<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997
REGISTRATION NO. 333-17961
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ARISTECH CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 28 25-1534498
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
600 Grant Street
Pittsburgh, Pennsylvania 15219-2704
(412) 433-2747
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
Mark K. McNally
Senior Vice President, General Counsel
and Corporate Secretary
Aristech Chemical Corporation
600 Grant Street
Pittsburgh, Pennsylvania 15219-2704
(412) 433-2747
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
Janice C. Hartman, Esq.
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Norman D. Slonaker, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
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Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1997
PROSPECTUS
ARISTECH CHEMICAL CORPORATION
OFFER TO EXCHANGE ITS
6 7/8% NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
6 7/8% NOTES DUE 2006
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED.
------------------------
Aristech Chemical Corporation, a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus as it may be amended or supplemented from time to time (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer"), to
exchange up to $150,000,000 aggregate principal amount of its 6 7/8% Notes due
2006 (the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a registration statement
(the "Registration Statement") of which this Prospectus is a part, for an
identical principal amount of its outstanding 6 7/8% Notes due 2006 (the "Old
Notes), of which $150,000,000 aggregate principal amount is outstanding as of
the date hereof.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except that (i) the New Notes have been registered under
the Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes and will not be entitled to registration
rights or other rights under the Registration Rights Agreement (as defined
below), (ii) the New Notes will be issuable in minimum denominations of $1,000
compared to minimum denominations of $250,000 for the Old Notes and (iii) the
New Notes will not provide for any increase in the interest rate thereon
pursuant to the Registration Rights Agreement. In that regard, the Old Notes
provide that the interest rate on the Old Notes is subject to adjustment in the
event that (i) a registration statement relating to the Exchange Offer is not
filed with the Securities and Exchange Commission (the "Commission") on or prior
to February 23, 1997, (ii) such registration statement is not declared effective
on or prior to May 24, 1997 or (iii) the Exchange Offer is not consummated or a
registration statement with respect to resale of the Old Notes is not declared
effective on or prior to the earlier of (x) the 30th day following the date on
which such registration statement is declared effective and (y) June 23, 1997.
See "Description of the Old Notes." The New Notes are being offered for exchange
in order to satisfy certain obligations of the Company under the Registration
Rights Agreement, dated as of November 25, 1996 (the "Registration Rights
Agreement"), between the Company and the Initial Purchasers (as defined herein)
of the Old Notes. The Old Notes and the New Notes will constitute a single
series of debt securities under the Indenture (as defined herein). In the event
that the Exchange Offer is consummated, any Old Notes that remain outstanding
after consummation of the Exchange Offer and the New Notes issued in the
Exchange Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding principal amount of
Notes (as defined herein) have taken certain actions or exercised certain rights
under the Indenture. The New Notes and the Old Notes are sometimes collectively
referred to herein as the "Notes" and individually as a "Note." See "Description
of the New Notes" and "Description of the Old Notes."
CONTINUED ON FOLLOWING PAGE
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO ALL
HOLDERS OF OLD NOTES ON , 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THIS 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 , 1997.
<PAGE> 3
Interest on the New Notes is payable semiannually on May 15 and November 15
of each year (each, an "Interest Payment Date"), commencing on the first such
date following the original issuance date of the New Notes. The New Notes will
mature on November 15, 2006. The New Notes are not entitled to any sinking fund
and are not redeemable prior to maturity. The New Notes will constitute
unsecured senior indebtedness of the Company and will rank pari passu with all
other unsecured senior indebtedness of the Company for borrowed money. No
secured or unsecured indebtedness ranking senior to the Notes is currently
outstanding. See "Capitalization" and "Description of the New Notes."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A under the Securities
Act ("Rule 144A") or any other available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for New
Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such
2
<PAGE> 4
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company has agreed that this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Notes for a
period ending 90 days after the Expiration Date referred to below (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Notes received in exchange for Old Notes pursuant to the Exchange Offer
must notify the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "The Exchange Offer--Exchange Agent." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer--Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently
is no market. Although the Initial Purchasers (as defined herein) have informed
the Company that they each currently intend to make a market in the New Notes,
they are not obligated to do so, and any such market making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes. The Company currently
does not intend to apply for listing of the New Notes on any securities exchange
or for quotation through the National Association of Securities Dealers
Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Summary--Certain
Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
3
<PAGE> 5
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on , 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). Tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof, provided that,
if any Old Note is tendered for exchange in part, the untendered principal
amount thereof must be $250,000, or any integral multiple of $1,000 in excess
thereof. The Company has agreed to pay all expenses of the Exchange Offer. See
"The Exchange Offer--Fees and Expenses." Each New Note will bear interest from
the most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such New Note or, if no such interest has
been paid or duly provided for on such Old Note, from November 25, 1996. Holders
of the Old Notes whose Old Notes are accepted for exchange will not receive
accrued interest on such Old Notes for any period from and after the last
Interest Payment Date to which interest has been paid or duly provided for on
such Old Notes prior to the original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after November 25, 1996.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1997.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement (which
term shall encompass any and all amendments thereto) on Form S-4 under the
Securities Act, with respect to the New Notes offered hereby. This Prospectus,
which is part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted in accordance with the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
For further information with respect to the Company and the Notes, reference is
hereby made to the Registration Statement and such exhibits and schedules filed
as a part thereof, which may be inspected, without charge, at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, upon payment of prescribed fees. The
Commission maintains a Web site at http://www.sec.gov that contains reports and
information regarding registrants, such as the Company, that file electronically
with the Commission. The Company will provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the request of such person, a
copy of any or all of the contracts, agreements or other documents filed as an
exhibit to the Registration Statement and incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
Aristech Chemical Corporation, 600 Grant Street, Pittsburgh, Pennsylvania
15219-2704, Attention: Corporate Secretary.
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<PAGE> 6
After consummation of the Exchange Offer, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will file reports and
other information with the Commission. Any such reports and other information to
be filed by the Company with the Commission may be inspected and copied at the
Public Reference Section of the Commission at the address set forth above, upon
payment of prescribed fees. Pursuant to the Indenture (as defined under
"Description of the New Notes--General"), so long as any of the Notes are
outstanding, and in the event the Company is not required to file information,
documents or reports pursuant to Section 13 or Section 15(d) of the Exchange
Act, the Company will file with the Trustee (as defined under "Description of
the New Notes--General"), in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
5
<PAGE> 7
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Prospectus.
THE COMPANY
Aristech Chemical Corporation (the "Company") is a leading producer and
marketer of chemical and polymer products with total annual rated production
capacity in excess of three billion pounds. The Company's product base includes
phenol and related products; phthalic anhydride ("PA"), 2-ethylhexanol ("2-EH")
and plasticizers; and polypropylene and acrylic sheet. Avonite, Inc.
("Avonite"), a New Mexico-based corporation in which the Company has a 60%
ownership interest, produces and markets solid surface polyester sheet. These
products provide the Company with a diversified revenue base. While
approximately 80% of the Company's sales are of products which are considered
commodities, the Company's production of polypropylene and acrylic sheet has
been increasingly directed toward more specialized, higher margin products.
There is significant vertical integration among the Company's products,
providing the Company with predictable supplies of certain of its raw materials.
The Company also has a diverse customer base, with no customer accounting for
more than 9% of revenues during 1995. End-use markets for the Company's products
include automotive components, home and office construction, appliances, modular
tubs/showers, whirlpools, spas, apparel, packaging, medical supplies, signs and
a wide range of consumer products.
The Company believes that at certain of its facilities it has competitive
cost advantages based on proximity to sources of raw material, existence of
facilities to upgrade raw material at its polypropylene plants, low downtime at
its polypropylene plants, and/or proximity to important northeastern customer
markets. The Company also believes that its disciplined approach to planned
plant maintenance results in highly reliable operations. Each of the Company's
product lines has its own dedicated sales force, which the Company believes
better enables it to address specific customer needs. In addition, through its
Aristech Total Performance approach to management, the Company is committed to
continuous improvement in products and processes using a broad range of
statistical tools. See "The Company."
The Company's strategy is to focus on and expand (i) its core businesses,
consisting principally of the manufacture and sale of products which consume
propylene- and aromatic-based raw materials, which currently are in abundant
supply in the United States; and (ii) its strategic acrylic sheet business,
which sells most of its products in higher margin specialty market segments that
the Company believes have strong growth potential. See "The Company--Business
Strategy."
Mitsubishi Corporation ("MC") beneficially owns 82.3% of the equity of the
Company. The Company is MC's largest chemical investment outside Japan. MC
provides the Company with access to customers and markets globally which would
require substantial resources for the Company to develop independently. In
addition, Mitsubishi Chemical Corporation ("MCC") and Mitsubishi Rayon Co., Ltd.
("MRC"), which are not affiliates of MC, are stockholders of the Company. Both
MCC and MRC are, among other things, chemical producers in Japan, and provide
the Company with access to product technologies not otherwise available to it.
See "Stockholders of the Company."
During 1996, MC, its wholly owned subsidiary, Mitsubishi International
Corporation ("MIC"), and MCC converted to equity an aggregate of $179.6 million
in principal amount of debentures of the Company and $44.9 million in stated
value of preferred stock of the Company, thereby significantly strengthening the
Company's financial position. The remaining $24.4 million in principal amount of
debentures and $6.1 million in stated value of preferred stock held by MRC were
redeemed for cash. See "Pro Forma Condensed Financial Information."
The principal executive office of the Company is located at 600 Grant
Street, Pittsburgh, Pennsylvania 15219-2704. The telephone number is (412)
433-2747.
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THE EXCHANGE OFFER
The Exchange Offer.............. Up to $150,000,000 aggregate principal
amount of New Notes are being offered in
exchange for an identical aggregate
principal amount of Old Notes. Old Notes may
be tendered for exchange in whole or in part
in a principal amount of $1,000 and integral
multiples thereof, provided that, if any Old
Note is tendered for exchange in part, the
untendered principal amount thereof must be
$250,000 or any integral multiple of $1,000
in excess thereof. The Company is making the
Exchange Offer in order to satisfy its
obligations under the Registration Rights
Agreement relating to the Old Notes. For a
description of the procedures for tendering
Old Notes, see "The Exchange
Offer--Procedures for Tendering Old Notes."
Expiration Date................. 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer is
extended by the Company (in which case the
Expiration Date will be the latest date and
time to which the Exchange Offer is
extended). See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Certain Conditions to the
Exchange Offer.................. The Exchange Offer is subject to certain
conditions. The Company reserves the right
in its sole and absolute discretion, subject
to applicable law and the terms of the
Registration Rights Agreement, at any time
and from time to time, (i) to delay the
acceptance of the Old Notes for exchange,
(ii) to terminate the Exchange Offer if
certain specified conditions have not been
satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain all
Old Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of
holders of Old Notes to withdraw their
tendered Old Notes, or (iv) to waive any
condition or otherwise amend the terms of
the Exchange Offer in any respect. See "The
Exchange Offer-- Expiration Date;
Extensions; Amendments" and "--Certain
Conditions to the Exchange Offer."
Withdrawal Rights............... Tenders of Old Notes may be withdrawn at any
time on or prior to the Expiration Date by
delivering a written notice of such
withdrawal to the Exchange Agent (as defined
herein) in conformity with certain
procedures set forth below under "The
Exchange Offer--Withdrawal Rights."
Procedures for Tendering Old
Notes........................... Tendering holders of Old Notes must complete
and sign a Letter of Transmittal in
accordance with the instructions contained
therein and forward the same by mail,
facsimile or hand delivery, together with
any other required documents, to the
Exchange Agent, either with the Old Notes to
be tendered or in compliance with the
specified procedures for guaranteed delivery
of Old Notes. Certain brokers, dealers,
commercial banks, trust companies and other
nominees may also effect tenders by
book-entry transfer. Holders of Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee are urged to contact such person
promptly if they wish to tender Old Notes
pursuant to the Exchange Offer.
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<PAGE> 9
See "The Exchange Offer--Procedures for
Tendering Old Notes." Letters of Transmittal
and certificates representing Old Notes
should not be sent to the Company. Such
documents should only be sent to the
Exchange Agent. Questions regarding how to
tender and requests for information should
be directed to the Exchange Agent. See "The
Exchange Offer-- Exchange Agent."
Resales of New Notes............ The Company is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the
Commission as set forth in certain
interpretive letters addressed to third
parties in other transactions. However, the
Company has not sought its own interpretive
letter and there can be no assurance that
the staff of the Division of Corporation
Finance of the Commission would make a
similar determination with respect to the
Exchange Offer as it has in such
interpretive letters to third parties. Based
on these interpretations by the staff of the
Division of Corporation Finance, and subject
to the two immediately following sentences,
the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale,
resold and otherwise transferred by a holder
thereof (other than a holder who is a
broker-dealer) without further compliance
with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Notes are acquired in
the ordinary course of such holder's
business and that such holder is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution (within the
meaning of the Securities Act) of such New
Notes. However, any holder of Old Notes who
is an "affiliate" of the Company or who
intends to participate in the Exchange Offer
for the purpose of distributing the New
Notes, or any broker-dealer who purchased
the Old Notes from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act, (a) will
not be able to rely on the interpretations
of the staff of the Division of Corporation
Finance of the Commission set forth in the
above-mentioned interpretive letters, (b)
will not be permitted or entitled to tender
such Old Notes in the Exchange Offer and (c)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale
or other transfer of such Old Notes unless
such sale is made pursuant to an exemption
from such requirements. In addition, as
described below, if any broker-dealer holds
Old Notes acquired for its own account as a
result of market-making or other trading
activities and exchanges such Old Notes for
New Notes, then such broker-dealer must
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to
exchange Old Notes for New Notes in the
Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the
Company, (ii) any New Notes to be received
by it are being acquired in
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<PAGE> 10
the ordinary course of its business, (iii)
it has no arrangement or understanding with
any person to participate in a distribution
(within the meaning of the Securities Act)
of such New Notes, and (iv) if such holder
is not a broker-dealer, such holder is not
engaged in, and does not intend to engage
in, a distribution (within the meaning of
the Securities Act) of such New Notes. Each
broker-dealer that receives New Notes for
its own account pursuant to the Exchange
Offer must acknowledge that it acquired the
Old Notes for its own account as the result
of market-making or other trading activities
and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale
of such New Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Based on the position taken
by the staff of the Division of Corporation
Finance of the Commission in the
interpretive letters referred to above, the
Company believes that broker-dealers who
acquired Old Notes for their own accounts as
a result of market-making or other trading
activities ("Participating Broker-Dealers")
may fulfill their prospectus delivery
requirements with respect to the New Notes
received upon exchange of such Old Notes
(other than Old Notes which represent an
unsold allotment from the original sale of
the Old Notes) with a prospectus meeting the
requirements of the Securities Act which may
be the prospectus prepared for an exchange
offer so long as it contains a description
of the plan of distribution with respect to
the resale of such New Notes. Accordingly,
this Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of New Notes
received in exchange for Old Notes where
such Old Notes were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement and to the limitations
described below under "The Exchange
Offer--Resale of New Notes," the Company has
agreed that this Prospectus, as it may be
amended or supplemented from time to time,
may be used by a Participating Broker-Dealer
in connection with resales of such New Notes
for a period ending 90 days after the
Expiration Date (subject to extension under
certain limited circumstances) or, if
earlier, when all such New Notes have been
disposed of by such Participating
Broker-Dealer. However, a Participating
Broker-Dealer who intends to use this
Prospectus in connection with the resale of
New Notes received in exchange for Old Notes
pursuant to the Exchange Offer must notify
the Company, or cause the Company to be
notified, on or prior to the Expiration
Date, that it is a Participating
Broker-Dealer. Such notice may be given in
the space provided for that purpose in the
Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses
set forth herein under "The Exchange
Offer--Exchange Agent." See "Plan of
Distribu-
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<PAGE> 11
tion." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not
rely on such interpretive letters and must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any resale transaction.
See "The Exchange Offer--Resales of New
Notes."
Exchange Agent.................. The exchange agent with respect to the
Exchange Offer is The Chase Manhattan Bank
(the "Exchange Agent"). The addresses,
telephone and facsimile numbers of the
Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent" and in the
Letter of Transmittal.
Use of Proceeds................. The Company will not receive any cash
proceeds from the issuance of the New Notes
offered hereby. See "Use of Proceeds."
Certain United States Federal
Income Tax Considerations....... Holders of Old Notes should review the
information set forth under "Certain United
States Federal Income Tax Considerations"
prior to tendering Old Notes in the Exchange
Offer.
THE NEW NOTES
Securities Offered.............. Up to $150,000,000 aggregate principal
amount of 6 7/8% Notes due 2006 which have
been registered under the Securities Act.
The New Notes will be issued and the Old
Notes were issued under an Indenture dated
as of November 1, 1996 (the "Indenture")
between the Company and The Chase Manhattan
Bank, as trustee (the "Trustee"). The New
Notes and any Old Notes which remain
outstanding after consummation of the
Exchange Offer will constitute a single
series of debt securities under the
Indenture and, accordingly, will vote
together as a single class for purposes of
determining whether holders of the requisite
percentage in outstanding principal amount
thereof have taken certain actions or
exercised certain rights under the
Indenture. See "Description of the New
Notes--General." The terms of the New Notes
are identical in all material respects to
the terms of the Old Notes, except that (i)
the New Notes have been registered under the
Securities Act and therefore will not be
subject to certain restrictions on transfer
applicable to the Old Notes and will not be
entitled to registration rights or other
rights under the Registration Rights
Agreement, (ii) the New Notes are issuable
in minimum denominations of $1,000 compared
to minimum denominations of $250,000 for the
Old Notes and (iii) the New Notes will not
provide for any increase in the interest
rate thereon pursuant to the Registration
Rights Agreement. See "The Exchange
Offer--Purpose of the Exchange Offer,"
"Description of the New Notes," and
"Description of the Old Notes."
Maturity Date................... November 15, 2006.
Interest Rate................... 6 7/8% per annum.
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<PAGE> 12
Interest Payment Dates.......... Interest will accrue from the most recent
date to which interest has been paid or duly
provided for on the Old Notes surrendered in
exchange for such New Notes or, if no such
interest has been paid or duly provided for
on such Old Notes, from November 25, 1996,
the date of issuance of the Old Notes, and
will be payable semiannually on each May 15
and November 15, commencing May 15, 1997.
Denominations................... The New Notes will be issued in minimum
denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
Redemption...................... The New Notes may not be redeemed prior to
maturity.
Sinking Fund.................... None.
Ranking......................... The New Notes will constitute unsecured
senior indebtedness of the Company and will
rank pari passu with all other unsecured
senior indebtedness of the Company for
borrowed money. No secured or unsecured
indebtedness ranking senior to the Notes is
currently outstanding.
Absence of Market for the New
Notes........................... The New Notes will be a new issue of
securities for which there currently is no
market. Although Merrill Lynch, Pierce,
Fenner & Smith Incorporated, J.P. Morgan
Securities Inc. and Morgan Stanley & Co.
Incorporated, the initial purchasers of the
Old Notes (the "Initial Purchasers"), have
informed the Company that they each
currently intend to make a market in the New
Notes, they are not obligated to do so, and
any such market making may be discontinued
at any time without notice. Accordingly,
there can be no assurance as to the
development or liquidity of any market for
the New Notes. The Company currently does
not intend to apply for listing of the New
Notes on any securities exchange or for
quotation through the National Association
of Securities Dealers Automated Quotation
System.
For further information regarding the New Notes, see "Description of the New
Notes."
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Notes which
remain outstanding will not be entitled to any rights to have such Old Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement. The Company currently does not intend to register
under the Securities Act any Old Notes which remain outstanding after
consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, any trading market for Old Notes which remain outstanding after the
Exchange Offer could be adversely affected. See "Risk Factors--Certain market
consequences of failure to exchange Old Notes."
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<PAGE> 13
The New Notes and any Old Notes that remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture. See "Description of the New Notes--General."
The Old Notes provide that, if the Exchange Offer is not consummated by the
earlier of the 30th day following the date on which the Registration Statement
is declared effective and June 23, 1997, the per annum interest rate borne by
the Old Notes will increase by 0.50% following such date until the Exchange
Offer is consummated. See "Description of the Old Notes." Following consummation
of the Exchange Offer, the Old Notes will not be subject to any increase in the
interest rate thereon.
