal 36 Director Class B Director
</TABLE>
FRANK M. SPINOLA served as President, Chief Executive Officer and a
director of Predecessor from its formation in December 1988. Prior thereto, Mr.
Spinola was employed by Koppers for 22 years, most recently as a Vice President
and the General Manager of the Industrial Specialty Chemicals division ("ISC")
from January to December 1988 and as the Manager of the Industrial Products
division's plant in Cicero, Illinois from 1984 to 1988. From 1966 to 1984, he
served in various operational and managerial positions with Koppers. Mr. Spinola
also serves as a member of Chemical's executive committee, as President of the
Business Trust and as President and a director of INDSPEC Technologies
Corporation, the trustee of the Business Trust (the "Business Trustee").
ERNIE L. DANNER joined Predecessor upon its formation in December 1988 and
served as Vice President, Chief Financial Officer and Treasurer. Prior to that
time, he was the Vice President--Finance, Administration and Planning of Adams &
Porter, an international agency specializing in marine and energy insurance,
from 1984 to December 1988. Mr. Danner also serves as Vice President and
Treasurer of the Business Trust and as Vice President and Treasurer and a
director of the Business Trustee.
DONALD V. TODD was employed by Koppers for 30 years, most recently as the
Manager of Sales and Marketing of ISC from 1986 to 1988 and as the Regional
Sales Manager of ISC from 1983 to 1986, prior to joining Predecessor upon its
formation in December 1988. From 1958 to 1983, he served in various technical,
sales and marketing positions with Koppers.
FRED M. COVELLI was employed by Koppers for 23 years, most recently as the
Manager of Business Development -- Resorcinol Products of ISC from 1987 to 1988
and as the Manager of the Antioxidants and Specialty Chemicals Department of ISC
from 1982 to 1987, prior to joining Predecessor upon its formation in December
1988. From 1965 to 1982, he served in various research and engineering
capacities with Koppers.
WILLIAM S. LEE served as General Counsel and Secretary of Predecessor
beginning in June 1989. He is an attorney, licensed in Pennsylvania and Texas.
He is also a CPA, licensed in Texas. From 1981 until joining
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<PAGE> 65
Predecessor, he was in private practice with Golden, Potts, Boeckmen, and
Wilson, a Dallas, Texas law firm. Mr. Lee also serves as Secretary of the
Business Trust and the Business Trustee.
JEROME W. WAGONER was employed by Koppers for 28 years, most recently as
the Plant Manager of the Petrolia Plant from 1978 to 1988 when he joined
Predecessor. From 1960 to 1978, he served in various operational positions with
Koppers.
BARBARA B. BUCHNER was employed by Koppers for 12 years, most recently as
the Director of Quality Assurance of the Chemical Systems Sector from 1984 to
1988 and as the Manager of Product Quality for ISC from 1982 to 1984, prior to
joining Predecessor upon its formation in December 1988. From 1976 to 1982, she
worked in the Resorcinol Products Development Group of Koppers.
JAN ROOZENBEEK was elected as Assistant Vice President -- Europe of
Predecessor in January 1992. Prior to that time, he served as Predecessor's
Director of Sales--Europe. Prior to the Original Acquisition, Mr. Roozenbeek was
employed by Koppers for 23 years in various sales positions. Mr. Roozenbeek has
managed the Rotterdam office since 1987.
JOHN K. CASTLE is Chairman of Castle Harlan, President and Chief Executive
Officer of Branford Castle, Inc., an investment company, and a General Partner
of Legend Capital Group, L.P. He is also Chairman of Castle Harlan GP, Inc., the
general partner of the general partner of CHPII. Immediately prior to forming
Branford Castle, Inc. in 1986, Mr. Castle was President and Chief Executive
Officer and a director of Donaldson, Lufkin & Jenrette, which he joined in 1965.
Mr. Castle is a director of UNC, Inc., Sealed Air Corporation, and the Quantum
Restaurant Group, Inc. He is also a trustee of the New York Medical College (for
11 years he was Chairman of the Board), a member of the Corporation of the
Massachusetts Institute of Technology and has served as a director of Equitable
Life Assurance Society of the United States. Mr. Castle also serves as a member
of Chemical's executive and compensation committees, a member of INDSPEC's
compensation committee and as a director of the Business Trustee.
T. J. DERMOT DUNPHY has been the Chief Executive Officer, President and a
director of Sealed Air Corp. (a protective packaging products and systems
manufacturer) since 1971. Mr. Dunphy is also a director of Public Service
Enterprise Group, Inc., United Jersey Bank and UJB Financial Corp. Mr. Dunphy
serves as a member of the compensation committee of each of Chemical and
INDSPEC.
VINCENT R. SCORSONE served as a Director of Predecessor since January 1989.
Mr. Scorsone was employed by Aluminum Company of America, an aluminum
manufacturing company, from 1960 until his retirement in January 1994, most
recently serving as Executive Vice President -- Chairman's Counsel from 1991 to
1994, the Group Vice President -- Alcoa Aerospace & Industrial Products from
1986 to 1991, the Group Vice President -- Primary Products from 1985 to 1986,
the Group Vice President -- Primary Metals from 1984 to 1985, and the Vice
President -- Primary Metals from 1982 to 1984. Mr. Scorsone serves as a member
of INDSPEC's audit committee. Mr. Scorsone is also a director of Quanex Corp.
JEFFREY M. SIEGAL has been an executive with Castle Harlan from 1989 to the
present. He currently serves as Managing Director. From 1984 until 1987, he
served in the Air Force Systems Command of the United States Air Force,
ultimately as a Captain and Program Manager. Mr. Siegal also serves as a member
of Chemical's executive and audit committees and as a director of the Business
Trustee.
Each director holds office until the next annual meeting of stockholders
and until a successor has been elected and has qualified. Officers are elected
by the Board of Directors and serve at its discretion.
Upon consummation of the Exchange Offers, Messrs. Castle, Dunphy and Siegel
will resign, and Occidental will be entitled to elect all of the Class B
Directors. See "The Exchange Offers -- Management of INDSPEC After the Exchange
Offers."
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EXECUTIVE COMPENSATION
All compensation of INDSPEC employees is paid by Chemical. Additionally,
Chemical is the INDSPEC party to the employment agreements discussed below.
The following table sets forth the compensation received from INDSPEC by
Mr. Spinola and the four highest paid officers ("Named Executives") for the
fiscal year 1995, the fiscal period that began December 2, 1993 and ended March
31, 1994, and from Predecessor for fiscal year 1993 and for the fiscal period
that began April 1, 1993 and ended December 2, 1993.
SUMMARY COMPENSATION TABLE
INDSPEC
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS COMPENSATION(4)
NAME AND POSITION YEAR(1) ($) ($) ($) (#) ($)
- ----------------------- -------- -------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
F.M. Spinola 1995 $302,533 $250,000 -- -- $2,839
President and CEO of 12/2/93- 96,012 83,333 -- 1,773 4,255
Chemical, President of 3/31/94
INDSPEC
E.L. Danner 1995 $175,782 $175,000 -- -- $2,839
Executive V.P., CFO of 12/2/93- 58,829 50,000 -- 591 2,763
Chemical, 3/31/94
V.P. and Treasurer of
INDSPEC
D.V. Todd 1995 $156,108 $207,131 $2,811 -- $2,831
V.P., Sales and 12/2/93- 43,239 55,454 2,702 502 2,194
Marketing of Chemical 3/31/94
F.M. Covelli 1995 $126,808 $112,800 $2,100 -- $2,316
V.P., Research and 12/2/93- 38,299 42,356 -- 502 2,073
Development 3/31/94
of Chemical
W.S. Lee 1995 $143,392 $100,000 -- -- $2,718
General Counsel, V.P. 12/2/93- 43,241 33,333 -- 502 2,097
and Secretary of 3/31/94
Chemical, Secretary of
INDSPEC
PREDECESSOR
F.M. Spinola 4/1/93-
President and 12/2/93 $133,711 $243,502 -- -- --
CEO 1993 190,008 14,723 -- -- $4,042
E.L. Danner 4/1/93-
Executive V.P., 12/2/93 $ 80,709 $145,100 -- -- --
CFO 1993 114,408 6,649 -- -- $2,410
D.V. Todd 4/1/93-
V.P., Sales 12/2/93 $ 69,199 -- $1,981 -- --
and Marketing 1993 98,808 $ 5,742 3,696 -- $2,081
F.M. Covelli 4/1/93-
V.P., Research 12/2/93 $ 68,477 -- -- -- --
and Development 1993 98,808 $ 5,742 -- -- $2,081
W.S. Lee 4/1/93-
General Counsel 12/2/93 $ 68,477 $ 98,400 -- -- --
and Secretary 1993 98,808 5,742 -- -- $2,081
- ---------------
(1) Since INDSPEC began operations on December 2, 1993, the compensation from
INDSPEC for its initial fiscal period covers only the period from December
2, 1993 to March 31, 1994.
</TABLE>
58
<PAGE> 67
(2) For the period ended March 31, 1994, bonus consists of the amounts earned in
the fiscal period pursuant to the employee's employment contract discussed
below. For the Predecessor fiscal period ended December 2, 1993, bonus
consists of amounts paid at the direction of the board of Predecessor for
efforts related to the 1993 Transactions. For Predecessor's fiscal year
1993, bonus consists of amounts earned in the fiscal period pursuant to the
profit-sharing plan of Predecessor.
(3) Other Annual Compensation consists of personal use of company cars (2/3 of
the amount shown) and gross-up payments for tax liabilities incurred in
connection with personal use of company cars (1/3 of the amount shown).
(4) All Other Compensation consists of the executive's share of employer ESOP
contributions for the ESOP Plan Year that ended during the fiscal year
shown. INDSPEC's contributions are allocated to each participant based on
his or her salary and wages relative to total salary and wages for all ESOP
participants.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted during the fiscal year ended March 31, 1995.
There is no program regarding stock appreciation rights (SAR).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
During the fiscal period ended in 1994, the Named Executives were granted
options to purchase INDSPEC Common Stock at a price of $450 per share, the fair
market value at the date of grant. The options vest ratably over a three-year
period from the date of the grant, subject to an extended vesting schedule as
the result of a $100,000 per year limitation, which causes Mr. Spinola's options
to vest over an eight-year period.
The Named Executives also hold stock options which were granted in 1989
pursuant to the terms of the Incentive Stock Option Plan of Predecessor. Under
the terms of that plan, options were granted to certain key employees to acquire
Class A Voting Common Stock of Predecessor at a price of $100 per share, the
fair market value of the stock at the date of grant. The options vested ratably
over a three-year period from the date of the grant. In connection with the 1993
Transactions, the Incentive Stock Options of Predecessor which remained
outstanding were converted into options to purchase INDSPEC Common Stock.
The following table presents the value of unexercised options held by the
Named Executives at fiscal year-end. There is no program regarding stock
appreciation rights. No options were exercised by the Named Executives in the
last completed fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
NAME EXERCISABLE(E)/UNEXERCISABLE(U) EXERCISABLE(E)/UNEXERCISABLE(U)
- ------------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
F.M. Spinola......................... 1,722E $1,386,000E
1,551U $ 775,500U
E.L. Danner.......................... 1,197E $ 948,500E
394U $ 197,000U
D.V. Todd(2)......................... 167E $ 83,500E
335U $ 167,500U
W.S. Lee............................. 1,017E $ 806,000E
335U $ 167,500U
F.M. Covelli......................... 1,167E $ 933,500E
335U $ 167,500U
- ---------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of the fiscal year-end. In the absence of an
established market value for the stock, the value of the stock as reflected
in the appraisal of fair market value of shares held by the ESOP as of
December 31, 1994 is considered as the fair market value.
(2) Mr. Todd sold 1,000 Predecessor Incentive Stock Options pursuant to the 1993
Transactions in December, 1993.
</TABLE>
59
<PAGE> 68
PENSION PLAN
Predecessor had a Retirement Plan for Salaried Employees (the "Retirement
Plan") covering substantially all salaried employees, including the executive
officers of Predecessor. The Retirement Plan was assumed by INDSPEC in
connection with the 1993 Transactions. In general, a participant's benefits
under the Retirement Plan will commence upon retirement following attainment of
age 65 and are based on a vesting percentage multiplied by the number of years
that the participant has been a salaried employee ("Credited Service") according
to a formula that computes the participant's benefit based on Credited Service,
Terminal Salary, and Covered Compensation at the time of retirement, as follows:
For the first 35 years of Credited Service, the annual normal retirement benefit
is computed by multiplying Credited Service (but not to exceed 35 years) by
1.35% of Terminal Salary not in excess of Covered Compensation, plus 1.75% of
Terminal Salary exceeding Covered Compensation. Each year of Credited Service in
excess of 35 years adds 1.75% of Terminal Salary to the benefit. The term
"Terminal Salary" excludes amounts received under the Profit Sharing Plan of
INDSPEC and one half of the bonuses and generally is defined as the average
annual salary of the participant for the five highest consecutive years of the
participant's last ten years of Credited Service preceding retirement or during
all years of Credited Service if fewer than five years. The plan contains
provisions which grant Credited Service for employment at Koppers, and offset
benefits payable under the Koppers pension plan from the benefits payable under
the Retirement Plan. The term "Covered Compensation" means, generally, the
average of the taxable wage bases in effect during the 35-year period ending
with the year in which the participant attains, or will attain, Social Security
normal retirement age. In the event that a participant's employment with INDSPEC
terminates prior to age 65, he or she may be entitled to have the payment of his
or her benefits commence early; however, a participant's benefits that are paid
prior to age 65 may be reduced to reflect such early payment. During the last
fiscal year, the Retirement Plan was amended to reflect the $150,000 limitation
on compensation imposed by recently effective amendments to the Code.
In addition to the Retirement Plan, the Company also maintains a
non-qualified, unfunded supplemental executive retirement plan (the
"Supplemental Plan") that provides highly paid employees with the portion of
their retirement benefits not permitted to be paid from the Retirement Plan due
to limitations imposed by the Code. The following table illustrates the
estimated annual benefits provided under the Retirement Plan and the
Supplemental Plan without reduction for any offset amounts. Such benefit levels
assume retirement at age 65, the years of Credited Service shown, the applicable
Covered Compensation for a participant retiring at age 65 in 1995, and the
continued existence of the Retirement Plan and the Supplemental Plan without
substantial change.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
- -------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 7,713 $ 11,570 $ 15,426 $ 19,283 $ 23,140 $ 26,996 $ 31,371
100,000 16,463 24,695 32,926 41,158 49,390 57,621 66,371
150,000 25,213 37,820 50,426 63,033 75,640 88,246 101,371
200,000 33,963 50,945 67,926 84,908 101,890 118,871 136,371
250,000 42,713 64,070 85,426 106,783 128,141 149,496 171,371
300,000 51,463 77,195 102,926 128,658 154,390 180,121 206,371
350,000 60,213 90,320 120,426 150,533 180,640 210,746 241,371
400,000 68,963 103,445 137,926 172,408 206,890 241,371 276,371
450,000 77,713 116,570 155,426 194,283 233,140 271,996 311,371
500,000 86,463 129,695 172,926 216,158 259,390 302,621 346,371
</TABLE>
The number of years of Credited Service of each of the Named Executives is
as follows: Frank M. Spinola -- 28 years; Ernie L. Danner -- 6 years; Donald V.
Todd -- 36 years; Fred M. Covelli -- 29 years; and William S. Lee -- 6 years.
For each of these persons the current compensation credited by the Retirement
Plan and Supplemental Plan is equal to the amount shown in the "Salary" column
of the Summary
60
<PAGE> 69
Compensation Table, plus one-half of the amount shown in the "Bonus" column for
the period ended March 31, 1995.
COMPENSATION OF DIRECTORS
Directors (other than Messrs. Castle, Danner, Siegal and Spinola) receive
an annual fee of $15,000 and a fee of $600 for each meeting of the Board of
Directors or any committee thereof attended. INDSPEC reimburses directors for
their travel expenses.
EMPLOYMENT AND OTHER AGREEMENTS
INDSPEC and Chemical are parties to employment agreements with Messrs.
Spinola, Danner, Lee, and Covelli for terms that will expire at the earlier of
December 31, 2000 or the Conversion Date (the "Agreement Term"). Thereafter
INDSPEC will have the right to terminate such officer's employment, with or
without cause, as of the last day of any month, upon 60 days prior written
notice.
Mr. Spinola's New Employment Agreement provides for (i) an initial annual
base salary of $289,000 which is subject to required increases related to
increases in the base salary of the next highest paid employee; (ii) an annual
bonus of the greater of 50% of his salary at the time or $250,000 if certain
performance goals are met; (iii) options, which were granted in 1993, to
purchase 1,773 shares of INDSPEC Common Stock at an exercise price of $450 per
share, with such options vesting ratably over an eight-year period; (iv)
INDSPEC's obligation upon Mr. Spinola's death to repurchase certain INDSPEC
shares and stock options owned by Mr. Spinola at the higher of $450 per share of
Class A Common Stock or, if higher, the value of such Class A Common Stock as
determined for purposes of calculating the Put Offer Ratio as though the
exchange date for the Put Offer were the date of Mr. Spinola's death, less, in
the case of unexercised options, the amount of the aggregate exercise prices of
such options; (v) Mr. Spinola's title with Chemical to include president and
chief executive officer; (vi) severance payments following termination of Mr.
Spinola's employment under certain circumstances, including termination
following a change in control of INDSPEC; and (vii) certain enhanced retirement
benefits.
Mr. Danner's New Employment Agreement provides for (i) an annual base
salary of $175,000; (ii) an annual bonus of the greater of 50% of his salary at
the time or $150,000 if certain performance goals are met; (iii) options, which
were granted in 1993, to purchase 591 shares of INDSPEC Common Stock at an
exercise price of $450 per share, with such options vesting ratably over a
three-year period; (iv) INDSPEC's obligation, upon Mr. Danner's death, to
repurchase certain INDSPEC stock options owned by Mr. Danner at the higher of
$450 per share of Class A Common Stock into which such options are exercisable
or, if higher, the value of such Class A Common Stock as determined for purposes
of calculating the Put Offer Ratio as though the exchange date for the Put Offer
were the date of such officer's death, less the amount of the aggregate exercise
price of such options; (v) Mr. Danner's title with Chemical to include executive
vice president; (vi) severance payments following termination of Mr. Danner's
employment under certain circumstances, including termination following a change
in control of INDSPEC; and (vii) certain enhanced retirement benefits.
Mr. Lee's New Employment Agreement provides for (i) an annual base salary
of $130,000; (ii) an annual bonus of the greater of 50% of his salary at the
time or $100,000 if certain performance goals are met; (iii) options, which were
granted in 1993, to purchase 502 shares of INDSPEC Common Stock at an exercise
price of $450 per share, with such options vesting ratably over a three-year
period; (iv) INDSPEC's obligation, upon Mr. Lee's death, to repurchase certain
INDSPEC stock options owned by Mr. Lee at the higher of $450 per share of Class
A Common Stock into which such options are exercisable or, if higher, the value
of such Class A Common Stock as determined for purposes of calculating the Put
Offer Ratio as though the exchange date for the Put Offer were the date of such
officer's death, less the amount of the aggregate exercise price of such
options; (v) Mr. Lee's title with Chemical to include vice president; (vi)
severance payments following termination of Mr. Lee's employment under certain
circumstances, including termination following a change in control of INDSPEC;
and (vii) certain enhanced retirement benefits.
61
<PAGE> 70
Mr. Covelli's New Employment Agreement provides for (i) an annual base
salary of $130,000; (ii) an annual bonus based on a percentage of Mr. Covelli's
base salary based on company-wide goals; (iii) options, which were granted in
1993, to purchase 502 shares of INDSPEC Common Stock at an exercise price of
$450 per share, with such options vesting ratably over a three-year period; (iv)
Mr. Covelli's title with Chemical to include vice president; (v) severance
payments following termination of Mr. Covelli's employment under certain
circumstances, including termination following a change in control of INDSPEC;
and (vi) certain enhanced retirement benefits.
INDSPEC and Chemical are also parties to an employment agreement with Mr.
Todd that expires March 31, 1997. Mr. Todd's employment agreement provides for
(i) an annual base salary of $155,000; (ii) an annual bonus based on a
percentage of Mr. Todd's base salary based on company-wide goals; (iii) options,
which were granted in 1993, to purchase 502 shares of INDSPEC Common Stock at an
exercise price of $450 per share, with such options vesting ratably over a
three-year period; (iv) severance payments following termination of Mr. Todd's
employment under certain circumstances, including termination following a change
in control of INDSPEC; (v) if Mr. Todd tenders in the Exchange Offers all shares
of Class A Common Stock that he is entitled to receive upon exercise of vested
Options and less than all of such shares are accepted, Mr. Todd may surrender
all of such Options to INDSPEC in exchange for a payment of an amount equal to
$1,768.57 multiplied by the number of shares underlying such options that were
not acquired by Occidental in the Exchange Offers, (vi) in the event of Mr.
Todd's retirement after December 31, 1996, if Mr. Todd so elects, the surrender
by Mr. Todd before June 30, 1997, under certain circumstances of any remaining
vested Options in consideration for the greater of $2,218.57 per share or the
aggregate dollar value per share of Occidental Common Stock that would be
received in a Put Offer if the date of surrender were the Put Offer exchange
date, minus the aggregate exercise price, and (vii) for the proportional payment
of Mr. Todd's annual bonus if Mr. Todd should retire on a day other than the
last day of INDSPEC's fiscal year.
Each New Employment Agreement provides that the executive has the right to
require INDSPEC, subject to certain conditions, to include any INDSPEC shares
owned by him in registration statements filed under the Securities Act with
respect to INDSPEC shares.
Each New Employment Agreement also provides for the maintenance of the
Incentive Stock Option Plan adopted December 2, 1993, including the
acceleration, upon a change in control, of the vesting of options granted
pursuant thereto and that, if within two years after a change of control of
Chemical, such executive's employment is discontinued for any reason other than
death, disability or cause, INDSPEC will be obligated to pay such executive
severance equal to twice his annual salary plus the average of the bonus amounts
paid him under the agreement and to provide certain enhanced retirement
benefits, disability benefits and continuing health care coverage.
CERTAIN INDSPEC RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the 1993 Transactions, on December 2, 1993 Chemical entered into
the Management Agreement with Castle Harlan pursuant to which Castle Harlan
agreed to provide Chemical with business and organizational strategy, financial
and investment management, and merchant and investment banking services in order
to assist Chemical's strategic planning process, facilitate relations with the
financial and investment banking community and maximize stockholder value. In
consideration for those services, Chemical agreed to pay to Castle Harlan on a
quarterly basis an annual management fee of $1 million; provided, that such
management fee is not payable in any fiscal year unless INDSPEC's Consolidated
EBITDA (as defined in the Senior Credit Facility) for such fiscal year exceeds
$22 million; and provided, that such management fee is not payable in cash (but
accrues) if a cash payment is prohibited by the terms of the Senior Credit
Facility. Castle Harlan has waived payment of fees under the Management
Agreement that would accrue between January 1, 1996 and April 30, 1996 if the
Exchange Offers are consummated on or prior to June 30, 1996.
The Management Agreement is for a term of nine years commencing on December
2, 1993, provided, that (i) it may be terminated on December 2, 1999 on 60 days'
notice if a majority of the directors of Chemical who are not affiliates,
officers, employees or former employees of Castle Harlan or Chemical find
62
<PAGE> 71
that Castle Harlan has failed to provide services under the Management Agreement
adequately to Chemical and (ii) it terminates on the date on which CHPII or any
other investment fund controlled by John K. Castle and/or Leonard M. Harlan, or
either of them, transfers for consideration to one or more unaffiliated third
parties at least a majority of the shares of INDSPEC Common Stock owned by CHPII
on December 2, 1993 after giving effect to stock splits or other
recapitalizations. Chemical and Castle Harlan intend to enter into an agreement
terminating the Management Agreement, effective as of the Closing Date, except
for continuation of Chemical's obligations to indemnify Castle Harlan as
provided in the Management Agreement.
At the time of the 1993 Transactions, Chemical entered into employment
agreements with Messrs. Spinola, Danner, Lee, Todd and Covelli. Prior to the
Merger, INDSPEC terminated the Old Employment Agreements and entered into the
New Employment Agreements with Messrs. Spinola, Danner, Lee and Covelli. The
termination of the Old Employment Agreements and the effectiveness of the New
Employment Agreements is conditioned on, and occurs upon, the Closing of the
Exchange Offers. INDSPEC and Mr. Todd also entered into an amendment to Mr.
Todd's employment agreement, the effectiveness of which is conditioned on the
Closing of the Exchange Offers. See "Management of INDSPEC -- Employment and
Other Agreements."
See also "The Exchange Offers -- Interests of Certain Persons in the
Exchange Offers."
63
<PAGE> 72
PRINCIPAL INDSPEC STOCKHOLDERS
The following table sets forth certain information as of March 22, 1996
(assuming that the Merger had been consummated) with respect to (1) each person
known to INDSPEC to be the beneficial owner of more than 5% of the outstanding
shares of INDSPEC Common Stock, (2) each director of INDSPEC, (3) each Named
Executive and (4) all directors and executive officers of INDSPEC (including
Chemical) as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF SHARES OF CLASS B PERCENTAGE OF CLASS A AND
DIRECTORS, NAMED OFFICERS SHARES OF CLASS A CLASS A COMMON COMMON CLASS B COMMON CLASS B COMMON
AND 5% BENEFICIAL OWNERS COMMON STOCK(1)(2) STOCK(1) STOCK(1)(2) STOCK(1) STOCK(1)
- ------------------------- ------------------ --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Castle Harlan
Partners II, L.P. -- -- 26,792 90.83% 57.32%
150 East 58th Street
New York, NY 10115
John K. Castle(3) -- -- 26,792 90.83 57.32
150 East 58th Street
New York, NY 10115
Ernie L. Danner(4) 2,530 13.58% -- -- 5.26
T. J. Dermot Dunphy -- -- 556 1.89 1.19
Vincent R. Scorsone 250 1.45 -- -- *
Jeffrey M. Siegal 25 * 31 -- *
Frank M. Spinola(4) 2,424 12.55 1,920 6.51 8.90
411 Seventh Avenue
Suite 300
Pittsburgh, PA 15219
Fred M. Covelli 1,635 8.74 -- -- 3.39
William S. Lee(4) 1,935 10.50 -- -- 4.04
Donald V. Todd(4) 335 1.91 -- -- *
Pittsburgh National Bank,
as ESOP Trustee 9,600 55.68 -- -- 20.54
One Oliver Plaza
210 Sixth Avenue
Pittsburgh, PA 15222
Directors and Executive 11,986 45.37 29,360 99.54 73.95
Officers as a group (12
persons)
- ---------------
* Less than one percent
(1) The numbers of shares of Class A Common Stock shown as owned include options
and warrants to purchase shares of Class A Common Stock that are exercisable
within 60 days of March 22, 1996. The numbers and percentages of shares
owned by each director and executive officer and by all directors and
officers as a group assume that such outstanding options and warrants had
been exercised as follows: Mr. Danner -- 1,394; Mr. Spinola -- 1,944; Mr.
Covelli -- 1,335; Mr. Lee -- 1,185; Mr. Todd -- 335; and all directors and
officers as a group (including such individuals) -- 9,177.
(2) Pursuant to the terms of the Voting Agreement, each person or entity
identified in the foregoing table as owning shares of Class B Common Stock
has agreed to tender (and not withdraw) in the Exchange Offer all such
shares of Class B Common Stock. Upon completion of the Exchange Offer,
Occidental would own all issued and outstanding shares of Class B Common
Stock. Effective until the Closing Date, Messrs. Dunphy and Siegal have
granted an irrevocable proxy to Mr. Castle with respect to their shares of
Class B Common Stock, and Messrs. Spinola, Danner and Lee have granted an
irrevocable proxy to Mr. Castle with respect to their shares of Class A
Common Stock.
(3) Mr. Castle and Leonard M. Harlan, whose address is 150 East 58th Street, New
York, NY 10155, are the controlling shareholders of the general partner of
the general partner of CHPII and may therefore be deemed to be the
beneficial owners of the shares of Class B Common Stock beneficially owned
by CHPII. Mr. Castle and Mr. Harlan disclaim beneficial ownership of shares
owned by CHPII other than such shares that represent their respective pro
rata partnership interests in CHPII.
(4) Pursuant to the terms of the Voting Agreement, each of Messrs. Danner and
Lee have agreed to tender (and not withdraw) in the Exchange Offer all
shares of Class A Common Stock owned by them. In the supplement to his
employment agreement, Mr. Todd has agreed to tender in the Exchange Offers
all shares of Class A Common Stock that he is entitled to receive upon
exercise of vested Options. Mr. Spinola has agreed to tender all of the
Class B Common Stock owned by him and not to tender in the Exchange Offer
any of the shares of Class A Common Stock owned by him.
</TABLE>
64
<PAGE> 73
LEGAL MATTERS
The validity of the Occidental Common Stock offered hereby will be passed
upon for Occidental by Robert E. Sawyer, Esq., Associate General Counsel of
Occidental. Mr. Sawyer beneficially owns, and has rights to acquire under
employee stock options, an aggregate of less than 1% of the outstanding
Occidental Common Stock.
EXPERTS
The audited financial statements and financial statement schedule of
Occidental Petroleum Corporation incorporated by reference in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports. Reference is made to said
reports, which include an explanatory paragraph with respect to the adoption by
Occidental, effective January 1, 1992, of Statement of Financial Accounting
Standards No. 106 and No. 109, as discussed in Note 4 to the consolidated
financial statements of Occidental.
The consolidated financial statements of INDSPEC Holding Corporation at
March 31, 1994 and 1995 and for the year ended March 31, 1993, the period from
April 1, 1993 to December 2, 1993, the period from December 3, 1993 to March 31,
1994 and the year ended March 31, 1995, included in and made a part of this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
65
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
INDSPEC Holding Corporation:
Report of Independent Auditors................................................ F-2
Consolidated Balance Sheets as of March 31, 1994 and 1995 and December 31,
1995 (unaudited)........................................................... F-3
Consolidated Statements of Operations for the year ended March 31, 1993, the
period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995 and the three- and
nine-month periods ended December 31, 1994 and 1995 (unaudited)............ F-4 to F-5
Consolidated Statements of Common Stockholders' Equity for the year ended
March 31, 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995 and
the nine months ended December 31, 1995 (unaudited)........................ F-6
Consolidated Statements of Cash Flows for the year ended March 31, 1993, the
period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995.......................... F-7
Consolidated Condensed Statements of Cash Flows for the nine months ended
December 31, 1994 and 1995 (unaudited)..................................... F-8
Notes to Financial Statements................................................. F-9 to F-25
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
INDSPEC Holding Corporation
We have audited the accompanying balance sheets of INDSPEC Holding
Corporation as of March 31, 1995 and 1994 and the related statements of
operations, common stockholders' equity, and cash flows for the year ended March
31, 1993, the period from April 1, 1993 to December 2, 1993, the period from
December 3, 1993 to March 31, 1994 and the year ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INDSPEC Holding Corporation
at March 31, 1995 and 1994, and the results of its operations and its cash flows
for the year ended March 31, 1993, the period from April 1, 1993 to December 2,
1993, the period from December 3, 1993 to March 31, 1994 and the year ended
March 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 7 to the financial statements, the Company
changed its methods of accounting for postretirement benefits other than
pensions and income taxes effective April 1, 1993.