12
<PAGE> 14
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors in connection
with the Exchange Offer and the New Notes offered hereby. Information contained
in this Prospectus contains "forward-looking statements" which can be identified
by the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "projected," "contemplates" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy. See, e.g., "Summary--The Company," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The
Company--General," "--Business Strategy" and "--Aristech Total Performance." No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. The following matters constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to vary materially from the future results covered in such
forward-looking statements. Other factors, such as the general state of the
economy, could also cause actual results to vary materially from the future
results covered in such forward-looking statements.
ABILITY TO PASS THROUGH FEEDSTOCK PRICE INCREASES AND PRICE VOLATILITY. Raw
materials account for approximately two-thirds of the Company's total production
cost. As a result, the Company's ability to pass on increases in feedstock costs
to customers has a significant impact on operating results. The ability to pass
on increases in feedstock costs is, to a large extent, related to market
conditions. While the Company generally has been able to pass increases in
feedstock costs on to customers, there can be no assurance that the Company will
be able to do so in the future. The Company's ability to pass on increases in
feedstock costs is particularly subject to uncertainty with respect to the
Company's commodity products. Substantial increases in capacity which have
occurred recently or are anticipated in certain of the commodity and specialty
chemical markets in which the Company participates can be expected to affect
such ability. In addition, prices of feedstocks can be subject to significant
price fluctuations. Increases in costs may not be accompanied by corresponding
increases in selling prices for the Company's products in all instances,
regardless of market conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON SIGNIFICANT SUPPLIERS. A number of the Company's raw material
suppliers provide the Company with a significant amount of its feedstocks, and
if one significant supplier or a number of significant suppliers were unable to
meet their obligations under present supply contracts, or if such contracts
could not be renewed or replaced upon expiration, feedstock costs incurred by
the Company could rise significantly. See "The Company--Business."
CYCLICALITY OF INDUSTRIES. A substantial portion of the Company's sales are
to customers that manufacture products having end-use applications in the
automotive, housing or construction industries, and such manufacturers are
significantly affected by cyclical fluctuations in those industries. It is
anticipated that reductions in the business levels of these industries would
impact negatively on the Company's sales and profits.
COMPETITIVE INDUSTRY. The Company faces competition from a substantial
number of global and regional competitors, some of which have greater financial,
research and development, production and other resources than the Company.
Although competitive factors vary among the Company's product lines, in general
the Company's competitive position is based principally on selling prices,
product quality, manufacturing technology, access to raw materials, proximity to
markets and customer service and support. The Company's competitors can be
expected in the future to improve technologies, expand capacity, and, in certain
product lines, develop and introduce new products. While there can be no
assurances of its ability to do so, the Company believes that it will have
sufficient resources to maintain its current competitive position. See "The
Company--Business."
POTENTIAL LIABILITIES RELATING TO ENVIRONMENTAL, HEALTH AND SAFETY
REGULATIONS. The chemical industry is subject to numerous Federal, state and
local laws relating to the storage, handling, emission, transportation,
manufacture and use of chemicals, the discharge of materials into the
environment and the maintenance of safe conditions in the workplace. United
States chemical manufacturers, including the Company, have expended substantial
funds for compliance with such laws and regulations. Future legislation and
regulations
13
<PAGE> 15
could impose additional costs on the industry. Company production facilities
require permits and licenses that are subject to renewal or modification.
Violations of such permits or licenses could result in substantial sanctions,
which could be civil, criminal, or both. Violations could also result in the
revocation of such permits or licenses. In addition, the operation of any
chemical manufacturing plant entails risk of adverse environmental effect,
including exposure to chemical products and by-products from the Company's
operations. The Company is also involved in investigative or cleanup projects at
24 waste disposal sites owned by other parties. The Company has agreed to
indemnify certain third parties against certain claims or liabilities, including
liabilities under laws relating to the protection of the environment and the
workplace, relating to assets acquired or divested by the Company. The markets
for most of the Company's products are very price competitive. Therefore, future
environmentally related capital expenditure requirements, liabilities and costs
could be a major factor in the Company's future sales and income, since it may
not always be possible to pass costs on to customers. See "The
Company--Business--Environmental, Health and Safety Matters" and "--Disposition
of Certain Businesses."
RELIANCE ON CONTINUED OPERATION AND SUFFICIENCY OF MANUFACTURING
FACILITIES. The Company's revenues are dependent on the continued operation of
its various manufacturing facilities. Although presently all operating plants
are considered to be in good condition, the operation of manufacturing plants
involves many risks, including the breakdown, failure or substandard performance
of equipment, power outages, the improper installation or operation of
equipment, natural disasters and the need to comply with directives of
governmental agencies. Except for polypropylene, each of the Company's product
lines is manufactured at only a single facility and production could not be
transferred to another site. The occurrence of material operational problems,
including but not limited to the above events, may adversely affect the
profitability of the Company during the period of such operational difficulties.
See "The Company--Business" and "--Plant Profile."
EFFECT OF PLANNED MAINTENANCE TURNAROUNDS. In addition to its routine
repair and maintenance activities, the Company has a program of planned
maintenance turnarounds under which certain facilities are temporarily taken out
of production for repairs and maintenance. To the degree that the cost of
planned maintenance turnarounds is not evenly spread over the program's normal
two-year cycle, year-to-year and quarterly variations in income can result.
Subject to regulatory inspections and maintaining the Company's safety
standards, the timing of maintenance turnarounds is largely at the discretion of
management. In determining the schedule of maintenance turnarounds, management
considers, among other things, the level of product demand, catalyst life and
the operating performance of the production facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
VOTING CONTROL BY PRINCIPAL STOCKHOLDER. MC beneficially owns an aggregate
of 82.3% of the outstanding shares of the Company's common stock, par value $.01
per share (the "Common Stock"). Accordingly, MC has sufficient voting power to
elect the entire Board of Directors of the Company, to determine the outcome of
any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of the Company's assets, and to prevent or effect a change in control of the
Company. The Board of Directors, among other things, establishes the Company's
dividend policy. The terms of the Notes do not give holders of the Notes the
right to require the Company to repurchase the Notes in the event of a decline
in the credit rating of the Company's debt securities resulting from a change in
control, recapitalization or similar restructuring. See "Stockholders of the
Company", "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Dividends" and "Description of the New Notes--Certain
Covenants."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES. The New Notes will be a new
issue of securities for which there currently is no market. Although the Initial
Purchasers have informed the Company that they each currently intend to make a
market in the New Notes, they are not obligated to do so, and any such market
making may be discontinued at any time without notice. Accordingly, there can be
no assurance as to the development or liquidity of any market for the New Notes.
The Company does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
14
<PAGE> 16
CERTAIN MARKET CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES. To the extent
that Old Notes are tendered and accepted for exchange pursuant to the Exchange
Offer, the trading market for Old Notes that remain outstanding may be
significantly more limited, which might adversely affect the liquidity of the
Old Notes not tendered for exchange. The extent of the market therefor and the
availability of price quotations would depend upon a number of factors,
including the number of holders of Old Notes remaining at such time and the
interest in maintaining a market in such Old Notes on the part of securities
firms. An issue of securities with a smaller outstanding market value available
for trading (the "float") may command a lower price than would a comparable
issue of securities with a greater float. Therefore, the market price for Old
Notes that are not exchanged in the Exchange Offer may be affected adversely to
the extent that the amount of Old Notes exchanged pursuant to the Exchange Offer
reduces the float. The reduced float also may make the trading price of the Old
Notes that are not exchanged more volatile.
CERTAIN CONSEQUENCES OF FAILURE TO VALIDLY TENDER. Issuance of the New
Notes in exchange for the Old Notes pursuant to the Exchange Offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in "The
Exchange Offer--Certain Conditions to the Exchange Offer" and only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery of all required
documentation. Beneficial holders of Old Notes should also take into account the
fact that the delivery of documents to The Depository Trust Company ("DTC") in
accordance with DTC's procedures does not constitute delivery to the Exchange
Agent. Neither the Exchange Agent, the Company nor any other person is under any
duty to give notification of defects or irregularities with respect to the
tenders of Old Notes for exchange. Old Notes that may be tendered in the
Exchange Offer but which are not validly tendered will, following consummation
of the Exchange Offer, remain outstanding and will continue to be subject to the
same transfer restrictions currently applicable to such Old Notes.
15
<PAGE> 17
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement with the Initial Purchasers, pursuant to which the
Company agreed to use its best efforts to file with the Commission a
registration statement with respect to the exchange of the Old Notes for debt
securities with terms identical in all material respects to the terms of the Old
Notes, except that (i) the New Notes have been registered under the Securities
Act and therefore will not be subject to certain restrictions on transfer
applicable to the Old Notes and will not be entitled to registration and other
rights under the Registration Rights Agreement, (ii) the New Notes are issuable
in minimum denominations of $1,000 compared to minimum denominations of $250,000
for the Old Notes and (iii) the New Notes will not provide for any increase in
the interest rate thereon pursuant to the Registration Rights Agreement. In that
regard, the Old Notes provide, among other things, that, if the Exchange Offer
is not consummated by the earlier of the 30th day following the date on which
the Registration Statement is declared effective and June 23, 1997, the per
annum interest rate borne by the Old Notes following such date will increase by
0.50% until the Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Old Notes will not be entitled to any increase in the rate of
interest thereon or any further registration rights under the Registration
Rights Agreement. See "Summary--Certain Consequences of a Failure to Exchange
Old Notes" and "Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $150,000,000 aggregate principal amount of New Notes for an
identical aggregate principal amount of Old Notes validly tendered on or prior
to the Expiration Date (as defined below) and not withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $150,000,000 of New
Notes in exchange for an identical principal amount of outstanding Old Notes
tendered and accepted in connection with the Exchange Offer. Holders may tender
their Old Notes in whole or in part in a principal amount of $1,000 and integral
multiples thereof, provided that, if any Old Note is tendered for exchange in
part, the untendered principal amount thereof must be $250,000 or any integral
multiple of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered. As of the date of this Prospectus, $150,000,000
aggregate principal amount of Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange, are tendered but validly withdrawn or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and be entitled to
the benefits of the Indenture, but will not be entitled to any further
registration rights under the Registration Rights Agreement.
Certificates for any tendered Old Notes that are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise will be returned, without expense, to the tendering holder
thereof promptly after the Expiration Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
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<PAGE> 18
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO
TENDER, AFTER READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITIONS AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date is 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended by the Company (in which case the
Expiration Date will be the latest date and time to which the Exchange Offer is
extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law and the terms of the Registration Rights
Agreement, at any time and from time to time, (i) to delay the acceptance of the
Old Notes for exchange, (ii) to terminate the Exchange Offer (whether or not any
Old Notes have theretofore been accepted for exchange) if the Company
determines, in its sole and absolute discretion, that any of the events or
conditions referred to under "-- Certain Conditions to the Exchange Offer" have
occurred or exist or have not been satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain all Old Notes tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes as described under "--Withdrawal Rights, " and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 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 the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, New Notes for Old
Notes validly tendered and not withdrawn (pursuant to the withdrawal rights
described under "--Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, and (iii)
any other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
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<PAGE> 19
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of such Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Notes, Letters of Transmittal and related
documents and transmitting New Notes to validly tendering holders. Such exchange
will be made promptly after the Expiration Date. If, for any reason whatsoever,
acceptance for exchange or the exchange of any Old Notes tendered pursuant to
the Exchange Offer is delayed (whether before or after the Company's acceptance
for exchange of Old Notes) or the Company extends the Exchange Offer or is
unable to accept for exchange or exchange Old Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Company's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
subject to Rule 14e-l(c) under the Exchange Act, retain tendered Old Notes and
such Old Notes may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant
and agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Notes, that the Company will
acquire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER
Except as set forth below, in order for Old Notes to be validly tendered
pursuant to the Exchange Offer, a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must be received by the Exchange Agent at one of
its addresses set forth under "--Exchange Agent," and either (i) tendered Old
Notes must be received by the Exchange Agent, or (ii) such Old Notes must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation must be received by the Exchange Agent, in each case
on or prior to the Expiration Date, or (iii) the guaranteed delivery procedures
set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC for purposes of the Exchange Offer within two business days after the
date of this Prospectus. Any financial institution that is a participant in
DTC's book-entry transfer facility system may make a book-entry delivery of the
Old Notes by
18
<PAGE> 20
causing DTC to transfer such Old Notes into the Exchange Agent's account at DTC
in accordance with DTC's procedures for transfers. However, although delivery of
Old Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other required documents, must in any case be delivered to and received by the
Exchange Agent at its address set forth under "--Exchange Agent" on or prior to
the Expiration Date, or the guaranteed delivery procedure set forth below must
be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for the Old Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Old Notes is registered in a name other than that of the person
surrendering the certificate or (b) such registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange, Inc. Medallion Signature Program or the Stock Exchanges
Medallion Program (each, an "Eligible Institution"), unless surrendered on
behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Old Notes pursuant to the Exchange Offer and
the certificates for such Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent on or before the
Expiration Date, or the procedures for book-entry transfer cannot be completed
on a timely basis, such Old Notes may nevertheless be tendered, provided that
all of the following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five
New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail or transmitted by facsimile to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set forth in such
notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly,
19
<PAGE> 21
the delivery of New Notes might not be made to all tendering holders at the same
time, and will depend upon when Old Notes, book-entry confirmations with respect
to Old Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Old Notes will be
determined by the Company, in its sole discretion, whose determination shall be
final and binding on all parties. The Company reserves the absolute right, in
its sole and absolute discretion, to reject any and all tenders determined by it
not to be in proper form or the acceptance of which, or exchange for, may, in
the view of counsel to the Company, be unlawful. The Company also reserves the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer as set forth under "-- Certain Conditions to the Exchange Offer"
or any condition or irregularity in any tender of Old Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity
(except when New Notes are being issued to replace Old Notes registered in the
same name), such person should so indicate when signing and, unless waived by
the Company, proper evidence satisfactory to the Company, in its sole
discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
20
<PAGE> 22
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Notes in the Exchange Offer and (c)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Notes acquired for
its own account as a result of market-making or other trading activities and
exchanges such Old Notes for New Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making or other trading activities and must
agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts as a result of market-making or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period ending 90 days after the Expiration Date (subject to extension
under certain limited circumstances described below) or, if earlier, when all
such New Notes have been disposed of by such Participating Broker-Dealer.
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Notes received in exchange for Old Notes
pursuant to the Exchange Offer must notify the Company, or cause the Company to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "--Exchange Agent." See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading, or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed,
21
<PAGE> 23
as the case may be. If the Company gives such notice to suspend the sale of the
New Notes, it shall extend the 90-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in connection
with the resale of New Notes by the number of days during the period from and
including the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the New Notes or to and
including the date on which the Company has given notice that the sale of New
Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent, at one of its addresses set forth below under "--Exchange
Agent," on or prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Old Notes to be withdrawn, the
aggregate principal amount of Old Notes to be withdrawn, and (if certificates
for such Old Notes have been tendered) the name of the registered holder of the
Old Notes as set forth on the Old Notes, if different from that of the person
who tendered such Old Notes. If Old Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Notes, the tendering holder must submit the serial numbers shown on the
particular Old Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Old Notes tendered for the account of an Eligible Institution. If Old Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
"--Procedures for Tendering Old Notes," the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawal of
Old Notes, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Notes may not be rescinded. Old Notes validly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn on or prior to the Expiration Date will be returned to
the holder thereof promptly after withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 6 7/8% per annum from the
most recent date to which interest has been paid or duly provided for on the Old
Note surrendered in exchange for such New Note or, if no interest has been paid
or duly provided for on such Old Note, from November 25, 1996. Interest on the
New Notes will be payable semiannually on May 15 and November 15 of each year,
commencing on the first such date following the original issuance date of the
New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after November 25, 1996.
22
<PAGE> 24
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(a) the Exchange Offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the staff
of the Commission;
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Pennsylvania or New York state authorities which, in the
Company's judgment, would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Company's
judgment, would reasonably be expected to impair the ability of the Company
to proceed with the Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to the Exchange Offer, the Company will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Corporate Trust Department
(Aristech Chemical Corporation,
6 7/8% Notes due 2006)
BY OVERNIGHT DELIVERY OR HAND:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Corporate Trust Department
(Aristech Chemical Corporation,
6 7/8% Notes due 2006)
OR
23
<PAGE> 25
BY HAND ONLY:
The Chase Manhattan Bank
Institutional Trust Group
One Chase Manhattan Plaza, Floor 1B
New York, NY 10081
(Aristech Chemical Corporation,
6 7/8% Notes due 2006)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 946-3089
FACSIMILE TRANSMISSIONS:
(212) 946-8161
Delivery to other than one of the above addresses or facsimile numbers will
not constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in tendering for their customers.
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptance of the Exchange Offer.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount. The Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the indebtedness of the Company.
The net proceeds from the sale of the Old Notes (after discount and other
expenses of the offering of the Old Notes) were approximately $147.4 million.
Such proceeds were used to prepay $100.0 million in principal amount of a term
loan from MIC, which has been terminated, and the remainder will be used for
general corporate purposes. Interest was payable on the term loan from MIC at a
variable rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin
of 0.15%, which resulted in a weighted average interest rate of 6.2% for 1995.
24
<PAGE> 26
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
the Company as of September 30, 1996 and as adjusted to give effect to (i) the
issuance of the Old Notes and the use of proceeds from the sale thereof and (ii)
the implementation of a new discretionary working capital facility and the
application of borrowings thereunder. The following table should be read in
conjunction with the audited Consolidated Financial Statements and the notes
thereto, the unaudited Interim Financial Statements and the notes thereto and
the unaudited Pro Forma Condensed Financial Information and the notes thereto
included herein. The exchange of the New Notes for the Old Notes will have no
effect on the capitalization of the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt:
Old working capital facility(1)......................... $ 5.0 $ (5.0)(2) $ 0.0
New working capital facility............................ -- 40.0(2) 40.0
Mitsubishi International Corporation term loan.......... 100.0 (100.0)(3) 0.0
Revenue bond............................................ 0.1 -- 0.1
Long-term debt:
Mitsubishi Corporation term loan........................ 100.0 -- 100.0
Mitsubishi International Corporation revolving loan..... 137.0 (83.9)(4) 53.1
Old Notes............................................... -- 150.0(5) 150.0
Other................................................... 14.0 -- 14.0
Unamortized discount on Old Notes....................... -- (1.1) (1.1)
------ ------- ------
Total debt...................................... $356.1 $ -- $356.1
Stockholders' equity:
Common stock, $.01 par value; authorized-20,000 shares;
issued and outstanding-14,908 shares................. 0.0 -- 0.0
Additional paid-in capital.............................. 378.8 -- 378.8
Retained deficit........................................ (35.0) -- (35.0)
------ ------- ------
Total stockholders' equity...................... 343.8 -- 343.8
------ ------- ------
Total capitalization....................... $699.9 $ -- $699.9
====== ======= ======
</TABLE>
- ---------
(1) Represents the amount outstanding under a $20.0 million overnight facility
used to manage the Company's daily working capital fluctuations.
(2) On December 13, 1996, the Company entered into a new $50.0 million
discretionary working capital facility with a commercial lender to manage
the Company's daily working capital fluctuations. The Company initially used
$40.0 million under this facility to retire the old working capital facility
referred to in note (1) and a portion of the MIC revolving loan referred to
in note (4).
(3) Represents the prepayment of the MIC term loan from $100.0 million of the
proceeds from the sale of the Old Notes.
(4) Represents the repayment of $83.9 million of the MIC revolving loan from the
new discretionary working capital facility referred to in note (2) and
proceeds from the sale of the Old Notes.
(5) Represents the issuance of the Old Notes.
25
<PAGE> 27
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA
CONDENSED FINANCIAL DATA
The following table sets forth selected consolidated historical and pro
forma condensed financial data as of the dates and for the periods indicated.
The selected consolidated financial data as of December 31, 1994 and 1995 and
for the years ended December 31, 1993, 1994 and 1995 have been derived from the
Company's audited Consolidated Financial Statements included herein. The
selected consolidated financial data as of December 31, 1991, 1992 and 1993 and
for the years ended December 31, 1991 and 1992 have been derived from the
Company's audited Consolidated Financial Statements not included herein. The
selected consolidated financial data as of September 30, 1995 and 1996 and for
the nine months ended September 30, 1995 and 1996 have been derived from the
Company's unaudited Interim Financial Statements included herein. The unaudited
Interim Financial Statements have been prepared on the same basis as the audited
Consolidated Financial Statements included herein and, in the opinion of
management, reflect all adjustments necessary to fairly state results of
operations and cash flows for such interim periods. Such adjustments are of a
normal recurring nature. Results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results for the full year.
The selected pro forma condensed financial data as of September 30, 1996 and for
the year ended December 31, 1995 and the nine months ended September 30, 1996
have been derived from the Company's unaudited Pro Forma Condensed Financial
Information included herein. The following selected consolidated historical and
pro forma condensed financial data should be read in conjunction with the
audited Consolidated Financial Statements and the notes thereto, the unaudited
Interim Financial Statements and the notes thereto and the unaudited Pro Forma
Condensed Financial Information and the notes thereto included herein.
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA
--------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------- ---------------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(FOR PERIOD)
Sales................. $ 848.3 $ 799.5 $ 788.5 $ 945.5 $1,023.3 $1,023.3 $ 786.7 $ 691.6 $ 691.6
Operating Costs
Cost of sales....... 680.7 634.6 669.4 763.5 758.9 758.9 579.4 536.0 536.0
Selling, general and
administrative
expenses.......... 48.4 60.5 61.7 61.3 43.6 43.6 32.0 35.2 35.2
Depreciation and
amortization...... 46.2 43.8 49.1 50.3 48.4 48.4 36.2 35.6 35.6
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
costs........... 775.3 738.9 780.2 875.1 850.9 850.9 647.6 606.8 606.8
Operating income
(excludes items
shown below)........ 73.0 60.6 8.3 70.4 172.4 172.4 139.1 84.8 84.8
Other income
(expense)........... (0.1) (0.9) (0.1) (0.9) (20.1) (20.1) (9.4) (9.5) (9.5)
Interest
expense-net......... (73.0) (58.7) (53.9) (54.8) (47.7) (30.7) (36.5) (31.6) (19.8)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes on income..... (0.1) 1.0 (45.7) 14.7 104.6 121.6 93.2 43.7 55.5
Less provision
(benefit) for
estimated income
taxes............... (0.3) 0.4 (5.8) 9.5 44.4 51.6 40.2 19.7 25.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
minority interest,
extraordinary loss
and changes in
accounting method... 0.2 0.6 (39.9) 5.2 60.2 70.0 53.0 24.0 30.5
-------- -------- -------- -------- -------- -------- -------- -------- --------
Minority interest..... -- -- -- -- -- -- -- 0.1 0.1
Extraordinary loss,
net of income tax
benefit of $3.2
million............. -- -- -- 5.1 -- -- -- -- --
Cumulative effect on
prior years of
change in accounting
for income taxes and
depreciation(2)..... -- -- 0.2 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 0.2 $ 0.6 $ (39.7) $ 0.1 $ 60.2 $ 70.0 $ 53.0 $ 24.1 $ 30.6
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA
--------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------- ---------------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma amounts
assuming the
accounting change
for depreciation had
been applied
retroactively:
Income (Loss) before
Cumulative Effect
of Change in
Accounting
Principle......... $ 1.0 $ 3.1 $ (39.9) -- -- -- -- -- --
Net Income (Loss)... $ 1.0 $ 3.1 $ (43.7) -- -- -- -- -- --
BALANCE SHEET DATA
(END OF PERIOD)
Working capital....... $ 50.9 $ 55.5 $ 25.3 $ 166.4(3) $ 174.9 -- $ 126.4 $ 26.6(4) $ 90.1(5)
Total assets.......... 1,038.5 1,027.5 1,134.9 1,183.4 1,090.0 -- 1,089.5 1,017.5 1,017.8
Short-term debt....... -- 9.0 12.8 -- 8.7 -- 12.6 5.0 40.1
Long-term debt due
within one year..... 25.1 32.8 46.0 -- -- -- -- 100.1 --
Long-term debt due
after one year...... 687.8 672.1 645.4 707.9 572.2 -- 593.2 251.0(6) 316.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total debt............ 712.9 713.9 704.2 707.9 580.9 -- 605.8 356.1 356.1
Redeemable preferred
stock and other
temporary equity.... 72.6 96.4 114.7 123.1 51.0 -- 51.0 0.0(7) 0.0
Shareholders'
equity.............. 73.8 57.7 6.4 1.3 133.7 -- 127.9 343.8 343.8
OTHER DATA
Ratio of earnings to
fixed charges(8).... 1.0x 1.0x --(9) 1.2x 3.0x 4.5x 3.3x 2.3x 3.7x
Total debt to total
capitalization...... 83.0% 82.2% 85.3% 85.1% 75.9% -- 77.2% 50.9% 50.9%
Book value per
share............... $ 9,839 $ 7,687 $ 839 $ 164 $ 13,307 -- $ 12,723 $ 23,062 $ 23,062
Dividends per share... 0 0 0 0 0 0 0 1,990 1,990
</TABLE>
- ---------
(1) The unaudited pro forma condensed financial information presented gives
effect to (i) the sale of $150.0 million aggregate principal amount of Old
Notes at an interest rate of 6 7/8%, plus an incremental interest cost of
0.34% due to the amortization of the debt discount on the Old Notes and the
cost to settle an interest rate hedging contract entered into on October 31,
1996, and the application of the net proceeds from the sale of the Old Notes
as described under "Use of Proceeds" and (ii) the implementation of a new
discretionary working capital facility and the application of borrowings
thereunder; and the pro forma income statement data also reflects the
conversion of $179.6 million of 10% Series A Convertible Subordinated
Payment-in-Kind Debentures due March 1, 2007 ("Payment-in-Kind Debentures")
to common equity of the Company and the redemption of $24.4 million of
Payment-in-Kind Debentures, as if each had occurred on January 1, 1995. The
unaudited pro forma condensed financial information presented is not
necessarily indicative of actual results that would have been achieved had
the aforementioned transactions been completed on the dates assumed and does
not purport to project the Company's financial position at any future date
or its results of operations for any future period.
(2) Change in Depreciation Method for Plant Equipment: The Company changed its
method of accounting for depreciation from a modified straight-line basis to
a straight-line basis. The new method of depreciation was adopted as the
preferable method because the Company believes that it is the most common
method used for the chemical industry. The effect of the change in 1993 was
to decrease the loss before income taxes by $7.9 million. The adjustment of
$4.0 million (after reduction of income taxes of $2.4 million) to apply
retroactively the new method is included in the 1993 loss. The pro forma
amounts shown on the income statement have been adjusted for the effect of
retroactive applications on depreciation and related income taxes.
Adoption of SFAS No. 109, Accounting for Income Taxes: The Company adopted,
effective as of January 1, 1993, SFAS No. 109. The cumulative effect as of
January 1, 1993 of the adoption of SFAS No. 109 was a charge of
27
<PAGE> 29
$3.8 million. Under the provision of SFAS No. 109, paragraph 163, the
Company elected to not restate prior years' consolidated financial
statements.
(3) The increase in working capital is a result of the reclassification of the
net assets of the Company's unsaturated polyester resins ("UPR"), maleic
anhydride ("MA") and distribution businesses to current assets (net assets
held for sale) of $94.2 million, an increase in cash of $28.3 million
pending payments under the Company's performance option plan and an increase
in accounts receivable of $31.1 million due to higher sales in 1994.
(4) The decline in working capital is a result of the classification of the MIC
term loan in the principal amount of $100.0 million, which has a maturity
date of March 31, 1997, as long-term debt due within one year. For the years
ended December 31, 1994 and 1995, the maturity of the MIC term loan had been
extended annually to a date permitting classification as long-term debt. The
MIC term loan was prepaid in its entirety from the proceeds of the sale of
the Old Notes.
(5) The increase in working capital is a result of the retirement of the
long-term debt due within one year with a portion of the proceeds from the
sale of the Old Notes, partially offset by the use of $40.0 million of the
new $50.0 million discretionary working capital facility to retire a portion
of the existing MIC revolving loan. See "Capitalization."
(6) The decline in long-term debt due after one year is principally due to the
conversion of $179.6 million of Payment-in-Kind Debentures to common equity
and the Company's redemption of $24.4 million of Payment-in-Kind Debentures.
(7) The decline in redeemable preferred stock and other temporary equity is due
to the conversion of $44.9 million of 10% Series A Convertible PIK Preferred
Stock ("Series A Preferred Stock") to common equity and the Company's
redemption of $6.1 million of Series A Preferred Stock.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
were calculated by adding earnings of consolidated companies before income
taxes, amortization of debt discount, total interest expense and the portion
of rents representative of an interest factor. Fixed charges consist of
total interest expense, interest capitalized, the portion of the rents
representative of an interest factor and amortization of debt discount.
Earnings of consolidated companies, as defined, includes significant
non-cash charges for depreciation and amortization.
(9) The coverage deficiency for 1993 was $45.9 million.
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in connection with the information contained
in the Consolidated Financial Statements and the notes thereto and Interim
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company is a leading producer and marketer of chemical and polymer
products. The Company had sales of $788.5 million, $945.5 million and $1,023.3
million for the years ended December 31, 1993, 1994 and 1995, respectively, and
sales of $786.7 million and $691.6 million for the nine months ended September
30, 1995 and 1996, respectively. The growth in the Company's revenues during the
last three fiscal years has been primarily due to capacity expansion in
conjunction with improved domestic and international economies resulting in
stronger demand for the Company's products. Although shipments for the first
nine months of 1996 were higher than the comparable period in 1995, selling
prices were lower due to worldwide industry capacity expansion in several of the
Company's product lines and the cyclical nature of the industry. Additional
increases in capacity anticipated in certain of the chemical markets in which
the Company participates can be expected to adversely affect selling prices in
the near term.
Raw materials account for approximately two-thirds of the Company's total
production cost. As a result, the Company's ability to pass on increases in
feedstock costs to customers has a significant impact on operating results. The
ability to pass on increases in feedstock costs is, to a large extent, related
to market conditions. While the Company generally has been able to pass
increases in feedstock costs on to customers, there can be no assurance that the
Company will be able to do so in the future. The Company's ability to pass on
increases in feedstock costs is particularly subject to uncertainty with respect
to the Company's commodity products. Substantial increases in capacity which
have occurred recently or are anticipated in certain of the commodity and
specialty chemical markets in which the Company participates can be expected to
affect such ability. In addition, prices of feedstocks can be subject to
significant price fluctuations. Increases in costs may not be accompanied by
corresponding increases in selling prices for the Company's products in all
instances, regardless of market conditions.
Sales and operating results in the last quarter of each year are generally
lower than in the first three quarters. The fourth quarter is generally
adversely affected by lower demand in some of the Company's principal end-use
markets, particularly construction.
In addition to its routine repair and maintenance activities, the Company
has a program of planned maintenance turnarounds under which certain facilities
are temporarily taken out of production for repairs and maintenance. To the
degree that the cost of planned maintenance turnarounds is not evenly spread
over the program's normal two-year cycle, year-to-year and quarterly variations
in income can result. Subject to regulatory inspections and maintaining the
Company's safety standards, the timing of maintenance turnarounds is largely at
the discretion of management. In determining the schedule of maintenance
turnarounds, management considers, among other things, the level of product
demand, catalyst life and the operating performance of the production facility.
Cash costs of planned maintenance turnarounds for 1993, 1994, 1995 and the first
nine months of 1996 were $3.8 million, $1.3 million, $8.5 million and $6.7
million, respectively. For financial accounting purposes, the Company
capitalizes the cost of catalyst replacement and amortizes the cost over the
life of the catalyst. The Company expenses any other planned maintenance
activity during the period that the work was performed.
In March 1995, the Company terminated and paid out the restricted stock
award plan and the performance option plan for key management, which were
adopted in connection with a going-private transaction effected in 1990 by MC,
certain other investors and certain members of management of the Company. An
aggregate of $19.0 million, $18.0 million and $1.0 million was accrued for these
programs in 1993, 1994 and 1995, respectively. In 1996, the Company adopted a
new program of performance-based incentive and other benefit plans for key
management. Approximately $3.2 million was accrued in the first nine months of
1996 for such plans, including $2.2 million for certain multiple performance
periods which began January 1, 1995 under a long-term incentive plan.
29
<PAGE> 31
In December 1987, the Company acquired a 50% interest in Avonite, a New
Mexico-based corporation that produces and markets premium solid surface
polyester sheet, and markets the Company's Acrystone(R) solid surface sheet. In
July 1996, the Company increased its ownership in Avonite to 60%. Avonite had
been reflected on an equity basis for financial reporting purposes and is now a
consolidated subsidiary under the Company's control. Avonite had revenues of
$18.7 million and an operating loss of $0.6 million for its fiscal year ended
November 30, 1995.
On September 30, 1996, the Company called for redemption all of its
outstanding Payment-in-Kind Debentures and Series A Preferred Stock. All such
securities were held by the holders of the Common Stock. See "Stockholders of
the Company." Certain holders elected to exercise their right to convert $179.6
million in principal amount of Payment-in-Kind Debentures and $44.9 million in
stated value of Series A Preferred Stock into Common Stock. The remaining
Payment-in-Kind Debentures in the principal amount of $24.4 million and Series A
Preferred Stock with a stated value of $6.1 million were redeemed for cash.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Operating income for the first nine months of 1996 was $84.8 million on
sales of $691.6 million compared with operating income of $139.1 million on
sales of $786.7 million in the first nine months of 1995. The reduction in
operating income reflects reduced margins in most of the Company's product lines
and more extensive planned maintenance turnaround activity in 1996. The lower
margins in the first nine months of 1996 are principally due to selling prices
falling at a faster rate than the cost of the Company's principal feedstocks.
Decreases in selling prices are primarily due to worldwide industry capacity
expansion in several of the Company's product lines and the cyclical nature of
the industry. On average, selling prices for phenol and related products, PA,
2-EH, plasticizers and polypropylene, declined 15.5%. In addition, the Company's
operating income was reduced due to the sale of the Company's coal chemicals
business in March 1996. This business contributed $2.6 million in operating
income in the first nine months of 1996 and $8.0 million in operating income in
the first nine months of 1995. Sales volumes were relatively unchanged for
phenol and related products and 12.3% higher for other chemicals and
polypropylene. The increase in sales volumes for other chemicals and
polypropylene was principally due to capacity expansions at the Company's
Pasadena, Texas and Neal, West Virginia facilities.
Selling, general and administrative expenses increased $3.2 million or
10.0% in the first nine months of 1996 compared to the same period in 1995 due
to expenses related to new performance-based incentive and other benefit plans
for key management adopted in 1996.
Interest expense was $32.3 million for the first nine months of 1996
compared to $38.1 million for the first nine months of 1995. The $5.8 million
decrease in interest expense primarily reflects the reduction of debt from
application of the proceeds of the sale of the Company's coal chemicals
business. For the first nine months of 1996, the average amount of debt
outstanding was $532.2 million at an average interest rate of 7.7%, compared to
$648.8 million at 8.0% for the first nine months of 1995.
The provision for estimated income taxes in the first nine months of 1996
was $19.7 million, compared with a provision of $40.2 million in the first nine
months of 1995. The provision in the first nine months of 1996 included a
reversal of a $5.0 million deferred tax benefit relating to the Company's 50%
equity interest in Avonite as a result of the acquisition of an additional 10%
of Avonite's common equity.
Giving effect to the above mentioned factors, the Company's net income was
$24.1 million in the first nine months of 1996, a decrease of $28.9 million
compared with net income of $53.0 million in the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Operating income was $172.4 million on sales of $1,023.3 million in 1995,
compared with operating income of $70.4 million on sales of $945.5 million in
1994. The $102.0 million increase in operating income was principally due to
increases in the Company's selling prices which outpaced rising feedstock costs,
higher plant operating rates and record trade shipment volumes for certain
higher margin products. On average, selling prices increased 15.9%. Total trade
shipments decreased 6.6% due to the sale of the Company's UPR,
30
<PAGE> 32
MA and distribution businesses in April 1995. The improvement in operating rates
and higher selling prices also reflected an improvement in certain international
economies and increased domestic demand.
Selling, general and administrative expenses declined to $43.6 million in
1995 compared to $61.3 million in 1994. This decrease of $17.7 million primarily
reflects the reduced accrual for the restricted stock award program and
performance option plan, which were terminated and paid out in March 1995. The
accrual for these programs was $1.0 million and $18.0 million in 1995 and 1994,
respectively.
Interest expense declined to $49.8 million in 1995 compared to $56.0
million in 1994. This decrease of $6.2 million primarily reflects the reduction
of debt from application of the proceeds of the sale of the Company's UPR, MA
and distribution businesses. For 1995, the average amount of debt outstanding
was $633.4 million at an average interest rate of 8.0%, compared to $712.6
million at 7.6% for 1994.
The provision for estimated income taxes was $44.4 million in 1995,
compared with a provision of $9.5 million in 1994. The increase primarily
reflects the improved profitability of the Company during 1995.
In 1994, the Company extinguished its leveraged buyout financing package
and refinanced with long-term debt from a variety of sources. The extinguishment
of this debt caused the Company to write off as an extraordinary item, net of
taxes, the unamortized deferred financing charges from the leveraged buyout
banking syndicate. This extraordinary charge in 1994, net of taxes, was $5.1
million.
Giving effect to the above-mentioned factors, the Company's net income for
1995 was $60.2 million, compared with net income of $0.1 million in the prior
year.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
In 1994, the Company generated operating income of $70.4 million on sales
of $945.5 million, compared with operating income of $8.3 million on sales of
$788.5 million in 1993. The improvement in operating results reflects
improvement in certain international economies and domestic markets resulting in
increased demand, improved operating rates and higher selling prices. On
average, the Company's selling prices increased 7.1%. Trade shipments increased
11.9%. Additionally, the Company recorded a significant lower-of-cost or market
adjustment in 1993 which unfavorably affected 1993. In 1994 the adjustment was
reversed as market prices had increased sufficiently to offset the prior year's
decline.
Results in 1993 were adversely affected by reduced prices for the Company's
commodity chemicals. Despite increased shipments over the prior year, average
prices fell approximately two cents per pound while the cost of goods sold
remained relatively unchanged from the prior year. Prices for the Company's
products decreased primarily as a result of competitive factors particularly in
2-EH, BPA and polypropylene.
Selling, general and administrative expenses were $61.3 million in 1994
compared to $61.7 million in 1993. Included in 1993 and 1994 were accruals of
$19.0 million and $18.0 million, respectively, for the restricted stock award
program and the performance option plan for certain key managers.
For 1994, the average amount of debt outstanding was $712.6 million at an
average interest rate of 7.6%, compared to $729.5 million at 7.3% for 1993.
The provision for estimated income taxes was $9.5 million in 1994, compared
with a benefit of $5.8 million in 1993. The increase primarily reflects the
significant improvement in 1994 pre-tax income.
Giving effect to the above-mentioned factors, the Company's net income for
1994 was $0.1 million, compared with a net loss of $39.7 million in the prior
year.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations totaled $33.4 million in the first nine months of 1995
compared to $62.3 million in the first nine months of 1996. The improvement in
cash from operations in the first nine months of 1996 reflects the one time
payment to key management in early 1995 of $27.0 million to satisfy the
obligations of the performance option plan. Cash from operations was also
negatively impacted in 1995 by increased receivables and inventories, a
reduction in trade payables and other current liabilities and federal income tax
31
<PAGE> 33
payments. Cash provided from operations for the years ended December 31, 1993,
1994 and 1995 was $51.3 million, $77.9 million and $85.5 million, respectively.
Expenditures for property, plant and equipment in the first nine months of
1995 totaled $38.3 million, compared with $28.6 million in the first nine months
of 1996. Annual expenditures for property, plant and equipment totaled $21.6
million in 1993, $33.4 million in 1994 and $55.3 million in 1995. The increase
in expenditures over the three periods reflects the Company's plans to increase
capacity at its facilities and improve production processes. Reduced
expenditures in the first nine months of 1996 compared to the same period in
1995 reflects completion in 1995 of the polypropylene expansion. See "--Capital
Expenditures" below.
Cash from disposal of assets totaled $91.9 million in 1995, reflecting the
sale of the Company's UPR, MA and distribution businesses. Cash from disposal of
assets totaled $39.0 million in the first nine months of 1996, reflecting the
proceeds from the sale of the Company's coal chemicals business. These
divestitures reflect the Company's strategy to focus on its core businesses.
The Company has historically been a net generator of cash and believes that
cash generated from operations, supplemented as necessary with cash expected to
be available under the Company's revolving credit agreement or any long term
refinancing, will provide it with sufficient resources to meet present and
reasonably foreseeable future working capital and cash needs.