Ernst & Young LLP
Pittsburgh, Pennsylvania
April 28, 1995
F-2
<PAGE> 76
INDSPEC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 AND 1995 AND DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1994 1995 1995
-------- -------- ------------
UNAUDITED
<S> <C> <C> <C>
Current Assets:
Cash................................................... $ 1,023 $ 1,655 $ 1,577
Accounts receivable, principally trade, less allowance
for doubtful accounts of $203 in 1994, and $120 in
1995 and at December 31, 1995....................... 15,621 16,317 15,814
Inventories............................................ 14,369 14,863 20,028
Other.................................................. 1,256 823 908
-------- -------- --------
Total current assets........................... 32,269 33,658 38,327
Investment, at cost...................................... 250 250 250
Property, plant and equipment............................ 106,770 111,662 116,057
Less: accumulated depreciation......................... (2,592) (11,460) (18,353)
-------- -------- --------
Net property, plant and equipment........................ 104,178 100,202 97,704
Patents, net of accumulated amortization of $1,342 in
1994, $5,873 in 1995, and $9,137 at December 31,
1995................................................... 46,813 42,282 39,018
Goodwill, net of accumulated amortization of $330 in
1994, $1,352 in 1995, and $2,113 at December 31,
1995................................................... 40,161 39,211 38,450
Debt issuance costs, net of accumulated amortization of
$339 in 1994, $1,343 in 1995, and $2,247 at December
31, 1995............................................... 7,966 6,519 5,270
Intangible assets, net of accumulated amortization of
$159 in 1994, $574 in 1995, and $928 at December 31,
1995................................................... 6,651 6,236 5,882
-------- -------- --------
$238,288 $228,358 $224,901
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................................ $ 5,566 $ 4,506 $ 5,508
Accrued payroll and other compensation costs........... 3,189 4,484 4,911
Accrued interest....................................... 3,980 3,235 909
Other accrued expenses................................. 2,086 2,357 3,169
Current portion of long-term debt...................... 8,750 7,700 3,254
-------- -------- --------
Total current liabilities...................... 23,571 22,282 17,751
Long-term debt........................................... 180,988 167,108 159,328
Environmental and other reserves......................... 1,583 1,709 1,698
Pension and postretirement obligations................... 13,232 13,708 14,560
Deferred income taxes.................................... 11,500 11,710 14,593
-------- -------- --------
Total liabilities.............................. 230,874 216,517 207,930
Warrants to purchase common stock (net of issuance costs
of $64)................................................ 177 430 1,072
Common stock held by ESOP................................ 4,548 9,347 9,347
Common stockholders' equity:
Voting common stock, $.01 par value 150,000 shares
authorized and 46,728 shares outstanding at March
31, 1994 and 1995 and 46,738 outstanding at December
31, 1995............................................ 1 1 1
Capital in excess of par............................... 2,694 -- 5
Retained (deficit) earnings............................ (6) 2,063 6,546
-------- -------- --------
Total common stockholders' equity.............. 2,689 2,064 6,552
-------- -------- --------
$238,288 $228,358 $224,901
======== ======== ========
</TABLE>
See accompanying notes
F-3
<PAGE> 77
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994, AND THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
APR. 1, 1993 TO DEC. 3, 1993 TO
1993 DEC. 2, 1993 MAR. 31, 1994 1995
------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $99,829 $70,778 $33,094 $117,352
Operating expenses:
Cost of sales............................... 56,889 40,067 19,123 64,042
Depreciation and amortization............... 14,064 8,291 4,423 15,484
Selling, research, general, and
administrative expenses.................. 7,802 5,202 3,591 14,135
Provision for loss (recovery) on Tuscaloosa
facility................................. 2,270 (1,000) -- --
-------- ------- ------- --------
Total operating expenses............ 81,025 52,560 27,137 93,661
-------- ------- ------- --------
Operating profit.............................. 18,804 18,218 5,957 23,691
Other income (expense):
Provision for (loss) recovery on Soviet
receivable............................... (1,300) 737 -- --
Other, net.................................. 50 (366) 66 (407)
-------- ------- ------- --------
(1,250) 371 66 (407)
-------- ------- ------- --------
Income before interest expense, provision for
income taxes, extraordinary items and
cumulative effect of changes in accounting
methods..................................... 17,554 18,589 6,023 23,284
Interest expense.............................. 15,999 10,278 5,690 17,389
Amortization of debt issuance costs........... 896 544 339 1,018
-------- ------- ------- --------
Income before income taxes, cumulative effect
of changes in accounting methods, and
extraordinary items......................... 659 7,767 (6) 4,877
Provision for and in lieu of income taxes..... 378 2,621 -- 450
-------- ------- ------- --------
Income before extraordinary items and
cumulative effect of changes in accounting
methods..................................... 281 5,146 (6) 4,427
Extraordinary loss on reorganization.......... -- (8,470) -- --
Extraordinary credit -- utilization of tax
loss carryforwards.......................... 302 -- -- --
Cumulative effect of changes in accounting
methods..................................... 2,232 -- --
-------- ------- ------- --------
Net income (loss)............................. $ 583 $(1,092) $ (6) $ 4,427
======== ======= ======= ========
Income (loss) per share of common stock before
extraordinary items and changes in
accounting methods.......................... $(36.52) $ 24.52 $ (0.13) $ 79.61
Earnings (loss) per share effect of
extraordinary items......................... 3.46 (97.25) -- --
Earnings per share effect of accounting
methods changes............................. -- 25.63 -- --
-------- ------- ------- --------
Net income (loss) per share of common stock... $(33.06) $(47.10) $ (0.13) $ 79.61
======== ======= ======= ========
</TABLE>
See accompanying notes
F-4
<PAGE> 78
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1994 1995 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Net sales........................................ $31,105 $32,393 $82,907 $95,012
Operating expenses:
Cost of sales.................................. 17,812 16,455 46,206 50,187
Depreciation and amortization.................. 3,430 3,923 10,901 11,445
Selling, research, general, and administrative
expenses.................................... 3,466 3,973 9,775 11,358
------- ------- ------- -------
Total operating expenses............... 24,708 24,351 66,882 72,990
------- ------- ------- -------
Operating profit................................. 6,397 8,042 16,025 22,022
Other expense.................................... (18) (287) (142) (501)
------- ------- ------- -------
Income before interest expense, amortization of
debt issuance costs, provision for income
taxes, and extraordinary item.................. 6,379 7,755 15,883 21,521
Interest expense................................. 4,333 4,137 12,852 12,663
Amortization of debt issuance costs.............. 182 329 763 940
------- ------- ------- -------
Income before provision for income taxes and
extraordinary item............................. 1,864 3,289 2,268 7,918
Provision for income taxes....................... 477 1,283 (217) 3,135
------- ------- ------- -------
Income before extraordinary item................. 1,387 2,006 2,485 4,783
Extraordinary gain on bond redemption (net of
tax)........................................... -- -- -- 342
------- ------- ------- -------
Net income....................................... $ 1,387 $ 2,006 $ 2,485 $ 5,125
======= ======= ======= =======
Income per share of common stock before
extraordinary item............................. $ 26.71 $ 36.08 $ 47.86 $ 86.02
Earnings per share effect of extraordinary
item........................................... -- -- -- 6.15
------- ------- ------- -------
Net income per share of common stock............. $ 26.71 $ 36.08 $ 47.86 $ 92.17
======= ======= ======= =======
</TABLE>
See accompanying notes
F-5
<PAGE> 79
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994, AND THE YEAR ENDED MARCH 31, 1995
AND THE NINE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL COMMON
CLASS A CLASS B RETAINED STOCKHOLDERS'
VOTING NONVOTING CAPITAL IN EARNINGS EQUITY
COMMON STOCK COMMON STOCK EXCESS OF PAR (DEFICIT) (DEFICIT)
------------ ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1992........... $ 1 $ 1 $ 4,337 $ (23,504) $ (19,165)
Net income........................ -- -- -- 583 583
Preferred stock dividends and
accretion....................... -- -- -- (2,541) (2,541)
Adjustment to reflect warrant
valuation....................... -- -- -- (921) (921)
Adjustment to reflect ESOP
valuation....................... -- -- 400 -- 400
-- --
------- -------- --------
Balance, March 31, 1993........... 1 1 4,737 (26,383) (21,644)
Net income........................ -- -- -- (1,092) (1,092)
Preferred stock dividends and
accretion....................... -- -- -- (2,396) (2,396)
Adjustment to reflect warrant
valuation....................... -- -- -- (614) (614)
Adjustment to reflect ESOP
valuation....................... -- -- (448) -- (448)
-- --
------- -------- --------
Balance, December 2, 1993......... 1 1 4,289 (30,485) (26,194)
Adjustment to reflect acquisition
accounting...................... -- (1) (1,595) 30,485 28,889
Net income........................ -- -- -- (6) (6)
-- --
------- -------- --------
Balance, March 31, 1994........... 1 -- 2,694 (6) 2,689
Net income........................ -- -- -- 4,427 4,427
Adjustment to reflect warrant
valuation....................... -- -- -- (253) (253)
Adjustment to reflect ESOP
valuation....................... -- -- (2,694) (2,105) (4,799)
-- --
------- -------- --------
Balance, March 31, 1995........... 1 -- -- 2,063 2,064
Issuance of common stock.......... -- -- 5 -- 5
Net income........................ -- -- -- 5,125 5,125
Adjustment to reflect warrant
valuation....................... -- -- -- (642) (642)
-- --
------- -------- --------
Balance, December 31, 1995
(unaudited)..................... $ 1 $ -- $ 5 $ 6,546 $ 6,552
== == ======= ======== ========
</TABLE>
See accompanying notes
F-6
<PAGE> 80
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994 AND THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
APR. 1, 1993 TO DEC. 3, 1993 TO
1993 DEC. 2, 1993 MAR. 31, 1994 1995
-------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 583 $ (1,092) $ (6) $ 4,427
Adjustments to reconcile net income (loss) to net cash provided
from operating activities:
Noncash charges related to Transactions........................... -- 2,787 -- --
Noncash interest accrued on subordinated discount notes........... -- -- 3,395 9,699
Depreciation and amortization..................................... 14,064 8,291 4,423 15,484
Amortization of debt issuance costs and interest rate protection
costs........................................................... 896 544 339 1,415
Provisions for losses (net recovery) on accounts receivable....... 1,380 (1,325) 39 (83)
Provision for loss (recovery) on discontinuance of synthetic
sodium sulfite production....................................... 2,270 (1,000) -- --
Increase (decrease) in pension and postretirement obligations..... (522) 3,676 378 381
Unrealized foreign exchange (gains) and losses.................... (14) -- -- 831
Net deferred tax benefit recognized............................... -- (8,211) -- 210
Change in assets and liabilities:
(Increase) decrease in accounts receivable........................ (2,671) 856 (1,243) (1,444)
(Increase) decrease in inventories................................ (239) 626 239 (494)
(Increase) decrease in other current assets....................... 55 (392) (360) 433
Increase (decrease) in accounts payable........................... 394 1,681 (430) (1,060)
Increase (decrease) in accrued expenses........................... 196 (666) 5 1,661
Increase (decrease) in accrued interest........................... 299 (2,873) 585 (745)
Increase (decrease) in environmental and other reserves........... 11 (39) 47 126
-------- -------- -------- --------
Total adjustments................................................... 16,119 3,955 7,417 26,414
-------- -------- -------- --------
Net cash provided from operating activities......................... 16,702 2,863 7,411 30,841
Cash flows from investing activities:
Additions to property, plant, and equipment......................... (5,088) (2,975) (1,520) (5,580)
-------- -------- -------- --------
Net cash used in investing activities............................... (5,088) (2,975) (1,520) (5,580)
Cash flows from financing activities:
Borrowing of new term debt.......................................... -- -- 100,000 --
Proceeds (retirement) of subordinated discount debentures........... -- -- 90,076 (10,329)
Financing costs of new debt instruments............................. -- -- (11,246) --
Retirement of 14.25% subordinated debentures........................ -- -- (75,000) --
Repayment of junior subordinated debentures......................... -- -- (18,700) --
Payment of cash dividends on preferred stock........................ (2,453) (1,151) -- --
Financing expenses incurred (repaid)................................ -- 11,237 (11,237) --
Repurchase of common stock, warrants, and stock options............. -- (33,804) -- --
Issue of common stock............................................... -- 12,450 -- --
Issue (repayment) of redemption note................................ -- 21,354 (21,354) --
Repayment of senior bank debt....................................... (12,315) (6,551) (56,754) (13,750)
Net borrowings (repayments) on line of credit....................... 3,330 (1,650) (3,450) (550)
-------- -------- -------- --------
Net cash provided by (used in) financing activities................. (11,438) 1,885 (7,665) (24,629)
-------- -------- -------- --------
Increase (decrease) in cash......................................... 176 1,773 (1,774) 632
Cash at beginning of period......................................... 848 1,024 2,797 1,023
-------- -------- -------- --------
Cash at end of period............................................... $ 1,024 $ 2,797 $ 1,023 $ 1,655
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 15,982 $ 13,237 $ 1,747 $ 8,460
======== ======== ======== ========
Supplemental disclosures of noncash items:
Accretion of preferred stock...................................... $ 88 $ 59 -- --
======== ======== ======== ========
Preferred stock dividends......................................... -- $ 1,186 -- --
======== ======== ======== ========
Increase in valuation of warrants................................. $ 921 $ 614 -- $ 253
======== ======== ======== ========
Increase (decrease) in valuation of ESOP.......................... $ (400) $ 448 $ -- $ 4,799
======== ======== ======== ========
</TABLE>
See accompanying notes
F-7
<PAGE> 81
INDSPEC HOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
UNAUDITED UNAUDITED
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 2,485 $ 5,125
Adjustments to reconcile net income to cash provided from operating
activities:
Noncash interest on subordinated notes............................ 6,902 7,263
Depreciation and amortization..................................... 10,901 11,445
Write-off of debt issuance costs.................................. 1,192 1,249
Increase in postretirement benefits............................... 388 852
(Decrease) increase in deferred tax liabilities................... (217) 2,883
Change in assets and liabilities.................................. 759 (2,501)
-------- --------
Net cash provided by operating activities.................... 22,410 26,316
Cash flows from investing activities:
Additions to property, plant, and equipment.......................... (4,422) (4,568)
-------- --------
Net cash used in investing activities........................ (4,422) (4,568)
Cash flows from financing activities:
Repurchase of subordinated notes..................................... (10,097) (8,265)
Proceeds from issuance of common stock............................... -- 5
Repayment of senior bank debt........................................ (6,563) (15,266)
Net borrowings on line of credit..................................... (1,300) 1,700
-------- --------
Net cash used in financing activities........................ (17,960) (21,826)
Increase (decrease) in cash............................................ 28 (78)
Cash at beginning of period............................................ 1,023 1,655
-------- --------
Cash at end of period.................................................. $ 1,051 $ 1,577
======== ========
</TABLE>
See accompanying notes
F-8
<PAGE> 82
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
1. THE COMPANY
INDSPEC Chemical Corporation (the "Company"), a wholly owned subsidiary of
INDSPEC Holding Corporation, is engaged principally in the business of
developing, producing and marketing resorcinol, resorcinol-based resins and
adhesives and other resorcinol derivatives. The Company, through its Petrolia,
Pennsylvania plant, is the largest producer of resorcinol in the world and the
sole commercial producer in the United States. Resorcinol and resorcinol-based
resins are used primarily as adhesives to bond steel or fiber cords to rubber in
the manufacture of tires and also in specialty chemical applications. In
addition, the Company produces sulfite, both as a by-product of its resorcinol
production and synthetically at its plant in Tuscaloosa, Alabama, and saltcake
(sodium sulfate) as by-products of the resorcinol production which are marketed
to the paper, water treatment and glass industries. Resorcinol and
resorcinol-based products accounted for approximately 92%, 95%, 95%, and 96% of
net sales for 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and 1995, respectively. The balance of sales
were comprised of sulfite and saltcake products.
The Company was formed on October 25, 1993 under the name Specialty
Acquisition Sub, Inc. and after a series of transactions succeeded to, and now
operates, the business previously operated by INDSPEC Chemical Corporation ("Old
INDSPEC" or "Predecessor"), and was renamed INDSPEC Chemical Corporation. The
Company is a wholly owned subsidiary of INDSPEC Technologies, Ltd., a
Pennsylvania Business Trust, which is in turn 100% owned by INDSPEC Holding
Corporation (formerly Specialty Acquisition Holdings, Inc., and herein referred
to as "Holdings"). Old INDSPEC was formed in 1988 by management and an investor
group to acquire, in a leveraged transaction (the "Original Acquisition"), the
business of the Industrial Specialty Chemicals division of Koppers Company,
Inc., now known as Beazer East, Inc. ("Koppers" or "BEI"). Throughout these
notes, the term "the Company" is also used to include the operations of Old
INDSPEC, where appropriate, unless such inclusion would be confusing.
Effective as of October 26, 1993, Old INDSPEC and CH NewCo, Inc. ("CH
NewCo") entered into a Stock Acquisition Agreement (the "Acquisition Agreement")
pursuant to which Old INDSPEC agreed to sell shares of its common stock to CH
NewCo (the "Stock Sale"). CH NewCo assigned its rights under the Acquisition
Agreement, including the right to purchase the common stock of Old INDSPEC, to
Castle Harlan Partners II L.P. ("CHPII" or "Buyer"), a private equity investment
fund which is an affiliate of CH NewCo.
On November 2, 1993, Old INDSPEC began a tender offer for its common stock
and certain other securities (the "Tender Offer"). Following consummation of the
Stock Sale and the Tender Offer on December 2, 1993, INDSPEC succeeded to the
business of Old INDSPEC, in substantially the form previously conducted by Old
INDSPEC, as a result of two mergers (the "Mergers"), an asset transfer and
assumption by INDSPEC of all of Old INDSPEC's obligations (the "Asset
Transfer"). On December 2, 1993, after consummation of the Mergers and the Asset
Transfer, INDSPEC issued $157.5 million face amount of 11 1/2% Senior
Subordinated Discount Notes due 2003 that produced gross proceeds of $90.0
million to the Company, (ii) borrowed $106.0 million under the New Senior Credit
Facility (as defined), and (iii) repaid all of Old INDSPEC's debt obligations
under its bank loans and subordinated debt indentures (the "Refinancings"). The
Tender Offer, the Stock Sale, the Mergers, the Asset Transfer and the
Refinancings are referred to collectively herein as the "Transactions." As a
result of the consummation of the Transactions, CHPII owns approximately 57% of
the outstanding common stock of Holdings. Substantially all of the balance of
the stock is owned by management, employees, and the Company's Employee Stock
Ownership Trust ("ESOP").
The acquisition was accounted for as a purchase for financial statement
purposes, subject to recapitalization accounting as required by the Emerging
Issues Task Force Issue 88-16 (the EITF) for the portion of the
F-9
<PAGE> 83
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
purchase price that was funded by the retention of shares in Holdings by certain
management investors. These management investors owned approximately 15.4% of
Old INDSPEC, and approximately 29.7% of the Company on a fully diluted basis.
The EITF contains a monetary test that provides that if less than 80% of the
total monetary consideration is in the form of new cash infusion by the
purchasers, then the assets acquired in the acquisition and the shareholders'
equity contributed by continuing management will have carryover basis to the
extent of the ratio of non-monetary consideration to total consideration in the
transaction. Accordingly, balance sheet adjustments have been made to reflect
the basis of the acquired assets and stockholders' equity at predecessor basis,
rather than fair market value, to the extent of the percentage of non-monetary
consideration.
The total purchase price was determined as follows (in thousands):
<TABLE>
<S> <C>
Assumption of liabilities......................................... $235,143
Issue of common stock............................................. 12,450
Continuing management shares valued at predecessor basis.......... (5,207)
--------
Total................................................... $242,386
========
</TABLE>
This purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets (at cost basis of predecessor)..................... $ 33,086
Fixed assets...................................................... 105,289
Intangible assets................................................. 54,965
Goodwill.......................................................... 40,491
Debt issuance costs............................................... 8,305
Other investments................................................. 250
--------
$242,386
========
</TABLE>
As part of the Transactions and early retirement of debt, Old INDSPEC
incurred transaction expenses during the period April 1, 1993 to December 2,
1993. These transaction expenses totalled $14.0 million (before tax benefit of
$5.5 million) and consisted of $8.1 million in premiums for the early retirement
of debt and preferred stock, $3.6 million to write off unamortized financing
costs and to properly reflect the face amount of junior subordinated debentures
that were originally issued at a discount, $.6 million to unwind interest rate
swap agreements, and $1.7 million of net interest cost for the defeasance of the
debt and junior subordinated debentures of Old INDSPEC. These costs are
reflected as an extraordinary expense of Old INDSPEC. Additionally, the Company
incurred $11.2 million of transaction costs as follows: fees associated with the
subordinated debentures of $4.2 million, fees associated with the term debt of
$4.2 million, and other fees of $2.8 million. These fees have been capitalized
and are being amortized over the life of the related debt or goodwill.
F-10
<PAGE> 84
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are as follows:
Inventories
Inventories are valued at the lower of cost, utilizing the first-in,
first-out (FIFO) method, or market. Supplies are valued principally at average
cost. At March 31, 1994 and March 31, 1995, inventories consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................ $ 806 $ 1,052
Work-in-process.......................................... 384 410
Finished goods........................................... 10,810 10,920
Supplies................................................. 2,369 2,481
------- -------
$14,369 $14,863
======= =======
</TABLE>
Investment
The investment is valued at the lower-of-cost or market value. At March 31,
1994 and March 31, 1995, the investment consisted of common stock in a
cooperative insurance company which provides a portion of the Company's
liability coverage.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost as of March 31, 1994
and 1995 after purchase accounting adjustments in 1994 (including provision for
EITF 88-16) and consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land and improvements.................................. $ 565 $ 702
Buildings.............................................. 3,089 3,639
Machinery and equipment................................ 98,720 103,251
Furniture and fixtures and computer equipment.......... 866 1,043
Construction in progress............................... 3,530 3,027
-------- --------
106,770 111,662
Less accumulated depreciation.......................... (2,592) (11,460)
-------- --------
$104,178 $100,202
======== ========
</TABLE>
Cost for property, plant, and equipment acquired in the Transactions
represents a portion of the purchase price allocated to such assets based on an
appraisal of their fair market values at the date of purchase. Maintenance and
repairs are expensed as incurred. Expenditures which significantly increase
asset values or extend useful lives are capitalized. Interest is capitalized on
self-constructed assets. During the year ended March 31, 1993, the period April
1, 1993 to December 2, 1993, the period December 3, 1993 to March 31, 1994 and
the year ended March 31, 1995, interest cost associated with assets under
construction of approximately $282,000, $111,000, $76,000, and $254,000,
respectively, was capitalized. Major classes of
F-11
<PAGE> 85
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
property, plant, and equipment are depreciated using the straight-line basis for
financial statement purposes over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings..................................... 40 years
Machinery and equipment....................... 2-20 years
Furniture and fixtures........................ 5 years
</TABLE>
Leasehold interests are depreciated over the life of the related lease.
Intangible Assets and Goodwill Arising from Acquisition of the Business
A portion of the purchase price was allocated to intangible assets,
primarily patents, licenses, contracts, and trade names based on an appraisal of
their fair values. Intangible assets are amortized using the straight-line
method over their estimated useful lives as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C> <C>
Patents......................... $48,155 $48,155 11 years
Licenses and contracts.......... 630 630 3-9 years
Trade names..................... 760 760 20 years
Other intangibles............... 5,420 5,420 6-40 years
------- -------
54,965 54,965
Less accumulated amortization... (1,501) (6,447)
------- -------
$53,464 $48,518
======= =======
</TABLE>
The excess of the purchase price paid over net assets acquired is recorded
as goodwill and amortized over 40 years using the straight-line method. The
carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired.
Depreciation and Amortization
Depreciation and amortization, as presented in the financial statements, is
allocable to cost of sales, selling, research, shipping and delivery, and
general and administrative expense as follows in thousands:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------
APRIL 1, DECEMBER 3,
1993 TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Cost of sales......................... $13,242 $7,774 $4,024 $14,226
Selling, research, general and
administrative...................... 822 517 399 1,258
------- ------ ------ -------
$14,064 $8,291 $4,423 $15,484
======= ====== ====== =======
</TABLE>
Debt Issuance Costs
Debt issuance costs are amortized over the term of the applicable debt
agreement using the interest method. Amortization of debt issuance costs
(exclusive of the write-off of unamortized debt issue costs as a result of the
Transactions in the amount of $2.9 million) for the year ended March 31, 1993,
the period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995, were $896,000, $544,000,
$339,000, and $1,018,000, respectively.
F-12
<PAGE> 86
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Income Taxes
The Company provides for income taxes based on temporary differences in the
basis of assets and liabilities between amounts used for financial statement and
income tax purposes.
Foreign Exchange Transactions
Sales denominated in foreign currencies and the related accounts receivable
are recognized in U.S. dollars using the exchange rates in effect at the date of
the sale (measurement dates). The Company had $4,300,000 and $5,100,000 of trade
receivables denominated in foreign currencies at March 31, 1994 and March 31,
1995, respectively. In addition, at March 31, 1995, the Company had forward
exchange contracts, which mature throughout 1995, to purchase $7,400,000 with
Dutch Guilders. Unrealized gains and losses are recognized in income for the
effect of fluctuations in exchange rates from the measurement dates to the end
of the Company's reporting period.
Reclassification
Certain reclassifications have been made to prior financial statements to
conform to the March 31, 1995 presentations. The reclassifications had no effect
on income.
3. SOVIET ACCOUNT RECEIVABLE
In March 1993 Old INDSPEC established a reserve in the amount of $1.3
million for the possible uncollectibility of a receivable that originated in
1990 from the sale of resorcinol to the Soviet Union. In September, 1993 Old
INDSPEC agreed to accept $900,000 as payment in full for this receivable. After
payment of expenses related to the collection, Old INDSPEC recognized income of
$737,000 on the collection of the receivable.
4. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt outstanding is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Term Loan Facility.............................. $ 97,812 $ 84,062
Senior subordinated discount notes due December
2, 2003....................................... 90,076 89,446
Revolving Loan Facilities....................... 1,850 1,300
-------- --------
189,738 174,808
Less current portion of long-term debt.......... (8,750) (7,700)
-------- --------
$180,988 $167,108
======== ========
</TABLE>
As part of the Transactions the Company entered into the New Senior Credit
Facility with Bankers Trust Company, as Agent. The New Senior Credit Facility
consists of (i) a term loan facility in an aggregate principal amount of $70.0
million (the "A Term Loan Facility"), (ii) a second term loan facility in an
aggregate principal amount of $30.0 million (the "B Term Loan Facility") (the A
Term Loan Facility and the B Term Loan Facility are collectively referred to as
the "Term Loan Facilities") and (iii) a revolving loan facility in an aggregate
principal amount of $15.0 million (the "Revolving Loan Facility" and, together
with the Term Loan Facilities, the "Credit Facilities").
F-13
<PAGE> 87
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The borrowings under the New Senior Credit Facility bear interest at
INDSPEC's option (i) at the Base Rate in effect from time to time plus (a) with
respect to loans under the Revolving Loan Facility and the A Term Loan Facility,
1 3/8% and (b) with respect to the B Term Loan Facility, 1 5/8% or (ii) subject
to certain limitations at the Eurodollar rate (adjusted for maximum reserves) as
determined by the Agent for the respective interest period plus (a) with respect
to loans under the Revolving Loan Facility and the A Term Loan Facility, 2 3/8%
and (b) with respect to the B Term Loan Facility, 2 5/8%. "Base Rate" shall mean
the higher of (x) 0.5% in excess of the Federal Reserve reported certificate of
deposit rate and (y) the rate the Agent announces from time to time as its prime
lending rate, as in effect from time to time. The New Senior Credit Facility
also provides for the payment of a commitment commission of 0.5% per annum on
the daily average unused amount of the commitments under the Revolving Loan
Facility. For the period December 3, 1993 to March 31, 1994 and for the year
ended March 31, 1995, the effective interest rate on the Credit Facilities,
including amortization of debt issuance costs, was 7.5% and 8.8%, respectively.
In addition to the borrowings summarized above, there are letters of credit
outstanding as of March 31, 1995 totaling $500,000.
Also as part of the Transactions, the Company issued $157.5 million
aggregate amount of 11 1/2% Senior Subordinated Discount Notes due 2003 (the
"Notes") to complete the funding necessary for the acquisition. The Notes were
issued at a substantial discount from their principal amount and provided gross
proceeds of $90.0 million. Interest on the Notes will be payable semi-annually,
in cash, on June 1 and December 1, commencing June 1, 1999 at the rate of
11 1/2% per annum. The Notes are callable beginning December 2, 1998, at a
premium.
During the fiscal year ended March 31, 1995 the Company redeemed $17.6
million face amount of Notes in return for a cash payment of $10.2 million.
After giving effect to unamortized debt costs attributable to the redeemed
Notes, the Company had no gain or loss on the redemption. In December, 1994, the
Company entered into an interest rate swap arrangement with Lehman Brothers,
Inc. ("Lehman") whereby the Company agreed to pay Lehman a floating rate of
LIBOR plus 2.25% for a six-month period on $7.4 million expended by Lehman to
purchase $12.9 million of Notes. In return for the Company's cash payment of
interest, Lehman will pay the Company any gain on the Notes (if the Company does
not elect to purchase the notes) at the end of the six-month period or the
Company will reimburse Lehman for any loss. The Company received the right, but
not the obligation, to purchase the Notes held by Lehman for $7.4 million at any
time during the six-month period which expires on May 31, 1995. As of March 31,
1995 the Company had not exercised its purchase option.