On September 30, 1996, the Company called for redemption all of its
outstanding Payment-in-Kind Debentures and Series A Preferred Stock. All such
securities were held by the holders of the Company's Common Stock. See
"Stockholders of the Company." Certain holders elected to exercise their right
to convert $179.6 million in principal amount of Payment-in-Kind Debentures and
$44.9 million in stated value of Series A Preferred Stock into Common Stock. The
remaining Payment-in-Kind Debentures in the principal amount of $24.4 million
and Series A Preferred Stock with a stated value of $6.1 million were redeemed
for cash. Interest and dividends on such securities had been paid in cash since
June 1, 1995, and amounted to $16.9 million of interest and $4.2 million of
dividends for the nine months ended September 30, 1996 and $15.3 million of
interest and $3.8 million of dividends for the year ended December 31, 1995.
The Company entered into a term loan agreement, dated as of August 1, 1994,
with MC in the amount of $203.0 million and which has a maturity date of July
31, 2002 (the "MC Term Loan"). As of September 30, 1996, $100.0 million was
outstanding under the MC Term Loan. The Company also entered into a term loan
and revolving credit agreement with MIC, dated as of August 1, 1994 (the "MIC
Term Loan" and the "MIC Revolving Loan", respectively). The MIC Term Loan
provided for a term loan in the principal amount of $100.0 million, all of which
was outstanding as of September 30, 1996. The MIC Term Loan had a maturity date
of March 31, 1997 and was prepaid in its entirety with a portion of the proceeds
from the sale of the Old Notes and terminated. The MIC Revolving Loan provides
for revolving credit loans in the principal amount of $150.0 million with a
final maturity date of April 18, 2002. As of September 30, 1996, $137.0 million
was outstanding under the MIC Revolving Loan. On January 4, 1995, the Company
also entered into a discretionary credit facility in the principal amount of
$20.0 million with PNC Bank, National Association and The Chase Manhattan Bank
(the "Old Working Capital Facility") to manage its daily working capital
fluctuations. The Old Working Capital Facility had $5.0 million outstanding as
of September 30, 1996. The Company has replaced the Old Working Capital Facility
with a new $50.0 million discretionary working capital facility as described
below.
MC guaranteed the MIC Term Loan, the MIC Revolving Loan and the Old Working
Capital Facility (collectively, the "Loans"). In consideration of the guarantee,
the Company agreed to pay MC a guarantee fee calculated on a daily basis in an
amount equal to 0.60% of the outstanding balance under the Loans for Loans
extending to June 3, 1996 and in an amount equal to 0.30% for Loans effective
June 3, 1996 and thereafter. The fee is payable semiannually.
The Company has arranged for a $50.0 million discretionary working capital
facility with a commercial lender (the "New Working Capital Facility") to manage
the Company's daily working capital fluctuations. The Company initially used
$40.0 million under the New Working Capital Facility to retire the Old Working
Capital Facility, as well as a portion of the MIC Revolving Loan. The New
Working Capital Facility
32
<PAGE> 34
constitutes unsecured senior indebtedness of the Company and ranks pari passu
with all other unsecured senior indebtedness of the Company for borrowed money,
including the Notes. Under the New Working Capital Facility, the Company expects
to indirectly access the commercial paper market at market rates equivalent to
A1/P1 commercial paper, plus a reasonable loan margin typical for a company with
a credit rating similar to that of the Company.
On October 31, 1996, the Company entered into an interest rate hedging
contract with a commercial bank that effectively fixed at 6.404% the treasury
rate component of the all-in interest cost (treasury rate component plus credit
margin) to the Company of the $150.0 million in principal amount of Notes. The
Company settled the interest rate hedging contract at a cost of approximately
$2.5 million on November 22, 1996.
CAPITAL EXPENDITURES
The Company's spending for property, plant and equipment in the period
January 1, 1993 to September 30, 1996 has focused on a mix of small projects for
process and quality improvement; large projects that increased capacity;
projects designed to improve the Company's environmental, health and safety
performance; and projects that increased operational reliability and utilization
of energy and raw materials.
Capital spending for the last quarter of 1996 is estimated at $22.0
million, reflecting ongoing spending for projects to optimize the phenol process
and alphamethylstyrene ("AMS") unit at the Company's Haverhill, Ohio facility;
to change catalyst at the PA unit at the Company's Pasadena, Texas facility; to
implement process and quality improvements at the Company's Neal, West Virginia
and LaPorte, Texas facilities; and to expand the acrylics unit at the Florence,
Kentucky facility. For a description of the operations of the Company, see "The
Company--Business."
The Company has planned a $235.0 million capital spending program for the
years 1997-1999. Included in the 1997-1999 capital spending program is
approximately $10.0 million for projects to improve the Company's environmental,
health and safety performance. The Company intends to finance this capital
spending program primarily through internally generated cash.
Contractual commitments for capital expenditures for property, plant and
equipment totaled $12.7 million and $10.2 million at December 31, 1995 and
September 30, 1996, respectively.
DIVIDENDS
It is the current intention of the Company to declare and pay cash
dividends on the Common Stock. The declaration and payment of dividends is at
the discretion of the Board of Directors of the Company. With respect to 1995,
the Board of Directors declared a regular dividend on the Common Stock of $9.7
million in the aggregate and a special dividend on the Common Stock of $10.3
million in the aggregate. The regular dividend was declared subsequent to a
recommendation of the Executive Committee of the Board of Directors providing
for a dividend yield equivalent to 6% per year on the stockholders' invested
common equity capital. A special dividend was paid with respect to 1995 in
recognition of the significant level of earnings achieved in 1995 and the
absence of any dividend on the Common Stock since the going-private transaction
in 1990. The declaration and payment of future dividends and the amount thereof
will be dependent upon the Company's results of operations, financial condition,
cash requirements for its businesses, future prospects and other factors deemed
relevant by the Board of Directors.
ORDER BACKLOG
Normally, significant customer orders are placed during the same month that
shipment is requested and orders placed for future delivery are subject to
revision or cancellation. For these reasons, the Company does not consider order
backlog to be a meaningful indication of future business activity for its
businesses.
33
<PAGE> 35
THE COMPANY
GENERAL
The Company is a leading producer and marketer of chemical and polymer
products with total annual rated production capacity in excess of three billion
pounds. The Company's product base includes phenol and related products; PA,
2-EH and plasticizers; and polypropylene and acrylic sheet. Avonite produces and
markets solid surface polyester sheet. These products provide the Company with a
diversified revenue base. While approximately 80% of the Company's sales are of
products which are considered commodities, the Company's production of
polypropylene and acrylic sheet has been increasingly directed toward more
specialized, higher margin products. There is significant vertical integration
among the Company's products, providing the Company with predictable supplies of
certain of its raw materials. The Company also has a diverse customer base, with
no customer during 1995 accounting for more than 9% of revenues. End-use markets
for the Company's products include automotive components, home and office
construction, appliances, modular tubs/showers, whirlpools, spas, apparel,
packaging, medical supplies, signs and a wide range of consumer products.
The Company believes that at certain of its facilities it has competitive
cost advantages based on proximity to sources of raw material, existence of
facilities to upgrade raw material at its polypropylene plants, low downtime at
its polypropylene plants, and/or proximity to important northeastern customer
markets. The Company also believes that its disciplined approach to planned
plant maintenance results in highly reliable operations. Each of the Company's
product lines has its own dedicated sales force, which the Company believes
better enables it to address specific customer needs.
The Company was incorporated under the laws of the State of Delaware on
October 14, 1986 as a wholly-owned subsidiary of USX Corporation ("USX"). On
December 4, 1986, USX transferred substantially all of the assets and
liabilities of its USS Chemicals Division to the Company, and the Company's
Common Stock was offered and sold to the public. The USS Chemicals Division was
formed by USX in 1966 to build upon its basic position in coke oven by-products.
USX expanded the business into petro-chemical based products prior to its
transfer to the Company. On March 7, 1990, MC, certain other investors and
certain members of management of the Company acquired the Company in a
going-private transaction. The interests of certain of the investors, including
the management investors, have subsequently been reacquired, and 82.3% of the
Company's Common Stock is currently beneficially owned by MC. See "Stockholders
of the Company" and "Relationship with MC."
BUSINESS STRATEGY
CORE BUSINESSES
The Company's strategy is to focus on and expand its core businesses,
consisting principally of the manufacture and sale of products which consume
propylene- and aromatic-based raw materials. Those products include phenol,
acetone, aniline, diphenylamine ("DPA"), bisphenol-A ("BPA"), polypropylene,
2-EH, PA and plasticizers. The Company's predominant feedstock is propylene,
which currently is in abundant supply in the United States, providing the
Company with a cost advantage over non-United States producers of
propylene-based products. The Company's other feedstocks currently are also in
abundant supply. In furtherance of its strategy, the Company divested its UPR,
MA and distribution businesses and its coal chemicals business during 1995 and
1996, respectively. See "--Business--Disposition of Certain Businesses".
The Company has planned expansions to enhance the competitive position of
its core businesses. The Company plans to expand primarily through internal
development, but will pursue strategic alliances or joint venture arrangements
where the economics and potential synergies are considered advantageous to the
Company.
The Company is in the design engineering phase for a third phenol
production unit at its Haverhill, Ohio facility. The Company believes that the
cost for the new unit would be approximately $100.0 million. Expansion at the
Haverhill location is expected to enhance the Company's competitive position due
to the
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<PAGE> 36
facility's close proximity to the Company's markets. A debottlenecking project
at a cost of approximately $14.0 million is currently underway at Haverhill
which will increase current production of phenol by approximately 10%, as well
as increasing production of acetone and AMS.
A third line for the production of polypropylene at the Company's LaPorte,
Texas plant is in the engineering phase. The total estimated cost of the
polypropylene expansion is $150.0 million. The Company is evaluating the
possibility of a joint venture for this expansion involving a partner which
would contribute up to 50% of its cost.
ACRYLIC SHEET
The Company considers acrylic sheet a strategic business, with most of its
production occurring in higher margin specialty market segments that the Company
believes have strong growth potential. In order to position the acrylic sheet
business to more effectively and efficiently compete with the major producers of
acrylics in the world market, the Company has entered into a nonbinding letter
of intent which contemplates a joint venture with MRC. MRC is, among other
things, a Japan-based producer and seller of methyl methacrylate ("MMA") and
acrylic sheet with a strong base in acrylic sheet research and technology. No
definitive agreement has been reached with respect to the joint venture, and
there can be no assurance as to the ultimate terms of the venture, the timing of
its formation or whether it will be consummated. See "--Business--Acrylics and
Related Products--Possible Joint Venture."
The Company believes that its 1/8" Acrystone(R) acrylic solid surface
product represents a significant advancement over conventional solid surface
material. The Company has planned $55.0 million in capital projects for its
acrylics business, including capacity enhancement principally to meet the
projected demand for Acrystone(R).
ARISTECH TOTAL PERFORMANCE
The Company has had in place for several years a commitment to Total
Quality Management ("TQM"), known as Aristech Total Performance ("ATP"). Through
the ATP approach to management, the Company is committed to continuous
improvement in products and processes using a broad range of statistical tools.
ATP involves working collectively with suppliers and customers to reduce waste
and provide quality products that meet agreed upon customer requirements.
As part of the Company's quality improvement effort, the Company's Neal,
West Virginia, Haverhill, Ohio and LaPorte, Texas plants have been certified
under ISO 9000 standards with respect to production and shipping. The Pasadena,
Texas and Neville Island, Pennsylvania plants are also in the process of seeking
certification under ISO 9000 standards for production and shipping.
The Company's commitment to continuous improvement extends to its
environmental, health and safety ("EH&S") performance. This commitment is
demonstrated by the establishment of EH&S performance objectives and the
management systems necessary to implement them. The Responsible Care(R)
initiative of the Chemical Manufacturers Association ("CMA"), in which the
Company voluntarily participates, establishes more than 100 performance
objectives to improve the EH&S function. The Company's implementation of the
Responsible Care(R) initiative is ahead of the implementation timetable
established by the CMA. The Company's EH&S performance has been recognized in
the following instances:
- Of the 1,300 companies participating in the United States Environmental
Protection Agency's ("U.S. EPA") voluntary 33/50 program, the Company is
one of only 21 organizations nationwide to be selected for an award by
Chemical Engineering and Environmental Engineering World, publications of
The McGraw-Hill Companies, Inc., in cooperation with the U.S. EPA, which
recognizes outstanding achievement in reducing releases of certain
chemicals to the environment.
- The Company's Haverhill, Ohio facility was awarded STAR status in the
Occupational Safety and Health Administration's ("OSHA") Voluntary
Protection Program. This status is OSHA's highest classification for
safety and health program performance, and required the Haverhill, Ohio
facility to
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<PAGE> 37
demonstrate that its safety systems surpassed compliance requirements.
The Haverhill, Ohio facility is currently one of less than 250 STAR sites
nationwide.
BUSINESS
The Company operates in a single business segment. Each of the Company's
product lines has its own dedicated sales force responsible for domestic sales;
international sales, which accounted for approximately 21% of total sales in
1995, are either handled directly, through distributors or with independent
representatives. The following table sets forth certain information concerning
sales of the Company's principal classes of products, chemicals and polymers,
for the past five years. A description of these classes of products follows the
table.
SALES DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Chemicals......................... $420.6 $393.0 $371.2 $437.3 $ 595.0 $ 396.4
Polymers.......................... 427.7 406.5 417.3 508.2 428.3 295.2
------ ------ ------ ------ -------- -------
Total Sales.................. $848.3 $799.5 $788.5 $945.5 $1,023.3 $ 691.6
====== ====== ====== ====== ======= ===============
</TABLE>
CHEMICALS
The chemicals produced and marketed by the Company are phenol and related
products, PA and 2-EH and plasticizers.
Phenol and Related Products
Phenol and related products consist of phenol, acetone, AMS, cumene
hydroperoxide ("CHP"), BPA, aniline and DPA. These products are organic chemical
intermediates with a variety of end uses, primarily in products targeted for the
automotive, consumer and construction industries.
All of the Company's products in this category are produced with processes
using licensed technology, except for CHP and DPA technologies which were
developed by the Company. The production facility at Haverhill, Ohio is located
along the Ohio River next to the mainline of the Norfolk Southern Railroad and
U.S. Route 52. The plant is in an advantageous position to receive feedstocks
and ship finished products.
Phenol. The largest single use of phenol is in making adhesives for plywood
and chipboard. Other important uses are high impact phenolic resins and
pharmaceuticals. Phenol, when used as a chemical intermediate, becomes a
component of nylon, herbicides and pesticides, and is used as a feedstock for
the production of BPA and aniline. Competition is based primarily on price. High
and efficient utilization of its facilities, proximity to key domestic markets,
and the high quality as well as reliability of its product, are the Company's
main competitive advantages.
The main raw material for phenol is cumene, which is first oxidized to form
CHP which is then distilled to produce phenol, acetone and AMS. Cumene is
obtained by the Company from several sources under competitively priced supply
agreements, and is also available on the spot market. The Company also obtains
phenol through arms'-length purchases from MCC to supply markets on the West
Coast of the United States.
In 1995, the Company sold approximately 44% of its total production of
phenol into the merchant market. Exports of phenol represented approximately 20%
of the Company's total phenol trade sales in 1995.
Acetone. Acetone is used as a solvent for paints, varnishes, lacquers and
vinyl resins, and as a raw material for a wide range of chemicals such as MMA,
BPA, diacetone alcohol and others. Approximately 7%
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<PAGE> 38
of the Company's acetone production was used as a raw material for the toll
production of MMA for its acrylics business in 1995, with the remainder being
sold to the merchant market.
AMS. High-purity AMS, a low volume product, is used to provide heat
distortion resistance and strength in certain polymers, making it ideal for
specialty grades of plastics, rubber and protective coatings. The Company's
production is sold in the merchant market or hydrogenated to cumene.
BPA. BPA is an organic chemical intermediate that is produced from phenol
and acetone. BPA is consumed mainly in the production of polycarbonate and epoxy
resins, for which high impact and high heat resistance properties are desirable,
but increasing amounts are used to produce flame retardants, polysulfone resins,
phenoxy resins and polyester resins. Substitution of polycarbonate resins for
other plastic resins and metals in the automotive and consumer markets has
resulted in strong growth in sales of this product. The feedstocks for BPA are
internally produced phenol and acetone. Approximately 67% of the Company's
production was sold overseas in 1995, particularly in Japan, Israel and Italy.
CHP. CHP is an intermediate compound extracted from the phenol and acetone
facilities using a process developed by the Company's research laboratory. CHP
is sold to the domestic market primarily for use as a polymerization catalyst.
Aniline. Aniline is predominantly consumed in the production of MDI-based
isocyanates that are in turn used to make polyurethane foams and coating resins.
Polymeric isocyanates have been growth products used in construction (mainly as
building insulation) and in the automotive industry. Aniline is also consumed in
the production of rubber, photographic developers, agricultural chemicals and
dyes. Aniline is produced from on-site phenol and purchased ammonia which is
readily available from nearby sources. The Company is one of two in the world
that produces aniline from phenol.
DPA. DPA is utilized in rubber processing chemicals as well as in
pharmaceutical intermediates, dyes and as a stabilizer for petroleum and plastic
products. The Company produces DPA by its own proprietary process from
internally produced aniline. The Company is one of the two domestic producers of
DPA selling to the merchant market. Production capacity was expanded to 25
million pounds in April 1996 through a debottlenecking of the Company's
aniline/DPA facility.
PA and 2-EH
PA. PA is a commodity intermediate chemical used in the manufacture of
organic chemical products, such as plasticizers, unsaturated polyester resins,
alkyd paint and molding resins. PA is manufactured from orthoxylene, a readily
available petrochemical commodity purchased under contract from a number of
sources. Approximately 27% of PA production in 1995 was used by the Company to
make plasticizers. The remainder of the output of PA is sold by the Company in
the merchant market. Since PA is a commodity, competition is based primarily on
price. PA is produced at the Company's facility on the Houston Ship Channel at
Pasadena, Texas, near raw material sources.
2-EH. 2-EH is also a commodity intermediate chemical used in the
manufacture of organic chemical products. Plasticizers are the major market for
2-EH and account for almost half of total 2-EH consumption. The feedstocks for
2-EH are natural gas and propylene. The Company's domestic supply of propylene
provides it with an advantage in the world market because of availability and
relatively lower cost. The Company has entered into supply contracts for natural
gas and propylene, but both are also available on the spot market. Approximately
31% of 2-EH output in 1995 was consumed by the Company in the production of
plasticizers. The remainder of the output of 2-EH is sold by the Company in the
merchant market. Approximately 79% of the 2-EH marketed by the Company in 1995
was sold for export. Competition is based primarily on price. 2-EH is produced
at the Company's facility on the Houston Ship Channel at Pasadena, Texas.
Plasticizers
Plasticizers are organic esters produced primarily in high volume commodity
grades. Plasticizers are used principally in the manufacture of flexible
polyvinyl chloride ("PVC") plastic products. PVC products are sold
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<PAGE> 39
in a wide variety of markets, including consumer (rainwear, toys and boots),
housing (flooring and wall coverings), automotive (seat and dashboard covers and
vinyl roofs) and industrial (wire and cable insulation).
Plasticizers are made from a variety of dibasic acids (primarily PA) and
linear and branched alcohols, including 2-EH. The Company produces its own
supply of PA and 2-EH at its Pasadena, Texas plant, which are the most
significant raw materials used in plasticizers.
The Company produces a complete line of plasticizers, suited for both
general and specialized applications, all of which is sold into the merchant
market. Competition is based chiefly on price. Flexible PVC is a mature,
cyclical market in which imports and other materials and plastics have made
inroads in recent years.
The Company manufactures plasticizers utilizing well-developed batch
process technology at its facility located on the Ohio River at Neville Island,
Pennsylvania. The plant is well situated to serve markets in the midwestern and
eastern United States.
POLYMERS
Polymers consist of the Company's polypropylene and acrylic sheet products
and Avonite's polyester sheet products.
Polypropylene
Polypropylene is a major thermoplastic resin produced by the Company in
both commodity and specialty grades. The major markets for polypropylene are:
synthetic fibers used in carpet backing, carpet face yarns, upholstery fabrics,
geotextiles and disposable diapers; automotive applications, including battery
cases and interior trim parts; packaging films for food and non-food
applications; injection-molded caps and closures; medical applications (syringes
and vials); and a wide range of other consumer products. The Company believes
that the polypropylene market has potential for continued growth due to
increasing applications for the product and continuing technological
improvements permitting the substitution of polypropylene for other more
expensive resins.