On November 30, 1993 Old INDSPEC exercised its option to exchange its
Convertible Preferred Stock for 14% Junior Subordinated Exchange Debentures (the
"Junior Debentures") with a face amount of $18,708,000. The preferred stock was
originally issued as part of a unit that consisted of preferred stock and
warrants to purchase common stock of Old INDSPEC and was carried on the
Company's books at $17,960,000 which reflected the original allocation of value
between the preferred stock and the warrants, adjusted for accretion of the
preferred stock since its issuance in 1989, and for issuance of additional
preferred stock as dividends. As part of the Transactions, the Company retired
all the Junior Debentures by exercising its rights to defease the obligations by
escrowing sufficient funds to fully retire the obligations at their first call
date of April 20, 1994. As of April 20, 1994, the trustee of the escrow for the
Junior Debentures distributed all the funds and fully extinguished the
obligations. Since the bonds were defeased as of December 2, 1993, they were
accounted for as fully retired as of that date. See the discussion of preferred
stock below.
The debt agreements contain various restrictions pertaining to: incidence
of additional indebtedness, mergers, consolidations or acquisitions and
disposition of assets; investments; transactions with affiliates; retirement of
subordinated debt; and redemption of stock. Essentially all of the Company's
assets are pledged
F-14
<PAGE> 88
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
as collateral under the Credit Facilities. In addition, the debt agreements
require that the Company meet certain financial tests and generally limit the
payment of dividends, except in certain circumstances relating to dividends on
permitted preferred stock.
On June 30, 1995, the Company will make a $5.4 million prepayment of the
Term Loan Facility as required by the excess cash flow recapture provisions of
the Credit Facilities. The aggregate long-term maturities, adjusted for
prepayments, for the years ending March 31, are as follows: 1996- $7,700,000;
1997- $12,250,000; 1998- $19,250,000; 1999- $20,471,000; 2000- $12,750,000; and
years thereafter- $102,387,000.
5. PREFERRED STOCK AND WARRANTS
On April 27, 1989, Old INDSPEC sold 75 units, each consisting of 100 newly
issued shares of Nonvoting 14% Exchangeable Preferred Stock, Series A, with
detachable put warrants for $15,000,000 (less issuance costs of $480,000). As
discussed in Note 4 the Preferred Stock was converted into Junior Debentures on
November 30, 1993 and then were retired as part of the Transactions. The put
warrants were retained as obligations of Holdings.
Each detachable put warrant entitles the holder (i) to purchase a share of
common stock of Holdings for $100 or to require Holdings to repurchase the
warrant for its fair market value. The put warrants were valued at $885,000
(less issuance costs of $64,000) when issued based on an appraisal performed by
an independent party. The put warrants are not exercisable for five years from
the date of the original issue. Any liability from the increase in the value of
warrants was recognized on a straight-line basis in each quarterly period
thereafter. To reflect this liability, the Predecessor increased the valuation
of the warrants to $1,742,000 as of March 31, 1993 and to $2,356,000 as of the
date of the Transactions. The remaining put warrants are valued at $430,200 as
of March 31, 1995.
Old INDSPEC paid cash dividends on its preferred stock in the amount of
$2,453,000 and $1,151,000, respectively, for the fiscal year ended March 31,
1993, and for the period April 1, 1993 to December 2, 1993, and paid dividends
on the preferred stock in the form of additional shares of preferred stock in
the amount of 0 shares and 593 shares, respectively, for the fiscal year ended
March 31, 1993, and for the period April 1, 1993 to December 2, 1993. Since the
preferred stock was converted into the Junior Debentures on November 30, 1993,
no dividends were paid or accrued by the Company after November 30, 1993.
6. EMPLOYEE BENEFITS
Pension Plans
Under the terms of the Original Acquisition, Old INDSPEC adopted a salaried
employee retirement plan covering all salaried employees effective December 16,
1988 and assumed the assets and obligations of the hourly retirement plans at
each of the two plants it acquired from Koppers. Old INDSPEC thus had three
pension plans. Then on December 31, 1992, Old INDSPEC merged the retirement plan
for Tuscaloosa hourly employees into the retirement plan for salaried employees,
with benefits for the Tuscaloosa employees in effect frozen due to the shutdown
of the Tuscaloosa plant in 1992. Plan assets primarily include marketable debt
instruments and equity securities. The Company's funding policy is to make
annual contributions as required by applicable regulations. The plans generally
provide benefits using a formula based upon employee compensation and years of
service. These plans were adopted by the Company as part of the Transactions.
F-15
<PAGE> 89
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Net periodic pension cost for the year ended March 31, 1993, the period
April 1, 1993 to December 2, 1993, the period December 3, 1993 to March 31,
1994, and the year ended March 31, 1995, included the following components (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------
APRIL 1, DECEMBER 3,
1993 TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Service cost-benefits earned
during the period............. $ 676 $ 467 $ 288 $ 985
Interest cost on projected
benefit obligation............ 995 739 415 1,283
Actual return on assets......... (1,186) (954) (310) 199
Net amortization and deferral... 356 333 -- (1,283)
------- ----- ----- -------
Net periodic cost............... $ 841 $ 585 $ 393 $ 1,184
======= ===== ===== =======
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet at March 31, 1994 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits........................................ $12,606 $12,194
Nonvested benefits..................................... 772 777
------- -------
Accumulated benefit obligation......................... 13,378 12,971
Effect of future wage increase......................... 4,674 4,022
------- -------
Projected benefit obligation........................... 18,052 16,993
Fair value of plan assets................................ 11,955 12,175
------- -------
Projected benefit obligation in excess of plan assets.... 6,097 4,818
Unrecognized prior service cost.......................... -- --
Unrecognized net gain.................................... -- 1,425
------- -------
Accrued pension cost..................................... $ 6,097 $ 6,243
======= =======
</TABLE>
The current portion of accrued pension cost ($1,137,000 at March 31, 1994
and $1,042,000 at March 31, 1995) is included in accrued payroll and other
compensation cost on the balance sheets. The long-term portion is included in
pension and postretirement obligations.
At March 31, 1994 and 1995, the discount rates used in determining the
actuarial present value of benefit obligations were 7.0% and 8.25%,
respectively. The increase in the discount rate reduced the actuarial present
value of benefit obligations by $2.1 million. The rate of compensation increase
assumed in the determination of the projected benefit obligations ranged from
4.3% to 11.4%. The long-term rate of return on assets was 9% in 1993, 1994, and
1995.
Postretirement Benefits
In addition to the Company's defined benefit pension plan, the Company has
assumed the obligation of Old INDSPEC with respect to two defined benefit
postretirement plans. One plan covers all U.S. salaried employees and the other
plan covers the Petrolia hourly employees. Both plans provide medigap coverage
and life insurance protection. With respect to the salaried program,
postretirement medical costs are contributory,
F-16
<PAGE> 90
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
with retiree contributions adjusted annually in accordance with the health care
trend assumption. The hourly plan requires no contribution for basic coverage.
Effective April 1, 1993, Old INDSPEC adopted FASB Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. The
cumulative effect of adopting the new rules increased the postretirement benefit
cost of Old INDSPEC for the period April 1, 1993 to December 2, 1993 by $3.7
million and decreased net income by $2.2 million. Postretirement benefit cost
for the year ended March 31, 1993, which was recorded on the cash basis, was
$113,000 and has not been restated.
The following table presents the plans' combined funded status reconciled
with the amount recognized in the Predecessor's and the Company's statement of
operations:
Accumulated postretirement benefit obligation (APBO) at March 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Retirees............................................ $2,508,000 $2,496,000
Fully eligible active plan participants............. 1,068,000 1,319,000
Other active plan participants...................... 3,526,000 2,409,000
Unrecognized net gain............................... -- 1,357,000
---------- ----------
Accrued postretirement benefit cost............ $7,102,000 $7,581,000
========== ==========
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
PREDECESSOR
---------------
PERIOD 4/1/93 PERIOD 12/3/93 YEAR ENDED
THROUGH 12/2/93 THROUGH 3/31/94 MARCH 31, 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Net Periodic Cost
Service cost.............................. $ 85,000 $ 63,000 $177,000
Interest cost............................. 279,000 163,000 490,000
---------- ---------- --------
Net periodic postretirement benefit
cost................................... $ 364,000 $ 226,000 $667,000
Total 1993/94 Expense
Net periodic postretirement benefit
cost................................... $ 364,000 $ 226,000 $667,000
Transition obligation at 4/1/93........... 3,406,000 -- --
One-time purchase accounting charge....... -- 1,460,000 --
---------- ---------- --------
Total expense............................. $3,770,000 $1,686,000 $667,000
========== ========== ========
</TABLE>
Old INDSPEC reflected the cost of $3.7 million (reduced by tax benefit of
$1.5 million) as a one-time charge related to the adoption of FAS 106. In
calculating this expense in April 1993, Old INDSPEC assumed a discount rate of
8.5%. Upon the acquisition, the Company utilized a 7% discount rate and
therefore, increased the liability assumed for postretirement benefits to
reflect the lower rate assumption by $1.5 million. The discount rate for 1995
was increased to 8.25%, reducing the accrued postretirement benefit obligation
by $1.4 million.
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 11% for 1995
(unchanged from 1994) and is assumed to decrease gradually to 6% by 2003 and
remain at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of
F-17
<PAGE> 91
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
March 31, 1994 by $922,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended March
31, 1995 by $107,000.
Supplemental Benefit Plan
At the inception of the Company, it assumed employment agreements with
certain employees which provide for pension benefits otherwise accrued under the
Salaried Employees' Retirement Plan but for the limitations imposed under the
Internal Revenue Code. The present value of the projected benefit obligation of
this unfunded nonqualified plan as of December 2, 1993 was $830,000 and this
amount was an assumed liability of the Company as part of the Transactions.
During the period December 2, 1993 through March 31, 1994, and the year ended
March 31, 1995, the Company recognized $25,000 and $95,000, respectively, of
expense related to this plan.
Employee Stock Ownership Plan
In December 1988, Old INDSPEC established an Employee Stock Ownership Plan
("ESOP") which enables eligible employees (all employees after one year of
service, as defined in the ESOP) to acquire shares of the Company's common
stock. This plan was adopted by Holdings. The cost of the ESOP is borne by the
Company through annual contributions to an Employee Stock Ownership Trust (ESOT)
in amounts determined by the Board of Directors. Shares of stock acquired by the
plan are to be allocated to each employee and held until the employee's
retirement, permanent disability or death. The trustee is entitled to vote all
Company stock held by the ESOT at such time and in any such manner as directed
by the Employee Benefit Committee, except that with respect to required approval
of certain major corporate transactions, each participant is entitled to vote
the shares allocated to his or her account.
On December 16, 1988, Old INDSPEC sold 10,000 shares (fully allocated at
March 31, 1994 and 1995) of its Class A common stock to the ESOT at $100 per
share. The ESOP financed the purchase of stock through a three-year loan with a
bank which was guaranteed by Old INDSPEC and has been fully repaid. The Company
made contributions of $227,000 and $150,000, $0, and $289,000 during the year
ended March 31, 1993, the period April 1, 1993 to December 2, 1993, and for the
period December 3, 1993 to March 31, 1994, and during the year ended March 31,
1995, respectively, to the plan to enable the ESOP to repurchase stock from
retiring employees. The Company's contributions were recognized as employee
benefits expense. Following the distribution of shares to a former employee, the
employee has a "put" option with respect to these distributed shares. To the
extent the ESOP does not utilize its own funds to repurchase these shares, the
Company is required to repurchase the shares at appraised value. The common
stock held by the ESOP is appraised annually as of December by an independent
appraiser and this appraisal amount is used by the Company to determine the
potential repurchase obligation. Effective April 1, 1994, the Company adopted
the provisions of Statement of Position (SOP) 93-6. Previously, the Company
accounted for its ESOP under SOP 76-3. The prospective adoption had no effect on
the financial statements.
Incentive Compensation Plans
The INDSPEC Chemical Corporation Incentive Stock Option Plan ("ISOP") was
established by Old INDSPEC in February 1989. The ISOP was established to
encourage ownership of stock by key employees to provide increased incentive for
such employees to render services and to exert maximum effort for the business
success of the Company.
The ISOP provides for the discretionary granting of Incentive Stock Options
("ISOs") to purchase shares of common stock, at not less than the fair market
value thereof on the date of grant, to select employees of the Company,
including officers. The Compensation Committee may provide that ISOs will vest
F-18
<PAGE> 92
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
immediately or in increments over a period of time. During the year ended March
31, 1990, 8,000 ISOs to purchase shares of common stock for $100 per share were
granted (the maximum approved under the plan). The ISOs vest on a pro rata basis
over a three-year period. There were no ISOs granted during the years ended
March 31, 1992 and 1993.
During the period December 3, 1993 to March 31, 1994, Holdings granted
stock options to purchase 5,863 common shares of Holdings at $450 per share, the
estimated fair market value at the date of grant, with 4,285 of the ISOs vesting
ratably over a three-year period beginning December 2, 1993. The balance of the
shares vest ratably over a six-year period beginning December 2, 1993. There
were no options granted during the year ended March 31, 1995.
Profit-Sharing Plan
Old INDSPEC's nonqualified Profit-Sharing Plan covered substantially all
employees, including executive officers. The plan provided for a quarterly
benefit payment based upon a percentage (determined by the Compensation
Committee) of the Company's quarterly and annual earnings before depreciation,
amortization, interest and taxes ("EBDIT") when such earnings exceed certain
minimum levels. An employee's share was based on his or her position in the
Company and salary.
For the year ended March 31, 1993 and for the period April 1, 1993 to
December 2, 1993, and for the period December 3, 1993 to March 31, 1994, the
Company accrued expenses of $546,000, $0, and $431,000, respectively, related to
this plan.
The Company amended the profit-sharing plan in 1995 to provide that on a
quarterly basis the Company will pay a bonus to each employee if the Company's
EBDIT, as defined by the plan, exceeds certain minimum levels. For the year
ended March 31, 1995 each employee received a bonus equaling 12.5% of base pay
before overtime and was eligible for an additional 2% bonus based on attaining
certain attendance and safety goals. The total expense related to the plan for
1995 was $2.4 million.
Savings Plans
The Company sponsors two savings plans (the "Plans") that cover
substantially all employees, including executive officers. Each participant has
the option to defer taxation of a portion of his or her earnings by directing
the Company to contribute a percentage of such earnings to the Plans. The
Company also may make discretionary contributions to the Plans. The Company's
contributions would be allocated to each participant based on his or her pro
rata contributions to the Plans. The Company has made no contributions to the
Plans.
7. INCOME TAXES
Effective April 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." As permitted under the new
rules, prior years' financial statements were not restated. The cumulative
effect of adopting Statement 109 as of April 1, 1993 was to increase net income
by $4.4 million. The corresponding asset that was booked relates to federal net
operating loss carryforwards.
F-19
<PAGE> 93
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................. $37,660 $33,345
Tax over book amortization............................. 2,470 3,567
Other.................................................. 610 528
------- -------
Total deferred tax liabilities......................... $40,740 $37,440
Deferred tax assets:
Net operating loss carryforwards....................... 20,116 12,072
Alternative Minimum Tax Credit......................... -- 240
Pension obligation..................................... 3,078 3,166
Uniform Capitalization................................. 452 1,282
OPEB Liability......................................... 2,866 2,978
Interest on high yield obligations..................... 1,330 4,762
Other.................................................. 1,398 1,230
------- -------
Net deferred tax assets.................................. $29,240 $25,730
Net deferred tax liabilities............................. $11,500 $11,710
======= =======
</TABLE>
At March 31, 1995, the Company has net operating loss carryforwards of $54
million for federal income tax purposes that expire in years 2004 through 2009.
Significant components of the provision for income taxes attributable to
continuing operations are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
LIABILITY METHOD
-------------------------------------
DEFERRED METHOD APRIL 1, DECEMBER 3,
--------------- 1993 TO 1993 TO
MARCH 31, DECEMBER 2, MARCH 31, MARCH 31,
1993 1993 1994 1995
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ -- $ -- $-- $ 240
State......................... -- -- -- --
---- -------- --- -----
Total Current................. -- -- -- 240
Deferred:
Federal....................... 321 3,117 -- (165)
State......................... 57 (496) -- 375
---- -------- --- -----
Total Deferred................ 378 2,621 -- 210
Extraordinary items............. -- (11,428) -- --
---- -------- --- -----
Total......................... $ 378 $ (8,807) $-- $ 450
==== ======== === =====
</TABLE>
F-20
<PAGE> 94
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The provision for income taxes on income before extraordinary items and
cumulative effect of accounting changes is reconciled with the federal statutory
rate as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
LIABILITY METHOD
-------------------------------------
DEFERRED METHOD APRIL 1, DECEMBER 3,
--------------- 1993 TO 1993 TO
MARCH 31, DECEMBER 2, MARCH 31, MARCH 31,
1993 1993 1994 1995
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Federal (34%)................... $ 224 $ 2,641 $ 3 $ 1,656
State, net of federal tax
benefit....................... 57 (326) -- 273
Goodwill amortization and other
nondeductible items........... 97 306 -- 365
Adjustment to deferred income
taxes under FAS #109.......... -- -- -- (1,844)
Other......................... -- -- (3) --
---- ------ --- -------
$ 378 $ 2,621 $-- $ 450
==== ====== === =======
</TABLE>
In March 1994, deferred income taxes were recorded based upon temporary
differences known to exist as of that date. Many of the temporary differences
related to asset basis differences arising out of the purchase accounting
related to the acquisition of Old INDSPEC. During the current fiscal year, the
determination of cumulative temporary differences was revised, resulting in a
reduction in deferred income tax liabilities of $1,844,000. This adjustment was
recorded as a decrease to current year deferred tax expense under FAS No. 109.
8. FINANCIAL INFORMATION RELATING TO EXPORT SALES AND MAJOR CUSTOMERS
The Company sells its products in both foreign and domestic markets. During
the year ended March 31, 1993, and for the period April 1, 1993 to December 2,
1993, and for the period December 3, 1993 to March 31, 1994, and for the year
ended March 31, 1995, export sales represented approximately 47%, 44%, 47%, and
44%, respectively, of net sales.
Export sales are concentrated in Europe, Asia, South America, and North
America. These continents account for 57%, 19%, 8%, and 11%, respectively, of
total export sales for the year ended March 31, 1993; 56%, 17%, 9%, and 10%,
respectively, for the period April 1, 1993 to December 2, 1993; 50%, 15%, 8%,
and 12%, respectively, for the period December 3, 1993 to March 31, 1994; and
54%, 22%, 9%, and 11%, respectively, for the year ended March 31, 1995.
Sales to one customer, a manufacturer, represented 22%, 20%, 19%, and 19%
of net sales for the year ended March 31, 1993, and for the period April 1, 1993
to December 2, 1993, and for the period December 3, 1993 to March 31, 1994, and
for the year ended March 31, 1995, respectively. The Company performs periodic
credit evaluations of its customers financial condition and generally does not
require collateral except for certain export sales where customers are required
to provide letters of credit to secure payment.
F-21
<PAGE> 95
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
9. COMMITMENTS
The Company leases land, buildings and equipment under various
noncancelable operating leases with original terms ranging from one to five
years. Minimum rental commitments payable in future years under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING MARCH 31, IN THOUSANDS
------------------------------ ------------
<S> <C>
1996............................ $1,231
1997............................ 655
1998............................ 436
1999............................ 276
2000............................ 4
------
Total................... $2,602
======
</TABLE>
Substantially all of the Company's leases contain renewal options.
Effective December 23, 1991, Old INDSPEC received permission from the State
of Pennsylvania to become self-insured for workers' compensation insurance. To
protect the Company and its employees, the Company purchased an excess liability
policy that limits the Company's compensation losses from any occurrence to
$500,000. Additionally, the Company maintains a separate bank account into which
it deposits at least 25% of the amount it would have paid had it remained
insured in the commercial market. As of March 31, 1995, this account had a
balance of $85,000.
10. ENVIRONMENTAL MATTERS
Under the terms of the Original Acquisition, Beazer and Old INDSPEC had
indemnified each other with respect to certain environmental claims and cleanup
costs which may be incurred in the future and the Company succeeded to the
benefits and obligations of those indemnities. There have been no material
claims brought by Beazer against the Company or brought by the Company against
Beazer pursuant to these indemnification provisions, except that Beazer has
responded with regard to two matters that were known to exist at the time of the
sale: (1) pursuant to a license signed at the time of the sale, Beazer
constructed and is operating a ground water collection system and treatment
facility at the Petrolia plant site, and (2) pursuant to a preparedness and
contingency plan adopted by Koppers prior to the sale, Beazer agreed to pay Old
INDSPEC a total of $850,000, with regard to reimbursement of the Company's
expenses in completing certain physical improvements that were described in the
plan.
In general, Beazer is obligated to indemnify INDSPEC against certain
environmental claims and cleanup costs related to operations prior to the sale,
whether presently known, or discovered within twelve years of the sale. Beazer
PLC, the parent of Beazer, has guaranteed Beazer's performance of its
indemnification obligation. Beazer PLC was subsequently acquired by Hanson
Industries, Ltd. in 1991. To date, no claims have been made against the Company
concerning operations prior to the sale. The Company understands that Beazer is
answering claims involving the disposal of material from the Petrolia plant
prior to the acquisition; however, the Company has not been included in any such
claims.
11. TUSCALOOSA PLANT OPERATIONS
After the close of the quarter ended September 30, 1993, Old INDSPEC made
the decision to restart its idled synthetic sulfite operation at the Tuscaloosa
Plant. Old INDSPEC closed this facility in 1991 due to the start-up of a
competing plant by Solvay Minerals Company (formerly Tenneco Soda Ash Company
("Solvay") in Green River, Wyoming. The principal raw materials for Old INDSPEC
to produce synthetic
F-22
<PAGE> 96
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
sodium sulfite are caustic soda and sulfur. In 1991, due to Solvay's raw
material position, Old INDSPEC concluded that Solvay had a significant cost
advantage over Old INDSPEC more than offsetting the additional freight Solvay
would incur to service Old INDSPEC's market in the southeastern United States.
At that time Old INDSPEC entered into an arrangement with Solvay to sell Solvay
a copy of Old INDSPEC's customer list in return for a royalty and to produce
synthetic sodium sulfite on Solvay's behalf until Solvay's plant became
operational. In January 1993, Old INDSPEC made a final determination to
terminate its efforts to find alternative uses for the facility. Consequently,
Old INDSPEC recognized a provision for loss on disposal of $2.3 million in order
to reduce carrying value to $.5 million as of March 31, 1993. Subsequently, Old
INDSPEC was approached by a number of caustic soda producers with very low,
multi-year pricing on caustic soda. Based on these proposals, management of Old
INDSPEC concluded that it could again profitably produce and deliver synthetic
sodium sulfite to customers in the Southeast. Old INDSPEC negotiated agreements
with suppliers that will keep this cost advantage for a minimum of two years.
Old INDSPEC commenced efforts to reopen the Tuscaloosa Plant in October 1993 and
the Company began producing and selling sulfite in March 1994. Due to the
decision to restart the facility, Old INDSPEC reversed $1.0 million of the
aforementioned $2.3 million provision in October 1993 and reclassified the prior
years' segregation of Tuscaloosa activities into operating profit.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Short-term and long-term debt: The carrying amounts of the term loan and
the revolving credit facility approximate their fair value. The fair value of
the Company's senior subordinated discount notes is estimated using market value
indications from independent investment banks.
Foreign currency exchange contracts: The fair values of the Company's
foreign currency exchange contracts are estimated based on quoted market prices
of comparable contracts, adjusted through interpolation where necessary for
maturity differences.
The carrying amounts of the Company's financial instruments at March 31,
1995 approximate fair value, with the exception of the Notes and interest rate
swap agreement. The Notes have a book value of $89,446,000 plus accrued interest
of $3.2 million and have an indicated market value of $82,539,000. As of March
31, 1995 the interest rate swap agreement had no book value but had an intrinsic
value of $300,000 if the swap agreement had been canceled according to its terms
on March 31, 1995.
F-23
<PAGE> 97
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
13. EARNINGS PER SHARE
Earnings per share of common stock for the year 1993, the period April 1,
1993 to December 2, 1993, the period December 3, 1993 to March 31, 1994, and the
year ended March 31, 1995 is calculated as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------
APRIL 1 DECEMBER 3,
TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Income before extraordinary items and cumulative
effect of changes in accounting methods....... $ 281 $ 5,146 $ (6) $ 4,427
Less: Preferred stock dividends paid or
accrued....................................... 2,453 2,340 -- --
Adjustment to reflect warrant valuation......... 921 614 -- --
Accretion of preferred stock discount and
issuance costs................................ 88 56 -- --
------- ------- ------- -------
Income applicable to common stock before
extraordinary items and cumulative effect of
changes in accounting methods................. (3,181) 2,136 (6) 4,427
Extraordinary items............................. 302 (8,470) -- --
Cumulative effect of changes in accounting
methods....................................... -- 2,232 -- --
------- ------- ------- -------
Net income (loss) applicable to common stock.... $(2,879) $(4,102) $ (6) $ 4,427
======= ======= ======= =======
Average number of outstanding shares of common
stock......................................... 87,092 87,092 46,728 46,728
Outstanding stock options....................... -- -- -- 11,833
Outstanding stock warrants...................... -- -- -- 506
Treasury purchases.............................. -- -- -- (3,459)
------- ------- ------- -------
Fully diluted shares outstanding................ 87,092 87,092 46,728 55,608
======= ======= ======= =======
Income (loss) per share of common stock before
extraordinary items and cumulative effect of
accounting changes............................ $(36.52) $ 24.52 $ (.13) $ 79.61
Earnings (loss) per share effect of
extraordinary items........................... 3.46 (97.25) -- --
Earnings per share effect of accounting method
changes....................................... -- 25.63 -- --
------- ------- ------- -------
Income (loss) per share of common stock......... $(33.06) $(47.10) $ (.13) $ 79.61
======= ======= ======= =======
</TABLE>
For the year ended March 31, 1993, the period April 1 to December 2, 1993,
and the period December 3, 1993 to March 31, 1994 the outstanding warrants and
stock options are not considered in calculating the earnings per share results,
as their inclusion would be antidilutive.
F-24
<PAGE> 98
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The statements of operations and statements of cash flows for the three-
and six-month periods ended September 30, 1994 and 1995, and the balance sheet
and statement of common stockholders' equity as of September 30, 1995 reflect
adjustments which are considered necessary by management of the Company for a
fair financial statement presentation of the results for these periods. All such
adjustments were of a normal recurring nature.
In May 1995, the Company exercised its right to acquire the Subordinated
Discount Notes with a face value of $12.9 million held by Lehman (see note 4)
and recognized an after tax extraordinary gain of $342,000.
F-25
<PAGE> 99
ANNEX I
AGREEMENT AND PLAN OF SHARE EXCHANGE
DATED AS OF NOVEMBER 10, 1995
BY AND BETWEEN
OCCIDENTAL PETROLEUM CORPORATION
AND
INDSPEC HOLDING CORPORATION
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS................................................................. I-2
SECTION 1.1. Definitions............................................................. I-2
SECTION 1.2. Dollar References....................................................... I-4
SECTION 1.3. Rounding Convention..................................................... I-4
ARTICLE II. THE MERGER................................................................. I-5
SECTION 2.1. The Merger.............................................................. I-5
SECTION 2.2. Closing of the Merger................................................... I-5
ARTICLE III. THE SHARE EXCHANGE........................................................ I-5
SECTION 3.1. The Buyer's Exchange Offers............................................. I-5
SECTION 3.2. Mechanics............................................................... I-5
SECTION 3.3. Option Loans............................................................ I-5
SECTION 3.4. Prorationing............................................................ I-6
SECTION 3.5. Closing of the Exchange Offers.......................................... I-6
SECTION 3.6. Fractional Shares....................................................... I-6
SECTION 3.7. Adjustment.............................................................. I-6
SECTION 3.8. Company Actions......................................................... I-6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. I-6
SECTION 4.1. Incorporation; Qualification and Corporate Authority.................... I-6
SECTION 4.2. Subsidiaries............................................................ I-7
SECTION 4.3. Reports and Financial Statements........................................ I-7
SECTION 4.4. Absence of Certain Changes or Events.................................... I-8
SECTION 4.5. Capitalization.......................................................... I-8
SECTION 4.6. Binding Obligation...................................................... I-8
SECTION 4.7. No Defaults or Conflicts................................................ I-8
SECTION 4.8. No Authorizations or Consents Required.................................. I-9
SECTION 4.9. Permits................................................................. I-9
SECTION 4.10. No Actions, Suits or Proceedings........................................ I-9
SECTION 4.11. Documents; Material Contracts........................................... I-9
SECTION 4.12. Properties and Assets................................................... I-10
SECTION 4.13. Intangibles............................................................. I-10
SECTION 4.14. Employee Relations...................................................... I-10
SECTION 4.15. Environmental Compliances............................................... I-11
SECTION 4.16. Taxes................................................................... I-12
SECTION 4.17. Employee Benefits....................................................... I-13
SECTION 4.18. No Other Broker......................................................... I-15
SECTION 4.19. Insurance............................................................... I-15
SECTION 4.20. Compliance with Applicable Law.......................................... I-15
SECTION 4.21. Non-Applicability of Certain Regulations................................ I-15
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER..................................... I-15
SECTION 5.1. Incorporation; Qualification and Corporate Authority.................... I-15
SECTION 5.2. Capitalization.......................................................... I-15
SECTION 5.3. Binding Obligation...................................................... I-16
SECTION 5.4. No Defaults or Conflicts................................................ I-16
</TABLE>
I-i
<PAGE> 101
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5.5. No Authorization or Consents Required................................... I-16
SECTION 5.6. No Actions, Suits or Proceedings........................................ I-16
SECTION 5.7. Sufficient Funds........................................................ I-16
SECTION 5.8. No Other Broker......................................................... I-16
SECTION 5.9. Reports and Financial Statements........................................ I-16
SECTION 5.10. Purchase for Investment................................................. I-17
ARTICLE VI. COVENANTS.................................................................. I-17
SECTION 6.1. Conduct of Business..................................................... I-17
SECTION 6.2. No Negotiations......................................................... I-17
SECTION 6.3. Expenses................................................................ I-18
SECTION 6.4. Further Assurances...................................................... I-18
SECTION 6.5. Notice of Events........................................................ I-18
SECTION 6.6. Access to Information................................................... I-18
SECTION 6.7. Indemnification and Insurance........................................... I-19
SECTION 6.8. Employees and Employee Benefit Plans.................................... I-19
SECTION 6.9. No Section 338 Election; Certain Transactions Prohibited................ I-21
SECTION 6.10. Registration............................................................ I-21
SECTION 6.11. Merger Agreement........................................................ I-22
SECTION 6.12. Meeting of Stockholders................................................. I-22
SECTION 6.13. Additional Consideration................................................ I-22
SECTION 6.14. Insurance Maintenance................................................... I-22
SECTION 6.15. September 30 Financials................................................. I-22
SECTION 6.16. Additional Information.................................................. I-22
ARTICLE VII. CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE MERGER AND THE
COMMENCEMENT OF THE EXCHANGE OFFERS................................................... I-22
SECTION 7.1. Conditions Precedent of Buyer to Commence the Exchange Offers........... I-22
SECTION 7.2. Conditions Precedent of the Company to Consummate the Merger............ I-24
SECTION 7.3. Mutual Conditions....................................................... I-25
ARTICLE VIII. TERMINATION OF AGREEMENT................................................. I-26
SECTION 8.1. Termination............................................................. I-26
SECTION 8.2. Survival After Termination.............................................. I-26
ARTICLE IX. MISCELLANEOUS.............................................................. I-26
SECTION 9.1. Nonsurvival of Representations and Warranties........................... I-26
SECTION 9.2. Law Governing........................................................... I-26
SECTION 9.3. Binding Effect; Persons Benefiting; No Assignment....................... I-26
SECTION 9.4. Amendments.............................................................. I-27
SECTION 9.5. Interpretation.......................................................... I-27
SECTION 9.6. Counterparts............................................................ I-27
SECTION 9.7. Entire Agreement; Schedules............................................. I-27
SECTION 9.8. Notices................................................................. I-27
SECTION 9.9. Public Announcements.................................................... I-28
</TABLE>
I-ii
<PAGE> 102
AGREEMENT AND PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement"), dated as of
November 10, 1995, by and between OCCIDENTAL PETROLEUM CORPORATION, a Delaware
corporation (the "Buyer"), and INDSPEC Holding Corporation, a Delaware
corporation (together with its successors, the "Company").
WHEREAS, pursuant to the Voting Agreement (the "Voting Agreement"), dated
as of the date hereof, among Castle Harlan Partners II, L.P., a Delaware limited
partnership ("CHPII"), the other individuals party thereto (together with CHPII,
the "Roundtable Group"), Roundtable Corp., a Delaware corporation
("Roundtable"), the other stockholders of the Company named therein and the
Company, each member of the Roundtable Group has agreed to contribute the shares
of common stock, par value $.01 per share of the Company ("Company Common
Stock") set forth on Annex A opposite such member's name to Roundtable, in
exchange for an identical number of shares of Roundtable common stock, par value
$.01 per share ("Roundtable Common Stock");
WHEREAS, the Company and Roundtable have executed and delivered a merger
agreement (the "Merger Agreement") pursuant to which, and subject to the terms
and conditions thereof, Roundtable will be merged (the "Merger") with and into
the Company, with the Company as the surviving corporation (the "Surviving
Corporation");
WHEREAS, pursuant to the Merger, the Surviving Corporation's certificate of
incorporation will be amended to provide, among other things, for the issuance
of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
and Class B Common Stock, par value $.01 per share (the "Class B Common Stock",
and, together with the Class A Common Stock, the "New Company Common Stock");
WHEREAS, pursuant to the Merger, each share of Company Common Stock held by
stockholders of the Company other than Roundtable will be converted into one
share of Class A Common Stock, each share of Roundtable Common Stock will be
converted into one share of Class B Common Stock, and all outstanding shares of
Company Common Stock held by Roundtable will be cancelled;
WHEREAS, subject to the terms and conditions of this Agreement, the boards
of directors of the Buyer and the Company have approved the exchange (the
"Exchange") of the shares of the New Company Common Stock to be outstanding upon
consummation of the Merger for shares of common stock, par value $.20 per share,
of the Buyer ("Buyer Common Stock") pursuant to exchange offers (the "Exchange
Offers") in the amounts and on the terms set forth in this Agreement;
WHEREAS, the Voting Agreement provides, among other things, that (i)
members of the Roundtable Group will vote their shares of Roundtable Common
Stock in favor of the Merger, (ii) Roundtable will vote its shares of Company
Common Stock in favor of the Merger, (iii) the other stockholders named therein
will vote their shares of Company Common Stock in favor of the Merger, (iv) the
members of the Roundtable Group will tender their shares of Class B Common Stock
in the Exchange Offers, and (v) the other stockholders of the Company named
therein will tender their shares of Class A Common Stock in the Exchange Offers;
and
WHEREAS, in furtherance of the consummation of the Exchange and the
transactions contemplated herein, the parties hereto desire to enter into this
Agreement;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
Buyer and the Company contained in this Agreement,
<PAGE> 103
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Buyer and the Company agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions. (a) For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Audit" shall mean any audit, assessment of Taxes, other examination
by any Tax Authority, proceeding or appeal of such proceeding relating to
Taxes.
"Buyer Common Stock Value" means the average of the last reported
sales price (regular way) of Buyer Common Stock on the New York Stock
Exchange on each of the twenty (20) consecutive trading days ending on the
fifth trading day prior to the Closing Date.
"Change of Control" shall have the meaning set forth in the Indenture.
"Closing" means the consummation of the Exchange.
"Closing Date" means the date on which the Closing occurs.
"Conversion Date" has the meaning given to such term in the
Certificate of Incorporation of the Surviving Corporation attached as
Exhibit A to the Merger Agreement as described in Section 6.8 of this
Agreement.
"Credit Agreement" means the credit agreement among Specialty
Acquisition Holding, Inc., INDSPEC Technologies, Ltd., Specialty
Acquisition Sub., Inc., the Banks party thereto from time to time and
Bankers Trust Company, as agent, dated as of December 2, 1993.
"Employee" means each employee employed by the Company or its
Subsidiaries on the Conversion Date who is (i) performing duties and
responsibilities for the Company or its Subsidiaries; (ii) on temporary
leave of absence from the Company or its Subsidiaries; or (iii) on short
term disability or sick leave from the Company or its Subsidiaries.
"Environmental Claim" means any notice (written or oral) by any person
or entity (including, without limitation, citizen complaints) alleging,
asserting or stating potential liability or responsibility (including,
without limitation, relating to cleanup costs or other costs of corrective
action, investigative costs, governmental response costs, natural resources
damages, nuisance, penalties or contractual rights or obligations) arising
out of, based on or resulting from (i) the presence or release into the
environment of any Hazardous Material at any location, owned or operated by
the Company or the Subsidiaries or at any facility which received Hazardous
Material generated by the Company or the Subsidiary or (ii) any violation
or alleged violation of any applicable Environmental Law.
"Environmental Contracts" means any contracts, agreements or
correspondence with private parties allocating or discussing the allocation
of liability for environmental conditions at properties presently or
formerly owned or operated by the Company or any of its subsidiaries or
predecessors in interest or at any affiliate facility that may have
received Hazardous Material generated by the Company, any of its
subsidiaries or predecessors in interest.
"Environmental Indemnification Rights and Obligations" means all of
the rights, obligations and claims of INDSPEC Chemical Corporation or
Beazer East, Inc. under Article X of the Asset Purchase Agreement by and
between ISC Acquisition Company and Koppers Company, Inc., dated as of
December 16, 1988 (the "December 16, 1988 Agreement").
"Environmental Law" means any federal, state or local statute,
ordinance, rule, regulation, order or common-law doctrine, provisions and
conditions of Environmental Permits, orders and decrees establishing
standards of conduct for protection of human health and the environment,
including, but not limited to (i) releases of Hazardous Materials into the
environment, (ii) exposure of persons to Hazardous Materials, or (iii)
regulation of the manufacture, use or introduction into commerce of
chemical
I-2
<PAGE> 104
substances and materials, including, without limitation, their manufacture,
formulation, labeling, distribution, transportation, handling, storage and
disposal.
"Exchange Consideration" means $131 million.
"Exchange Consideration Per Share" means the number of shares of Buyer
Common Stock determined by (i) dividing the Exchange Consideration by the
sum of (a) the number of shares of New Company Common Stock and (b) the
number of shares of New Company Common Stock subject to issuance upon the
exercise of the Warrant and all vested and unvested Options, in each case,
to the extent outstanding as of the Closing Date, and (ii) dividing the
result obtained in clause (i) by the Buyer Common Stock Value.
"Former Employees" means former employees of the Company and its
Subsidiaries to whom the Company or the Subsidiaries is providing, or has a
future obligation to provide, benefits under the Plans.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the SEC or any other government
authority, agency, department, board, commission or instrumentality of the
United States, any foreign government, any State of the United States or
any political subdivision thereof, and any court, tribunal or arbitrator(s)
of competent jurisdiction, and any governmental or non-governmental
self-regulatory organization, agency or authority.
"Hazardous Materials" means (a) any element, compound, or chemical
that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely
hazardous substance or chemical, hazardous waste, special waste, or solid
waste under Environmental Laws; (b) petroleum, petroleum-based or
petroleum-derived products; (c) polychlorinated biphenyls; and (d) any
substance exhibiting a hazardous waste characteristic including but not
limited to corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indenture" means the indenture between INDSPEC Chemical Corporation
and United States Trust Company of New York, as Trustee, dated as of
December 2, 1993, with respect to 11 1/2% Series B Senior Subordinated
Discount Notes due 2003.
"Knowledge" means, in the case of a corporation or its subsidiaries,
the actual knowledge of any vice president or more senior officer of such
corporation and its subsidiaries and the actual knowledge of such employees
of such corporation and its subsidiaries as would reasonably be expected to
have knowledge of the relevant subject matter.
"Material Plant Loss" means any damage, destruction or other similar
unplanned event that results in the cessation of all or substantially all
of the production at INDSPEC Chemical Corporation's resorcinol production
facility in Petrolia, Pennsylvania (the "Plant") for a period that exceeds,
or is reasonably likely to exceed, thirty (30) consecutive days, including
an unplanned event which occurs during a planned outage or maintenance, but
taking into account for these purposes only the period exceeding the
planned period.
"Person" means any natural person, corporation, trust, partnership,
limited liability corporation, or other judicial entity.
"Taxes" means all federal, state, local and foreign taxes, and other
governmental assessments of a similar nature (whether imposed directly or
through withholding), including any interest, additions to tax, or
penalties applicable thereto.
"Tax Authority" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the
administration of any Taxes.
"Tax Returns" means all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns
(including any amendments thereto) relating to Taxes.
I-3
<PAGE> 105
(b) The following terms shall have the meaning specified in the indicated
section of this Agreement:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
ACM............................ Section 4.15
Agreement...................... Recitals
Annual Report.................. Section 4.17
Buyer.......................... Recitals
Buyer Common Stock............. Recitals
Buyer SEC Documents............ Section 5.9
CHPII.......................... Recitals
Castle Harlan Management
Agreement.................... Section 7.1
Class A Common Stock........... Recitals
Class B Common Stock........... Recitals
Class A Subject Shares......... Section 3.1
Class B Subject Shares......... Section 3.1
Code........................... Section 4.17
Commencement Date.............. Section 3.1
Company........................ Recitals
Company Common Stock........... Recitals
Company Permits................ Section 4.20
Confidentiality Agreement...... Section 6.6
December 16, 1988 Agreement.... Section 1.1
DGCL........................... Section 2.1
D&O Insurance.................. Section 6.7
Effective Date................. Section 2.1
Enabling Agreement............. Section 6.4
Environmental Permits.......... Section 4.15
Environmental Studies.......... Section 4.15
ERISA.......................... Section 4.17
ERISA Affiliate................ Section 4.17
ERISA Plans.................... Section 4.17
Exchange....................... Recitals
Exchange Act................... Section 3.1
Exchange Consideration Per
Warrant...................... Section 3.2
Exchange Offers................ Recitals
Exchange Offer Registration
Statement.................... Section 6.10
Financial Statements........... Section 4.3
GAAP........................... Section 4.3
Material Adverse Effect........ Section 4.1
Maximum Premium................ Section 6.7
Merger......................... Recitals
Merger Agreement............... Recitals
New Company Common Stock....... Recitals
Offers to Exchange............. Section 3.1
Options........................ Section 4.5
PBGC........................... Section 4.17
Pension Plan................... Section 4.17
Permits........................ Section 4.9
Plans.......................... Section 4.17
Plant.......................... Section 1.1
Prospectuses................... Section 6.10
Proxy Statement................ Section 6.10
Redemption Registration
Statement.................... Section 6.10
Registration Statements........ Section 6.10
Retained Options............... Section 6.13
Retained Securities............ Section 6.13
Retained Stock................. Section 6.13
Rights......................... Section 4.4
Roundtable Group............... Recitals
Roundtable..................... Recitals
Roundtable Common Stock........ Recitals
SEC............................ Section 4.3
SEC Documents.................. Section 4.3
September 30 Financials........ Section 6.3
SPD............................ Section 4.17
Securities Act................. Section 5.10
Stockholders Approval.......... Section 3.8
Stockholders Meeting........... Section 6.12
Subject Shares................. Section 3.1
Subsidiary..................... Section 4.2
Surviving Corporation.......... Recitals
Valuation Period............... Section 3.7
Voting Agreement............... Recitals
Warrant........................ Section 4.5
Welfare Plan................... Section 4.17
</TABLE>
SECTION 1.2. Dollar References. All references herein to dollars or "$"
shall be to United States dollars.
SECTION 1.3. Rounding Convention. Unless otherwise specified in this
Agreement, in any instance in which this Agreement requires that a mathematical
calculation be performed, or makes reference to a fraction, the result obtained
after performing such calculation, and any such fraction, shall be expressed as
a decimal and rounded to the nearest 1/100th with .5/100 rounded upward to
1/100.
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ARTICLE II.
THE MERGER
SECTION 2.1. The Merger. Upon the terms and subject to the conditions of
the Merger Agreement, dated as of the date hereof, by and among Roundtable and
the Company and in accordance with the Delaware General Corporation Law (the
"DGCL"), Roundtable shall be merged with and into the Company on the second
business day (the "Effective Date") after the satisfaction or waiver of the
conditions set forth in Article VII hereof. Following the Merger, the Company
shall continue as the Surviving Corporation and the separate corporate existence
of Roundtable shall cease.
SECTION 2.2. Closing of the Merger. The consummation of the Merger shall
take place at the offices of Eckert, Seamans, Cherin & Mellott, 600 Grant
Street, Pittsburgh, Pennsylvania 15219 at 10:00 a.m. Pittsburgh time, on the
Effective Date, or at such other time and place as the Buyer and the Company
mutually agree upon in writing.
ARTICLE III.
THE SHARE EXCHANGE
SECTION 3.1. The Buyer's Exchange Offers. (a) No later than one business
day following the Effective Date, the Buyer shall commence (the date of
commencement being the "Commencement Date") the Exchange Offers, including
mailing the offers to exchange relating thereto (the "Offers to Exchange"),
subject to the terms and conditions set forth in this Agreement. The Offers to
Exchange will provide for the Buyer to offer to exchange the Exchange
Consideration Per Share, for (i) each of the outstanding shares of Class B
Common Stock (the "Class B Subject Shares") and (ii) up to 8,504 shares of Class
A Common Stock that are outstanding or subject to issuance upon exercise of
vested Options or the Warrant less 506 shares if the Warrant is converted into a
warrant to purchase Class B Common Stock (the "Class A Subject Shares" and,
together with the "Class B Subject Shares," the "Subject Shares").
(b) The obligations of the Buyer to commence the Exchange Offers shall be
subject to the satisfaction or waiver of conditions set forth in Sections 7.1
and 7.3 hereof. Notwithstanding any other provision hereof, the Buyer shall
conduct the Exchange Offers in accordance with all applicable laws, including,
without limitation, Section 14(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder. The
Buyer may not extend the Exchange Offers beyond twenty (20) business days from
the Commencement Date. The Exchange Offers shall not be amended with respect to
any provision thereof set forth in this Agreement or Annex B without the prior
written consent of the Company, except that the Buyer may in its sole discretion
waive any of the conditions to the Exchange Offers.
SECTION 3.2. Mechanics.
(a) The Exchange Offers will provide that shares of Class A Common Stock
may be validly tendered by delivery of certificates or by delivery of a notice
of guaranteed delivery executed by the Company indicating that (i) the tendering
party is entitled to receive shares of Class A Common Stock upon exercise of a
vested Option, (ii) such Option has been validly exercised subject only to the
condition that the Buyer accept the shares issuable thereunder in the Exchange
Offers and (iii) the tendering party has directed the Company to deliver such
"accepted" shares directly to the Buyer upon notice of acceptance from the
Buyer.
(b) The letter of transmittal used in the Exchange Offers will permit the
tendering party to indicate the priority of acceptance of the shares it has
tendered (among certificated shares and shares issuable upon exercise of each
vested Option) in the event of prorationing.
SECTION 3.3. Option Loans. The Company, to the extent that it is permitted
to do so pursuant to the terms of the Indenture and the Credit Agreement, may
provide to each holder of vested Options for which the shares issuable upon
exercise thereof are accepted by the Buyer in the Exchange Offers, as a loan,
the amount of the exercise price necessary to exercise such vested Options. The
Company's loan to each such holder shall be evidenced by a promissory note which
provides for a thirty-day loan at a per annum interest rate equal to
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the lowest rate under applicable Federal tax law necessary to avoid accrual of
imputed interest income thereon. If the Company determines not to make the loans
contemplated by Section 3.3, the Company may amend the relevant stock option
plans to permit the cashless exercise (including reload provisions) of the
Options on terms mutually agreeable to the Company and the Buyer.
SECTION 3.4. Prorationing. If a number of shares of Class A Common Stock
greater than the number of Class A Subject Shares is validly tendered in the
Exchange Offers, the Buyer shall accept such shares on a pro rata basis based on
the number of shares validly tendered by each stockholder.
SECTION 3.5. Closing of the Exchange Offers. The obligations of the Buyer
to accept for exchange any Subject Shares pursuant to the Exchange Offers and to
deliver the Exchange Consideration Per Share shall be subject only to the
conditions set forth in Annex B hereto being satisfied, and the Buyer agrees to
deliver such consideration promptly following expiration of the Exchange Offers.
SECTION 3.6. Fractional Shares. No fractional share of Buyer Common Stock
shall be issued, and in lieu thereof, a cash payment shall be made pursuant to
this Section. On the Closing Date, the Buyer shall calculate the cash amount
relating to each fractional share of Buyer Common Stock to which a holder of any
of the foregoing instruments would be entitled by multiplying such fraction by
the Buyer Common Stock Value and the Buyer shall pay such amounts to such
holders of Class A Common Stock and Class B Common Stock, subject to and in
accordance with the terms hereof.
SECTION 3.7. Adjustment. If, during the twenty trading day period on which
the Buyer Common Stock Value is based (the "Valuation Period"), there shall
occur an ex-dividend date with respect to any dividend, or a record date with
respect to any subdivision, reclassification, combination or other
recapitalization affecting the Buyer Common Stock, then the Buyer Common Stock
Value shall be adjusted appropriately in a manner to be determined by the Buyer
and consented to by the Company (which consent shall not unreasonably be
withheld).
SECTION 3.8. Company Actions. The Company hereby consents to the Exchange
and represents that its Board of Directors (at a meeting duly called and held)
has (a) duly approved each of the Exchange and the Merger and determined that
the Exchange and the Merger are fair to the Company's stockholders, and (b)
adopted resolutions recommending approval of the Merger by the stockholders of
the Company ("Stockholders Approval"). The Company will, prior to the
commencement of the Exchange Offers, promptly furnish Buyer with then current
mailing labels containing the names and addresses of the record holders of the
Subject Shares, the Options, and the Warrant, and shall furnish the Buyer with
such additional information, and other assistance as the Buyer may reasonably
request for the purpose of communicating the Exchange Offers to the holders of
the Subject Shares, the Options and the Warrant. Except for such steps as are
necessary to disseminate the Offers to Exchange, the Buyer shall (i) hold in
confidence the information contained in any of such labels and lists and the
additional information referred to in the preceding sentence, (ii) use such
information only in connection with the Exchange Offers, and (iii) if this
Agreement is terminated, upon request of the Company, deliver to the Company or
destroy all such written information and any copies or extracts thereof then in
its possession or under its control.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that:
SECTION 4.1. Incorporation; Qualification and Corporate Authority. The
Company has been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware with all requisite power and authority
to conduct its business as presently conducted and to enter into this Agreement
and perform its obligations hereunder. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to the
extent that the failure
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to so qualify or be in good standing could not, singly or in the aggregate,
reasonably be expected to have a material adverse effect on the assets,
business, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries considered as one enterprise (a "Material Adverse
Effect").
SECTION 4.2. Subsidiaries. The Company's only subsidiaries (each a
"Subsidiary" and, collectively, the "Subsidiaries") are listed in Schedule 4.2.
Each Subsidiary has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its organization with all
requisite power and authority to conduct its business as presently conducted.
Except for the Subsidiaries and except as set forth in Schedule 4.2, neither the
Company nor any of the Subsidiaries owns, directly or indirectly, any capital
stock of or other equity interest in, any other Person. Each Subsidiary is duly
qualified to transact business as a foreign entity and is in good standing in
each other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good standing could
not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 4.2, all of the outstanding
shares of capital stock of (or other equity interest in) each Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable
and are owned by the Company, directly or through one or more Subsidiaries, free
and clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
SECTION 4.3. Reports and Financial Statements. (a) The Company has
previously furnished the Buyer with true and complete copies of: (i) Annual
Reports on Form 10-K for the years ended March 31, 1995, 1994 and 1993 filed by
INDSPEC Chemical Corporation with the Securities and Exchange Commission (the
"SEC"), (ii) the Quarterly Report on Form 10-Q for the three months ended June
30, 1995 filed by INDSPEC Chemical Corporation, and (iii) all other reports
filed by INDSPEC Chemical Corporation with the SEC from December 2, 1993 through
the date hereof. As of their respective dates, such reports and statements (the
"SEC Documents") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The financial statements of INDSPEC Chemical Corporation included in
the SEC Documents, as of their respective dates, comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP"), applied on a
basis consistent with prior periods during the periods involved (except as may
be indicated in the notes thereto), and present fairly in all material respects
the financial position as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments in accordance with GAAP that
are not material in amount or effect, and the absence or condensation of certain
notes thereto permitted by GAAP in respect of interim financial statements).
(c) The Company has previously furnished the Buyer with (i) the audited
consolidated financial statements of the Company and its Subsidiaries for the
fiscal years ended March 31, 1994 and 1995, and (ii) the unaudited consolidated
financial statements of the Company and its Subsidiaries for the six-month
period ended September 30, 1995 (collectively the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP applied on a
basis consistent with prior periods during the periods involved (except as may
be indicated in the notes thereto), and present fairly the financial position as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments in accordance with GAAP that are not material
in amount or effects and the absence or condensation of notes thereto required
by GAAP in respect of interim financial statements).
(d) Except as set forth on Schedule 4.3(d) and other than the obligations
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
has any liabilities of any kind or nature, whether absolute, contingent or
accrued, and whether due or to become due, except (i) those reflected or
disclosed in the Financial Statements, (ii) those arising after September 30,
1995 in the ordinary course of business,
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consistent with past practice and in an amount that could not reasonably be
expected to exceed $100,000, (iii) loss contingencies that are remote and (iv)
performance obligations arising under executory contracts.
SECTION 4.4. Absence of Certain Changes or Events. Except as disclosed in
the SEC Documents and as set forth in Schedule 4.4, since June 30, 1995, the
Company and its Subsidiaries have conducted their respective businesses only in
the ordinary course in all material respects, and there has not been: (i) any
change which has had or could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect; (ii) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the outstanding capital stock of the Company or
of any of its Subsidiaries that is not, directly or indirectly, wholly owned by
the Company or, other than as required by the agreements or Plans identified in
Schedule 4.4, any direct or indirect redemption, purchase or other acquisition
of any shares of such capital stock; (iii) any split, combination or
reclassification of any of the outstanding capital stock of the Company or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of the outstanding capital stock of
the Company other than by reason of any exercise of Options granted and existing
as disclosed on Schedule 4.5; (iv) any issuance or sale of capital stock by the
Company or any of its Subsidiaries or any authorization for such action or any
issuance or grant of any options, warrants, agreements, conversion or exchange
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any capital stock of, or other equity interest in, the Company
or any of its Subsidiaries (individually and collectively, "Rights"); (v) any
Material Plant Loss; (vi) any event that would require the approval of the Board
of Directors of the Surviving Corporation under the provisions of its By-Laws in
the form attached to the Merger Agreement; or (vii) any change in accounting
methods, principles or practices by the Company or any of its Subsidiaries
materially affecting their respective assets, liabilities or business, except
insofar as may have been required by a change in GAAP.
SECTION 4.5. Capitalization. (a) Schedule 4.5 sets forth the authorized,
outstanding and treasury capital stock of the Company, (i) as of the date hereof
and (ii) immediately prior to the Closing Date after giving effect to the
Merger, assuming that none of the Options or the Warrant are exercised on or
prior to that date. Schedule 4.5 sets forth the outstanding options to purchase
Company Common Stock (the "Options"), including the vesting dates and exercise
prices thereof and the outstanding warrant to purchase Company Common Stock (the
"Warrant") including the expiration date and exercise price thereof. Except as
set forth on Schedule 4.5, no shares of capital stock or other equity securities
of the Company have been issued and are outstanding or are reserved for
issuance. Except as set forth in Schedule 4.5, at the date hereof there are, and
immediately prior to the Closing there will be, no (i) Rights or (ii)
restrictions on the voting or transfer of such shares of capital stock or other
equity interests.
(b) The outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive and similar rights.
SECTION 4.6. Binding Obligation. The execution and delivery of this
Agreement and the performance by the Company of its obligations hereunder have
been duly authorized by all necessary corporate action on the part of the
Company (subject to Stockholder Approval) and this Agreement has been duly
executed and delivered by the Company. Assuming this Agreement constitutes a
valid and binding obligation of the Buyer, this Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies; and (ii) general
principles of equity, including, without limitation, principles of
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in equity or at law).
SECTION 4.7. No Defaults or Conflicts. The execution and delivery of this
Agreement by the Company and performance by the Company of its obligations
hereunder (i) do not and, as of the Closing will not, after notice or lapse of
time or both, result in any violation of the charter, by-laws or other
organizational document of the Company or any Subsidiary; and (ii) do not and,
as of the Closing, will not (x) conflict with, or result in a breach of any of
the terms or provisions of, result in the modification or cancellation of, or
give rise to any right of termination, acceleration, prepayment or redemption in
respect of or constitute a default under:
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(A) (except for such conflicts, breaches or defaults that could not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect and
except as set forth in Section 3.14 of the Indenture), any indenture, mortgage
or loan agreement or any other agreement or instrument to which the Company or
any Subsidiary is a party or by which they may be bound or to which any of their
respective properties may be subject, assuming that the condition set forth in
Section 7.3.(g) will have been satisfied on or before the Closing Date; or (B)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over the Company or any Subsidiary or
any of their respective properties, other than such consents, approvals,
authorizations, filings or notices as are set forth in Schedule 4.7 and
immaterial filings, authorizations, consents or approvals; or (y) result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary (except for such liens, charges or
encumbrances that could not, singly, or in the aggregate, reasonably be expected
to have Material Adverse Effect).
SECTION 4.8. No Authorizations or Consents Required. Other than as listed
in Schedule 4.8, no consent, authorization or approval or other action by, and
no notice to or filing with, any Governmental Authority or other person (except
for immaterial consents, authorizations, approvals, actions, notices or filings)
will be required to be obtained or made by the Company or any of its
Subsidiaries or, to the Knowledge of the Company, any of its stockholders in
connection with the due execution and delivery by the Company of this Agreement
and the consummation by the Company or any of its stockholders of the
transactions contemplated hereby.
SECTION 4.9. Permits. Except for those Permits identified in Schedule 4.9,
which have been timely applied for but not yet obtained, each of the Company and
the Subsidiaries has in full force and effect all Federal, state, local and
foreign governmental approvals, consents, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights (collectively, "Permits")
necessary for it and them to conduct its and their respective businesses as
presently conducted, and there has not occurred any default under any Permit,
except for those that could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There are no actions, suits or
proceedings pending or, to the Knowledge of the Company, threatened relating to
the suspension, revocation or modification of any Permit, except for such that
could not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 4.10. No Actions, Suits or Proceedings. Except as set forth in
Schedule 4.10, there is no action, suit or proceeding pending, or to the
Knowledge of the Company, threatened against the Company or any Subsidiary that
(i) could, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect or (ii) questions the validity, legality or enforceability of
this Agreement, the Merger Agreement, the Voting Agreement or the transactions
contemplated hereby or thereby or seeks to prevent the consummation of the
transactions contemplated hereby or thereby, including (without limitation) the
Merger and the Exchange.
SECTION 4.11. Documents; Material Contracts. As of the date hereof, all
documents described in or filed as an exhibit to any SEC Document have been
provided or made available to the Buyer by the Company.
Schedule 4.11 sets forth all of the following contracts to which the
Company or any of its Subsidiaries is a party or by or to which any of their
properties or business are bound or subject and which have not expired or have
no further effect by their terms: (i) contracts with any current or former
officer, director, employee, security holder, option holder, warrant holder,
consultant or agent; (ii) material contracts for the purchase, lease or other
acquisition of materials, supplies, equipment, merchandise, services, real
property or any other material asset; (iii) material patent, trademark, service
mark, trade name, copyright or franchise licenses, royalty agreements or similar
contracts; (iv) material distributorship, representative, management, marketing,
sales agency, printing or advertising contracts; (v) contracts for the sale,
lease or other transfer (or the grant to any person of any preferential rights
to purchase, lease or otherwise acquire) any material properties; (vi) joint
venture contracts, partnership agreements or similar contracts; (vii) contracts
under which the Company or any of its Subsidiaries has directly or indirectly
guaranteed the obligations of any Person; (viii) contracts under which the
Company or any of its Subsidiaries has agreed to directly or indirectly
indemnify any person or to directly or indirectly share tax liability with any
person; (ix) contracts directly or indirectly limiting the
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freedom of the Company or any of its Subsidiaries to engage in any line of
business or in any geographic area; (x) contracts directly or indirectly
relating to the acquisition by the Company or any of its Subsidiaries of any
operating business or the capital stock of, or other equity interest in, any
person; (xi) contracts relating to indebtedness for money borrowed (other than
contracts that, in the aggregate, relate to indebtedness in the principal amount
of $100,000 or less); and (xii) except for contracts that do not obligate the
Company to make aggregate payments thereunder in excess of $100,000 or relate to
accounts payable arising in the ordinary course of business on terms consistent
with past practice, each other contract, whether or not made in the ordinary
course of business, that is not included under the foregoing clauses and is
otherwise material to the business of the Company or any of its Subsidiaries.
The Company has made available to the Buyer a correct and complete copy of each
of the foregoing contracts. All such contracts are in full force and effect
(unless otherwise provided therein), the Company and its Subsidiaries have paid
in full or accrued all amounts due thereunder and have satisfied in full or
provided for all of their liabilities and obligations thereunder in accordance
with GAAP and past practices, except to the extent that the failure to so pay or
accrue could not reasonably be expected to result in additional liabilities or
obligations to pay an amount in the aggregate in excess of $100,000.