Propylene is the principal raw material used in the production of
polypropylene. The Company's LaPorte, Texas plant obtains its supply of chemical
grade propylene primarily via pipeline under agreements with Mobil Oil
Corporation and Lyondell Petrochemical Company, and the remainder on the spot
market. The Company's Neal, West Virginia plant is supplied with refinery grade
propylene via pipeline from the nearby refinery of Ashland Inc. ("Ashland") and
refinery and chemical grade propylene by rail from other refiners in the
northern tier of the United States and Canada. Both plants operate propylene
splitters which permit the upgrading of lower cost refinery and chemical grade
propylene to polymer grade feedstocks.
The Company sells substantially all of its output of polypropylene to the
merchant market. Exports, primarily to the Far East, represented approximately
10% of polypropylene sales in 1995. Imports are not a significant factor in the
domestic market.
The Company is one of 14 producers of polypropylene in the United States.
Competition among producers of commodity grade polypropylene is primarily on the
basis of price, as well as quality and service. In specialty grades, competition
is based primarily on product development, quality and service. To help direct
the Company's product mix toward the more specialized, higher margin products, a
technical services group provides assistance to customers to develop specialty
formulations to meet their specific product requirements. A new polypropylene
technical center is being built in Pittsburgh, Pennsylvania, further
strengthening the Company's commitment to customer service and focus on
specialty products. See "--Research and Development." Control of raw materials
supply and cost, utilization of the latest production technology and proximity
to markets are also important competitive factors.
The Neal, West Virginia plant utilizes the latest Spheripol(R) technology
developed by Montedison S.p.A. and licensed from Technipol B.V. The LaPorte,
Texas plant utilizes licensed high-yield catalyst technology.
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<PAGE> 40
Acrylics and Related Products
Acrylics. Acrylic sheet is a polymeric product produced in specialty and
general purpose grades. It has excellent optical properties and resistance to
sunlight, weather and many chemicals. Applications include bathtubs, modular
tubs/showers, spas, whirlpool units, glazing, skylights, sign facia, vanity and
kitchen countertops and other decorative uses.
The primary feedstock for acrylic sheet is MMA, which the Company currently
obtains through a third party toll conversion contract using acetone produced at
the Company's Haverhill, Ohio plant.
The Company sells all of its output in the merchant market. The Company has
positioned itself as a specialty producer with emphasis on solid surface,
plumbingware, spa and sign applications. Approximately 80% of the Company's
acrylic sheet sales occurred in these specialty market segments during 1995. The
Company is a leader in the research and development of premium acrylic products,
which the Company believes will expand market opportunities and establish
durable product advantages. The Company's most recent product advancement is
Acrystone(R), a mineral filled acrylic sheet designed for countertops, furniture
and miscellaneous building applications. Other product advancements include
Altair Plus(R) (acrylic/ABS composite) for spa, plumbingware, marine, camper top
and sign uses; Acrysteel M(R) (impact opaque sheet) for marine parts and tub
wall surrounds; and Quarite(R) (textured granite appearance acrylic sheet) for
many miscellaneous applications including spas and shower pans. In addition, a
new hybrid urethane foam product tradenamed Hyrizon(R) was introduced in late
1993 to provide a low volatile hydrocarbon emission, low labor-consuming system
to rigidize and reinforce its sheet products where required. General purpose
acrylic sheet, which accounted for approximately 20% of the Company's acrylics
sales in 1995, is a relatively low margin product in a highly competitive market
and is used for glazing, skylights, sign facia and merchandise displays.
The Company believes that its 1/8" Acrystone(R) solid surface sheet
represents a significant proprietary advancement over conventional 1/2" solid
surface material, permitting the same appearance at significantly lower cost.
The Company has entered into an agreement with Wilsonart International Inc.
("Wilsonart"), a leading manufacturer of decorative laminate and other surfacing
options, granting Wilsonart the exclusive right in the Americas to purchase all
1/8" Acrystone(R) sheet produced by the Company, except for sales for use in
exterior applications and certain sales to Avonite. Wilsonart sells the 1/8"
Acrystone(R) sheet and a proprietary adhesive as the Wilsonart(R) Solid
Surfacing Veneer laminate system to the countertop market as an economical solid
surface option.
The Company produces acrylic sheet using the continuous cast method. This
process permits the Company to produce cross-linked sheet products of
significantly greater widths and lengths than are obtainable from the more
commonly used cell-cast or extrusion methods. The Company's acrylic sheet is
produced at its Florence, Kentucky plant which is equipped with three continuous
casters. Design, operation and maintenance of the continuous casters represent
significant proprietary technology of the Company. The Company is one of four
domestic producers of cast acrylic sheet products and one of two which use the
continuous cast method.
Possible Joint Venture. On May 22, 1996, the Company entered into a
non-binding letter of intent (the "Letter of Intent") with MRC which
contemplates the formation of a joint venture for the production and sale of
acrylic sheet products and decorative surfacing materials. MRC is, among other
things, a Japan-based producer and seller of MMA and acrylic sheet with a strong
base in acrylic sheet research and technology. See "Stockholders of the
Company." The Company believes that the respective acrylics businesses of the
Company and MRC have complementary strengths, and that the relationships
contemplated by the Letter of Intent would enable the joint venture to compete
effectively on a global basis. No definitive agreement has been reached with
respect to the proposed joint venture, and there can be no assurance as to the
ultimate terms of the venture, the timing of its formation or whether it will be
consummated.
Avonite. Avonite, a 60%-owned subsidiary of the Company, produces premium
solid surface polyester sheet under the tradename Avonite(R). Avonite(R) is used
for countertops, wall cladding and other decorative/architectural applications.
Avonite's production facility in Belen, New Mexico is a small, yet significant
force in the premium solid surface products market. Avonite produces its sheet
from unsaturated polyester
39
<PAGE> 41
resins purchased in the highly competitive resin market. In addition, Avonite
purchases and resells certain of the Company's Acrystone(R) acrylic solid
surface sheet products made at the Florence, Kentucky facility. The recent
increase in ownership by the Company to a controlling position in Avonite will
permit the development of common market objectives and strategies.
PLANT PROFILE
The Company's six production facilities are located near major suppliers of
raw materials and transportation sources and are generally operating near or at
capacity. Avonite has one facility located in Belen, New Mexico, which is
mortgaged to secure an industrial revenue bond.
<TABLE>
<CAPTION>
PRODUCT ANNUAL CURRENT TYPICAL END PLANT
PRODUCED RATED CAPACITY USE PRODUCTS LOCATIONS
- ------------------------ ------------------- -------------------------------- -------------------
<S> <C> <C> <C>
CHEMICALS
Phenol 630 Million Lbs. Phenolic Resins and Other Haverhill, OH
Plastics
Acetone 390 Million Lbs. Solvent and Acrylic Plastic Haverhill, OH
Alphamethylstyrene 35 Million Lbs. Automotive Plastics Haverhill, OH
Cumene Hydroperoxide 16 Million Lbs. Polymerization Catalyst Haverhill, OH
Bisphenol-A 215 Million Lbs. Polycarbonate Engineering Haverhill, OH
Plastics, Epoxy Resins and
Adhesives, Specialty Resins and
Inks
Aniline 150 Million Lbs. Polyurethane Foams, Dyes and Haverhill, OH
Photographic Chemicals
Diphenylamine 25 Million Lbs. Rubber Chemicals and Haverhill, OH
Antioxidants
Phthalic Anhydride 265 Million Lbs. Plasticizers, Unsaturated Pasadena, TX
Resins, Alkyd Paints and Molding
Resins
2-Ethylhexanol 280 Million Lbs. Plasticizers, Acrylates, Resins, Pasadena, TX
Surfactants, Defoamers and Lube
and Oil Additives
Plasticizers 190 Million Lbs. Vinyl Plastics Neville Island, PA
POLYMERS
Polypropylene 828 Million Lbs. Automotive Parts, Monofilament LaPorte, TX and
Fibers, Battery Casings, Neal, WV
Consumer and Medical Products,
Packaging Films, Strapping and
Housewares
Acrylic Sheet 56 Million Lbs. Outdoor Signs, Lighting Florence, KY
Fixtures, Modular Tub and Shower
Units, Spas, Whirlpools and
Vanity and Kitchen Countertops
Avonite(R) Solid 2.5 Million Square Vanity and Kitchen Countertops, Belen, NM
Surface Sheet Feet (84,000 Wall Cladding and Other
sheets) Decorative/Architectural
Applications
</TABLE>
40
<PAGE> 42
PLANNED MAINTENANCE TURNAROUNDS
In addition to its routine repair and maintenance activities, the Company
has a program of planned maintenance turnarounds under which certain facilities
are temporarily taken out of production for repairs and maintenance. Planned
maintenance turnarounds are essential for keeping the Company's facilities in
good operating condition, and include changing or upgrading catalyst systems and
repair or replacement of worn or underperforming equipment. In addition, the
Company often takes advantage of the shutdown of a facility for maintenance
purposes to also take other actions to optimize process technology or expand
capacity. Subject to regulatory inspections and maintaining the Company's safety
standards, the timing of maintenance turnarounds is largely at the discretion of
management. In determining the schedule of maintenance turnarounds, management
considers, among other things, the level of product demand, catalyst life and
the operating performance of the production facility.
EMPLOYEE RELATIONS
The Company employs approximately 1,500 people. Avonite employs
approximately 180 people. The operating personnel at the Company's Florence,
Kentucky, Neal, West Virginia, and Neville Island, Pennsylvania facilities are
represented by the International Chemical Workers, the Oil, Chemical and Atomic
Workers International Union and the United Steelworkers of America (the "USW"),
respectively. Historically, operations have generally not been interrupted by
strikes. The Company's other facilities are not represented by unions.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are conducted at a
research center at Monroeville, Pennsylvania and augmented by product
development and technical service groups directly attached to the acrylic sheet,
polypropylene and plasticizer businesses. Expenditures for these activities were
$13.7 million in 1994 and $12.6 million in 1995.
Research and development is conducted by a staff of 45 professionals. To
support research in existing business lines, pilot facilities for the production
of polypropylene and acrylic sheet are located at the research center. Projects
rely on scientific and engineering applications of synthetic organic chemistry,
polymer science, analytical chemistry, catalysis and process simulation and
modeling. The mission of the research program is to maintain the Company's
strong technological position in the product lines in which it participates and
to provide technological support for growth in related areas. Research programs
have led to commercialization of a new aniline catalyst, redesign of the aniline
process for co-production of DPA, and an improved process for reactivating the
2-EH plant catalyst. The research program has developed new products including a
functionalized polypropylene (Unite(R)). The research program is also developing
enhancements to two licensed technologies, a new crystalline form of
polypropylene (Bepol(TM)) and a hybrid rigidizing foam (Hyrizon(R)).
An additional 30 professionals are engaged in product development and
associated research activities. Significant emphasis is placed on providing
technical services to customers as a value-added service. These technical
services assist customers in designing new downstream products and permit
increased specification of the Company's products. With respect to
polypropylene, examples of these services include working with automotive
company materials design teams on concept projects several years ahead of
product introduction and educating customers in the use of the Company's
products for their specific requirements.
On January 10, 1996, the Company announced that it will build a new
polypropylene technical center in Pittsburgh, Pennsylvania. The new facility,
with state-of-the-art laboratories, is designed to enhance the Company's
competitive position in the marketplace for polypropylene. See
"--Business--Polymers-- Polypropylene." Construction on the building to house
the new facility began in June 1996, with occupancy expected in mid-1997. The
new center will provide the polypropylene technical department with laboratories
for polymer characterization and physical testing, and will contain processing
equipment for fibers, film, extrusion, injection molding and compounding,
including a bank of bench scale reactors especially suited for product and
catalyst studies.
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<PAGE> 43
PATENTS AND TRADEMARKS
The Company possesses a substantial body of technical know-how and trade
secrets and owns approximately 87 United States patents applicable to all phases
of its business, including product formulations and production processes. The
Company considers its know-how, trade secrets and patents important to the
conduct of its business although no individual item is considered to be material
to the business. Certain plants use technology licensed from others. Royalty
expense on these licenses amounted to $2.6 million in 1995. The Company also has
licensed its Acrysteel(R) technology to MRC. The Company is also entitled to
receive royalties under certain circumstances for two stage cleavage technology
used in the production of phenol and acetone, which is licensed by a third party
to MCC.
LEGAL PROCEEDINGS
The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its business.
The Company is a defendant in a patent infringement suit filed by Phillips
Petroleum Company ("Phillips") in 1987, in the United States District Court for
the Southern District of Texas, captioned Phillips Petroleum Company v. Aristech
Chemical Corporation, Civil Action No. H87-3445. The complaint alleges
infringement of two patents related to the production of polypropylene, which
have since expired. The Company and Phillips each filed motions for summary
judgment which were referred to a Special Master. The Special Master issued a
lengthy recommendation to find in the Company's favor, and Phillips filed a
motion to reject the Special Master's recommendation. A hearing on this motion
was held on October 21, 1996. On November 13, 1996, the District Court granted
the Company's motion for summary judgment and entered an order to that effect on
November 19, 1996. A final judgment was entered on December 23, 1996. Phillips
has 30 days from December 23, 1996 to file a notice of appeal. The Company
believes that the outcome of this matter will not have a material adverse effect
on the Company.
The Company becomes involved from time to time in proceedings involving
environmental matters. See "--Environmental, Health and Safety Matters" below.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company (and the industry in which it competes) is subject to pervasive
environmental laws and regulations concerning the production of chemicals,
emissions to the air, discharges to waterways and the generation, handling,
storage, transportation, treatment and disposal of waste materials and is also
subject to other Federal and state laws and regulations regarding health and
safety matters. These laws and regulations are constantly evolving and it is
impossible to predict accurately the effect these laws and regulations will have
on the Company in the future.
Each of the Company's six production facilities has permits and licenses
regulating air emissions and water discharges. Each of these production
facilities that requires permits for the treatment, storage or disposal of
hazardous waste has interim permits. Some permits and licenses, including all
for hazardous waste treatment, storage or disposal, require that the holder meet
financial responsibility criteria. The Company meets the financial
responsibility criteria required for holding hazardous waste permits and
licenses through letters of credit from a national commercial bank and corporate
guarantees provided by MC.
It is the Company's policy to comply with all applicable environmental,
health and safety laws and regulations. The Company has management systems in
place to achieve and maintain compliance. These management systems include an
audit program designed to detect and address compliance and other performance
issues. The Company believes that it is in substantial compliance with all
applicable local, state and federal environmental laws. Nonetheless, in the
course of conducting its business, regulatory compliance issues can arise with
regard to the Company's operations or its products. In addition, environmental
laws and regulations establish requirements for recordkeeping and other
administrative efforts. Resolving such issues and satisfying recordkeeping and
other administrative requirements can require the Company to incur ongoing
operating costs and/or make capital expenditures to achieve or maintain
compliance with such laws and
42
<PAGE> 44
regulations. The Company has expended substantial funds for such compliance in
the past, and expects to continue to do so. Because the Company believes that it
is in substantial compliance with all applicable environmental laws, it does not
believe that the nature and extent of any regulatory compliance issues, the
anticipated costs to resolve such issues, or any potential penalties or fines
would, individually or in the aggregate, be material to the Company's financial
position or operations. Future requirements arising from new laws and
regulations can also give rise to additional compliance costs. The Company is
unable to predict the magnitude of its aggregate future compliance costs.
Violations of environmental permits or licenses could result in substantial
sanctions, which could be civil, criminal, or both. Violations could also result
in the revocation of such permits or licenses. In addition, the operation of any
chemical manufacturing plant entails risk of adverse environmental effect,
including exposure to chemical products and by-products from the Company's
operations.
In some cases, compliance can only be achieved by capital expenditures. In
1996, the Company spent $8.0 million for environmentally related capital
expenditures, including expenditures required to achieve compliance. For 1997,
the Company anticipates environmentally related capital expenditures of $2.5
million, and may expend up to an additional $6.2 million on projects under
consideration for funding. For periods beyond 1997, the Company cannot
accurately predict what capital expenditures will be required. Based upon
preliminary estimates of capital expenditures for environmental projects at
existing facilities and without any detailed engineering or other technical
planning, the Company broadly estimates that expenditures for 1998 and 1999 will
total $6.0 million in the aggregate.
On September 28, 1994, the U.S. EPA issued an administrative complaint
alleging that the Company's Haverhill, Ohio facility had violated regulations
issued under the Resource Conservation and Recovery Act ("RCRA") regarding the
burning of hazardous waste in boilers. The Company denied most of the
allegations and vigorously disputed the U.S. EPA's interpretation of the
applicable regulations. By letter dated April 17, 1996, the U.S. EPA notified
the Company of additional compliance issues regarding the Company's operation of
its boilers at the Haverhill Plant. The Company and the U.S. EPA have executed
an agreement, effective November 27, 1996, that resolves all outstanding issues
to both parties' satisfaction. As part of this settlement, the Company is
obligated to pay a cash penalty in the amount of $229,311. The Company is also
committed to a project relating to the Company's practice of burning hazardous
waste at Haverhill, entailing a capital expenditure and related costs of
approximately $750,000. The Company expects to complete this project by April
1997.
The Company continues to encounter problems with air pollution control
equipment recently installed at the Pasadena, Texas facility as part of its 2-EH
expansion. Although the Company is continuing its attempts to resolve these
problems, the Texas Natural Resources and Conservation Commission has suggested
that it may require the Company to revert to pre-expansion permit conditions
until the air emissions control devices are operating properly.
The Company's facilities for many years have shipped waste materials to
third party sites for treatment and/or disposal. As a result of these practices,
the Company is currently involved in investigative or cleanup projects under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
or comparable state laws at 24 sites. Based on currently available information,
the Company has reserved $3.6 million in the aggregate for its share of costs
associated with certain of these sites. No amount has been reserved for a
majority of such sites, since amounts are included only when costs are
reasonably estimable. At ten of the sites, either the regulatory agency has
indicated that no further action will be required or the Company has settled out
as a de minimis party. It is possible that the Company may be involved in future
investigations and cleanups of other sites to which the Company sent waste
materials. The Company cannot predict such future liabilities with accuracy.
RCRA requires the Company to estimate the closure and post-closure costs
for its hazardous waste treatment, storage and disposal facilities. The Company
estimates total closure and post-closure costs for its existing facilities, and
any former facilities for which the Company contractually retained liability, to
be approximately $10.0 million. The Company revises these costs at least
annually to reflect inflation, and at other times to address changed conditions.
The Company has closed hazardous waste management facilities at
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<PAGE> 45
its Linden, New Jersey and Florence, Kentucky facilities and at its former
facility at Colton, California. The Company is awaiting regulatory acceptance of
these closures and it is not known whether additional closure requirements will
be imposed. In accounting for the costs of closure and post-closure, the Company
adheres to the provisions of accruing for environmental remediation liabilities
under the criteria of FAS 5, Accounting for Contingencies. Further, the Company
believes that adoption of the AICPA's recent release of Statement of Position
96-1, Environmental Remediation Liabilities, will not have a material impact on
the Company's accounting for environmental liabilities.
The New Jersey Industrial Sites Recovery Act requires that the Company
investigate site conditions at its former manufacturing facility in Linden, New
Jersey (currently operated as a warehouse and distribution facility) to assess
the type and extent of contamination that may be present. The Company has
submitted a Remedial Investigation/Remedial Action Plan (the "Plan") to the New
Jersey Department of Environmental Protection (the "NJDEP") with respect to this
facility. The Company has performed certain remedial actions pursuant to the
Plan with the approval of the NJDEP at a cost of approximately $25,000. The
remaining remedial actions proposed by the Plan, currently estimated to cost
$775,000, have not been approved by the NJDEP. The Company cannot predict
whether the NJDEP will approve the remainder of the Plan as proposed, whether
additional cleanup conditions, if any, may be imposed, or the costs of any such
additional cleanup conditions.
The Company has been investigating an area of its former Colton, California
facility at the request of the Santa Ana Regional Water Quality Control Board.
Soil sampling has revealed residual contamination and groundwater monitoring
wells have been installed. Groundwater sampling is planned at an estimated cost
of $25,000. It is not possible to estimate the costs of further investigation or
cleanup, if any, at this time.