SECTION 4.12. Properties and Assets. (a) Schedule 4.12 sets forth a true
and complete list of all real property and interests therein owned or held by
the Company and its Subsidiaries. Except as provided in Schedule 4.12, each of
the Company and its Subsidiaries has good and marketable title to all properties
and assets owned by it, free and clear of all pledges, liens, security
interests, charges, claims or encumbrances, except (i) such as could not
reasonably be expected to have a Material Adverse Effect, and (ii) for real
estate taxes not yet due and payable.
(b) Except as provided in Schedule 4.12, each lease and sublease to which
the Company or any of its Subsidiaries is a party and which is used in the
business of the Company and its Subsidiaries is in full force and effect, and
neither the Company nor any of its Subsidiaries has any notice of any claim of
any sort that has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any such lease or sublease, except for such claims that
could not reasonably be expected to have a Material Adverse Effect.
(c) All improvements on real property owned or leased by the Company or any
of its Subsidiaries, and the operations conducted thereat, conform in all
material respects, to all applicable land use, zoning or similar laws.
(d) Except as set forth on Schedule 4.12, for the period beginning on the
date hereof and ending on June 30, 1996, the Company and INDSPEC Chemical
Corporation have no planned or scheduled outage or maintenance of the Plant that
will or is reasonably likely to result in cessation of all or substantially all
of the production at the Plant.
SECTION 4.13. Intangibles. Each of the Company and the Subsidiaries owns or
possesses adequate patents, patent licenses, trademarks, service marks and trade
names necessary to the production or sale of resorcinol or that otherwise could
reasonably be expected to be material to the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any Subsidiary has received any notice of
infringement of, or conflict with asserted rights of others with respect to, any
patents, patent licenses, trademarks, service marks or trade names that could
reasonably be expected, singly or in the aggregate, to have a Material Adverse
Effect or that relate to the production or sale of resorcinol.
SECTION 4.14. Employee Relations.
(a) The Company and its Subsidiaries have approximately 378 employees.
Except as disclosed on Schedule 4.14 there is no unfair labor practice charge or
complaint pending or threatened against the Company, any of its Subsidiaries, or
any Person for whom any of them is or may be responsible by law or contract,
before the National Labor Relations Board or any corresponding state, local or
foreign agency, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or threatened. Except as
disclosed on Schedule 4.14, there is no strike, labor dispute, slowdown or
stoppage pending or threatened against the Company, any of its Subsidiaries, or
any Person for whom any of them is or may be responsible by law or contract.
Except as disclosed on Schedule 4.14, there is no union
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representation claim or question existing with respect to the employees of the
Company, any of its Subsidiaries or any Person for whom any of them is or may be
responsible by law or contract, and no union organizing activities are taking
place. The Company is not aware of any existing, threatened or imminent labor
disturbance involving the employees of any principal suppliers, manufacturers or
contractors of the Company. Except as disclosed on Schedule 4.14, neither the
Company, any of its Subsidiaries, nor any Person for whom any of them is or may
be responsible by law or contract, is a party to or bound by any collective
bargaining agreement contract or other agreement or understanding with a labor
union, organization or guild. The Company has provided the Buyer with copies of
all such agreements. To the knowledge of the Company, employer-employee
relations of the Company and its Subsidiaries are generally satisfactory.
(b) To the best knowledge of the Company, neither the Company nor any of
its Subsidiaries has violated any applicable federal, state, provincial or
foreign law relating to employment or employment practices or the terms and
conditions of employment, including, without limitation, discrimination in the
hiring, promotion or pay of employees, wages, hours of work, plant closings and
layoffs, collective bargaining, and occupational safety and health. Neither the
Company, any of its Subsidiaries nor any person for whom any of them is or may
be responsible by law or contract, is engaged in any unfair labor practice.
SECTION 4.15. Environmental Compliances. The Buyer acknowledges that it has
been given the opportunity to conduct environmental site assessments on the
properties of the Company and its Subsidiaries and has been given the
opportunity to review the operations of the Company and its Subsidiaries as well
as the environmental records relating to those operations. Except for
information which is included in the environmental audit report prepared by TRC
Environmental Corporation and which is not materially different than information
known to the Company, or except as set forth on Schedule 4.15, to the Company's
Knowledge:
(a) (i) each of the Company and its Subsidiaries has been and is in
compliance with all applicable Environmental Law except where
non-compliance could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect; (ii) each of the Company and
its Subsidiaries has all permits, licenses, registrations, authorizations
and approvals and financials assurance (including, without limitation,
rights under grandfather provisions, exemptions, waivers and the like)
("Environmental Permits") that are required to be held or provided by the
Company and its Subsidiaries in order to conduct their respective
businesses as currently operated under applicable Environmental Law, each
is in material compliance with the requirements of all such Environmental
Permits except where non-compliance could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and neither the
Company nor any of its Subsidiaries has been notified by any Governmental
Authority or has any basis to believe that any Environmental Permit may be
modified, suspended or revoked, or that any Environmental Permit
(including, without limitation, any air pollution permit under Title V of
the federal Clean Air Act) cannot be renewed or obtained in the ordinary
course of business; (iii) there is no Environmental Permit with respect to
which the Company and its Subsidiaries have failed to make timely
application or reapplication under Environmental Law; (iv) Schedule 4.15
lists all Environmental Permits held by the Company and its Subsidiaries,
and the Company has made copies of all Environmental Permits available for
inspection by the Buyer; (v) there are no pending or threatened
Environmental Claims against the Company or any of its Subsidiaries; (vi)
there are no orders or decrees (including, without limitation, consent
orders or consent decrees), judgments, settlements, agreements or other
binding obligations of any kind relating to Environmental Claims or
Environmental Law specifically applicable to the Company or any of its
Subsidiaries or to any property owned, leased or operated by the Company or
any of its Subsidiaries; and (vii) there are no environmental conditions or
occurrences at any of the properties owned or operated by the Company or
any of its Subsidiaries or to the Knowledge of the Company at any
properties formerly owned or operated by the Company or any of its
Subsidiaries nor any acts or omissions by the Company or any of its
Subsidiaries that could form the basis of any Environmental Claim against
the Company or any of its Subsidiaries which Environmental Claims could
reasonably be expected, singly or in the aggregate, to have a Material
Adverse Effect.
(b) (i) there is no friable asbestos-containing material ("ACM") in or
on any property currently owned, leased or operated by the Company or any
of its Subsidiaries, other than friable ACM which has
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been identified and abated in compliance with OSHA and applicable state
standards and which is subject to an operations and maintenance program as
recommended by the U.S. EPA; (ii) no underground storage tanks (including
underground storage tanks that do not have to be registered under
Environmental Laws) are or have been owned or operated by the Company or
any of its Subsidiaries on any property currently owned, leased or operated
by the Company or any of its Subsidiaries, and the Company has provided the
Buyer with all relevant information relating to any such underground
storage tank which the Company or any of its Subsidiaries have owned or
operated on such property; (iii) the Company or any of its Subsidiaries
have not used or operated any surface impoundments, landfills, waste piles,
injection wells, land treatment areas, incinerators or other solid waste
management units on any property currently owned, leased or operated by the
Company or any of its Subsidiaries, (iv) neither the Company nor any of its
Subsidiaries owns or operates any equipment containing PCBs in
concentration greater than 50 parts per million; and (v) Schedule 4.15
contains a list of all spills, discharges and other releases which were
required to be reported to Koppers Company, Inc. (including its successors)
under section 10.5(b) of the December 16, 1988 Agreement and identifies any
such spills, discharges or other releases which were not reported to
Koppers Company, Inc. (including its successors).
(c) (i) The Company has fully and accurately disclosed to the Buyer
all final environmental reports, studies, (including, but not limited to
risk assessments performed in connection with or in any way relating to or
referring to remedial actions, remedial investigations, environmental
audits, internal assessments of potential responsibility or liability under
Environmental Law), and records of agency audits under Environmental Law
(collectively "Environmental Studies") of which the Company and any of the
Subsidiaries have Knowledge and which relates to any property owned, leased
or operated by the Company or any of its Subsidiaries, and has provided the
Buyer with copies of all Environmental Studies in its possession or
control; (ii) the Company has fully and accurately disclosed to the Buyer,
and provided the Buyer with copies of all documents relating to or
evidencing, any communications by or from ISC Acquisition Company
(including its successors) and Koppers Company, Inc. (including its
successors) relating to Environmental Rights and Obligations, including,
without limitation, with respect to any claims made by any party under
Article X of the December 16, 1988 Agreement and the response of the other
party thereto; and (iii) the Company has fully and accurately disclosed to
the Buyer all Environmental Studies of which it has Knowledge relating to
environmental conditions on the adjoining property owned or operated by
Koppers, Inc. (including its successors) which may have adversely impacted
the property of the Company or any of its Subsidiaries or the natural
resources on or below the properties and has provided the Buyer with copies
of all such Environmental Studies.
(d) (i) Schedule 4.12 lists all properties which are or have been
owned, leased or operated by the Company or any of its Subsidiaries, and
(ii) the Company has provided the Buyer with copies of all Environmental
Contracts.
SECTION 4.16. Taxes. Except as otherwise disclosed in Schedule 4.16:
(a) The Company and each of its Subsidiaries have timely filed (or
have had timely filed on their behalf) or will file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of
them prior to or as of the Closing Date, and all such Tax Returns are or
will be true, complete and correct except to the extent the failure to file
such Tax Returns or the failure of such Returns to be true, correct or
complete would not, singly or in the aggregate, result in a Tax deficiency
in excess of $50,000.
(b) The Company and each of its Subsidiaries have paid (or have had
paid on their behalf) within the time and in the manner prescribed by law,
or where payment is not yet due, have established (or have had established
on their behalf), or will establish or cause to be established on or before
the Closing Date, an adequate accrual for the payment of all material Taxes
due with respect to any period ending prior to or as of the Closing Date.
(c) No Audit by a Taxing Authority is pending or threatened in writing
with respect to any material Taxes due from the Company or any of its
Subsidiaries. There are no outstanding waivers extending the statutory
period of limitation relating to the payment of material Taxes due from the
Company or any of its Subsidiaries for any taxable period ending prior to
the Closing Date which are expected to be
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outstanding as of the Closing Date. No actions, suits or proceedings are
pending or have been threatened in writing against the Company or any of
its Subsidiaries in respect of Taxes.
(d) No issue has been raised in any Audit of the Company or any of its
Subsidiaries that, if raised with respect to any period not so audited,
could reasonably be expected to result in a proposed deficiency for such
other period. No deficiency or adjustment for any Taxes has been
threatened, proposed or asserted in writing or assessed against the Company
or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries is bound by or is
a party to any material agreement related to Taxes, including any agreement
with any Tax Authority that can affect a Tax period commencing after the
Closing Date.
(f) There are no liens for Taxes upon any of the assets of the Company
or any of its Subsidiaries except liens for Taxes not yet due and payable.
SECTION 4.17. Employee Benefits.
(a) Schedule 4.17 contains a true and complete list of each bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of section
4001(b)(1) of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder ("ERISA"), for the benefit
of any employee or former employee of the Company, whether formal or informal
and whether legally binding or not (the "Plans"). Schedule 4.17 includes each of
the Plans that is an "employee welfare benefit plan," as defined in Section 3(1)
of ERISA ("Welfare Plans") or "employee pension benefit plan" as defined in
Section 3(2) of ERISA ("Pension Plans," and together with Welfare Plans,
hereinafter referred to collectively as the "ERISA Plans"). Except as set forth
in Schedule 4.17, neither the Company nor any ERISA Affiliate has any formal
plan or commitment, whether legally binding or not, to create any additional
Plan or modify or change any existing Plan that would affect any employee or
terminated employee of the Company or any ERISA Affiliate.
(b) With respect to each of the Plans (other than Plans maintained pursuant
to a collective bargaining agreement) the Company has not made any
representations to any Person that it will continue any such Plan beyond the
current plan year.
(c) With respect to each of the Plans, the Company has heretofore delivered
to Buyer true and complete copies of each of the following documents:
(i) a copy of the Plan (including any amendments thereto);
(ii) a copy of the annual report (the "Annual Report"), if required
under ERISA, with respect to such Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Plan for the last three years;
(iv) a copy of the most recent Summary Plan Description ("SPD"),
together with all Summaries of Material Modification issued with respect to
such SPD, required under ERISA with respect to such Plan, and all other
material employee communications relating to such Plan;
(v) if the Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Plans with respect to which the
Company or any ERISA Affiliates may have any liability, including, without
limitation, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping agreements;
and
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(vii) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified
under Section 401 of the Internal Revenue Code of 1986, as from time to
time amended (the "Code").
(d) No liability under Title IV of ERISA has been incurred by the Company
or any ERISA Affiliate since the effective date of ERISA that has not been
satisfied in full, and to the knowledge of the Company, no condition exists that
presents a material risk to the Company or an ERISA Affiliate of incurring a
liability under such Title, other than liability for premiums due the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been or will be made
when due. To the extent this representation applies to Sections 4064, 4069 or
4204 of Title IV of ERISA, it is made not only with respect to the ERISA Plans
but also with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which the Company or an ERISA
Affiliate made, or was required to make, contributions during the five (5) year
period ending on the last day of the Company's most recent fiscal year.
(e) To the Knowledge of the Company, PBGC has not instituted proceedings to
terminate any of the ERISA Plans and no condition exists that presents a
material risk that such proceedings will be instituted.
(f) No material reportable event within the meaning of Section 4043 of
ERISA or prohibited transaction within the meaning of Section 406 of ERISA has
occurred with respect to any Plan, other than listed in Schedule 4.17 or the
Annual Report.
(g) To the knowledge of the Company, neither the Company, any ERISA
Affiliate, any of the ERISA Plans, any trust created thereunder nor any trustee
or administrator thereof has engaged in a transaction or has taken or failed to
take any action in connection with which the Company, any ERISA Affiliate, any
of the ERISA Plans, any such trust, any trustee or administrator thereof, or any
party dealing with the ERISA Plans or any such trust could be subject to either
a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975, 4976 or 4908B of the Code.
(h) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts which the Company or any ERISA Affiliate
is required to pay under the terms of each of the ERISA Plans and Section 412 of
the Code, and all such amounts properly accrued through the Closing with respect
to the current plan year thereof will be paid by the Company on or prior to the
Closing or will be recorded on the Balance Sheet; and none of the ERISA Plans or
any trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of each
of the ERISA Plans ended prior to the date of this Agreement.
(i) No Plan is a "multiemployer plan," as such term is defined in Section
3(37) of ERISA.
(j) Except as disclosed in Schedule 4.17, no amounts payable under the
Plans or any other agreement or arrangement to which the Company or any ERISA
Affiliate is a party will, as a result of the transaction contemplated hereby,
fail to be deductible for federal income tax purposes by virtue of Section 280G
of the Code.
(k) No "leased employee," as that term is defined in Section 414(n) of the
Code, performs services for the Company of any ERISA Affiliate.
(l) Except as set forth in the disclosure schedule, no Plan provides
benefits, including without limitation death or medical benefits (whether or not
insured), with respect to current or former employees after retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company or the ERISA Affiliates, or
(iv) benefits, the full cost of which is borne by the current or former employee
(or his beneficiary).
(m) With respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no material liability of the Company or an ERISA
Affiliate, as of the Closing Date, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate
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adjustment, loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the Closing Date.
(n) Each Pension Plan that is intended to be a qualified retirement plan
under Section 401(a) of the Code is so qualified and each trust thereunder was
exempt from United States federal taxation under Section 501(a) of the Code.
Prior to March 31, 1995, applications seeking further determinations with regard
to the Tax Reform Act of 1986 were submitted and are still pending on behalf of
the ESOP, Employee Savings Plan and the Retirement Plan for Salaried Employees.
Each Pension Plan and each Welfare Plan has been administered in all material
respects in compliance with ERISA and the Code and, to the extent not
inconsistent with ERISA and the Code, in accordance with the terms of each such
plan.
SECTION 4.18. No Other Broker. Other than Morgan Stanley & Co.,
Incorporated and Castle Harlan, Inc., no broker, finder or similar intermediary
has acted for or on behalf of the Company or any of its Subsidiaries in
connection with this Agreement or the transactions contemplated hereby, and no
broker, finder, agent or similar intermediary, other than Morgan Stanley & Co.,
Incorporated and Castle Harlan, Inc., is entitled to any broker's, finder's or
similar fee or other commission from the Company or any of its Subsidiaries in
connection therewith. Schedule 4.18 sets forth all fees and commissions so
payable.
SECTION 4.19. Insurance. Schedule 4.19 contains an accurate and complete
list of all policies of fire, liability, errors and omissions, officers and
directors, workers' compensation and other forms of insurance owned or held by
the Company and its Subsidiaries. All such policies are in full force and
effect, and premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or accrued, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are sufficient for compliance in all material respects with all
agreements to which the Company or any of its Subsidiaries is a party; are, to
the Company's knowledge, valid, outstanding and enforceable policies; and will
not by their terms in any way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement.
SECTION 4.20. Compliance with Applicable Law. The business of the Company
and its Subsidiaries has been and is currently being conducted in substantial
compliance with all applicable material laws, ordinances, rules, regulations,
decrees or orders of any Governmental Authority and the Company and its
Subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Authorities necessary for the lawful conduct
of their business (the "Company Permits"). The Company and its Subsidiaries are
in substantial compliance with the terms of the material Company Permits. The
representations and warranties set forth in this Section 4.20 are not being made
with respect to the subject matter of the representations and warranties made in
Sections 4.14, 4.15, 4.16 and 4.17.
SECTION 4.21. Non-Applicability of Certain Regulations. The Company is not,
and does not conduct its operations in a manner that could reasonably be
expected to subject it to registration as, an "investment company" under the
U.S. Investment Company Act of 1940, as amended. Neither the Company nor any of
its Subsidiaries is subject to, nor does any of them conduct its operations in a
manner that subjects any of them to, regulation under the U.S. Public Utility
Holding Company Act of 1935, as amended, the U.S. Federal Power Act, as amended,
the U.S. Natural Gas Act, as amended, or any similar law, rule or regulation of
any Governmental Authority.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company that:
SECTION 5.1. Incorporation; Qualification and Corporate Authority. The
Buyer has been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware, with all requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
SECTION 5.2. Capitalization. The shares of Buyer Common Stock which will be
delivered in the Exchange pursuant to the terms of this Agreement are duly
authorized and, upon delivery thereof pursuant to
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the Exchange Offers, will be validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Buyer's Certificate of
Incorporation, By-Laws or any agreement to which the Buyer is or will become a
party or is bound.
SECTION 5.3. Binding Obligation. The execution and delivery of this
Agreement and the performance by the Buyer of its obligation hereunder have been
duly authorized by all necessary corporate action on the part of the Buyer and
this Agreement has been duly executed and delivered by the Buyer. Assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
that the enforceability thereof may be limited by: (i) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies; and (ii) general principles of equity, including, without
limitation, principles of reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in equity or at law).
SECTION 5.4. No Defaults or Conflicts. The execution and delivery of this
Agreement by the Buyer and performance by the Buyer of its obligations hereunder
(i) do not and, as of the Closing, will not result in any violation of the
charter or by-laws of the Buyer; and (ii) as of the Closing, will not conflict
with, or result in a breach of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Buyer (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not adversely
affect the consummation of the Exchange or the value of the Exchange
Consideration) under: (A) any indenture, mortgage or loan or any other agreement
or instrument to which the Buyer is a party or by which the Buyer may be bound
or to which any of its properties may be subject; or (B) any existing applicable
law, rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over the Buyer or any of its properties, other than: (x) the
consents, approvals and notices, which are set forth in Section 6.4, and
required under Delaware law, and (y) filings, authorizations, consents or
approvals the failure to make or obtain which would not adversely affect the
consummation of the Exchange and or the value of the Exchange Consideration.
SECTION 5.5. No Authorization or Consents Required. Other than as listed in
Schedule 5.5, no consent, authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other persons will be
required to be obtained or made by the Buyer in connection with the due
execution and delivery by the Buyer of this Agreement and the consummation by
the Buyer of the transactions contemplated hereby.
SECTION 5.6. No Actions, Suits or Proceedings. There is no pending nor, to
the knowledge of the Buyer, threatened action, suit or proceeding, against the
Buyer before any Governmental Authority that questions the validity or legality
of this Agreement or of the transactions contemplated hereby, or which seeks to
prevent the consummation of the transactions contemplated hereby, including the
Merger and the Exchange.
SECTION 5.7. Sufficient Funds. The Buyer has available to it, and as of the
Closing will have, sufficient funds readily available to make any payment
required under Section 3.14 of the Indenture required by reason of a Change of
Control.
SECTION 5.8. No Other Broker. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by Buyer.
SECTION 5.9. Reports and Financial Statements. (a) The Buyer has previously
furnished the Company with true and complete copies of: (i) the Annual Report on
Form 10-K for the year ended December 31, 1994 filed by the Buyer with the SEC,
(ii) the Quarterly Reports on Form 10-Q for the three months and six months
ended March 31, 1995 and June 30, 1995 filed by the Buyer with the SEC, and
(iii) all other reports filed by the Buyer with the SEC since December 31, 1994.
As of their respective dates, such reports and statements (the "Buyer SEC
Documents") complied in all material respects with the requirements of the
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Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such Buyer SEC Documents, and none of the Buyer SEC Documents, as
of their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The financial statements of the Buyer included in the Buyer SEC
Documents, as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP during the period involved (except as may be indicated in the notes
thereto), and present fairly in all material respects the financial position as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments in accordance with GAAP and the absence or
condensation of footnotes as permitted by GAAP in respect of interim financial
statements).
SECTION 5.10. Purchase for Investment. The Buyer is acquiring the Subject
Shares solely for investment with no present intention to distribute any of the
Subject Shares to any person in violation of the Securities Act of 1933, as
amended (the "Securities Act") or any other applicable securities laws, and
Buyer will not sell or otherwise dispose of any of the Subject Shares, except in
compliance with the registration requirements or exemption provisions under the
Securities Act and the rules and regulations promulgated thereunder, and any
other applicable securities laws.
ARTICLE VI.
COVENANTS
From the date of this Agreement up to and including the Closing Date
(unless this Agreement is terminated pursuant to Article VIII or unless
otherwise specified), the parties hereto covenant and agree as follows:
SECTION 6.1. Conduct of Business. Each of Company and its Subsidiaries
shall conduct its businesses only in the ordinary course and consistent with
past practices, and shall use its best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations used in or necessary to conduct its businesses
in the ordinary course consistent with past practice. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Closing Date, the Company shall not and shall not permit any of its
Subsidiaries to take any action set forth in Sections 4.4(ii), (iii), (iv) and
(vii) or to (A) increase the compensation payable or to become payable to
executive officers or employees of the Company or any of its Subsidiaries, (B)
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, executive officer or employee of the
Company or any of its Subsidiaries or (C) establish, adopt, enter into or amend
in any material respect, or take action to accelerate any rights or benefits
under, any stock option plan or agreement, employee benefit plan, agreement or
policy, except as specifically contemplated by this Agreement.
SECTION 6.2. No Negotiations. The Company shall not, and shall not permit
any of its Subsidiaries, affiliates or any other Person acting for or on behalf
of any of them to solicit, or entertain offers from, negotiate with, or in any
manner discuss, encourage, recommend or agree to any proposal relating to (a)
the sale of the stock or assets of the Company or any of its Subsidiaries or any
interest therein, (b) the merger, consolidation or other combination of the
Company or any of its Subsidiaries with any Person, or (c) the liquidation,
dissolution or reorganization of the Company or any of its Subsidiaries, except
as specifically contemplated by this Agreement. Without limiting the generality
of the foregoing, the Company shall not, and shall not permit any of its
Subsidiaries, affiliates or any other Person acting for or on behalf of any of
them to furnish or cause to be furnished any information with respect to the
Company or any of its Subsidiaries to any Person (other than the Buyer and its
employees and agents). If the Company or any of its Subsidiaries, affiliates or
agents receives from any Person any offer, proposal or informational request
that may be subject to this Section, the Company shall promptly advise such
Person, by written notice, of the terms of this Section and shall promptly
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deliver a copy of such notice to the Buyer. Notwithstanding the foregoing, if
the Board of Directors is advised by counsel in writing that its fiduciary
duties require it to take any of the actions set forth in the first sentence of
this Section with respect to any proposal, the Company may take such actions.
The Company shall deliver a copy of such opinion of counsel to the Buyer, and
shall deliver to the Buyer copies of all communications received from or made to
the Person who has made such proposal within one day after the Chief Executive
Officer is notified thereof.
SECTION 6.3. Expenses. Whether or not the Exchange is consummated, the
Buyer, on the one hand, and the Company, on the other hand, shall each bear
their respective costs and expenses incurred in connection with the negotiation
and preparation of this Agreement and the consummation of the transactions
contemplated hereby; provided, that printing and mailing fees associated with
the Registration Statement, the prospectuses included therein and the Proxy
Statement (as defined in Section 6.10) and fees incurred in connection with
preparation of audited consolidated financial statements of the Company and its
Subsidiaries for the 12-month period ended September 30, 1995 (the "September 30
Financials") shall be borne equally by the Buyer and the Company.
Notwithstanding the foregoing, if the Exchange is consummated, the fees of
Morgan Stanley & Co., Incorporated and the fees and expenses of Castle Harlan,
Inc. shall be borne solely by the Buyer.
SECTION 6.4. Further Assurances. The Company and the Buyer shall each use
commercially reasonable efforts to (i) take promptly, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable laws to consummate and make effective the
transactions contemplated by this Agreement, the Merger Agreement, the Voting
Agreement and the Enabling Agreement dated the date hereof by and between the
Company and the Buyer (the "Enabling Agreement") as promptly as practicable,
(ii) obtain promptly from any governmental entities any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by the Company or the Buyer or any of their subsidiaries in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the transactions contemplated herein, including, without limitation, the
Merger and the Exchange Offers, and (iii) make promptly all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Merger and the Exchange Offers required under (A) the
Securities Act, the Exchange Act, blue sky laws of any jurisdiction, or the
rules and regulations of the National Association of Securities Dealers or the
New York Stock Exchange, as the case may be, (B) the HSR Act and (C) any other
applicable laws; provided that each of the Company and the Buyer shall cooperate
in connection with the making of all such filings, including providing (to the
extent customary in the case of filings under the HSR Act) copies of all such
documents to the non-filing party and its advisors, including any work papers in
connection with the preparation of the September 30 Financials, prior to filing
and consider in good faith all reasonable additions, deletions or other changes
suggested by the other party in connection therewith. Each of the Company and
the Buyer shall furnish to the other party all information required for any
application or other filing to be made pursuant to any applicable law (including
all information required to be included in the Proxy Statement, the Offers to
Exchange and the Registration Statements) and in connection with the Merger, the
Exchange Offers and the other transactions contemplated by this Agreement.
SECTION 6.5. Notice of Events. The Company shall give prompt notice to the
Buyer, and the Buyer shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event of which it has knowledge, the
occurrence or non-occurrence of which would be likely to result in any of the
conditions specified in (x) in the case of the Buyer, Section 7.1 or 7.3 or (y)
in the case of the Company, Section 7.2 or 7.3 not being satisfied so as to
permit the commencement of the Exchange in accordance with the time schedule
contemplated by this Agreement, and (ii) any material failure on its part, or on
the part of the other party hereto of which it has knowledge, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.5 shall not limit or otherwise affect the remedies available
hereunder to party.
SECTION 6.6. Access to Information. (a) The Company will, and will cause
its Subsidiaries to, during regular business hours and on reasonable prior
notice, allow the Buyer and its authorized representatives full access to the
employees, books, records, offices and other facilities and properties of the
Company and its
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Subsidiaries; provided, however, that any such access shall not unreasonably
interfere with the businesses or operations of the Company. Such access shall be
coordinated through the President, Chief Financial Officer and General Counsel
of the Company, as appropriate.
(b) From the date hereof until the Closing Date, the Company shall promptly
provide to the Buyer copies of each agreement, amendment, extension or other
instrument executed and delivered by the Company during such period that would
be subject to the approval of the Surviving Corporation's Board of Directors
under the provisions of the Surviving Corporation's By-laws in the form attached
as Exhibit B to the Merger Agreement.
(c) Any information provided to or obtained by the Buyer or its authorized
representatives pursuant to subsection (a) above, or otherwise in connection
with this Agreement, shall be subject to the provisions of the Confidentiality
Agreement dated May 23, 1995 between the Company and the Buyer (the
"Confidentiality Agreement"), except as otherwise permitted by this Agreement.
SECTION 6.7. Indemnification and Insurance. (a) Buyer agrees that all
rights to indemnification and exculpation from liability for acts or omissions
occurring prior to the Closing now existing in favor of the current or former
directors, officers or employees of the Company and the Subsidiaries, as
provided in their respective certificates of incorporation or by-laws or in
indemnification agreements to which they are a party, shall survive the Closing
Date and shall continue in full force and effect in accordance with their
respective terms for a period of not less than six (6) years after the Closing
Date.
(b) Buyer shall take all efforts within its control to cause the Company
(including binding its successors, if any) to maintain, for a period of not less
than six (6) years after the Closing Date, all of the Company's and the
Subsidiaries' directors' and officers' insurance and indemnification policies
affording coverage that is substantially the same as under policies in effect on
the date hereof and with policy limits that are not less than in effect on the
date hereof to the extent that such policies provide coverage for events
occurring prior to the Closing Date (collectively, the "D&O Insurance") for all
persons who are directors, officers or employees of the Company or any
Subsidiary on the date hereof, for as long as the annual premium therefor would
not exceed 250% of the current annual premium in effect as of the date of this
Agreement (250% of such premium being referred to herein as the "Maximum
Premium"); provided, however, that the Company may, in lieu of maintaining such
D&O Insurance as provided above, cause comparable coverage to be provided under
any policy maintained for the benefit of the directors, officers and employees
of the Buyer or any of its direct or indirect subsidiaries, so long as: (i) the
issuer thereof has at least an equal claims-paying rating; and (ii) the terms
thereof are no less advantageous to the directors, officers and employees of the
Company and the Subsidiaries than the existing D&O Insurance. If the existing
D&O Insurance expires, is terminated or cancelled during such six (6) year
period, the Buyer shall cause the Company to use its reasonable efforts to cause
to be obtained as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Premium, on terms and
conditions no less advantageous to the directors, officers and employees of the
Company and the Subsidiaries than the existing D&O Insurance.
SECTION 6.8. Employees and Employee Benefit Plans.
(a) A true and complete list of the names, positions and salaries or hourly
rates, as applicable, of the employees of the Company and its Subsidiaries shall
be provided to the Buyer within ten days of signing this Agreement and shall be
updated effective the last day of each calendar quarter thereafter. A true and
complete list of the names, termination dates and benefit plans under which
benefit obligations exist for each Former Employee will be provided by the
Company to the Buyer not more than ten days after signing this Agreement and
will be updated effective the last day of each year thereafter.