RCRA can also impose corrective action requirements at facilities where
hazardous waste treatment, storage and disposal occurs or has occurred.
Corrective action requirements include investigation, and remedial action for
impacted soils and groundwater. While preliminary investigations have occurred
at some of the Company's facilities, it is not possible to predict the timing or
extent of the remedial actions which ultimately might be required.
Some studies suggest that certain industrial chemicals, including
phthalates and BPA, mimic the effect of hormones in people and animals, and
adversely influence the reproductive process. Some phthalate esters have been
implicated in unverified screening tests. The Company believes that this effect
is not associated with its phthalate ester product line, based on the results of
independent and industry sponsored testing. BPA has also been implicated by the
same screening tests. To address this allegation, the Company and the other
United States BPA producers have established an extensive reproductive health
testing program that the Company believes will demonstrate that BPA does not
cause estrogenic effects in animals or humans. Newly enacted legislation
associated with the safety of drinking water and the food supply contains
requirements for performing estrogenicity screens. While BPA and certain
phthalate esters will most likely be targeted by these requirements, the Company
believes that voluntary testing completed or currently underway will mitigate or
obviate the need for additional estrogenicity testing.
Certain plasticized esters, particularly DEHP (di-ethylhexyl phthalate,
also known as dioctyl phthalate, or DOP) have been under public attention and
close scrutiny by health and environmental agencies during recent years. While
there are no government regulations in force or proposed that restrict their
marketing, sale or use, issues of public safety may eventually affect a segment
of the market for DOP plasticizers.
The chemical industry was formerly subject to the tax imposed on petroleum
and chemical feedstocks under CERCLA, which last expired December 31, 1995. The
reauthorization of this tax is anticipated and it could be retroactive to
January 1, 1996. Accordingly, the Company estimates an annualized accrual for
this tax for 1996 in the amount of $2.5 million. As under previous law, a
portion of this tax liability may be passed on to customers.
The Company's domestic competitors are subject to the same environmental,
health and safety laws and regulations and the Company believes that its issues
and potential expenditures are comparable to those faced by its major domestic
competitors. As noted in the discussion of individual product lines, the markets
for most
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<PAGE> 46
of the Company's products are very price competitive. Therefore, future
environmentally related capital expenditure requirements, liabilities and costs
could be a major factor in the Company's future sales and income, since it may
not always be possible to pass costs on to customers.
DISPOSITION OF CERTAIN BUSINESSES
COAL CHEMICALS BUSINESS
In March 1996, the Company sold to Koppers Industries, Inc. ("Koppers")
substantially all of its assets related to the production and sale of coal
chemicals (the "Coal Chemicals Business"), and Koppers assumed certain of the
liabilities in connection with the Coal Chemicals Business. The Company has
agreed to indemnify Koppers against liabilities arising from (i) breaches of the
Company's representations, warranties and covenants contained in the asset
purchase agreement and (ii) claims relating to the Coal Chemicals Business
arising out of events occurring prior to the sale. The Company's representations
and warranties expire September 30, 1997, and any claim by Koppers for
indemnification for breach of the expired representations and warranties must be
made by October 15, 1997. The Company's indemnification obligations for breaches
of representations and warranties extend only to amounts in excess of $100,000
in aggregate claims and are capped at $2.5 million in the aggregate. None of the
foregoing limitations is applicable to liabilities retained by the Company,
including, among others, the environmental liabilities described below.
Under the Reorganization Agreement dated October 14, 1986, under which the
Coal Chemicals Business was transferred from USX to the Company, USX generally
retained responsibility for pre-1986 environmental conditions on the properties.
Koppers generally assumed (with certain exceptions) all environmental
compliance, toxic exposure, environmental damage and environmental response cost
liabilities arising after 1986 with respect to the Coal Chemicals Business. The
Company retained, and agreed to indemnify Koppers for, liabilities arising from
specific listed environmental "incidents," although the Company is not aware of
any asserted or overtly threatened claims likely to lead to material liabilities
related to any of the enumerated incidents.
The Company also agreed to retain liabilities related to: (i) claims of
personal injury arising from exposure to regulated substances released between
December 4, 1986 and the sale; (ii) claims of property value diminution arising
from releases to the air of regulated substances by the Company occurring
between December 4, 1986 and the sale (but only if those claims are asserted
within 24 months of the sale); (iii) claims related to the shipment, treatment
or disposal of regulated substances at off-site locations during the period of
the Company's operations of the facilities; and (iv) enforcement actions and
penalties relating to violations of environmental laws resulting from operations
of the business or use of the property during the period of the Company's
ownership. As of the date of this Offering Memorandum, the Company is not aware
of any actual or threatened claim for indemnification arising under these
provisions.
POLYESTER BUSINESS
In April 1995, the Company sold to Ashland substantially all of its assets
related to the manufacture and sale of UPR and MA and the distribution of UPR
and other polyester products (collectively, the "Polyester Business"). Ashland
also assumed certain of the Company's liabilities in connection with the
Polyester Business. The Company retained ownership of the land underlying the
production facility for the Polyester Business located at Neville Island,
Pennsylvania. The Company continues to manufacture plasticizers at Neville
Island. Ashland generally purchased all physical assets at the Neville Island
facility primarily used in the production of UPR and MA, and the Company
retained those primarily used to manufacture plasticizers. The Company granted
to Ashland an irrevocable easement for the land beneath the structures
transferred to Ashland and certain areas around and between those structures,
and each party granted the other rights to permit access to and maintenance of
the other party's assets, as necessary.
Ashland and the Company also entered into a services agreement whereby each
agreed to supply the other with certain services related to the other party's
operations at the Neville Island facility. The prices charged for such services
are generally designed to approximate the supplier's cost of providing the
services. The services agreement contains a mutual release and indemnification
provision whereby each party, as a
45
<PAGE> 47
recipient of services, releases and indemnifies the other, as a service
provider, from and against claims arising from the acts of the service
provider's employees or claims asserted by such employees in connection with the
furnishing of services under the agreement.
The Company has agreed to indemnify Ashland against liabilities arising
from (i) breaches of the Company's representations, warranties and agreements
contained in the asset purchase agreement and related documents and (ii) the
Company's operation of the Polyester Business prior to the sale. Most of the
Company's representations and warranties have expired. The Company's aggregate
indemnification obligations for breach of any representation or warranty
(whether or not expired) are capped at $30 million. The parties' respective
obligations with respect to environmental matters are not covered by the
foregoing provisions.
With respect to environmental matters, the Company: (1) retained liability
for any claims that might be asserted regarding previous shipments of regulated
substances from the businesses to off-site treatment and disposal facilities;
(2) agreed to indemnify Ashland from enforcement proceedings or penalties
arising from alleged violations of environmental laws resulting from business
operations that may have occurred prior to the closing; and (3) agreed to make
certain modifications of the incinerator at the Jacksonville, Arkansas site to
assure compliance with applicable air quality permit requirements and
performance criteria.
With respect to the Neville Island facility: (1) the Company agreed
(subject to a number of limitations) to indemnify Ashland against claims arising
from pre-closing environmental contamination conditions, if any, and any
contamination caused by future releases from the Company's operations; (2)
Ashland agreed to indemnify the Company from environmental conditions arising
from future releases caused by Ashland; and (3) an allocation arrangement is
established under which responsibility for an environmental condition may be
shared. Because an environmental assessment has not been completed at the
Neville Island facility, the nature and extent of potential environmental
contamination has not been ascertained.
With respect to the other UPR and MA production facilities, the Company
agreed to indemnify Ashland for any required investigation and remediation of:
(1) certain former waste management units at the Colton, California site; (2)
phosphate contamination in groundwater at the Bartow, Florida site, caused by
nearby mining operations; and (3) contamination in a former waste pond at
Bartow. The Company also agreed to complete closure of certain listed former
waste management units at those production facilities, and to be responsible for
certain additional assessments or investigations of specifically identified
areas affected by various former solid waste management units and
previously-removed underground storage tanks. The Company has reserved $24,813
for the estimated costs of completing the required investigations and closure
work, although any estimate of the costs associated with certain of that work
cannot be made until further investigations have been completed. As to
remediation of environmental conditions arising from previous solid waste units,
the Company and Ashland agreed to share such expenses in excess of an annual
deductible amount, under a sliding scale that reduces the Company's share from
100% to 0% over 25 years. With respect to other environmental conditions
(including presently unknown and unidentified conditions), the Company agreed to
share with Ashland costs of additional investigations and remedial actions, with
the Company's share of such costs based on a sliding scale which decreases over
a 21-year period. Those obligations to indemnify Ashland are subject to an
annual deductible amount of $20,000 per facility and $40,000 in the aggregate.
As to the distribution facilities (all of which were leased properties),
the Company retained liability for pre-closing environmental conditions, if any,
only until the expiration of the then pending leases. The last of those leases
will expire on October 30, 1998. Special provisions govern the allocation of
responsibilities at the leased Ankeny, Iowa distribution facility, as to
contamination resulting from the former operations of the Albaugh Chemical
Company, to the extent that such matters are not covered under an
indemnification provided by the lessor of that property.
All of the Company's indemnification obligations relating to environmental
conditions at the former UPR and MA business facilities, including Neville
Island, are subject to a cap of $34.0 million, which value is escalated on a
quarterly basis based upon the producer price index. The Company's current
accrual for financial reporting purposes for known matters covered by this
indemnification is $24,813.
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<PAGE> 48
MC entered into a letter agreement with Ashland to provide certain
assurances to Ashland with respect to the Company's environmental
indemnification obligations to Ashland. The letter agreement prohibits MC, in
its capacity as a controlling stockholder of the Company, from (i) dissolving
the Company or (ii) causing the Company to transfer assets such that the value
of its remaining tangible assets falls below $40.0 million, unless MC provides
to Ashland reasonable security or other financial assurance regarding such
obligations. The letter agreement expires the earliest of (i) April 28, 2020,
(ii) effectuation by the Company of a public offering of its equity securities,
(iii) MC and its subsidiaries ceasing to own over 50% of the Company's
outstanding equity securities and (iv) the Company becoming the subject of a
bankruptcy proceeding.
Also in connection with the sale, Ashland and the Company entered into
supply contracts for the purchase and sale of MA (the "MA Supply Contract"), PA
(the "PA Supply Contract") and 2-EH (the "2-EH Supply Contract"). The MA Supply
Contract obligates the Company to purchase from Ashland all of its annual North
American consumption requirement of MA for the facilities and businesses owned
by the Company as of April 28, 1995. The PA Supply Contract obligates Ashland to
purchase from the Company all of Ashland's North American consumption
requirement of PA for the facilities and businesses owned by Ashland as of April
28, 1995. The 2-EH Supply Contract requires Ashland to purchase from the Company
all the 2-EH used by Ashland to produce UPR. The MA and PA Supply Contracts
terminate on April 28, 2000, subject to the parties' obligation to negotiate in
good faith the terms and conditions of an additional 60-month supply agreement.
The 2-EH Supply Contract has a term expiring on December 31, 1999 and continuing
from year to year thereafter unless terminated by prior notice of either party.
OLEFINS BUSINESS
In November 1987, the Company sold to Mobil Oil Corporation ("Mobil")
certain assets of the Company's olefins operations (the "Olefins Business") and
Mobil assumed certain liabilities in connection with the Olefins Business. Mobil
assumed no pre-existing environmental liabilities related to the Olefins
Business. The Company has agreed to indemnify Mobil for environmental
liabilities related to the Olefins Business existing on or prior to the sale. As
of the date of this Offering Memorandum, there are no pending or threatened
claims for indemnification arising under these provisions. With respect to
environmental claims arising from actions of parties other than the Company and
USX prior to the ownership of the Olefins Business by USX, the Company's
indemnification obligations expired in November 1992, since Mobil made no demand
for such indemnification within five years of the closing. The maximum aggregate
liability of the Company for indemnification of Mobil for environmental claims
is $5.0 million.
Mobil agreed to indemnify the Company for all environmental liabilities
related to actions taken or the failure to take actions by Mobil relating to the
Olefins Business on or after the sale.
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<PAGE> 49
MANAGEMENT
DIRECTORS
The By-Laws of the Company provide that the Board of Directors will consist
of 13 members, which number may be increased or decreased by an amendment to the
By-Laws, but in any event the number of directors may not be less than three.
There currently are nine members of the Board of Directors. The members of the
Board of Directors will serve until the 1997 annual meeting of stockholders or
until their successors are elected and qualified. The Board of Directors has
established an Executive Committee to act between meetings of the Board on all
matters which may be legally delegated to a committee of the Board. Directors of
the Company currently receive no fees or remuneration for service as a member of
the Board or any Board Committee. Information with respect to those persons who
serve as directors is set forth below:
<TABLE>
<CAPTION>
NAME, AGE AND OCCUPATION
- -----------------------------------
<S> <C>
Jiro Kamimura (61) Jiro Kamimura became Chairman and Chief Executive
Chairman and Chief Executive Officer in April 1995 and became Chairman-elect and
Officer; Member of Executive Chief Executive Officer in October 1994. Mr. Kamimura
Committee became Vice Chairman and a Director in January 1994. Mr.
Kamimura was previously the Senior Assistant to the
Senior Managing Director-- Chemicals of MC for more than
five years. Mr. Kamimura joined MC's Chemicals
Department in 1958.
Charles W. Hamilton (58) Charles W. Hamilton became President and Chief Operating
President and Chief Operating Officer on January 1, 1994 and has been a Director since
Officer; Member of Executive January 1991. Previously, he held the positions of
Committee Executive Vice President from March 1993 to January 1994
and Senior Vice President--Intermediate Chemicals and
Special Products Division from May 1989 to March 1993.
Michael J. Egan (43) Michael J. Egan became Senior Vice President, Chief
Senior Vice President and Financial Officer and a Director in April 1995.
Chief Financial Officer; Member Previously, Mr. Egan was Vice President--Planning and
of Executive Committee Control of ARCO Chemical Company--Americas from 1993 to
1995; Controller, ARCO Chemical Company from 1991 to
1993; and Controller, ARCO Alaska, Inc. from 1988 to
1991.
Masatake Bando (53) Masatake Bando became a Director in August 1996. Mr.
Director Bando has been Senior Vice President and Chief Operating
Officer-- Chemicals of MIC, since June 1996. Mr. Bando
was General Manager of Aromatics Petrochemicals
Department of MC from May 1994 to June 1996; General
Manager of Corporate Planning, Eastern Petrochemical Co.
from May 1992 to April 1994; and Deputy General Manager
of Aromatics Petrochemicals Department of MC from
January 1991 to May 1992.
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
NAME, AGE AND OCCUPATION
- -----------------------------------
<S> <C>
Hajime Koga (54) Hajime Koga became a Director in April 1990. Mr. Koga
Director; Member of Executive has been General Manager of Aristech Department and
Committee General Manager of Basic Chemicals Division B of MC
since June 1996. Mr. Koga was General Manager of
Aristech Department and Senior Assistant to Managing
Director--Chemicals of MC from June 1995 to June 1996;
General Manager of Aristech Department of MC from April
1995 to May 1995; Senior Staff of Managing
Director--Chemicals of MC from August 1994 to March
1995; Senior Vice President, Chief Operating Officer--
Chemicals of MIC from April 1993 to June 1994; and Vice
President, General Manager of Basic Chemicals Department
of MIC from September 1988 to March 1993.
Yoshizo Shimizu (61) Yoshizo Shimizu became a Director in June 1996. Mr.
Director Shimizu has been a Managing Director of MRC since 1991
and has been Executive Managing Director, Corporate
Administration Division of MRC since June 1996.
Yasuo Sone (57) Yasuo Sone became a Director in August 1996. Mr. Sone
Director has been Managing Director--Chemicals of MC since April
1996. Mr. Sone was Director and Senior Assistant to
Managing Director--Chemicals of MC from March 1995 to
March 1996; Director of MC and Executive Vice President
of MIC from June 1994 to February 1995; Executive Vice
President of MIC from April 1993 to June 1994; and
Senior Vice President, Chief Operating
Officer--Chemicals of MIC from April 1991 to March 1993.
Muneo Suzuki (57) Mr. Suzuki became a Director in July 1996. Mr. Suzuki
Director has been Managing Director and President of Industrial
Chemicals Company of MCC since June 1996. Mr. Suzuki was
Managing Director and President of Fiber Intermediates
Company of MCC from June 1995 to June 1996; Director and
President of Fiber Intermediates Company of MCC from
October 1994 to June 1995; Board Director, General
Manager of Synthetic Chemicals Division and Polyester
Division of Mitsubishi Kasei Corporation ("MKC") (a
predecessor of MCC) from January 1994 to September 1994;
Board Director, General Manager of Synthetic Chemicals
Division of MKC from June 1992 to January 1994; and
General Manager, Synthetic Chemicals Division, Organic
Chemical Products Business Group of MKC from March 1988
to June 1992.
Takayori Tsuboi (59) Takayori Tsuboi became a Director in July 1996. Mr.
Director Tsuboi has been President of Mitsubishi Chemical America
Inc. since June 1996 and Managing Director of MCC since
June 1995. Mr. Tsuboi was Managing Director,
Petrochemical Planning Department and Overseas
Department of MCC from October 1994 to June 1995;
Director, Corporate Planning Department and Management
Planning Department of Mitsubishi Petrochemical Co.,
Ltd. ("MPC") (a predecessor of MCC) from June 1993 to
September 1994; Director, Osaka branch of MPC from June
1992 to June 1993; and Director, Personnel Department of
MPC from June 1990 to June 1992.
</TABLE>
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<PAGE> 51
EXECUTIVE OFFICERS
Set forth below is certain information relating to the ages and business
experience of the non-director executive officers of the Company.
<TABLE>
<CAPTION>
NAME, AGE AND OCCUPATION
- -----------------------------------
<S> <C>
Mark K. McNally (50) Mark K. McNally became Senior Vice President, General
Senior Vice President, Counsel and Corporate Secretary in April 1995. He was
General Counsel and previously Vice President--Environmental Affairs,
Corporate Secretary Occupational Health and Safety from 1992 to 1995,
Director--Environmental Affairs, Occupational Health and
Safety from 1991 to 1992 and Senior Counsel of the
Company from 1986 to 1991.
James J. Driscoll Jr. (58) James J. Driscoll Jr. became Senior Vice
Senior Vice President--Polymers President--Polymers in June 1994. He was previously
Senior Vice President-- Thermoplastic Polymers from
March 1993 to June 1994, and was Vice President and
General Manager--Thermoplastic Polymers Division from
May 1989 to March 1993.
Charles P. Costanza (55) Charles P. Costanza became Senior Vice
Senior Vice President--Chemicals President--Chemicals in September 1996. He was
previously Vice President-- Chemicals from June 1994 to
August 1996, Vice President-- Intermediate Chemicals
from March 1993 to June 1994, and General
Manager--Dibasics and Alcohols from June 1990 to March
1993.
William D. Walston (60) William D. Walston became Treasurer in January 1994. He
Treasurer was previously Corporate Comptroller from 1986 to
January 1994.
Michael J. Prendergast (48) Michael J. Prendergast became Corporate Comptroller in
Corporate Comptroller January 1994. He was previously Director, Tax, Human
Resources and Internal Audit from May 1990 to January
1994, and Director, Tax and Internal Audit from May 1988
to May 1990.
</TABLE>
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<PAGE> 52
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation of
the Company's Chairman of the Board and Chief Executive Officer and the four
other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL LONG TERM ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1) COMPENSATION($)(2)
- ---------------------------- ---- --------- -------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Jiro Kamimura 1995 256,667(3) 0(4) 80,033(5) 0 4,239
Chairman and
Chief Executive Officer
Charles W. Hamilton 1995 270,089 271,649 -- 5,077,177 3,369
President and
Chief Operating Officer
James J. Driscoll 1995 213,335 214,895 -- 1,233,438 4,136
Senior Vice President--
Polymers
Mark K. McNally 1995 164,308 165,868 -- 785,927 3,042
Senior Vice President,
General Counsel and
Corporate Secretary
Charles P. Costanza 1995 160,000 161,560 -- 726,016 3,636
Senior Vice President--
Chemicals
</TABLE>
- ---------
(1) Reflects cash payments under the Company's Performance Option Plan ("POP")
and, in the case of Mr. Hamilton, includes cashout of restricted stock and
anti-dilution options. The POP was a long-term, performance-based
compensation plan established as a successor to a stock option plan which,
along with restricted stock and anti-dilution stock option arrangements, was
implemented in 1990 in connection with the going-private transaction
effected by MC, certain other investors and certain members of management of
the Company. The POP and the other arrangements were terminated and paid out
in 1995.
(2) Includes matching contributions under the Company's 401(k) plan, allowances
under the Company's welfare cafeteria plan and the cost of group-term life
insurance in excess of $50,000 of coverage.
(3) Pursuant to an agreement between MC and Mr. Kamimura, Mr. Kamimura remits to
MC quarterly the amount necessary to reconcile his total compensation to the
MC executive pay scale.
(4) Mr. Kamimura does not participate in the Company's bonus plans, nor in any
of the Company's executive benefit plans.
(5) Includes reimbursement of $69,633 for Mr. Kamimura's housing cost and
related costs and $10,400 for his automobile expenses.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with Messrs.
Hamilton, Egan, Driscoll, McNally and Costanza. Each such agreement has an
initial term of three years, subject to automatic annual renewals, but the
agreements will become operative only if and when a change in control (as
defined in the agreements) occurs during the term of the agreement or if the
executive's employment is terminated in connection with or in anticipation of a
change in control. From the date of any change in control until the third
anniversary of such date the executive shall be entitled to remain employed by
the Company and receive compensation at least as favorable as that in effect
prior to the change in control.
Upon a discharge of the executive other than for cause (as defined in the
agreements) or a resignation by the executive for good reason (as defined in the
agreements) during this three-year employment period, the
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<PAGE> 53
executive will be entitled to receive (i) payment of certain obligations accrued
at the effective date of termination (e.g., salary, earned but unpaid bonus,
vacation pay and other cash entitlements), (ii) benefits payable under plans,
practices, programs and policies of the Company and (iii) a lump sum cash
payment consisting of: (a) a proportionate bonus based upon the executive's
average bonus for the three most recent completed fiscal years and (b) the
product of 2.99 times the sum of the executive's base salary and the executive's
average bonus for the three most recent completed fiscal years. In addition, the
executive is entitled to continued employee welfare benefits for three years
after the date of termination. Payments under the agreements are capped so that
no excise tax will be payable under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), provided that this cap will only
apply if it results in the executive receiving greater benefits on an after-tax
basis than if the cap does not apply.
PENSION BENEFITS
The Company maintains the Aristech Salaried Pension Plan (the "Salaried
Pension Plan") for eligible salaried employees not otherwise covered by hourly
or pre-existing special purpose pension plans. The Salaried Pension Plan is a
non-contributory defined benefit plan for salaried employees who were
participants in the USX Employee Pension Plan on December 4, 1986, and new
salaried employees on the first of January following date of hire. Benefits
under the Salaried Pension Plan are payable in the form of a monthly annuity or
lump sum.
The Company adopted the 1996 Supplemental Pension Plan (the "Supplemental
Pension Plan") effective February 22, 1996 to provide certain supplemental
pension benefits on a nonqualified basis to key employees designated as eligible
by the Board of Directors. A grantor trust established with Wachovia Bank of
North Carolina, N.A. allows for the accumulation of assets to pay benefits under
the Supplemental Pension Plan. Benefits under the Supplemental Pension Plan are
payable in the form of a monthly annuity or lump sum.
The following table shows the total annual non-contributory pension
benefits for retirement at age 65 (or earlier under certain circumstances) under
the Salaried Pension Plan and the Supplemental Pension Plan, before any
deduction for Social Security and certain other government-administered
benefits, where applicable, and reductions for benefits payable under the USX
Employee Pension Plan or certain other pre-existing pension plans or benefit
plans, for various levels of covered compensation which would be payable to
employees retiring with representative years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED --------------------------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- ------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000................. $ 56,250 $ 62,500 $ 68,750 $ 75,000 $ 81,250 $ 87,500
150,000................. 67,500 75,000 82,500 90,000 97,500 105,000
175,000................. 78,750 87,500 96,250 105,000 113,750 122,500
200,000................. 90,000 100,000 110,000 120,000 130,000 140,000
225,000................. 101,250 112,500 123,750 135,000 146,250 157,500
250,000................. 112,500 125,000 137,500 150,000 162,500 175,000
300,000................. 135,000 150,000 165,000 180,000 195,000 210,000
350,000................. 157,500 175,000 192,500 210,000 227,500 245,000
400,000................. 180,000 200,000 220,000 240,000 260,000 280,000
450,000................. 202,500 225,000 247,500 270,000 292,500 315,000
</TABLE>
Covered compensation for purposes of the Salaried Pension Plan includes
salary and some other forms of compensation from the Company, but excludes
executive bonuses, merit bonuses, performance bonuses and other recognition-type
payments. Benefits under the Salaried Pension Plan are offset by benefits
payable under the USX Employee Pension Plan, but are not offset by Social
Security benefits. Covered compensation under the Supplemental Pension Plan
includes base salary and incentive compensation. Benefits under the Supplemental
Pension Plan are offset by benefits payable under the Salaried Pension Plan, the
USX
52
<PAGE> 54
Employee Pension Plan and 50% of the participant's Social Security old age
insurance benefits. As of December 1, 1996, Messrs. Hamilton, Driscoll, McNally
and Costanza had 35, 25, 17 and 28 years of service, respectively, and $324,953,
$258,408, $178,055 and $160,495 in covered compensation, respectively, for
purposes of the Supplemental Pension Plan.
Mr. Kamimura participates in the Salaried Pension Plan but not the
Supplemental Pension Plan. For purposes of the Salaried Pension Plan, Mr.
Kamimura has two years of service and covered compensation of $150,000. The
following table shows the total annual non-contributory pension benefits for
retirement at age 65 (or earlier under certain circumstances) under the Salaried
Pension Plan, before any deduction for Social Security and certain other
government-administered benefits, where applicable, and reductions for benefits
payable under the USX Employee Pension Plan or certain other pre-existing
pension plans or benefit plans, for various levels of covered compensation which
would be payable to employees retiring with representative years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED --------------------------------------------------------------------------------------
COMPENSATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------ -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$125,000............... $ 9,375 $18,750 $28,125 $37,500 $46,875 $56,250 $65,625
150,000............... 11,250 22,500 33,750 45,000 56,250 67,500 78,750
</TABLE>
Directors who have not been employees of the Company will not receive any
benefits under the Salaried Pension Plan or the Supplemental Pension Plan.
53
<PAGE> 55
STOCKHOLDERS OF THE COMPANY
The following table sets forth certain information concerning the
beneficial ownership of shares of Common Stock as of September 30, 1996 by each
person known to the Company to be a beneficial owner of outstanding Common
Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF STOCKHOLDER SHARES CLASS
- ------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Mitsubishi Corporation 11,589(1) 77.73%(1)
6-3, Marunouchi 2-Chome
Chiyoda-Ku, Tokyo 100..............................................
Mitsubishi Chemical Corporation(2) 2,200 14.76%
Mitsubishi Building
5-2, Marunouchi 2-Chome
Chiyoda-Ku, Tokyo 100..............................................
Mitsubishi International Corporation 678 4.55%
520 Madison Avenue
New York, NY 10022.................................................
Mitsubishi Rayon Co., Ltd.(2) 441 2.96%
3-19, Kyobashi 2-Chome
Chuo-Ku, Tokyo 104.................................................
--------- ----------
Total.................................................... 14,908 100.00%
</TABLE>
- ---------
(1) Excludes 678 shares held by MIC, a New York corporation and a wholly owned
subsidiary of MC. Including the shares owned by MIC, MC beneficially owns
82.3% of the outstanding Common Stock.
(2) MC does not have a controlling interest in either MCC or MRC.
CERTAIN TRANSACTIONS
In August 1994, the Company refinanced its original credit arrangements
entered into in connection with the going-private transaction in 1990 as well as
a subordinated loan entered into in March 1994, through a combination of loans
provided by MC, MIC and certain commercial banks. The Company entered into the
MC Term Loan in August 1994, which provides for a term loan in the amount of
$203.0 million and which has a maturity date of July 31, 2002. As of September
30, 1996, $100.0 million was outstanding under the MC Term Loan. Since January
1, 1995, the largest aggregate amount outstanding under the MC Term Loan was
$203.0 million. Interest was payable on the MC Term Loan at a variable rate
equal to LIBOR plus a margin of 1.375% for loans extending to June 3, 1996 and a
margin of 0.55% for loans from June 3, 1996 and thereafter. The weighted average
interest rate for 1995 was 7.4%. Effective November 1, 1996, the interest rate
for the MC Term Loan declined to LIBOR plus a margin of .4875%.
The MIC Term Loan entered into in August 1994 provided for a term loan in
the principal amount of $100.0 million, all of which was outstanding as of
September 30, 1996. The MIC Term Loan had a maturity date of March 31, 1997 and
was prepaid in its entirety with a portion of the proceeds from the sale of the
Old Notes and terminated. Interest was payable on the MIC Term Loan at a
variable rate equal to LIBOR plus a margin of 0.15%, which resulted in a
weighted average interest rate of 6.2% for 1995. The MIC Revolving Loan entered
into in August 1994 provided for revolving credit loans in the aggregate
principal amount of $100.0 million. In January 1995 the Company's commercial
bank financing was repaid in its entirety and the revolving loan commitment of
MIC under the MIC Revolving Loan was increased from $100.0 million to $250.0
million. Since January 1, 1995, the largest aggregate amount outstanding under
the MIC Revolving Loan was $235.0 million. Interest was payable on the MIC
Revolving Loan during 1995 at a variable rate equal to LIBOR plus a margin of
0.15%, which resulted in a weighted average interest rate of 6.2% for 1995. The
MIC Revolving Loan currently provides for a commitment in the principal amount
of $150.0 million with
54
<PAGE> 56
a final maturity date of April 18, 2002. As of September 30, 1996, $137.0
million was outstanding under the MIC Revolving Loan. Effective with the
settlement date of the Old Notes, (i) $100.0 million in principal amount of the
revolving loan commitment terminated, and (ii) the interest rate for the MIC
Revolving Loan increased to LIBOR plus a margin of .1875%. On January 4, 1995,
the Company also entered into the Old Working Capital Facility in the principal
amount of $20.0 million with PNC Bank, National Association and The Chase
Manhattan Bank to manage its daily working capital fluctuations. The Old Working
Capital Facility had $5.0 million outstanding as of September 30, 1996. The
Company has replaced the Old Working Capital Facility with the $50.0 million New
Working Capital Facility.
MC guaranteed the MIC Term Loan, the MIC Revolving Loan and the Old Working
Capital Facility. In consideration of the guarantee, the Company has agreed to
pay MC a guarantee fee calculated on a daily basis in an amount equal to 0.60%
of the outstanding balance under these Loans for Loans extending to June 3, 1996
and in an amount equal to 0.30% for Loans effective June 3, 1996 and thereafter.
The fee is payable semiannually. Guarantee fees of $1.9 million and $0.9 million
were paid in 1995 and for the nine months ended September 30, 1996,
respectively.
In March 1995, the Company repurchased all of the shares of Common Stock
held by Blackstone Capital Partners, L.P., Blackstone Family Investment
Partnership, L.P. and certain individuals who were then directors and executive
officers of the Company, including Charles W. Hamilton, currently President and
Chief Operating Officer of the Company, for an aggregate purchase price of
approximately $74.5 million, which amount had been determined through
negotiations among the parties in 1993. To fund the purchase of such shares, MC
and MIC concurrently purchased from the Company an equivalent amount of Common
Stock. MC and MIC purchased at the same per share price an additional $3.0
million in shares of Common Stock at the same time, representing shares of
Common Stock which had been repurchased by the Company in prior years.
On September 30, 1996, pursuant to the Company's call for redemption of all
of the outstanding Payment-in-Kind Debentures and Series A Preferred Stock, an
aggregate of $24.4 million in principal amount of Payment-in-Kind Debentures and
$6.1 million in stated value of Series A Preferred Stock held by MRC were
redeemed for cash. In addition, an aggregate of $130.9 million in principal
amount of Payment-in-Kind Debentures and $32.7 million in stated value of Series
A Preferred Stock held by MC and MIC, and an aggregate of $48.7 million in
principal amount of Payment-in-Kind Debentures and $12.2 million in stated value
of Series A Preferred Stock held by MCC, were converted into shares of Common
Stock in accordance with the terms of the securities.
During the year ended December 31, 1995, MC and MIC also engaged in
transactions in the ordinary course of business with the Company for the
purchase or sale of raw materials or finished products in the aggregate amount
of $100.6 million.
55
<PAGE> 57
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes are to be issued under an
Indenture, dated as of November 1, 1996 (as amended and supplemented from time
to time, the "Indenture"), between the Company and The Chase Manhattan Bank, as
trustee (the "Trustee"). The following summaries of certain provisions of the
Indenture, the Old Notes and the New Notes do not purport to be complete and are
subject to and are qualified in their entirety by reference to all of the
provisions of the Indenture, the Old Notes and the New Notes, which provisions
of the Indenture, the Old Notes and the New Notes, are incorporated herein by
reference. Capitalized terms used herein and not otherwise defined in this
Prospectus shall have the meaning ascribed thereto in the Indenture. The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. A copy of the Indenture is available upon request
from the Company. See "Available Information."
The Indenture does not limit the aggregate principal amount of senior debt
securities which may be issued thereunder and provides that senior debt
securities may be issued thereunder from time to time in one or more series. The
senior debt securities which may be issued under the Indenture (including the
Old Notes and the New Notes) are collectively referred to herein as the
"Securities."
The Old Notes and the New Notes will constitute a single series of
Securities under the Indenture. If the Exchange Offer is consummated, holders of
Old Notes who do not exchange their Old Notes for New Notes will vote together
with holders of the New Notes for all relevant purposes under the Indenture. In
that regard, the Indenture requires that certain actions by the holders
thereunder (including acceleration following an Event of Default) must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding debt securities of the relevant
series. In determining whether holders of the requisite percentage in principal
amount have given any notice, consent or waiver or taken any other action
permitted under the Indenture, any Old Notes which remain outstanding after the
Exchange Offer will be aggregated with the New Notes and the holders of such Old
Notes and the New Notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding Notes shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the Old Notes and the New Notes then outstanding.
The New Notes will be unsecured senior obligations of the Company and will
be limited to an aggregate principal amount of $150,000,000. Each New Note will
bear interest at the rate of 6 7/8% per annum from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such New Note or, if no interest has been paid or duly provided for
on such Old Note, from November 25, 1996, payable semiannually on May 15 and
November 15 in each year (each, an "Interest Payment Date"), commencing with the
first Interest Payment Date occurring after the date of original issuance of
such New Note, to the person in whose name such New Note is registered at the
close of business on the April 30 or October 31 next preceding such Interest
Payment Date. Interest on the New Notes will be calculated on the basis of a
360-day year of twelve 30-day months. The New Notes will mature on November 15,
2006. The New Notes will not be redeemable prior to maturity and will not be
subject to any sinking fund.
The New Notes will not provide for any increase in the interest rate
thereon. For a discussion of the circumstances in which the interest rate on the
Old Notes may be adjusted, see "Description of the Old Notes."
All moneys paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and interest on any New Note which remain unclaimed for
two years after such principal or interest shall have become due and payable may
be repaid to the Company and thereafter the holder of such New Note shall look
only to the Company for payment thereof.
56
<PAGE> 58
FORM, DENOMINATION AND REGISTRATION
The New Notes will be issued only in fully registered form, without
coupons, in minimum denominations of $1,000 and any integral multiple of $1,000
in excess thereof. The New Notes will be deposited with, or on behalf of, DTC.
The New Notes will be represented by one or more Global Notes registered in the
name of Cede & Co., as nominee of DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of these ownership interests will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture and the New Notes. In addition, no beneficial owner
of an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures (in addition to those under the
Indenture referred to herein).
Payments on Global Notes will be made to DTC or its nominee, as the
registered owner thereof. Neither the Company, the Trustee nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee will credit direct
participants' accounts on the payable date with payments in respect of a Global
Note in amounts proportionate to their respective beneficial interest in the
principal amount of such Global Note as shown on the records of DTC or its
nominee, unless DTC has reason to believe that it will not receive payment on
the payable date. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name." Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with
DTC rules. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
beneficial interests in a Global Note to such persons may be limited. Because
DTC can only act on behalf of participants, who in turn act on behalf of
indirect participants (defined below) and certain banks, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate of such interest.
The Company believes that it is the policy of DTC that it will take any
action permitted to be taken by a holder of New Notes only at the direction of
one or more participants to whose account interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the New Notes as to which such participant or participants has or have given
such direction.
The Indenture provides that if (i) the Depository notifies the Company that
it is unwilling or unable to continue as Depository or if the Depository ceases
to be eligible under the Indenture and a successor depository is not appointed
by the Company within 90 days of written notice, (ii) the Company determines
that the New Notes shall no longer be represented by Global Notes and executes
and delivers to the Trustee a Company Order to such effect or (iii) an Event of
Default with respect to the New Notes shall have occurred and be continuing, the
Global Notes will be exchanged for New Notes in definitive form of like tenor
and of an equal aggregate principal amount, in authorized denominations. Such
definitive New Notes shall be registered in such name or names as the Depository
shall instruct the Trustee. It is expected that such instructions may be based
upon directions received by the Depository from participants with respect to
ownership of beneficial interests in Global Notes.
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<PAGE> 59
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC and facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its direct participants, including the Initial Purchasers, and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly ("indirect participants"). The rules
applicable to DTC and its participants are on file with the Commission.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
RANKING
The Old Notes constitute, and the New Notes will constitute, unsecured
senior indebtedness of the Company and rank and will rank pari passu with all
other unsecured senior indebtedness of the Company for borrowed money. The
Company currently has outstanding no secured or unsecured indebtedness ranking
senior to the Notes.
CERTAIN COVENANTS
The Indenture does not limit the amount of indebtedness or lease
obligations that may be incurred by the Company and its subsidiaries. The
Indenture does not contain provisions which would give holders of the Securities
(including the Notes) the right to require the Company to repurchase their
Securities in the event of a decline in the credit rating of the Company's debt
securities resulting from a change in control, recapitalization or similar
restructuring.
LIMITATION ON LIENS
In the Indenture, the Company covenants that, so long as the Notes and any
other applicable series of Securities are outstanding, it will not, nor will it
permit any Restricted Subsidiary (as defined below) to, create, incur, assume or
guarantee any Debt (as defined below) that is secured by a mortgage, pledge,
lien, security interest or other encumbrance (a "Lien") on any property
(including shares of capital stock or Debt) of the Company or any Restricted
Subsidiary, whether now owned or hereafter acquired, without in any such case
effectively providing, concurrently with the creation, incurrence, assumption or
guarantee of any such Debt, that the Notes and any other applicable series of
Securities shall, so long as such other Debt is so secured (and, if the Company
shall so determine, any other existing Debt (or Debt thereafter in existence)
created, incurred, assumed or guaranteed by the Company or any Restricted
Subsidiary), be secured by any such Lien equally and ratably with or prior to
any and all other Debt thereby secured; provided that Debt secured by such Liens
may be created, incurred, assumed or guaranteed, without equally and ratably
securing the Notes and any other applicable series of Securities, if the
aggregate principal amount of all Debt then outstanding secured by Liens on
property (including shares of capital stock or Debt) of the Company and of any
Restricted Subsidiary (not including Debt described in (i) through (viii) below)
plus Attributable Debt (as defined below) of the Company and its Restricted
Subsidiaries in respect of sale/leaseback transactions described under
"Limitation on Sale/Leaseback Transactions" below that would otherwise be
subject to the
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<PAGE> 60
restrictions described under "Limitation on Sale/Leaseback Transactions" below,
does not at the time such Debt is incurred exceed 15% of Consolidated Net
Tangible Assets (as defined below).