(b) The Buyer agrees to cause the Company and its Subsidiaries to
compensate Employees that (i) are not party to any employment agreement, (ii)
are not covered by a collective bargaining agreement and (iii) are employed by
the Company or its Subsidiaries on and after the Conversion Date, at salaries or
hourly rates at least equal to (y) the salaries or hourly rates of the Company
or its Subsidiaries in effect immediately prior to the Conversion Date or (z)
the salaries or hourly rates payable to employees in the Buyer's chemical
operation in similar jobs, the determination of which shall be at the sole
discretion of the Buyer.
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Notwithstanding the foregoing, nothing in this Agreement shall require the Buyer
to maintain, or to cause the Company or its Subsidiaries to maintain the
employment of any present or future Employee or group of Employees, which
employment may be terminated at any time in the sole discretion of the duly
appointed officers of the Company or its Subsidiaries or their respective Boards
of Directors, as the case may be, subject only to any binding written employment
agreement between the Company or its Subsidiaries and any such Employee.
(c) The Buyer agrees to cause the Company and its Subsidiaries to pay to
any Employees that (i) are not party to any employment agreement, (ii) are not
covered by a collective bargaining agreement and (iii) are terminated by the
Company other than for cause on or within twelve months after the Conversion
Date, severance payments in accordance with the Buyer's severance policy as in
effect at Closing (a copy of which is attached as Schedule 6.8(c)) as applicable
to the employees in its chemical operations of like job status and service, and
including service recognized by the Company. In addition, an additional twelve
weeks of base pay shall be added to the amount due under Schedule 6.8(c) for any
Employees terminated within six months after the Conversion Date.
(d) The Buyer agrees to cause the Company and its Subsidiaries to provide
after the Conversion Date to Employees that are employed by the Company or the
Subsidiaries, benefit plans and programs to the extent such person is eligible
for such benefits prior to the Conversion Date, under either (i) the Company's
benefit plans as in effect prior to the Conversion Date, (ii) benefit plans
applicable to employees in the Buyer's chemical operations in similar jobs or
(iii) a combination of the Company's and Buyer's plans, the determination of
which is at the sole discretion of the Buyer, except that the Buyer agrees to
continue the Company's medical benefits (or comparable medical benefits) for
salaried employees as in effect immediately prior to the Conversion Date until
the end of the calendar year following the year in which the Conversion Date
occurs, provided that the Company's average per employee premium cost for
medical coverage for salaried employees for the plan year prior to the year in
which Conversion Date occurs is less than Buyer's average medical plan cost for
its salaried employees for the same period. Under such benefit programs, (y)
service with, and that is recognized by, the Company or its Subsidiaries shall
be counted for purposes of determining (A) any period of eligibility to
participant or to vest in benefits and (B) the accrual of benefits under such
programs, except to the extent that such service credit would result in
duplicate benefit coverage for such service, and (z) Employees and their
eligible dependents, if a participant in the Company health, long term
disability or life insurance plans, as applicable, shall be deemed to satisfy
any pre-existing condition limitations under group medical, dental, life
insurance or disability plans that shall be provided after the Conversion Date
and amounts paid by such employees towards deductibles and copayment limitations
under the Buyer health plans shall be counted toward meeting any similar
deductible and copayment limitations under the health plans that shall be
provided. In addition, with respect to salaried retirement benefits, the Buyer
agrees to cause the Company or its Subsidiaries either (i) to continue the
salaried retirement plan as in effect on the date immediately prior to the
Conversion Date for at least the two-year period following the Conversion Date
or (ii) to provide to salaried Employees the retirement plan applicable to
employees in the Buyer's chemical operations in similar jobs along with the
pension supplement under the Company's salaried retirement plan for certain
salaried employees in accordance with the terms set forth in Schedule 6.8(d);
provided, however, if the benefits provided immediately prior to the Conversion
Date under either the Buyer's or the Company's retirement plans are not
substantially similar to those provided at Closing, then the Buyer and the
Company agree to cooperate in good faith to provide the salaried Employees
described in Schedule 6.8(d) with an alternative pension supplement to achieve a
general pattern of total pension benefits comparable to that provided by
Schedule 6.8(d), assuming retirement age 65. Notwithstanding the foregoing,
nothing in this Agreement shall require the Buyer, the Company or its
Subsidiaries to maintain any particular plan, program or arrangement following
the Conversion Date, the maintenance or termination of all of which shall be at
the sole discretion of the Buyer.
(e) The Company agrees to administer, and to cause its Subsidiaries to
administer, the Plans, from the date of this Agreement to the Conversion Date,
in accordance with their terms and applicable laws and regulations, including,
without limitation, ERISA and, with respect to a plan intended to be qualified
under the Code, with all applicable qualification requirements under the Code.
The Company agrees that all
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contributions, premiums, and payments shall be made on a current basis and no
arrangements will be designed or pursued in order to postpone such payments.
(f) The Company agrees to comply, and to cause its Subsidiaries to comply,
in all material respects with all applicable laws pertaining to employment and
employment practices and wages, hours, and other terms and conditions of
employment with respect to their Employees. The Company agrees to notify Buyer
in the event of any pending or threatened labor dispute, strike, lockout, work
stoppage, or slowdown against the Company or its Subsidiaries or any proceeding,
threatened or actual, by or before the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Department of Labor or any other
governmental entity in connection with any current, former or prospective
employee of the Company or its Subsidiaries or any of the Company's Plans.
(g) If a collective bargaining agreement is to be negotiated or
renegotiated prior to the Conversion Date, the Company shall consult in good
faith with Buyer on the terms and conditions to be included in such
negotiations.
SECTION 6.9. No Section 338 Election; Certain Transactions
Prohibited. Neither Buyer nor any affiliate thereof shall make an election under
Section 338 of the Internal Revenue Code of 1986, as amended, or any similar
provision of state or local law, in respect of the Exchange, the Merger or the
other transactions contemplated by this Agreement. In addition, neither Buyer
nor any affiliate thereof shall cause the Company to engage in any transaction
(including, without limitation, the merger of the Company with a direct or
indirect subsidiary of Buyer) that could cause the Merger or the Exchange or the
other transactions contemplated by this Agreement to be treated as a purchase or
sale of assets of the Company or any Subsidiary. Notwithstanding Section 9.1,
this covenant shall survive the Closing Date.
SECTION 6.10. Registration. (a) As soon as practicable after the date
hereof, the Buyer shall prepare and file with the SEC two Registration
Statements on Form S-4 (such registration statements, as the same may be amended
from time to time, the "Registration Statements") under the Securities Act, the
first (the "Redemption Registration Statement") containing a prospectus relating
to the Buyer Common Stock to be issued upon the redemption of the Class A Common
Stock by its terms, which prospectus will accompany the Company's information or
proxy statement (the "Proxy Statement") soliciting the Stockholder Approvals and
the second (the "Exchange Offer Registration Statement") containing a prospectus
relating to the Buyer Common Stock to be offered in the Exchange Offers (such
prospectuses, together with any amendments thereof or supplements thereto, in
each case in the form or forms mailed to the Company's shareholders, the
"Prospectuses"). The Company shall provide the Buyer with all information
concerning the Company as the Buyer may reasonably request in connection with
the preparation of the Registration Statements, including such financial
statements of the Company as may be necessary or desirable to comply with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. The Company shall provide the Buyer with an opportunity
to review all work papers prepared or used in connection with the preparation of
any audited financial statements that may be included in the Registration
Statements. The Buyer will use commercially reasonable efforts to have or cause
the Registration Statements to become effective as promptly as practicable.
(b) Each of the Company and the Buyer agrees that the information relating
to it contained or incorporated by reference into the Registration Statements
and the Proxy Statement shall not, at the date thereof (or any amendment thereof
or supplement thereto), at the date that the Proxy Statement is first mailed to
stockholders, at the Commencement Date, at the time of the Stockholders Meeting,
on the Effective Date or on the Closing Date (i) contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading or (ii)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Closing Date any event or circumstances
should be discovered by either party hereto which should be set forth in an
amendment to the Registration Statements or a supplement to the Proxy Statement,
such party shall promptly inform the other party. All documents that each party
is responsible for filing with the SEC in connection with the transactions
contemplated hereby will
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be filed on a timely basis and will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act.
SECTION 6.11. Merger Agreement. The Company shall not amend the Merger
Agreement or waive or modify any of the provisions thereof without the prior
written consent of the Buyer.
SECTION 6.12. Meeting of Stockholders. The Company shall promptly take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to convene a meeting of the stockholders of the
Company to consider the Merger, including, without limitation, the mailing of
the Proxy Statement to the Company's stockholders (such meeting, including any
adjournments or postponements thereof, being the "Stockholders Meeting");
provided, however, that the Company shall not be obligated to convene the
Stockholders Meeting if it obtains the written consent to the Merger of holders
of at least 90% of outstanding Company Common Stock. As soon as practicable
after the Redemption Registration Statement shall have become effective, the
Company shall mail to its stockholders the Proxy Statement and the prospectus
included in the Redemption Registration Statement. The Proxy Statement shall
include the recommendation of the Company's Board of Directors in favor of the
Merger, unless otherwise required by the applicable fiduciary duties of the
directors of the Company, as determined by such directors in good faith after
consultation with and based upon the written advice of independent legal
counsel. The Company shall use its best efforts to solicit the approval of the
Merger by all holders of Company Common Stock and shall take all other actions
necessary or advisable to secure the Stockholder Approval, unless otherwise
required by the applicable fiduciary duties of the Board of Directors of the
Company, as determined by such directors in good faith.
SECTION 6.13. Additional Consideration. On the Closing Date, the Buyer
shall issue and deliver to each holder of Options (the "Retained Options") or
shares of Class A Common Stock (the "Retained Stock" and, together with the
shares of Class A Common Stock for which any Retained Options are exercisable,
the "Retained Securities") not purchased pursuant to Section 3.1, that number of
shares of Buyer Common Stock determined by multiplying (a) the number of
Retained Securities held by such holder, by (b) the quotient obtained by
dividing (i) $3 million by (ii) the total number of Retained Securities held by
all holders, and dividing the result by (iii) the Buyer Common Stock Value. Cash
shall be paid by the Buyer in lieu of issuing fractional shares of Buyer Common
Stock as provided by Section 3.6.
SECTION 6.14. Insurance Maintenance. The Company will use its reasonable
efforts to assure that all of the insurance policies that are listed in Schedule
4.19 and that are material to the Company and its Subsidiaries, taken as a
whole, will remain in full force and effect on the Closing Date or be replaced
by comparable policies.
SECTION 6.15. September 30 Financials. The Company shall cause its
independent public accountants to conduct an audit of the September 30
Financials and shall deliver the September 30 Financials to the Buyer for
inclusion in the Registration Statements.
SECTION 6.16. Additional Information. The Company shall deliver to the
Buyer any documents which would be required to be described in or filed as an
exhibit to any SEC Document prepared after the date hereof.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE CONSUMMATION
OF THE MERGER AND THE COMMENCEMENT OF THE EXCHANGE OFFERS
SECTION 7.1. Conditions Precedent of Buyer to Commence the Exchange
Offers. The obligation of the Buyer to commence the Exchange Offers is subject
to the satisfaction of the following conditions, any one or more of which may be
waived by the Buyer, in its sole discretion:
(a) The Merger of the Company and Roundtable pursuant to the Merger
Agreement shall have become effective in accordance with all applicable
laws.
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(b) The representations and warranties of the Company set forth in
Article IV shall be true and correct in all material respects when made
and, other than with respect to the representations and warranties set
forth in Sections 4.4(i), 4.4(v), 4.4(vi), 4.10, 4.11, 4.12(d), 4.14(a),
4.15 and 4.19, as of the Commencement Date as though made on such date, and
the Company shall have complied in all material respects with all
agreements and satisfied all conditions set forth herein on its part to be
performed or satisfied on or prior to the Commencement Date.
(c) The Buyer shall have received on or prior to the Commencement Date
(i) a certificate, dated as of the Commencement Date, from the President of
the Company on behalf of the Company, in such individual's capacity as an
officer of the Company and not as an individual, to the effect that each of
the conditions set forth in this Section 7.1 has been satisfied, and (ii) a
certificate, dated as of the Commencement Date, from the Secretary of the
Company certifying as to the accuracy and completeness of the attached
by-laws, and resolutions, consents and authorizations with respect to the
execution and delivery of this Agreement and the transactions contemplated
hereby and such other matters as the Buyer may reasonably request.
(d) The Company shall have received agreements, in form and substance
reasonably satisfactory to the Buyer, each effective as of the Closing
Date, relating to (i) the termination of the Management Agreement (the
"Castle Harlan Management Agreement") dated December 2, 1993, between
INDSPEC Chemical Corporation and Castle Harlan, Inc., providing for the
termination of such agreement except for the continuation of the
indemnification obligation of INDSPEC Chemical Corporation provided
therein; (ii) the satisfaction and release of the March 7, 1995 engagement
agreement between Castle Harlan, Inc. and the Company, provided that such
release shall not apply to the indemnification and contribution provisions
of such agreement; (iii) the satisfaction and release of the March 7, 1995
engagement agreement between Morgan Stanley Co., Incorporated and the
Company, provided that such release shall not apply to the indemnification
and contribution provisions of such agreement; (iv) the termination or
amendment of the Stockholders Agreement as amended by Amendment No. 1
between INDSPEC Chemical Corporation and certain other parties named
therein; (v) the designation of the Buyer as the Company's Designee under
Section 3(c) of the Employee Stockholders Agreement between the INDSPEC
Chemical Corporation and certain other parties named therein or the
assignment of rights of first refusal thereunder; (vi) the termination of
the Voting Trust Agreement, dated as of December 16, 1993 among John K.
Castle and certain other parties named therein; and (vii) the termination
of the Employee Voting Trust Agreement, dated April 15, 1994 among John K.
Castle and certain other parties named therein.
(e) The Buyer shall have received (i) the signed opinion of William S.
Lee, General Counsel of the Company, as to the matters set forth on Exhibit
A hereto with appropriate qualifications and exceptions in form and
substance reasonably satisfactory to the Buyer; (ii) the signed opinion of
Eckert Seamans Cherin & Mellott, special counsel for the Company, as to the
matters set forth on Exhibit B hereto with appropriate qualifications and
exceptions in form and substance reasonably satisfactory to the Buyer; and
(iii) the signed opinion of Schulte Roth & Zabel, special counsel to CHPII
and Roundtable, in form and substance reasonably satisfactory to Buyer,
covering such matters as are customarily addressed in similar opinions in
comparable transactions, including (without limitation) organization, due
authority, execution and delivery, conflicts, enforceability and
governmental consents.
(f) The representations and warranties of all parties to the Merger
Agreement and the Voting Agreement shall be true and correct in all
material respects as of the date hereof and on and as of the Commencement
Date, and all parties to the Merger Agreement and the Voting Agreement
shall have performed or complied, in all material respects, with all
covenants and agreements set forth therein.
(g) Either (i) holders of at least 90% of the outstanding shares of
Company Common Stock shall have voted in favor of, or consented to, the
Merger or (ii) holders of less than 10% of the outstanding shares of
Company Common Stock shall be eligible for appraisal rights under the DGCL.
(h) The directors of the Company identified in Schedule 7.1(h) shall
have submitted their resignations effective as of the Closing Date, as
directors of the Company and the Subsidiaries.
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(i) The average of the last sales price (regular way) of Buyer Common
Stock on the New York Stock Exchange on each of the twenty (20) consecutive
trading days ending on the fifth trading day prior to the Commencement Date
shall be at least $15, provided, that if the Buyer determines that, based
on this condition, it will not proceed with the Exchange Offers, the Buyer
shall notify the Company, who may elect, by determination of a majority of
the directors elected by holders of the Class B Common Stock, to consummate
the transactions contemplated hereby based on a deemed Buyer Common Stock
Value of $15, and in such event, this condition shall not apply for these
purposes or for purposes of Annex B.
(j) The Buyer will not be required to consolidate in the Buyer's
consolidated financial statements the results of operations of the Company
or any of its Subsidiaries after giving effect to the Exchange.
(k) The Buyer shall have received the September 30 Financials from the
Company.
(l) The transactions contemplated by the Management Agreement with
Southern Ionics, Inc., dated April 1, 1995 shall have been consummated.
(m) The Buyer shall have received from the independent public
accountants for the Company a letter, dated as of the date on which the
Redemption Registration Statement shall have become effective, the
Effective Date, the date on which the Exchange Registration Statement shall
have become effective and the Commencement Date, addressed to the Buyer and
its Board of Directors in form and substance satisfactory to the Buyer and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as
those contemplated by this Agreement.
(n) There shall not be any ongoing Material Plant Loss; provided,
however, that if this condition is not satisfied on the Closing Date, the
Exchange Offers shall be extended until the tenth business day after
satisfaction of this condition but in no event later than June 30, 1996.
(o) The Company's Incentive Stock Option Plans shall have been amended
to provide that the Board of Directors of the Company shall be authorized,
as of the Closing Date, to administer such Plan.
(p) The Certificates of Incorporation and By-Laws of the Subsidiaries
shall have been amended, effective as of the Closing Date, to include
provisions that are the same, or substantially the same, as the provisions
in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, in the forms attached to the Merger Agreement, other than the
provisions related to capitalization.
SECTION 7.2. Conditions Precedent of the Company to Consummate the
Merger. The obligation of the Company to consummate the Merger is subject to the
satisfaction, on or prior to the Effective Date, of the following conditions,
any one or more of which may be waived by the Company in its sole discretion:
(a) The representations and warranties of the Buyer set forth in this
Agreement shall have been accurate in all material respects when made, and
with respect to the representations and warranties set forth in Sections
5.1 through 5.8 as of the Effective Date as though made on such date and
the Buyer shall have complied with all agreements and satisfied all
conditions set forth herein on their part to be performed or satisfied at
or prior to the Effective Date.
(b) The Company shall have received on or prior to the Effective Date
(i) a certificate, dated as of the Effective Date, from the Chairman,
President and Chief Executive Officer or the Senior Operating Officer of
Buyer, in such individual's capacity as an officer of the Buyer, and not as
an individual, to the effect that each of the conditions set forth in this
Section 7.2 has been satisfied, and (ii) a certificate, dated as of the
Effective Date, from the Secretary or Assistant Secretary of the Buyer
certifying as to the accuracy and completeness of the attached by-laws and
resolutions, consents and authorizations with respect to the execution and
delivery of this Agreement and the transactions contemplated hereby and
such other matters as to the Company may reasonably request.
(c) Castle Harlan, Inc. shall have received the balance of the fee
payable under the Castle Harlan Management Agreement through the last day
of the month in which the Closing Date is scheduled to
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occur; provided, however, that Castle Harlan, Inc. shall not be entitled to
any such fee payable for the period January 1, 1996 through April 30, 1996.
(d) The Company shall have received the signed opinion of Robert E.
Sawyer, Associate General Counsel of the Buyer, in substantially the form
of Exhibit C hereto.
(e) The shares of Buyer Common Stock covered by the Exchange Offer
Registration Statement, upon issuance and delivery thereof, shall be freely
transferable by a Person that is not an affiliate of the Buyer without
restrictions under any Federal or state securities laws.
(f) The shares of Buyer Common Stock covered by the Registration
Statements shall have been approved for listing on the New York Stock
Exchange subject to notice of issuance.
(g) The Company shall have received a letter, dated the Effective
Date, from the Buyer, stating that it will commence the Exchange Offers one
business day after the Effective Date.
SECTION 7.3. Mutual Conditions. The obligations of the Company to
consummate the Merger and of the Buyer to commence the Exchange Offers are
subject to the satisfaction, on or prior to the Effective Date, of all of the
following further conditions, any one or more may be waived by the Buyer or the
Company, in its sole discretion, but only if and to the extent that such waiver
is mutual:
(a) All filings required to be made prior to the Effective Date with,
and all consents, approvals, permits and authorizations (other than those
which are immaterial) required to be obtained on or prior to the Effective
Date from Governmental Authorities, in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein by the Buyer and the Company shall have been made or
obtained, as the case may be; provided, however, that such consents,
approvals, permits and authorizations may be subject to immaterial
conditions.
(b) The Registration Statements shall be effective under the
Securities Act. The Buyer Common Stock covered by the Registration
Statements shall have been registered under any applicable state securities
or blue sky laws and the rules and regulations thereunder. No order
suspending the effectiveness of the Registration Statements or any
post-effective amendments shall have been issued and no proceeding for the
issuance of such an order shall have been initiated or threatened by the
SEC or any "blue sky" or securities authority of any jurisdiction.
(c) The waiting period (and any extension thereof) applicable to the
Exchange under the HSR Act shall have been terminated or shall have
otherwise expired.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing
the Merger, the commencement of the Exchange or the consummation of the
Closing shall be in effect and there shall not be pending or threatened any
action, suit or proceeding that challenges the validity, legality or
enforceability of this Agreement, the Merger Agreement, the Voting
Agreement or the Enabling Agreement or the transactions contemplated hereby
or thereby, unless such action, suit or proceeding could not reasonably be
expected to have a Material Adverse Effect on the Company's or the Buyer's
interests in such agreements or transactions. If either party invokes this
condition, the party to which any such restraining order, injunction or
other order applies or against which any material action, suit or
proceeding has been filed, shall use its reasonable efforts to have any
such order or injunction vacated and any such action, suit or proceeding
dismissed.
(e) Each counsel required to render an opinion hereunder shall have
been furnished with all such documents, certificates and opinions as such
counsel may reasonably request for the purpose of enabling them to deliver
such legal opinions and in order to evidence the accuracy and completeness
of any of the representations and warranties or statements of the parties
hereto or the fulfillment of any of the conditions contained herein.
(f) Each of the employees of the Company identified on Schedule 7.3(f)
shall have executed and delivered to the Company an employment agreement or
amendment to such employee's existing employment agreement substantially in
the form of Exhibits D-1 through D-4.
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(g) The Credit Agreement shall have been amended or the breach thereof
waived, in either event so that the transactions contemplated hereby shall
not constitute a default thereunder.
ARTICLE VIII.
TERMINATION OF AGREEMENT
SECTION 8.1. Termination. (a) This Agreement may be terminated on or prior
to the Closing Date as follows:
(i) by mutual written consent of the Buyer and the Company; and
(ii) at the election of the Buyer or the Company, if the Effective
Date shall not have occurred on or before March 31, 1996 or the Closing
Date shall not have occurred on or before June 30, 1996, unless the failure
to consummate the Merger or the Exchange Offers, as the case may be, is the
result of a willful breach of this Agreement by the party seeking to
terminate this Agreement.
(b) The termination of this Agreement shall be effectuated by the delivery
by the party terminating this Agreement to the other party of a written notice
of such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 8.2.
SECTION 8.2. Survival After Termination. If this Agreement is terminated in
accordance with Section 8.1 hereof and the transactions contemplated hereby are
not consummated, this Agreement shall become void and of no further force or
effect, except for the provisions of Sections 6.3 and 6.6(b); and no party
hereto shall have any liability in respect of a termination of this Agreement,
except to the extent that failure to satisfy the conditions of Article VII
results from the intentional or willful violation by such party of this
Agreement or the provisions of any agreement made or to be made pursuant to this
Agreement.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any certificate or
instrument delivered pursuant to this Agreement (other than those
representations and warranties affecting the Buyer Common Stock to be delivered
in the Exchange Offers or pursuant to the terms of the Class B Common Stock)
shall survive the Closing Date; provided, that the representations and
warranties of the Company set forth in Sections 4.3(b), (c) and (d) and 4.5
shall survive until 60 days after the delivery to the Buyer of the audited
financial statements for the Company for the fiscal year ending March 31, 1996;
provided, further, that the Buyer shall not be precluded hereby from pursuing
any claim against the Company for any breach of such representation or warranty
of which the Buyer notifies the Company before the expiration of such sixty-day
period. Any claim by the Buyer for any breach of this Agreement by the Company
shall be recourse solely to the Company and not its stockholders, directors or
officers. There shall be no reduction in the number of shares to be issued to
any stockholder in the Merger, Exchange Offers or any of the transactions
contemplated hereby based on any claim made by the Buyer based on an asserted
breach of this Agreement, the Merger Agreement or the Enabling Agreement. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing Date.
SECTION 9.2. Law Governing. This Agreement shall be construed and
interpreted according to the laws of the State of New York applicable to
contracts made and to be performed wholly within such state without regard to
principles of choice or conflicts of law.
SECTION 9.3. Binding Effect; Persons Benefiting; No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or person other than the parties hereto and their respective successors
and permitted assigns and, solely with respect to Article III, the stockholders
of the Company, any right, remedy or claim under or by reason of this Agreement
I-26
<PAGE> 128
or any part hereof. Without the prior written consent of the parties hereto,
this Agreement may not be assigned by any of the parties hereto; provided,
however, that the Buyer may assign its rights hereunder without being relieved
of its obligations hereunder to any wholly owned subsidiary of the Buyer without
the consent of the Company.
SECTION 9.4. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by the Buyer and the Company.
SECTION 9.5. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or a Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.6. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and each of which shall constitute one
and the same instrument.
SECTION 9.7. Entire Agreement; Schedules. This Agreement, including the
Schedules and Exhibits hereto and any documents executed by the parties
concurrently herewith or pursuant thereto, and the Confidentiality Agreement,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 9.8. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when sent by telecopier (with receipt
confirmed), provided a copy is also sent by registered mail, return receipt
requested, or (c) the day after the day sent by reputable next-day air courier,
in each case, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to Buyer:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Stephen I. Chazen
Telecopier: (310) 443-8690
with copies to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Donald P. deBrier
General Counsel
Telecopier: (310) 443-6333
(b) If to the Company:
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, Pennsylvania 15219
Attention: William S. Lee
Telecopier: (412) 765-0439
with copies to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Telecopier: (212) 593-5955
I-27
<PAGE> 129
SECTION 9.9. Public Announcements. At all times at or before the Closing,
the Company and the Buyer will each consult with and provide an advance copy to
the other before issuing or making any reports, statements, or releases to the
public with respect to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
OCCIDENTAL PETROLEUM CORPORATION
By: /s/ STEPHEN I. CHAZEN
------------------------------------
Name: Stephen I. Chazen
Title: Executive Vice President-
Corporate Development
INDSPEC HOLDING CORPORATION
By: /s/ FRANK M. SPINOLA
------------------------------------
Name: Frank M. Spinola
Title: President
I-28
<PAGE> 130
ANNEX A
<TABLE>
<S> <C>
Castle Harlan Partners II, L.P...................................................... 26,792
Frank M. Spinola.................................................................... 1,920
Durmot Dunphy....................................................................... 556
John Herrmann....................................................................... 111
Richard Smith....................................................................... 61
Jeffrey Siegal...................................................................... 31
Howard Weiss........................................................................ 12
Justin Wender....................................................................... 7
Sylvia Rosen........................................................................ 6
------
Total..................................................................... 29,496
======
</TABLE>
I-29
<PAGE> 131
ANNEX B
CONDITIONS TO THE EXCHANGE
1. The conditions set forth in Sections 7.1 and 7.3 shall have been
satisfied on or prior to the Closing Date, except that, for purposes of the
conditions to consummation of the Exchange, each reference therein to the
Commencement Date or the Effective Date shall be deemed to be a reference to the
Closing Date.
2. The Buyer shall not be required to consummate the Exchange if during the
period beginning on the first day of the Valuation Period and ending on the
Closing Date there shall have occurred (i) an outbreak or escalation of
hostilities involving the United States or (ii) any material adverse change in
the financial markets of the United States, including any general suspension of
trading on the New York Stock Exchange or any declaration of any banking
moratorium by any of the federal, California or New York Government Authorities,
the effect of either clause (i) or (ii) of which is to make it, in the
reasonable good faith judgment of the Buyer, impracticable to determine the
Buyer Common Stock Value on a fair basis because of general disruption of
trading in equity securities listed on the New York Stock Exchange. In such
event, the Valuation Period shall be suspended and shall recommence the day
after such event ceases to have the effects described in the preceding sentence.
I-30
<PAGE> 132
ANNEX II
VOTING AGREEMENT
VOTING AGREEMENT, dated as of November 10, 1995 (the "Agreement"), by and
among INDSPEC Holding Corporation, a Delaware corporation (the "Company"),
Roundtable Corp., a Delaware corporation ("Roundtable"), Castle Harlan Partners
II, L.P., a Delaware limited partnership ("CHPII"), the other stockholders of
Roundtable named on Exhibit A hereto (together with CHPII, the "Roundtable
Group"), and the other parties named on the signature pages of this Agreement
(the "Other Stockholders", and together with the members of the Roundtable Group
and Roundtable, the "Stockholders").
WHEREAS, CHPII has organized Roundtable, a new corporation under Delaware
law;
WHEREAS, each of the Stockholders, other than Roundtable, owns the number
of shares of common stock, par value $.01 per share of the Company ("Company
Common Stock") set forth opposite such Stockholder's name on Schedule 1;
WHEREAS, concurrently herewith, the Company and Occidental Petroleum
Corporation, a Delaware corporation (the "Buyer"), will execute and deliver an
Agreement and Plan of Share Exchange, dated the date hereof (the "Exchange
Agreement") and the Company and Roundtable will execute and deliver a Merger
Agreement dated the date hereof (the "Merger Agreement"), pursuant to which, and
subject to the terms and conditions thereof, Roundtable will be merged with and
into the Company with the Company as the surviving corporation (the "Surviving
Corporation"), the members of the Roundtable Group will receive the number of
shares of Class B Common Stock, par value $.01 per share, of the Company ("Class
B Common Stock") equal to the number of shares of Common Stock of Roundtable,
$.01 par value per share ("Roundtable Common Stock") held by them, the other
stockholders of the Company will receive an aggregate of the number of shares of
Class A Common Stock, par value $.01 per share of the Company ("Class A Common
Stock", and together with the Class B Common Stock, the "New Company Common
Stock"), equal to the number of shares of Company Common Stock held by such
stockholders, and the outstanding Company Common Stock held by Roundtable will
be cancelled (the "Merger") (capitalized terms that are not otherwise defined
herein shall have the respective meanings set forth in the Exchange Agreement);
and
WHEREAS, pursuant to the Exchange Agreement, and subject to the terms and
conditions thereof, the Buyer shall offer to exchange (the "Exchange") certain
shares of the New Company Common Stock to be outstanding upon consummation of
the Merger for shares of common stock, par value $.20 per share, of the Buyer
("Buyer Common Stock") pursuant to exchange offers (the "Exchange Offers");
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
the Company and the Stockholders contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Stockholders agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDERS
SECTION 1.01. Voting Agreement.
(a) Each of the members of the Roundtable Group hereby agrees that they
shall, as soon as practicable on or after the date hereof, execute a written
consent with respect to all of the shares of Roundtable Common Stock held by
them in favor of the adoption and approval of the Merger and the Merger
Agreement.
(b) The Other Stockholders and Roundtable hereby agree that, during the
time this Agreement is in effect, at any meeting of the stockholders of the
Company, and in any action by consent of the stockholders of the Company, the
Other Stockholders and Roundtable shall vote all of the shares of Company Common
Stock
<PAGE> 133
which they own or are otherwise entitled to vote in favor of any proposal for
the adoption or approval of the Merger and the Merger Agreement.
(c) Each of the members of the Roundtable Group, Roundtable and the Other
Stockholders agree that, during the time this Agreement is in effect, at any
meeting of the stockholders of the Company, however called, and in any action by
consent of the stockholders of the Company, the Stockholders shall vote all of
the shares of the Company Common Stock and the New Company Common Stock (i)
against any proposal relating to (A) the sale of the stock or assets of the
Company or any of its Subsidiaries or any interest therein, (B) the merger,
consolidation or other combination of the Company or any of its Subsidiaries
with any person, or (C) the liquidation, dissolution or reorganization of the
Company or any of its Subsidiaries, except as specifically contemplated by the
Exchange Agreement; and (ii) as otherwise necessary or appropriate to enable the
Company and Buyer to consummate the transactions contemplated by the Exchange
Agreement. The Stockholders acknowledge receipt and review of a copy of the
Exchange Agreement and Merger Agreement.
SECTION 1.02. Contribution to Roundtable. Each member of the Roundtable
Group hereby agrees to contribute the shares of Company Common Stock set forth
on Exhibit A opposite such member's name to Roundtable in exchange for an equal
number of shares of Roundtable Common Stock.
SECTION 1.03. Exchange Offers. Each member of the Roundtable Group hereby
agrees to tender (and not withdraw) its shares of Class B Common Stock to the
Buyer and subject to termination or waiver of the Stockholders Agreement as
amended by Amendment No. 1 between INDSPEC Chemical Corporation and certain
other parties named therein (the "Stockholders Agreement"), the Other
Stockholders hereby agree to tender (and not withdraw) their shares of Class A
Common Stock to the Buyer, in the Exchange Offers pursuant to the terms provided
for in the Exchange Agreement.
SECTION 1.04. Hart-Scott-Rodino. CHPII shall promptly make all filings
required by it in connection with the Merger and Exchange Offers under the HSR
Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to Buyer as follows:
SECTION 2.01. Authority Relative to This Agreement. Such Stockholder has
all requisite power and authority to enter into this Agreement and to perform
its obligations hereunder. This Agreement has been duly authorized, executed and
delivered by such Stockholder and, assuming this Agreement constitutes a valid
and binding obligation of the other parties hereto, constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws from time to time in
effect affecting generally the enforcement of creditors' rights and remedies;
and (ii) general principles of equity, including, without limitation, principles
of reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in equity or at law).
SECTION 2.02. No Conflict. (a) The execution and delivery of this Agreement
by such Stockholder and performance of its obligations hereunder do not (i)
conflict with or violate any laws applicable to such Stockholder or by which the
shares of Roundtable Common Stock, Company Common Stock or New Company Common
Stock of such Stockholder are bound or affected or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the shares of Roundtable Common Stock, Company Common
Stock or New Company Common Stock of such Stockholder pursuant to, any note,
bond, mortgage, indenture, contract, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the shares of Roundtable Common Stock, Company Common Stock or
New
II-2
<PAGE> 134
Company Common Stock of such Stockholder are bound or affected, except under the
Stockholders Agreement.
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, require
any consent, authorization or approval or other action by, or notice to or
filing with, any Governmental Authority or other person, except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended, or the
HSR Act, and except under the Stockholders Agreement.
SECTION 2.03. Title to the Shares. As of the date hereof, each Stockholder
is the record and beneficial owner of the number of shares of Company Common
Stock and shares of Company Common Stock subject to Options set forth opposite
such Stockholder's name on Schedule 1 hereto, and after giving effect to the
Merger, as of the Closing Date, will be the record and beneficial owner of the
number of shares of New Company Common Stock equal to the number of shares of
Company Common Stock held by such Stockholder as of the date hereof. Such shares
of Company Common Stock are all of such shares as are owned, either of record or
beneficially, by such Stockholder. Such Stockholder owns all the shares of
Company Common Stock and, after the Merger and immediately prior to the Closing
Date, will own all of the shares of New Company Common Stock set forth opposite
such Stockholder's name on Schedule 1 hereto free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, contracts,
limitations on such Stockholder's voting rights, charges and other encumbrances
of any nature whatsoever. Other than pursuant to the irrevocable proxy granted
to John K. Castle, dated the date hereof and the Voting Trust Agreement, dated
as of December 16, 1993, by and among John K. Castle and the Stockholders named
therein, and except as provided in this Agreement, such Stockholder has not
appointed or granted (and will not, after the date hereof, appoint or grant) any
proxy, which appointment or grant is still effective, with respect to the shares
set forth opposite such Stockholder's name on Schedule 1 hereto.
SECTION 2.04. Formation of Roundtable. CHPII represents that Roundtable has
been duly incorporated and is validly existing and in good standing under the
laws of Delaware and the authorized capital stock of Roundtable consists of
35,000 shares of Roundtable Common Stock, 29,496 shares of which have been
issued to members of the Roundtable Group as set forth on Exhibit A. CHPII
represents that Roundtable has engaged in no business prior to the Merger and
has been formed solely for the purpose of engaging in the Merger. CHPII
represents that Roundtable has no assets (other than the amounts used to
capitalize Roundtable), liabilities, rights or obligations except pursuant to
the Merger Agreement. CHPII represents that Roundtable is not a party to any
agreement other than the Merger Agreement and this Agreement.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS AND ROUNDTABLE
SECTION 3.01. No Disposition or Encumbrance of Shares. Each Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement, such
Stockholder shall not, and shall not offer or agree to, sell, transfer, tender,
assign, hypothecate or otherwise dispose of, grant a proxy (other than the
irrevocable proxy granted to John K. Castle, dated the date hereof) or power of
attorney with respect to, create or permit to exist any security interest, lien,
claim, pledge, option, right of first refusal, contract, limitation on such
Stockholder's voting rights, charge or other encumbrance of any nature
whatsoever with respect to, such Stockholder's shares of Roundtable Common
Stock, Company Common Stock or New Company Common Stock or directly or
indirectly, initiate, solicit or encourage any person to take actions which
could reasonably be expected to lead to the occurrence of any of the foregoing;
provided, however, that this Section 3.01 shall not prevent the transfer of
Roundtable Common Stock, Company Common Stock or New Company Common Stock by
reason of law, or to a personal representative of a Stockholder or to one or
more members of any Stockholder's family or to trusts, partnerships or similar
entities for their benefit, provided, further, however, that such transferee(s)
shall take such Roundtable Common Stock, Company Common Stock or New Company
Common Stock subject to and be fully bound by this Agreement with the same
effect as if he, she or it were a party hereto. As used herein, the term
"personal representative" shall mean the executor or
II-3
<PAGE> 135
executors of the will or administrator or administrators of the estate, the
heirs, legatees or other beneficiaries thereunder and all other legal
representatives (by operation of law or otherwise) of a Stockholder.
SECTION 3.02. Limitation on Transactions in Buyer Common Stock. Each of the
Stockholders agrees that, (i) during the period beginning on the date hereof and
ending on the Closing Date, and (ii) as long as such Stockholder owns any shares
of New Company Common Stock, for the thirty (30) day period preceding any Option
Closing Date (as such term is defined in the Surviving Corporation's certificate
of incorporation), such Stockholder shall not and shall not permit any
affiliate, representative, agent or other person or entity acting on its behalf,
directly or indirectly, to (x) sell, offer to sell or commence any sale,
solicitation, marketing or other efforts to facilitate the disposition of any
shares of Buyer Common Stock, or (y) sell short or enter into any put equivalent
position with respect to any shares of Buyer Common Stock.
SECTION 3.03. No Negotiations. The Stockholders shall not, and shall not
permit any of their Subsidiaries, affiliates, representatives, agents or any
other Person acting for or on behalf of any of them to, solicit, entertain
offers from, negotiate with, or in any manner discuss, encourage, recommend or
agree to any proposal relating to (a) the sale of the stock or assets of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
or any interest therein, (b) the merger, consolidation or other combination of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
with any Person, or (c) the liquidation, dissolution or reorganization of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries,
except as specifically contemplated by the Exchange Agreement and the Merger
Agreement. Without limiting the generality of the foregoing, the Stockholders
shall not, and shall not permit any of their Subsidiaries, affiliates,
representatives, agents or any other Person acting for or on behalf of any of
them to, furnish or cause to be furnished any information with respect to
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
to any Person (other than the Buyer and its employees and agents). If any of the
Stockholders or any of their Subsidiaries, affiliates, representatives, agents
or any other Person acting for or on behalf of any of them receives from any
Person any offer, proposal or informational request that may be subject to this
Section, the Stockholders shall promptly advise such Person, by written notice,
of the terms of this Section and shall promptly deliver a copy of such notice to
the Buyer. Nothing herein shall, to the extent not prohibited by the Exchange
Agreement, prohibit any Stockholder who is an officer of the Company from acting
in his capacity as such, or who is a director of the Company from participating
in meetings of the Board or Committees thereof.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Termination. This Agreement shall remain in effect until the
first to occur of (i) the Closing Date or (ii) the termination of the Exchange
Agreement; provided, however, that the provisions set forth in Sections 3.02,
4.02 and 4.03 shall survive the Closing.
SECTION 4.02. Further Assurances. The Stockholders and the Company will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby, including without limitation, the transactions contemplated
by the Exchange Agreement.
SECTION 4.03. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.04. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the Company and the Stockholders with respect to the
subject matter hereof.
II-4
<PAGE> 136
SECTION 4.05. Amendment. This Agreement may not be amended, altered or
modified except by a written instrument executed by the parties hereto.
SECTION 4.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.07. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York applicable to
contracts made and to be performed wholly within such state.
SECTION 4.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 4.09. Third Party Beneficiary. The Buyer shall be an intended third
party beneficiary of this Agreement and shall have the right to enforce this
Agreement directly in a court of law or equity or both to protect its rights
hereunder. Without limiting the generality of the foregoing, it is the intention
of the parties hereto that this Agreement is made for the benefit of the Buyer
and to induce the Buyer to commence the Exchange Offers and the other
transactions contemplated by the Exchange Agreement.
IN WITNESS WHEREOF, each Stockholder has duly executed this Agreement.
/s/ JEFFREY M. SIEGAL
--------------------------------------
Jeffrey M. Siegal
/s/ HOWARD WEISS
--------------------------------------
Howard Weiss
/s/ SYLVIA ROSEN
--------------------------------------
Sylvia Rosen
/s/ JUSTIN WENDER
--------------------------------------
Justin Wender
/s/ T. J. DERMOT DUNPHY
--------------------------------------
T. J. Dermot Dunphy
/s/ RICHARD Y. SMITH
--------------------------------------
Richard Y. Smith
/s/ JOHN A. HERRMANN, JR.
--------------------------------------
John A. Herrmann, Jr.
II-5
<PAGE> 137
/s/ WILLIAM S. LEE
--------------------------------------
William S. Lee
/s/ FRANK M. SPINOLA
--------------------------------------
Frank M. Spinola
/s/ ERNIE L. DANNER
--------------------------------------
Ernie L. Danner
CASTLE HARLAN PARTNERS II, L.P.
By: Castle Harlan, Inc.
as Investment Manager
By: /s/ JEFFREY M. SIEGAL
----------------------------------
Name: Jeffrey M. Siegal
Title: Managing Director
ROUNDTABLE CORP.
By: /s/ JEFFREY M. SIEGAL
----------------------------------
Name: Jeffrey M. Siegal
Title: President
Agreed and accepted
as of November 10, 1995
INDSPEC HOLDING CORPORATION
By: /s/ FRANK M. SPINOLA
----------------------------------
Name: Frank M. Spinola
Title: President
II-6
<PAGE> 138
SCHEDULE 1
<TABLE>
<CAPTION>
TOTAL SHARES OF TOTAL SHARES OF
COMPANY COMMON COMPANY COMMON
STOCK OWNED SHARES STOCK OWNED
(INCLUDING UNDERLYING (EXCLUDING
SHARES OPTIONS SHARES
UNDERLYING (VESTED AND UNDERLYING
STOCKHOLDER OPTIONS) UNVESTED) OPTIONS)
----------- --------------- ----------- ---------------
<S> <C> <C> <C>
Castle Harlan Partners II, L.P...................... 26,792 -- 26,792
Frank Spinola....................................... 5,673 3,273 2,400
Ernie L. Danner..................................... 2,727 1,591 1,136
William S. Lee...................................... 2,102 1,352 750
Durmot Dunphy....................................... 556 -- 556
John Herrmann....................................... 111 -- 111
Richard Smith....................................... 111 -- 111
Jeffrey Siegal...................................... 56 -- 56
Howard Weiss........................................ 22 -- 22
Justin Wender....................................... 7 -- 7
Sylvia Rosen........................................ 11 -- 11
</TABLE>
II-7
<PAGE> 139
EXHIBIT A
<TABLE>
<CAPTION>
SHARES OF COMPANY
COMMON STOCK TO
BE EXCHANGED FOR
EQUAL NUMBER OF
SHARES OF
ROUNDTABLE COMMON
ROUNDTABLE GROUP STOCK
---------------- -----------------
<S> <C>
Castle Harlan Partners II, L.P.............................................. 26,792
Frank M. Spinola............................................................ 1,920
Durmot Dunphy............................................................... 556
John Herrmann............................................................... 111
Richard Smith............................................................... 61
Jeffrey Siegal.............................................................. 31
Howard Weiss................................................................ 12
Justin Wender............................................................... 7
Sylvia Rosen................................................................ 6
------
Total............................................................. 29,496
======
</TABLE>
II-8
<PAGE> 140
ANNEX III
ENABLING AGREEMENT
This ENABLING AGREEMENT (this "Agreement") is made and entered into as of
November 10, 1995 by and between INDSPEC Holding Corporation, a Delaware
corporation (the "Company"), and Occidental Petroleum Corporation, a Delaware
corporation ("Occidental").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Share Exchange, dated as of
the date hereof (the "Exchange Agreement"), by and between Occidental and the
Company, Occidental has agreed, subject to the terms and conditions set forth in
the Exchange Agreement, to make offers (the "Exchange Offers") to exchange
shares of Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), and Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), of the
Company for shares of Common Stock, par value $.20 per share (the "Occidental
Common Stock"), of Occidental;
WHEREAS, pursuant to the Exchange Agreement, Occidental has agreed to
provide the Company and stockholders of the Company with certain rights and
privileges pursuant to this Agreement; and
WHEREAS, as a condition to the commencement of the Exchange Offers, the
Company has agreed to provide Occidental with certain rights and privileges
pursuant to this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Certificate of
Incorporation attached as Exhibit A to the Merger Agreement (as defined in the
Exchange Agreement) (the "Certificate of Incorporation"). For purposes of this
Agreement, the following terms shall have the following meanings:
"Change of Control Obligations" shall mean any and all obligations of the
Company to make payments in respect of notes tendered to the Company pursuant to
a Change of Control Offer.
"Change of Control Offer" shall have the meaning set forth in the
Indenture.
"Company Common Stock" shall have the meaning set forth in the Exchange
Agreement.
"Credit Agreement" shall have the meaning set forth in the Exchange
Agreement.
"Dissenters' Rights Obligations" shall mean any and all obligations of the
Company to make payments required by law to satisfy claims of stockholders who
have the right to appraisal of and payment for their shares of Company Common
Stock pursuant to Section 262 of the Delaware General Corporation Law as a
result of the Merger.
"Expenditure Amount" means, as of the date of any balance sheet, (i) the
aggregate amount of expected expenditures (excluding salaries, wages, employee
benefits, utilities, and recurring repairs and maintenance to equipment caused
by ordinary wear and tear, and any other similar allocation of overhead)
required in order for the Company to take the actions specified in the Review
Results (as defined in Section 8 hereof) less (ii) the aggregate amount of
claims for indemnification, contribution or other recovery against third parties
to the extent such recovery could be reflected on the Company's balance sheet as
an asset in accordance with GAAP.
"Funding Obligations" shall mean the Dissenters' Rights Obligations and the
Change of Control Obligations.
"Indenture" shall have the meaning set forth in the Exchange Agreement.
<PAGE> 141
"Merger" shall have the meaning set forth in the Exchange Agreement.
"Options" shall have the meaning set forth in the Exchange Agreement.
"Put Commencement Date" means the date of the Put Notice.
"Put Equity Value" means an amount equal to (i) the EBITDA Multiple
multiplied by the LTM Operating EBITDA, minus (ii) Net Debt plus Other
Liabilities, in each case, (x) calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the Put Exchange Date occurs or
(y) if the Put Offer Registration Statement has not been declared effective
within 120 days after the Trigger Date, and such amount would be greater,
calculated as of the last day of the fiscal month in which the Trigger Date
occurs.
"Put Offer Debt Target" means $80 million, or such greater amount as may be
determined, from time to time after the Closing Date, by the Board of Directors
as it deems appropriate, in its sole discretion, in connection with Debt
incurred (or the repayment of which is deferred) to finance capital expenditures
that have been identified as extraordinary by the Board of Directors in its sole
discretion.
"Put Offer Ratio" means (i) the Put Equity Value divided by the aggregate
number of shares of Common Stock outstanding on the Put Exchange Date,
determined on a Fully Diluted Basis, divided by (ii) the Market Price of a share
of Occidental Common Stock on the fifth Trading Day next preceding the Put
Exchange Date.
"Trigger Date" means the date that is the later of (i) the third
anniversary of the Closing Date and (ii) the date on which Occidental receives
the Debt Notice (as defined below).
2. Obligation to Effect Put Offer.
(a) Promptly, but in any event within five (5) Business Days after the date
on which Net Debt is less than the Put Offer Debt Target, the Company shall give
written notice (the "Debt Notice") thereof to Occidental, specifying the amount
of Net Debt. As soon as practicable after the Trigger Date, Occidental shall (x)
use commercially reasonable efforts to prepare and file a registration statement
(the "Put Offer Registration Statement") under the Securities Act relating to
the Put Offer, and (y) use commercially reasonable efforts to cause the Put
Offer Registration Statement to become effective as soon as practicable after
its filing; provided, however, that Occidental may delay the filing or
effectiveness of the Put Offer Registration Statement for a valid business
purpose, as determined by Occidental, in its sole and absolute discretion, but
which may include any substantially concurrent public or private offering of
equity securities or any other transaction that might be adversely affected by
the filing or effectiveness of the Put Offer Registration Statement.
(b) As soon as practicable after the Put Offer Registration Statement has
been declared effective, Occidental shall make an offer (the "Put Offer") to the
holders of shares of Class A Common Stock to exchange all or a portion of such
shares for that number of fully paid and nonassessable shares of Occidental
Common Stock equal to (i) the number of shares of Class A Common Stock so
exchanged, multiplied by (ii) the Put Offer Ratio. Notwithstanding any provision
hereof, the Put Offer shall be made in compliance with all applicable laws,
including without limitation, all applicable Federal and state securities laws.
(c) The Put Offer shall be commenced by mailing to each record holder of
shares of Class A Common Stock a notice (the "Put Notice"), which shall govern
the terms of the Put Offer. The Put Notice shall include or be accompanied by
all information required by law and shall specify:
(i) the instructions that holders of shares of Class A Common Stock
must follow in order to exchange such shares;
(ii) the method of calculating the Put Offer Ratio;
(iii) the exchange date (the "Put Exchange Date"), which shall be a
Business Day no later than 40 days from the date the Put Notice is mailed;
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(iv) that any holder of shares of Class A Common Stock electing to
exchange such shares pursuant to the Put Offer shall be required to
surrender the certificate or certificates evidencing such shares to the
exchange agent specified in the Put Notice (the "Exchange Agent"), which
certificate or certificates shall be duly endorsed, or accompanied by
proper instruments of transfer and, if required pursuant to this Section,
an amount sufficient to pay any transfer or similar tax (or evidence
demonstrating that such taxes have been paid); and
(v) whether or not Occidental intends to cause the Company to effect
the Second Call Option if a sufficient number of shares of Class A Common
Stock are tendered pursuant to the Put Offer.
(d) On or prior to the fifth Business Day following the Put Exchange Date,
Occidental shall cause the Exchange Agent to deliver at the offices of the
Company or to mail to the holders at the addresses specified by each holder of
Class A Common Stock so exchanged a certificate or certificates evidencing the
number of full shares of Occidental Common Stock to which such person shall be
entitled, together with a cash payment in respect of any fraction of a share, as
hereinafter provided.
(e) The Company shall enter into such agreements and take all such other
actions (including those reasonably requested by Occidental) necessary or
desirable to expedite or facilitate the Put Offer. Without limiting the
foregoing, the Company shall provide to Occidental on a timely basis all
information (financial and otherwise) necessary or desirable to be included in
or to accompany the Put Notice and, if requested by Occidental, (i) make
customary representations and warranties with respect to the information
relating to the Company and its Subsidiaries provided to Occidental for use in
the Put Offer Registration Statement, the prospectus included therein and
documents, if any, incorporated or deemed to be incorporated by reference
therein, and confirm the same if and when reasonably requested; (ii) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to
Occidental); (iii) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (which letters and
updates (in form, scope and substance) shall be reasonably satisfactory to
Occidental); and (iv) deliver such other documents and certificates as may be
reasonably requested by Occidental.
(f) If Occidental gives notice pursuant to Section 4 hereof requiring the
Company to effect the Second Call Option in accordance with the Certificate of
Incorporation, Occidental may terminate the Put Offer.
(g) No fractional shares or scrip representing fractional shares of
Occidental Common Stock shall be issued upon exchange of Class A Common Stock
pursuant to the Put Offer. The number of full shares of Occidental Common Stock
issuable upon exchange of shares of Class A Common Stock shall be computed on
the basis of the aggregate number of shares of Class A Common Stock so
surrendered by each record holder thereof. In lieu of any fractional share of
Occidental Common Stock that would otherwise be issuable upon exchange of any
shares of Class A Common Stock, the holder thereof shall be entitled to a cash
adjustment in respect of such fractional share in an amount equal to the same
fraction of the Market Price of a share of Occidental Common Stock on the fifth
Trading Day immediately preceding the Put Exchange Date, calculated to the
nearest cent, with one-half cent rounded upward, and the number of full shares
of Occidental Common Stock issuable upon exchange thereof shall be decreased to
the next lowest number of whole shares.
(h) Occidental shall not be required to pay any tax that may be payable in
respect of any issuance or delivery of shares of Occidental Common Stock
pursuant to the Put Offer, and no such issuance or delivery shall be made unless
and until the holder of shares of Class A Common Stock being exchanged has paid
the amount of any such tax or has established, to the satisfaction of
Occidental, that such tax has been paid.
3. Obligation to Sell Occidental Common Stock. If the Company exercises the
First Call Option or the Second Call Option, Occidental shall sell to the
Company, on or prior to the First Call Closing Date or the Second Call Closing
Date, as the case may be, such number of validly issued, fully paid and
non-assessable shares of Occidental Common Stock as the Company shall be
obligated to deliver to holders of Class A Common Stock in satisfaction of its
redemption obligations thereunder. The purchase price for each share of
Occidental Common Stock shall be the Market Price thereof that was used to
determine the First Call Ratio
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or the Second Call Ratio, as applicable, and shall be payable in cash or a
mutually satisfactory promissory note.
4. Right to Require Redemption. Upon receipt by the Company of a written
notice from Occidental to such effect, the Company shall effect promptly the
First Call Option or the Second Call Option, as the case may be, and shall
promptly take all actions that Occidental may request that are necessary or
desirable therefor. In its notice with respect to the First Call Option,
Occidental shall indicate the First Call Closing Date, which shall be a date not
less than 45 days after the date of such notice.
5. Tag-Along Rights.
(a) Occidental shall not, and shall not permit any of its affiliates
subject to its control (collectively with Occidental, the "Selling Group"), to
sell, directly or indirectly, any shares of Common Stock (any such sale, a
"Tag-Along Sale"), unless adequate provision is made in connection therewith so
that all holders of Class A Common Stock (each, an "Other Stockholder") have the
right, but not the obligation, to participate in such sale, on substantially the
same terms and conditions thereof, by selling the number of shares of Class A
Common Stock respectively owned by them, to be calculated in the following
manner. The aggregate number of shares of Common Stock that each Other
Stockholder shall be entitled to include in such Tag-Along Sale (such Other
Stockholder's "Allotment") shall equal the product of (i) the number of shares
that such Other Stockholder elects to include in such Tag-Along Sale (which may
include the aggregate number of shares of Class A Common Stock that such Other
Stockholder owns, has the immediate right to acquire or will have the right to
acquire after giving effect to the Tag-Along Sale), multiplied by (ii) a
fraction, the numerator of which shall equal the total number of shares of
Common Stock proposed to be sold pursuant to the TagAlong Sale and the
denominator of which shall equal the sum of the number of shares of Common Stock
held by the Selling Group and the number of shares of Common Stock held by the
Other Stockholders that have elected to participate in the Tag-Along Sale.
(b) The foregoing notwithstanding, this Section shall not apply to any sale
of Common Stock (i) solely among members of the Selling Group, (ii) to the
public pursuant to an effective registration statement under the Securities Act
or (iii) that has been approved by the affirmative vote of the greater of (A)
five members of the Company's Board of Directors or (B) a majority of the
directors of the Company then in office.
(c) The Selling Group members participating in a Tag-Along Sale (or
Occidental on behalf of such Selling Group members) shall promptly provide each
Other Stockholder with written notice (the "Sale Notice") not more than 60 nor
less than 30 days prior to the proposed date of the consummation of the Tag-
Along Sale (the "Sale Date"). In order to facilitate the prompt delivery of the
Sale Notice, the Company hereby covenants to provide the Selling Group members
participating in a Tag-Along Sale or Occidental, as the case may be, access to
the stock record books of the Company. Each Sale Notice shall set forth: (i) the
name and address of each proposed purchaser of shares of Common Stock in the
Tag-Along Sale; (ii) the number of shares proposed to be sold pursuant to the
Tag-Along Sale; (iii) the proposed amount and form of consideration to be paid
for such shares and the terms and conditions of payment offered by each proposed
purchaser; (iv) the aggregate number of shares of Class A Common Stock
outstanding on the date (the "Notice Date") of the Sale Notice that are held of
record by such Other Stockholder; (v) the aggregate number of shares of Common
Stock outstanding on the Notice Date; (vi) such Other Stockholder's Allotment
(assuming that all Other Stockholders elect to include all of their shares of
Common Stock in the Tag-Along Sale); (vii) the Sale Date; and (viii) the manner
in which such Other Stockholder may participate in the Tag-Along Sale, including
a form of the written notice (the "Tag-Along Notice") that such Other
Stockholder will be required to deliver to Occidental.
Each Other Stockholder that wishes to participate in the Tag-Along Sale
shall complete, sign and deliver to Occidental a Tag-Along Notice no less than
15 days prior to the Sale Date. The Tag-Along Notice shall set forth, among
other things, the number of shares of Common Stock that such Other Stockholder
elects to include in the Tag-Along Sale, which shall not exceed the aggregate
number of shares that such Other Stockholder owns, has the immediate right to
acquire or will have the right to acquire after giving effect to the Tag-Along
Sale. The Tag-Along Notices given by the Other Stockholders shall constitute
their binding agreements to sell such shares on the terms and conditions
applicable to such sale, as provided herein. The
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participating members of the Selling Group shall determine the aggregate number
of shares to be sold by each participating Other Stockholder in any given
Tag-Along Sale in accordance with the terms hereof.
If a Tag-Along Notice is not received by Occidental from an Other
Stockholder 15 days prior to the Sale Date, the Selling Group members shall have
the right to sell to the proposed purchaser or transferee, without any
participation by such Other Stockholders, the number of shares of Common Stock
specified in the Sale Notice, but only on terms and conditions not materially
more favorable to the Selling Group members than those stated in such Sale
Notice and only if such sale occurs on a date within 60 business days of the
Sale Date.
(d) The provisions of this Section shall terminate on the earlier of (i)
the consummation of any of the Exchange Options or (ii) the date (the "Publicly
Held Date") on which the market value of outstanding shares of Common Stock, or
any capital stock of the Company issued to holders of shares of Common Stock
(whether or not in their capacity as holders of shares of Common Stock and
whether in connection with a stock split, stock dividend, reorganization or
otherwise), that have been effectively registered under the Act and disposed of
in accordance with a registration statement or statements under the Act covering
such shares equals or exceeds $50 million. For purposes of the preceding
sentence, "market value" shall be determined by multiplying the Market Price of
such shares by the aggregate number of such shares.
6. Financial Information.
(a) Annual Financial Statements. The Company shall deliver to Occidental,
as soon as available, but not later than ninety (90) days after the end of each
fiscal year, (i) a copy of the audited consolidated balance sheet of the Company
and its subsidiaries as of the end of such year and the related consolidated
statements of operations, stockholders' equity (where applicable) and cash flows
for such fiscal year, setting forth, in each case, in comparative form, the
figures for the previous year, accompanied by the opinion of a nationally-
recognized independent public accounting firm stating that such consolidated
financial statements present fairly the financial position of the Company and
its subsidiaries for the periods indicated, in conformity with GAAP, applied on
a basis consistent with prior years and (ii) a certificate signed by the Chief
Financial Officer of the Company, setting forth in reasonable detail the
Company's determination of the LTM Operating EBITDA, Net Debt and Other
Liabilities, in each case, calculated as of the last day of such fiscal year.
(b) Quarterly Financial Statements. The Company shall deliver to
Occidental, as soon as available, but not later than forty-five (45) days after
the end of each of the first three (3) fiscal quarters of each year, (i) a copy
of the unaudited consolidated balance sheet of the Company and its subsidiaries
as of the end of such quarter and the related consolidated statements of
operations, stockholders' equity (where applicable) and cash flows for the
period commencing on the first day and ending on the last day of such quarter,
accompanied by a certificate signed by the Chief Financial Officer of the
Company, stating that such financial statements are complete and correct to the
best of his knowledge after reasonable investigation and present fairly the
financial position of the Company and its subsidiaries for the periods
indicated, in conformity with GAAP for interim financial statements, applied on
a basis consistent with prior quarters and (ii) a certificate signed by the
Chief Financial Officer of the Company, setting forth in reasonable detail the
Company's determination of the LTM Operating EBITDA, Net Debt and Other
Liabilities, in each case, calculated as of the last day of such fiscal quarter.