The foregoing restrictions shall not apply to Debt secured by (i) Liens on
property of the Company or any Restricted Subsidiary existing on the date of
original issuance of the Notes or such other applicable series of Securities
issued pursuant to the Indenture or such other date as may be specified for an
applicable series of Securities issued pursuant to the Indenture; (ii) Liens on
property acquired by the Company or any Restricted Subsidiary (including
acquisition through merger or consolidation); provided that such Liens were in
existence prior to and were not created in contemplation of such acquisition and
shall not extend to any other property of the Company or any Restricted
Subsidiary; (iii) Liens on property (including in the case of a plant or
facility, the land on which it is erected and fixtures comprising a part
thereof) of the Company or any Restricted Subsidiary securing the payment of all
or any part of the purchase price or construction cost thereof or securing any
Debt created, incurred, assumed or guaranteed prior to or at the time of the
acquisition of such property or the completion of such construction, whichever
is later, for the purpose of financing all or any part of the purchase price or
construction cost thereof (provided, in the case of Liens securing the payment
of all or any part of the purchase price of any property of the Company or any
Restricted Subsidiary, as the case may be, or securing any Debt created,
incurred, assumed or guaranteed for the purposes of financing all or any part of
such purchase price, such Liens are limited to the property then being acquired
and fixed improvements thereon and the capital stock of any Person formed to
acquire such property and provided, further, in the case of Liens securing the
payment of all or any part of the construction cost of any property of the
Company or any Restricted Subsidiary, as the case may be, or securing any Debt
created, incurred, assumed or guaranteed for the purpose of financing all or any
part of such construction cost, such Liens are limited to the assets or property
then being constructed and the land on which such property is erected and
fixtures comprising a part thereof); (iv) Liens on property of the Company or
any Restricted Subsidiary to secure all or any part of the cost of development,
construction, alteration, repair or improvement of all or any part of such
property, or to secure Debt created, incurred, assumed or guaranteed prior to or
at the time of the completion of such development, construction, alteration,
repair or improvement, whichever is later, for the purpose of financing all or
any part of such cost (provided such Liens do not extend to or cover any
property of the Company or any Restricted Subsidiary other than the property
then being developed, constructed, altered, repaired or improved and the land on
which such property is erected and fixtures comprising a part thereof); (v)
Liens in favor of the Company or a Restricted Subsidiary securing Debt of the
Company or a Restricted Subsidiary; (vi) Liens created in connection with tax
assessments or legal proceedings and mechanic's and materialman's liens and
other similar liens created in the ordinary course of business; (vii) Liens on
property of the Company or any Restricted Subsidiary (except Liens on the
capital stock or Debt of the Company or any Restricted Subsidiary) in favor of
the United States of America or any State thereof, or any department, agency or
instrumentality or political subdivision of either, or in favor of any other
country, or any department, agency or instrumentality or political subdivision
thereof, in each case to secure payments pursuant to contract or statute or to
secure Debt created, incurred, assumed or guaranteed for the purpose of
financing all or any part of the purchase price or the cost of construction or
improvement of the property subject to such Liens, including Liens created in
connection with pollution control, industrial revenue bond or other similar
financing; and (viii) certain permitted extensions, renewals or replacements (or
successive extensions, renewals or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses (i) through (vii), inclusive.
For purposes of the "Limitation on Liens" covenant described herein, the
creation of a Lien on property (including shares of capital stock or Debt) of
the Company or of any Restricted Subsidiary to secure Debt which existed prior
to the creation of such Lien will be deemed to involve the creation of Debt
secured by a Lien in an amount equal to the principal amount secured by such
Lien.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Indenture provides that neither the Company nor any Restricted
Subsidiary will enter into any arrangement after the date of original issuance
of the Notes or any other applicable series of Securities issued pursuant to the
Indenture, or such other date as may be specified for an applicable series of
Securities issued pursuant to the Indenture, with any Person (other than the
Company or a Restricted Subsidiary) providing for
59
<PAGE> 61
the leasing to the Company or a Restricted Subsidiary for a period of more than
three years of any property which has been, or is to be, sold or transferred by
the Company or such Restricted Subsidiary to such Person or to any Person (other
than the Company or a Restricted Subsidiary) to which funds have been or are to
be advanced by such Person on the security of the leased property unless either
(a) the Company or such Restricted Subsidiary would be permitted, pursuant to
the provisions described under "Limitations on Liens" above, to incur Debt in a
principal amount equal to or exceeding the Attributable Debt in respect of such
sale/leaseback transaction, secured by a Lien on the property to be leased,
without equally and ratably securing the Notes and other applicable series of
Securities; (b) since the date of the Indenture and within a period commencing
six months prior to the consummation of such arrangement and ending six months
after the consummation thereof, the Company or such Restricted Subsidiary has
expended or will expend for any property (including amounts expended for the
acquisition thereof and for additions, alterations, improvements and repairs
thereto) an amount up to the net proceeds of such arrangement and the Company
elects to designate such amount as a credit against such arrangement (with any
such amount not being so designated to be applied as set forth in (c) below); or
(c) the Company, during or immediately after the expiration of the 12 months
after the consummation of such transaction, applies or causes such Restricted
Subsidiary to apply to the voluntary retirement, redemption or defeasance of
Securities of any series or other Funded Debt (as defined below) of the Company
(other than Funded Debt subordinated to the Securities) or Funded Debt of such
Restricted Subsidiary an amount equal to the greater of the net proceeds of the
sale or transfer of the property leased in such transaction and the fair value,
in the opinion of the Board of Directors of the Company, of such property at the
time of entering into such transaction (in either case adjusted to reflect the
remaining term of the lease and any amount utilized by the Company as set forth
in (b) above), less an amount equal to the principal amount of any such Funded
Debt of the Company or such Restricted Subsidiary, other than Securities,
voluntarily retired by the Company or such Restricted Subsidiary during such 12
month period.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company may not (i) consolidate with or
merge into any Person or convey, transfer or lease its properties and assets as
an entirety or substantially as an entirety to any Person, or (ii) permit any
Person to consolidate with or merge into the Company, or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to the Company, unless (a) in the case of (i) above, such Person is organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia and shall expressly assume, by supplemental
indenture satisfactory in form to the Trustee, the due and punctual payment of
the principal of and premium, if any, and interest on all of the Securities,
including the Notes, and the performance of the Company's obligations under the
Indenture and the Securities, including the Notes; (b) immediately after giving
effect to such transaction and treating any indebtedness which becomes an
obligation of the Company or a Subsidiary as a result of such transaction as
having been incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default, and no event which after notice or lapse of
time or both would become an Event of Default, shall have happened and be
continuing; and (c) certain other conditions are met.
DEFINITION OF CERTAIN TERMS
The term "Attributable Debt" as used in the Indenture means, in respect of
any sale/leaseback transaction described under "Limitation on Sale/Leaseback
Transactions" above, at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by the lessee of
the property subject to such sale/leaseback transaction under the lease included
in such transaction during the remaining term thereof (including any period for
which such lease has been extended), discounted from the respective due dates
thereof to such date at the rate per annum of 10%, compounded semi-annually. The
net amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of the rent payable by the lessee with respect to
such period after excluding amounts required to be paid on account of
maintenance and repairs, services, insurance, taxes, assessments, water rates
and similar charges and contingent rents (such as those based on sales). In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount of rent shall include the lesser of (i) the total
discounted net amount of rent required to be paid from the later of the first
date upon which such lease may be so terminated
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or the date of the determination of such amount of rent, as the case may be, and
(ii) the amount of such penalty (in which event no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated).
The term "Consolidated Net Tangible Assets" as used in the Indenture means,
as of any particular time, the aggregate amount of the Consolidated Assets (as
defined in the Indenture) of the Company and its Restricted Subsidiaries (less
depreciation, amortization and other applicable reserves and other items
deductible therefrom under generally accepted accounting principles) after
deducting therefrom (i) all current liabilities (excluding any which are by
their terms extendible or renewable at the option of the obligor to a time more
than 12 months after the time as of which the amount is being computed), (ii)
all goodwill, tradenames, trademarks, patents and other intangibles, in each
case net of applicable amortization, and (iii) appropriate adjustments on
account of minority interests of other Persons holding stock of Restricted
Subsidiaries, all as would be shown on a consolidated balance sheet of the
Company and its Restricted Subsidiaries, prepared in accordance with generally
accepted accounting principles, as of the date of the most recent quarterly
consolidated balance sheet of the Company and its subsidiaries, prepared in
accordance with generally accepted accounting principles, provided that, in the
case of a balance sheet as of the end of the first, second or fourth quarterly
fiscal periods of the Company, the date of such balance sheet is not more than
135 days prior to the date of determination and, in the case of a balance sheet
as of the end of the third quarterly fiscal period of the Company, the date of
such balance sheet is not more than 180 days prior to the date of determination.
The term "Debt" as used in the Indenture means (a) any liability of the
Company or any Restricted Subsidiary (1) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, or (2) evidenced by a
bond, note, debenture or similar instrument, or (3) for payment obligations
arising under any conditional sale or other title retention arrangement
(including a purchase money obligation) given in connection with the acquisition
of any businesses, properties or assets of any kind, or (4) for the payment of
money relating to a capitalized lease obligation; (b) any liability of others of
a type described in the preceding clause (a) that the Company or any Restricted
Subsidiary has guaranteed or that is otherwise its legal liability; and (c) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (a) and (b) above.
The term "Funded Debt" as used in the Indenture means indebtedness created,
assumed or guaranteed by a Person for money borrowed which matures by its terms,
or is renewable by the borrower to a date, more than 12 months after the date of
original creation, assumption or guarantee.
The term "Restricted Subsidiary" as used in the Indenture means any
Subsidiary other than Avonite; provided that, notwithstanding the foregoing,
Avonite shall be deemed a "Restricted Subsidiary" for purposes of the Indenture
from and after such time as (i) the Company and/or one or more Subsidiaries owns
or controls directly or indirectly 100% of the outstanding shares of Avonite's
Voting Stock (except for qualifying shares) or (ii) the Company's and its other
Subsidiaries' proportionate share of the total assets (after intercompany
eliminations) of Avonite exceeds 10% of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year or (iii) the Company's and its other Subsidiaries' equity in the income
from continuing operations, before income taxes, interest expense, extraordinary
items and cumulative effect of a change in accounting principle, of Avonite
exceeds 10% of such income of the Company and its Subsidiaries consolidated for
the most recently completed fiscal year.
The term "Subsidiary" as used in the Indenture means any corporation of
which at the time of determination the Company and/or one or more Subsidiaries
owns or controls directly or indirectly more than 50% of the voting power of the
shares of its Voting Stock.
The term "Voting Stock" as used in the Indenture means stock of a
corporation of the class or one of the classes having general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of such corporation (irrespective of whether or not at the
time stock of any other class or classes has or might have voting power by
reason of the happening of any contingency).
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EVENTS OF DEFAULT
Each of the following events will constitute an Event of Default with
respect to any series of Securities, including the Notes, issued under the
Indenture (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body): (i) default in the payment of any interest
on any Security of such series, or any Additional Amounts payable with respect
thereto, when such interest becomes or such Additional Amounts become due and
payable, and continuance of such default for a period of 30 days; (ii) default
in the payment of the principal of or any premium on any Security of such
series, or any Additional Amounts payable with respect thereto, when such
principal or premium becomes or such Additional Amounts become due and payable
either at maturity, upon any redemption, by declaration of acceleration or
otherwise; (iii) default in the deposit of any sinking fund payment, when and as
due by the terms of any Security of such series; (iv) default in the
performance, or breach, of any covenant or warranty of the Company contained in
the Indenture for the benefit of such series or in the Securities of such
series, and the continuance of such default or breach for period of 60 days
after there has been given written notice as provided in the Indenture; (v) if
any event of default as defined in any mortgage, indenture or instrument under
which there may be issued, or by which there may be secured or evidenced, any
Debt of the Company, whether such Debt now exists or shall hereafter be created,
shall happen and shall result in such Debt in principal amount in excess of
$25,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable, and such acceleration shall not
be rescinded or annulled within a period of 30 days after there shall have been
given written notice as provided in the Indenture; (vi) the Company shall fail
within 60 days to pay, bond or otherwise discharge any uninsured judgment or
court order for the payment of money in excess of $25,000,000, which is not
stayed on appeal or is not otherwise being appropriately contested in good
faith; (vii) certain events in bankruptcy, insolvency or reorganization of the
Company; and (viii) any other Event of Default provided in or pursuant to the
Indenture with respect to Securities of such series.
If an Event of Default with respect to the Securities of any series (other
than an Event of Default described in (vii) of the preceding paragraph) occurs
and is continuing, either the Trustee or the holders of at least 25% in
principal amount of the outstanding Securities of such series by written notice
as provided in the Indenture may declare the principal amount (or such lesser
amount as may be provided for in the Securities of such series) of all
outstanding Securities of such series to be due and payable immediately. At any
time after a declaration of acceleration has been made, but before a judgment or
decree for payment of money has been obtained by the Trustee, and subject to
applicable law and certain other provisions of the Indenture, the holders of a
majority in aggregate principal amount of the Securities of such series may,
under certain circumstances, rescind and annul such acceleration. An Event of
Default described in (vii) of the preceding paragraph shall cause the principal
amount and accrued interest (or such lesser amount as provided for in the
Securities of such series) to become immediately due and payable without any
declaration or other act by the Trustee or any holder.
The Indenture provides that, within 90 days after the occurrence of any
event which is, or after notice or lapse of time or both would become, an Event
of Default thereunder with respect to the Securities of any series (a
"default"), the Trustee shall transmit, in the manner set forth in the
Indenture, notice of such default to the holders of the Securities of such
series unless such default has been cured or waived; provided, however, that
except in the case of a default in the payment of principal of, or premium, if
any, or interest, if any, on, or Additional Amounts or any sinking fund or
purchase fund installment with respect to, any Security of such series, the
Trustee may withhold such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the best interest of the holders of Securities of such series; and
provided, further, that in the case of any default of the character described in
(v) of the second preceding paragraph, no such notice to holders will be given
until at least 30 days after the occurrence thereof.
If an Event of Default occurs and is continuing with respect to the
Securities of any series, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of Securities of such
series by all appropriate judicial proceedings.
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The Indenture provides that, subject to the duty of the Trustee during any
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of Securities, unless such holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, and subject to applicable law
and certain other provisions of the Indenture, the holders of a majority in
aggregate principal amount of the outstanding Securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee, with respect to the Securities of such series.
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Securities of each series affected
thereby; provided, however, that no such modification or amendment may, without
the consent of the holder of each outstanding Security affected thereby, (a)
change the Stated Maturity of the principal of, or any premium or installment of
interest on, or any Additional Amounts with respect to, any Security, (b) reduce
the principal amount of, or the rate (or modify the calculation of such rate) of
interest on, or any Additional Amounts with respect to, or any premium payable
upon the redemption of, any Security, (c) change the obligation of the Company
to pay Additional Amounts with respect to any Security or reduce the amount of
the principal of an Original Issue Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof or the amount
thereof provable in bankruptcy, (d) change the redemption provisions of any
Security or adversely affect the right of repayment at the option of any holder
of any Security, (e) change the place of payment or the coin or currency in
which the principal of, any premium or interest on or any Additional Amounts
with respect to any Security is payable, (f) impair the right to institute suit
for the enforcement of any payment on or after the Stated Maturity of any
Security (or, in the case of redemption, on or after the Redemption Date or, in
the case of repayment at the option of any holder, on or after the date for
repayment), (g) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose holders is required in order to take certain
actions, (h) reduce the requirements for quorum or voting by holders of
Securities in Section 15.4 of the Indenture, (i) modify any of the provisions in
the Indenture regarding the waiver of past defaults and the waiver of certain
covenants by the holders of Securities except to increase any percentage vote
required or to provide that certain other provisions of the Indenture cannot be
modified or waived without the consent of the holder of each Security affected
thereby, (j) make any change that adversely affects the right to convert or
exchange any Security into or for common stock of the Company or other
securities in accordance with its terms, or (k) modify any of the above
provisions.
The holders of at least a majority in aggregate principal amount of the
Securities of any series may, on behalf of the holders of all Securities of such
series, waive compliance by the Company with certain restrictive provisions of
the Indenture. The holders of not less than a majority in aggregate principal
amount of the outstanding Securities of any series may, on behalf of the holders
of all Securities of such series, waive any past default and its consequences
under the Indenture with respect to the Securities of such series, except a
default (a) in the payment of principal of (or premium, if any), any interest on
or any Additional Amounts with respect to Securities of such series or (b) in
respect of a covenant or provision of the Indenture that cannot be modified or
amended without the consent of the holder of each Security of any series.
Under the Indenture, the Company is required to furnish the Trustee
annually a statement as to performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance. The
Company is also required to deliver to the Trustee, within five days after
occurrence thereof, written notice of any Event of Default or any event which
after notice or lapse of time or both would constitute an Event of Default.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may discharge certain obligations to holders of any series of
Securities that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will
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become due and payable within one year (or scheduled for redemption within one
year) by depositing with the Trustee, in trust, funds in U.S. dollars or in the
Foreign Currency in which such Securities are payable in an amount sufficient to
pay the entire indebtedness on such Securities with respect to principal (and
premium, if any) and interest to the date of such deposit (if such Securities
have become due and payable) or to the Maturity thereof, as the case may be.
The Indenture provides that, unless the provisions of Section 4.2 thereof
are made inapplicable to the Securities of or within any series pursuant to
Section 3.1 thereof, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to such Securities (except
for, among other things, the obligation to pay Additional Amounts, if any, upon
the occurrence of certain events of taxation, assessment or governmental charge
with respect to payments on such Securities and other obligations to register
the transfer or exchange of such Securities, to replace temporary or mutilated,
destroyed, lost or stolen Securities, to maintain an office or agency with
respect to such Securities and to hold moneys for payment in trust)
("defeasance") or (b) to be released from its obligations with respect to such
Securities under the covenants described under "Limitation on Liens" and
"Limitation on Sale/Leaseback Transactions" above or, if provided pursuant to
Section 3.1 of the Indenture, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Securities ("covenant
defeasance"). Defeasance or covenant defeasance, as the case may be, shall be
conditioned upon the irrevocable deposit by the Company with the Trustee, in
trust, of an amount in U.S. dollars or in the Foreign Currency in which such
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both, applicable to such Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Securities on the scheduled due dates therefor.
Such a trust may only be established if, among other things, (i) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by which it is bound,
(ii) no Event of Default or event which with notice or lapse of time or both
would become an Event of Default with respect to the Securities to be defeased
shall have occurred and be continuing on the date of establishment of such a
trust and, with respect to defeasance only, at any time during the period ending
on the 123rd day after such date and (iii) the Company has delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) to the effect that
the holders of such Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such Opinion of Counsel,
in the case of defeasance, must refer to and be based upon a letter ruling of
the Internal Revenue Service received by the Company, a Revenue Ruling published
by the Internal Revenue Service or a change in applicable U.S. federal income
tax law occurring after the date of the Indenture.
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the ECU, issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government or the governments in the
confederation which issued the Foreign Currency in which the Securities of a
particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government or governments which issued the Foreign Currency in which the
Securities of such series are payable, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government or governments, which, in the case of
clauses (i) and (ii), are not callable or redeemable at the option of the issuer
or issuers thereof, and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to any such Government Obligation or
a specific payment of interest on or principal of or any other amount with
respect to any such Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any
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deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian with respect to the Government Obligation
or the specific payment of interest on or principal of or any other amount with
respect to the Government Obligation evidenced by such depository receipt.
If after the Company has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Securities of any
series, (a) the holder of a Security of such series is entitled to, and does,
elect pursuant to Section 3.1 of the Indenture or the terms of such Security to
receive payment in a currency other than that in which such deposit has been
made in respect of such Security, or (b) a Conversion Event (as defined below)
occurs in respect of the Foreign Currency in which such deposit has been made,
the indebtedness represented by such Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest, if any, on such Security as such Security
becomes due out of the proceeds yielded by converting the amount or other
properties so deposited in respect of such Security into the currency in which
such Security becomes payable as a result of such election or such Conversion
Event based on (x) in the case of payments made pursuant to clause (a) above,
the applicable market exchange rate for such currency in effect on the second
business day prior to such payment date, or (y) with respect to a Conversion
Event, the applicable market exchange rate for such Foreign Currency in effect
(as nearly as feasible) at the time of the Conversion Event.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
other than the ECU both by the government of the country or the confederation
which issued such Foreign Currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Union or (iii) any currency unit or composite currency other than the ECU for
the purposes for which it was established. All payments of principal of (and
premium, if any) and interest on any Security that are payable in a Foreign
Currency that ceases to be used by the government or confederation of issuance
shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Securities and such Securities are declared due and payable because of the
occurrence of any Event of Default other than an Event of Default with respect
to Sections 10.5 and 10.6 of the Indenture (which Sections would no longer be
applicable to such Securities after such covenant defeasance) or with respect to
any other covenant as to which there has been covenant defeasance, the amount in
such Foreign Currency in which such Securities are payable, and Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such Securities at the time of the Stated Maturity but may not be sufficient
to pay amounts due on such