(c) Monthly Financial Information. The Company shall deliver to Occidental,
as soon as available, but not later than fifteen (15) days after the end of each
fiscal month, (i) a copy of the unaudited consolidated balance sheet of the
Company and its subsidiaries as of the end of such month and the related
consolidated statements of operations, stockholders' equity (where applicable)
and cash flows for the period commencing on the first day and ending on the last
day of such month, accompanied by a certificate signed by the Chief Financial
Officer of the Company, certifying that the information contained therein,
subject to audit, is complete and correct to the best of his knowledge after
reasonable investigation and (ii) a schedule setting forth the Company's
determination of the LTM Operating EBITDA, Net Debt and Other Liabilities, in
each case, calculated as of the last day of such fiscal month.
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(d) Company Plans and Projections. The Company shall deliver to Occidental,
not less than fortyfive (45) days after the beginning of each fiscal year,
copies of (i) the Company's business plan for the upcoming fiscal year,
including an annual operating budget and capital expenditure budget and
projections; (ii) the Company's financial projections for the upcoming fiscal
year, as prepared by the Company's Chief Financial Officer; and (iii) a year-end
budget reconciliation reconciling the actual operating results and financial
performance of the Company over the past fiscal year with the budgets and
projections previously provided by the Company to Occidental for such period,
together with textual comments explaining any material discrepancies between the
figures.
(e) Periodic Reports and Filings; Press Releases. The Company shall deliver
to Occidental, promptly after the same are sent or released, copies of all
reports, notices, proxy statements and financial statements which the Company
sends to any Other Stockholders and copies of all press releases made by the
Company or any of its subsidiaries, promptly after the same are filed, copies of
all financial statements and regular, periodical or special reports which the
Company or any of its subsidiaries may make to, or file with, the Securities and
Exchange Commission or any successor or similar governmental authority.
(f) Accountants' Reports. The Company shall deliver to Occidental, promptly
after the same are received, copies of all reports relating to the Company which
the independent certified public accountants of the Company deliver to the
Company or any of its subsidiaries.
(g) Exchange Option Information. The Company shall deliver to Occidental,
as soon as available, but not later than thirty (30) days after the date as of
which the Put Equity Value, the First Call Equity Value or the Second Call
Equity Value, as the case may be, is determined, a copy of the audited
consolidated balance sheet of the Company and its subsidiaries and the related
consolidated statements of operations, stockholders' equity (where applicable)
and cash flows for the twelve month period ending on the date that the Put
Equity Value, the First Call Equity Value or the Second Call Equity Value, as
the case may be, is determined, setting forth, in each case, as separate line
items, LTM Operating EBITDA, Net Debt, Other Liabilities, bonuses to officers
and New Plant Capital Expenditures, accompanied by the opinion of a
nationally-recognized independent public accounting firm stating that such
consolidated financial statements present fairly the financial position of the
Company and its subsidiaries for the periods indicated, in conformity with GAAP,
applied on a basis consistent with prior years. The Company shall provide
Occidental with an opportunity to review all work papers prepared or used in
connection with the preparation of such financial statements.
(h) Other Information. The Company shall deliver to Occidental, promptly,
such additional financial and other information as Occidental may from time to
time reasonably request.
(i) Full Disclosure. The Company shall ensure that all written information
and reports furnished to Occidental by the Company or any of its subsidiaries do
not and will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to Occidental and correct any defect or
error that may be discovered therein.
(j) Trade Secrets. Notwithstanding the foregoing provisions of this Section
6, the Company shall not be obligated to disclose to Occidental any trade
secrets or information relating to a particular line of business of the Company
or any of its subsidiaries that, if disclosed to Occidental, could adversely
affect the Company as a result of Occidental's competition with the Company in
such line of business.
7. Access to Books and Records; Inspection of Property. The Company shall
maintain, and shall cause each of its subsidiaries to maintain, proper books of
record and account, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the business of the Company and its subsidiaries. The Company
shall permit, and shall cause each of its subsidiaries to permit, Occidental and
its financial advisors, legal counsel, accountants, consultants and other
representatives to visit and inspect any of their properties, to conduct audits
of the Company's books and records, to examine their corporate, financial and
operating records, and make copies thereof or abstracts therefrom, and to
discuss their affairs, finances and accounts with their directors, officers and
independent public accountants at any time during normal business hours and as
often as may be reasonably desired. The
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Company authorizes Occidental and its financial advisors, legal counsel,
accountants, consultants and other representatives to communicate directly with
the Company's independent accountants and authorizes such accountants to
disclose to such Persons any and all financial statements and other information
of any kind, including the substance of any oral information or conversation
that such accountants may have with respect to the business, financial condition
and other affairs of the Company and its subsidiaries.
8. Environmental Compliance.
(a) Not later than the date (the "Compliance Date") that is 30 months after
the Closing Date, the Company shall complete the tasks set forth on Schedule A
hereto.
(b) At any time, or from time to time, on or after the first anniversary of
the Closing Date, Occidental may perform a review and audit of the Company's
properties and facilities in order to determine (i) the Company's compliance
with all Environmental Laws (as defined in the Exchange Agreement) and (ii)
whether or not the tasks set forth on Schedule A have been completed. The
Company shall provide Occidental and its representatives with access to the
Company's properties and facilities and its books and records in order to permit
Occidental to complete such review and audit. Occidental agrees that its
investigations shall not include sampling of soil or ground water except (x) as
consistent with remedial work undertaken by the Company or (y) as may be
required to confirm information indicating that there has been a release of
materials on or from the Company's properties or facilities on or after December
16, 1988 which was not disclosed, or the extent of which was not substantially
disclosed, to Occidental as of the date of the Exchange Agreement. Occidental
shall deliver the results of its review (the "Review Results") to the Company
(the date of such delivery being the "Initial Determination Date"). If
Occidental determines that additional actions are required in order for the
Company to comply with Environmental Laws or complete the tasks set forth on
Schedule A, to the extent that the Company does not dispute the determinations
set forth in the Review Results, the Company shall promptly take all such
required actions, including, where appropriate, approving detailed action plans
consistent with the Company's procedures for approving the expenditure of money
on a project, and shall reserve or increase reserves to the extent necessary to
reflect on all balance sheets prepared as of any date subsequent to the Initial
Determination Date, the Expenditure Amount. In preparing any income statement
after the Initial Determination Date, the Company's operating income will not be
reduced by the amount of such expenditures.
(c) If the Company disputes the Review Results, the Company may, within 30
days of the Initial Determination Date, notify Occidental of its specific
objection, the basis therefor, and the name of an independent environmental
consultant (the "Company Consultant") that the Company has retained to review
Occidental's Review Results. The Company shall cause the Company Consultant to
deliver its report (the "Company Consultant's Report") to Occidental and the
Company within 60 days after the Initial Determination Date. If the Company
Consultant concurs with any part of the Review Results, the Company shall
promptly take all actions specified in the Review Results with respect to which
the Company Consultant concurs, and shall reserve or otherwise reflect on all
balance sheets prepared as of any date subsequent to the date of delivery of the
Company Consultant's Report, the Expenditure Amounts with respect to which the
Company Consultant concurs. If the Company Consultant disputes any part of the
Review Results, the Company and Occidental shall, within 60 days after the
Initial Determination Date, mutually agree on an independent environmental
consultant (the "Mediation Consultant") to be retained jointly by Occidental and
the Company (and whose fees and expenses shall be paid equally by Occidental and
the Company). In the event the parties cannot agree to a Mediation Consultant,
each party shall, no later than 75 days after the Initial Determination Date,
select a reputable environmental consulting firm, and such firms shall, acting
in good faith, no later than 90 days after the Initial Determination Date,
select a Mediation Consultant. Such Mediation Consultant shall be retained and
paid as provided in the previous sentence. Within 90 days (or 120 days if the
parties must select environmental consultants to choose a mediation consultant)
after the Initial Determination Date, the Mediation Consultant shall review
those aspects of the Review Results and the Company Consultant's Report that are
in dispute and deliver to Occidental and the Company its report (the "Mediation
Consultant's Report") as to which determinations are correct. The Mediation
Consultant may determine that the Company Consultant's Report is correct in
certain respects and that the Review Results are correct in certain respects;
provided, however, that the Mediation Consultant shall not be
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authorized to make any decision, and shall be instructed not to offer any
opinion relating to the timing or scheduling of any corrective actions required
by the Review Results or by Occidental in connection with the Review Results.
The determinations set forth in the Mediation Consultant's Report shall be final
and binding on Occidental and the Company. After the delivery of the Mediation
Consultant's Report, the Company shall promptly take all actions as may be
required in accordance with the Mediation Consultant's Report and shall reserve
or otherwise reflect on its balance sheet the Expenditure Amounts required to
comply with the actions required pursuant to the Mediation Consultant's Report.
Notwithstanding anything to the contrary herein, Occidental may, in its sole
discretion, relax any timing or scheduling requirement in the Review Report or
otherwise determined by Occidental, and such decision shall be effective when
notice thereof has been delivered in writing to the Company.
9. Prohibition of Certain Redemptions. The Company shall not purchase or
otherwise acquire any shares of Common Stock (except for purchases pursuant to
employment agreements or as required by law in connection with employee benefit
plans) without the prior written consent of Occidental, which may be withheld in
its sole discretion.
10. Profit Sharing Targets. Occidental represents that it has no present
intention to eliminate the Company's employee profit sharing plan or to reduce
the aggregate amount of payments thereunder or participation therein.
11. Funding Obligations.
(a) The Company shall use commercially reasonable efforts to keep available
or obtain sufficient funds to satisfy the Funding Obligations, including,
without limitation, borrowing all available funds pursuant to the Company's bank
credit facilities and using commercially reasonable efforts to borrow funds from
other sources.
(b) If the Company has complied with paragraph (a) of this Section but does
not have sufficient funds to satisfy any or all of the Funding Obligations, the
Company shall give written notice (each, a "Funding Notice") to such effect to
Occidental, specifying which Funding Obligation the Company is unable to satisfy
and the amount of any such insufficiency. In order for a Funding Notice to be
timely, the Company must deliver the Funding Notice to Occidental as promptly as
practicable but in any event not less than ten business days prior to the
earliest date on which the Company is obligated to make payments pursuant
thereto.
(c) Occidental shall provide the Company with funds in an amount sufficient
to enable the Company to satisfy all Funding Obligations for which the Company
has timely delivered a Funding Notice to Occidental. With respect to Dissenters'
Rights Obligations, (i) Occidental shall lend funds to the Company pursuant to a
fully amortizing promissory note with an annual rate of interest of 8% and the
shortest practicable maturity but which shall not, in any event, exceed five
years and (ii) to the extent that the Company cannot borrow the full amount of
any Funding Obligation insufficiency, Occidental shall purchase preferred stock
of the Company, the terms of which are satisfactory to the Company and
Occidental. Occidental acknowledges and agrees that any such loan with respect
to the Dissenters' Rights Obligations shall be subordinated to the Company's
Credit Agreement. With respect to Change of Control Obligations, Occidental
shall lend funds to the Company pursuant to a promissory note with substantially
the same terms as the notes issued pursuant to the Indenture or, at Occidental's
option and if the Indenture permits, by purchasing from the Company the notes
tendered to the Company pursuant to the Change of Control Offer concurrently
with the Company's purchase of such notes pursuant to the Change of Control
Offer.
12. New Employees.
(a) Within six (6) months after the Closing Date, the Company or INDSPEC
Chemical Corporation ("INDSPEC") shall hire three new employees (the "New
Employees") to hold positions in each of the areas of financial planning and
analysis, process safety and marketing. Occidental shall select the New
Employees and present them to INDSPEC. INDSPEC shall employ each of the New
Employees so selected and presented, subject to INDSPEC's approval of each New
Employee, in its sole discretion. Each New Employee will be employed by INDSPEC
on an "at-will" basis, subject to INDSPEC's right to terminate each such New
Employee, at any time, with or without cause, unless INDSPEC shall otherwise
agree. If
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INDSPEC does not approve any New Employee selected and presented by Occidental,
or if INDSPEC terminates any New Employee employed by it, Occidental shall have
the right to select and present to INDSPEC a replacement for each such New
Employee.
(b) Occidental and INDSPEC initially anticipate that such employees shall
be mid-level managers, reporting directly to and under the direction and
supervision of INDSPEC officers or managers holding the following titles: CFO,
Manager, Environmental Affairs, and VP-Sales, respectively. The New Employees
shall perform job duties comparable to similarly situated employees at INDSPEC,
or if none exist, as are customarily performed by one holding a comparable
position in a business comparable to INDSPEC.
(c) INDSPEC shall pay the New Employees salaries and provide to them
benefits at the same level as it provides for its employees in comparable
positions, or if none exist, as exist for one holding a comparable position in a
business comparable to INDSPEC.
(d) Occidental shall pay all moving and relocation expenses incurred in
connection with INDSPEC employing such New Employees.
13. Technology Matters.
(a) The respective technical representatives nominated from time to time by
each of Occidental and INDSPEC shall meet not less than once per calendar
quarter to discuss areas of mutual interest with respect to technology issues,
including the sharing of information and the potential exploitation of areas of
mutual interest.
(b) If either Occidental or INDSPEC informs the other of an area of
interest in which the exploitation of the technology of such other party would
be beneficial, each of Occidental and INDSPEC agree to use their commercially
reasonable efforts to determine if there exists a mutually beneficial basis upon
which to exploit or permit the exploitation of such technology and, if so, to
agree to terms upon which such technology may be so exploited; provided, that to
the extent consistent with the terms of existing contracts, agreements or
instruments with which the parties hereto are bound, the parties agree that the
terms upon which such technology will be exploited, if at all, will be on no
less favorable than on a "most favored nation's" basis. The obligation to use
such commercially reasonable efforts will terminate on the date one hundred
eighty (180) days after the date on which the parties first commence
discussions.
(c) In the event that INDSPEC contemplates providing technology assistance
to a third party to enable or assist such party in a product field related to a
field engaged in by Occidental, literally or in effect by license or assignment,
INDSPEC shall offer Occidental the opportunity on an exclusive or non-exclusive
basis, in INDSPEC's discretion, to enter the field under a license or assignment
on substantially similar terms as INDSPEC is prepared to offer the third party.
(d) Occidental and INDSPEC agree that any information exchanged pursuant to
these provisions shall be subject to mutually agreeable confidentiality
provisions that are typical for the chemical industry and for similar types of
exchanges.
14. Treatment of Incentive Stock Options.
(a) After consummation of any of the Exchange Options, the Company and
Occidental shall take such actions as Occidental determines to be necessary or
appropriate to convert Options into, or replace Options with, options to
purchase common stock of Occidental in accordance with Section 424(a) of the
Internal Revenue Code of 1986, as amended, for the purpose of preserving the
economic benefits thereof, based on the First Call Ratio, the Second Call Ratio
or the Put Offer Ratio, as applicable, as of the date of consummation of such
Exchange Option.
(b) If, after the consummation of any of the Exchange Options, an employee
of the Company or any of its subsidiaries that holds unvested Options terminates
employment with the Company or any of its subsidiaries, the Chief Executive
Officer of the Company shall have the right, on behalf of the Company, to amend
the option plan or agreement applicable to such Options or take such other
similar actions as may be necessary and appropriate to preserve for the holder
of such Options the economic benefits thereof as if such
III-9
<PAGE> 149
Options had vested prior to such termination; provided, that the aggregate
amount of cash payments pursuant to this sentence shall not exceed $300,000.
15. Mathematical Calculations. Unless otherwise specified in this
Agreement, in any instance in which this Agreement requires that a mathematical
calculation be performed, or makes reference to a fraction, the result obtained
after performing such calculation, and any such fraction, shall be expressed as
a decimal and rounded to the nearer 1/100th, with .5/100 rounded upward to
1/100.
16. Notices.
(a) All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by facsimile transmission or overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Company:
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, Pennsylvania 15219
Attention: William S. Lee
Fax No.: (412) 765-0439
with a copy to:
Eckert Seamans Cherin & Mellot
600 Grant Street, 42nd Floor
Pittsburgh, Pennsylvania 15219
Attention: John J. Kearns
Fax No.: (412) 566-6099
If to Occidental:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Stephen I. Chazen
Fax No.: (310) 443-8690
with a copy to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Donald P. de Brier
Fax No.: (310) 443-6333
III-10
<PAGE> 150
(b) All financial statements and information and certificates required to
be delivered pursuant to Section 6 of this Agreement shall, in addition to the
Persons specified in paragraph (a) of this Section, be delivered to the
following Persons (or such other Persons as Occidental may designate from time
to time in accordance with paragraph (a) of this Section):
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Mark M. Koppel
Barbara H. Ryan
Fax No.: (310) 443-6812
and
Occidental Chemical Corporation
5005 LBJ Freeway
Dallas, TX 75244
Attention: Scott J. Wilson
Rick Lorraine
Fax No.: (214) 404-3669
17. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect. In addition, upon any such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereby agree that there will be substituted therefor automatically
and without further action by any party hereto, as part of this Agreement, a
valid, legal and enforceable term or provision as similar in its form, substance
and effect to such invalid, illegal or unenforceable term or other provision as
may be possible.
18. Further Assurances. From time to time, each party, as and when
requested by the other party hereto, shall execute and deliver, or cause to be
executed and delivered, all such agreements, documents and instruments, and
shall take, or cause to be taken, all such further or other actions as such
requesting party may reasonably deem necessary or desirable to consummate the
provisions of this Agreement.
19. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party.
20. Amendment; Waiver. This Agreement may not be modified, amended, altered
or supplemented except by an agreement in writing executed by both parties
hereto. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those rights.
21. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed in that State, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
22. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
23. Effectiveness. This Agreement shall become effective on and as of the
Closing Date.
24. Third Party Beneficiaries. Holders of Class A Common Stock are intended
to be third party beneficiaries with respect to, and to be individually entitled
to enforce the benefits of, Section 5 of this Agreement. Holders of Options are
intended to be third party beneficiaries with respect to, and to be individually
entitled to enforce the benefits of, Section 14 of this Agreement.
III-11
<PAGE> 151
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
OCCIDENTAL PETROLEUM CORPORATION,
a Delaware corporation
By: /s/ STEPHEN I. CHAZEN
----------------------------------
Name: Stephen I. Chazen
Its: Executive Vice President-
Corporate Development
INDSPEC HOLDING CORPORATION,
a Delaware corporation
By: /s/ FRANK M. SPINOLA
----------------------------------
Name: Frank M. Spinola
Its: President
III-12
<PAGE> 152
ANNEX IV
MORGAN STANLEY
Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
(212) 761-4000
November 10, 1995
Board of Directors
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, PA 15219
Members of the Board:
We understand that INDSPEC Holding Corporation ("INDSPEC" or the "Company") and
Occidental Petroleum Corporation ("Occidental") propose to enter into an
Agreement and Plan of Share Exchange, dated November 10, 1995 (the "Share
Exchange Agreement"). In connection with the transactions contemplated by the
Share Exchange Agreement, INDSPEC will enter into (i) a Merger Agreement dated
November 10, 1995 (the "Merger Agreement") with Roundtable Inc. ("Roundtable"),
a corporation formed by certain shareholders of INDSPEC and to be capitalized
with all or a portion of the INDSPEC shares held by such holders and (ii) a
Voting Agreement, dated November 10, 1995 (the "Voting Agreement") with
Roundtable, Castle Harlan Partners II, L.P. ("Castle Harlan") and certain other
parties. Pursuant to the Merger Agreement and the Voting Agreement, INDSPEC will
be recapitalized so that shares of common stock of INDSPEC held by Roundtable
will be converted into Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") and shares of common stock of INDSPEC held by
shareholders other than Roundtable will be converted into Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock"). The recapitalization
contemplated by the Merger Agreement and related documents (the "Merger") will
be consummated pursuant to a majority vote of the outstanding shares of common
stock of INDSPEC, subject to certain other conditions.
The Share Exchange Agreement provides, among other things, that, following the
Merger, Occidental will commence an exchange offer (the "Exchange Offer") for up
to 8,504 shares of Class A Common Stock and each of the outstanding shares of
Class B Common Stock. Pursuant to the terms of the Exchange Offer, shares of the
Company (whether Class A Common Stock or Class B Common Stock) which are
tendered and accepted will be exchanged (the "Exchange") for shares of
Occidental common stock, par value $0.20 per share. The equity value per share
of Company common stock (the "Equity Value Per Share"), as set forth in the
Share Exchange Agreement, will be determined by dividing the implied total
equity value of the Company ($131,000,000) by the total number of shares of
Class A Common Stock and Class B Common Stock deemed outstanding on a fully
diluted basis at the closing of the Exchange. The number of shares of Occidental
common stock to be exchanged for each tendered and accepted share of Company
common stock will be calculated as the Equity Value Per Share divided by the
average of the last reported sales prices for Occidental common stock on each of
the twenty consecutive trading days ending on the fifth day prior to the date of
closing of the Exchange.
Pursuant to the Share Exchange Agreement, holders of Class A Common Stock (other
than Occidental) not exchanged in the Exchange and holders of options to
purchase Class A Common Stock will also receive additional consideration equal,
in the aggregate, to the number of shares of Occidental common stock having a
value, determined in the same manner as set forth above, equal to $3,000,000
(the "Additional Consideration").
<PAGE> 153
Following the Exchange, Occidental will own no more than 49.0% of the voting
power of the outstanding shares of the Company. Pursuant to an Enabling
Agreement between the Company and Occidental, Occidental has agreed, subject to
the fulfillment of certain conditions which can occur no earlier than three
years following the closing of the Exchange, to offer to purchase shares of
Class A Common Stock held following the Exchange (the "Put Option"). In
addition, the Company's Certificate of Incorporation following the Merger will
provide that the Company has the right to redeem outstanding shares of Class A
Common Stock, at Occidental's direction, under certain circumstances (the
"Redemption Options"). The terms and conditions of the Exchange Offer are more
fully set forth in the Share Exchange Agreement and other related documents.
Occidental common stock received by holders of Company common stock pursuant to
the Exchange and the Additional Consideration, and the Put Option and the
Redemption Options, shall be deemed to be, in the aggregate, the "Transaction
Consideration." Holders of Class A Common Stock (whether or not exchanged and
whether or not tendered pursuant to the Exchange Offer) and Class B Common Stock
shall be deemed to be, in the aggregate, the "Company Stockholders."
You have asked for our opinion as to whether the Transaction Consideration to be
received by the Company Stockholders pursuant to the Share Exchange Agreement
(and related documents) is fair, in the aggregate, from a financial point of
view to such holders.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) analyzed certain publicly available financial statements and other
information of Occidental;
(vi) discussed the past and current operations and financial condition and
the prospects of Occidental with senior executives of Occidental;
(vii) reviewed the reported prices and trading activity for Occidental's
common stock;
(viii) compared certain financial information of the Company with the
financial and trading performance of certain comparable publicly
traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives of
the Company and Occidental and their legal advisors, as well as other
potential purchasers of the Company;
(xi) reviewed the Agreement and Plan of Share Exchange, dated November 10,
1995, and certain related documents; and
(xii) have performed other such analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections (including management's
estimates relating to capital expenditures), we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company. With regard to
potential environmental liabilities, we have reviewed a 1993 environmental
assessment update prepared for INDSPEC Chemical Corporation by Remcor, Inc., and
have not conducted an independent appraisal with respect to any environmental
liabilities. Our opinion is
IV-2
<PAGE> 154
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. Morgan
Stanley has, from time to time, acted as financial advisor to Occidental on
various assignments and has received compensation for such services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and does not constitute a recommendation to the
Company Stockholders as to whether or not to exchange their Class A Common Stock
or Class B Common Stock in the Exchange Offer or a recommendation as to how the
Company Stockholders should vote in connection with the Merger.
We note that pursuant to the terms of the Share Exchange Agreement and related
documents, holders of Class A Common Stock will have the ability to exchange up
to approximately 32.9% of their holdings of Class A Common Stock (if all shares
of Class A Common Stock are tendered), while Class B Common Stock will have the
ability to exchange 100% of their holdings of Class B Common Stock, and do not
express a view as to the comparative fairness, from a financial point of view,
of this aspect of the Exchange Offer. We also note that we are not expressing a
view as to whether the financial condition which triggers the exercisability of
the Put Option will or will not be satisfied in the future or whether the
Redemption Options will or will not be consummated.
Based on the foregoing, we are of the opinion on the date hereof that the
Transaction Consideration to be received by the Company Stockholders pursuant to
the Share Exchange Agreement (and related documents) is, in the aggregate, fair
from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CANDICE E. KOEDERITZ
------------------------------------
Candice E. Koederitz
Managing Director
IV-3
<PAGE> 155
The Letter of Transmittal, certificates for shares of INDSPEC Common Stock
and any other required documents should be sent or delivered by each INDSPEC
stockholder to Occidental at the address set forth below:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: COORDINATOR -- INDSPEC
EXCHANGE OFFERS
Telephone: (800) 699-5114
Facsimile: (310) 443-6737
Questions and requests for assistance may be directed to Occidental at the
address and telephone number set forth above. Additional copies of this
Prospectus, the Letter of Transmittal and other Exchange Offer materials may be
obtained from Occidental at the address and telephone number set forth above. In
addition, by calling the toll-free information number, INDSPEC stockholders may
obtain the most recent closing price for Occidental Common Stock on the New York
Stock Exchange and, after the close of business on April 19, 1996, the
Occidental Common Stock Value to be used for calculating the number of shares of
Occidental Common Stock to be delivered in exchange for each share of Class A
Common Stock and Class B Common Stock in the Exchange Offers (assuming an April
26, 1996 Closing).
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances for liabilities incurred in connection
with their activities in such capacities (including reimbursement for expenses
incurred). Occidental's Restated Certificate of Incorporation, as amended,
provides for the elimination of personal liability of its directors to the full
extent permitted by the Delaware General Corporation Law and Occidental has
entered into indemnification agreements with each director and certain officers
providing for additional indemnification. Article VIII of Occidental's By-Laws
also provides that Occidental shall indemnify directors and officers under
certain circumstances for liabilities and expenses incurred by reason of their
activities in such capacities. In addition, Occidental has insurance policies
that provide liability coverage to directors and officers while acting in such
capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Share Exchange, dated as of November 10, 1995, by and between
Occidental Petroleum Corporation and INDSPEC Holding Corporation (incorporated by
reference to Annex I of the prospectus contained in this registration statement).
3.1 Restated Certificate of Incorporation of Occidental, together with all certificates
amendatory thereof filed with the Secretary of State of Delaware through December
23, 1994 (incorporated by reference to Exhibit 3.(i) to Occidental's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
3.2 By-laws of Occidental, as amended through December 15, 1994 (incorporated by
reference to Exhibit 3.(ii) to Occidental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
3.3 Rights Agreement, dated as of October 17, 1986, between Occidental and The Chase
Manhattan Bank (National Association), as the initial Rights Agent thereunder
(subsequently replaced by Chemical Bank, as successor Rights Agent), together with
the form of Rights certificate (incorporated by reference to Exhibit 4.1 to
Occidental's Current Report on Form 8-K dated October 17, 1987).
5 Opinion of Robert E. Sawyer, Esq., Associate General Counsel of Occidental.*
23.1 Consent of Robert E. Sawyer, Esq. (included in the opinion filed as Exhibit 5).*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Morgan Stanley & Co. Incorporated.*
23.5 Consent of Castle Harlan, Inc.*
24 Power of Attorney.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
- ---------------
* Previously filed.
</TABLE>
II-1
<PAGE> 157
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event
II-2
<PAGE> 158
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of 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 Act and
will be governed by the final adjudication of such issue.
(e) 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.
(f) 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> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on March 22, 1996.
OCCIDENTAL PETROLEUM CORPORATION
By DONALD P. DE BRIER
------------------------------------
Donald P. de Brier
Executive Vice President
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
RAY R. IRANI* Chairman of the Board of
------------------------------------ Directors, President and
Ray R. Irani Chief Executive Officer
ANTHONY R. LEACH* Executive Vice President and
------------------------------------ Chief Financial Officer
Anthony R. Leach
SAMUEL P. DOMINICK, JR.* Vice President and
------------------------------------ Controller (Chief Accounting
Samuel P. Dominick, Jr. Officer)
------------------------------------ Director
Albert Gore
ARTHUR GROMAN* Director
------------------------------------
Arthur Groman
J. ROGER HIRL* Director
------------------------------------
J. Roger Hirl
------------------------------------ Director
John W. Kluge
DALE R. LAURANCE* Director
------------------------------------
Dale R. Laurance
</TABLE>
II-4
<PAGE> 160
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
IRVIN W. MALONEY* Director
---------------------------------------
Irvin W. Maloney
GEORGE O. NOLLEY* Director
---------------------------------------
George O. Nolley
JOHN F. RIORDAN* Director
---------------------------------------
John F. Riordan
--------------------------------------- Director
Rodolfo Segovia
--------------------------------------- Director
Aziz D. Syriani
ROSEMARY TOMICH* Director
---------------------------------------
Rosemary Tomich
*By: DONALD P. DE BRIER March 22, 1996
-----------------------------------
Donald P. de Brier
Attorney-in-fact
</TABLE>
II-5
<PAGE> 161
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
- ------- ----------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Share Exchange, dated as of November 10, 1995, by
and between Occidental Petroleum Corporation and INDSPEC Holding
Corporation (incorporated by reference to Annex I of the prospectus
contained in this registration statement)...............................
3.1 Restated Certificate of Incorporation of Occidental, together with all
certificates amendatory thereof filed with the Secretary of State of
Delaware through December 23, 1994 (incorporated by reference to Exhibit
3.(i) to Occidental's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994)................................................
3.2 By-laws of Occidental, as amended through December 15, 1994
(incorporated by reference to Exhibit 3.(ii) to Occidental's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994)........
3.3 Rights Agreement, dated as of October 17, 1986, between Occidental and
The Chase Manhattan Bank (National Association), as the initial Rights
Agent thereunder (subsequently replaced by Chemical Bank, as successor
Rights Agent), together with the form of Rights certificate
(incorporated by reference to Exhibit 4.1 to Occidental's Current Report
on Form 8-K dated October 17, 1987).....................................
5 Opinion of Robert E. Sawyer, Esq., Associate General Counsel of
Occidental*.............................................................
23.1 Consent of Robert E. Sawyer, Esq. (included in the opinion filed as
Exhibit 5)*.............................................................
23.2 Consent of Arthur Andersen LLP..........................................
23.3 Consent of Ernst & Young LLP............................................
23.4 Consent of Morgan Stanley & Co. Incorporated*...........................
23.5 Consent of Castle Harlan, Inc.*.........................................
24 Power of Attorney*......................................................
99.1 Form of Letter of Transmittal*..........................................
99.2 Form of Notice of Guaranteed Delivery*..................................
- ---------------
* Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated February 3,
1995 incorporated by reference or included in Occidental Petroleum Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and to
all references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 28, 1995, with respect to the financial
statements of INDSPEC Holding Corporation included in the Prospectus of
Occidental Petroleum Corporation that is made a part of this Registration
Statement.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 22, 1996
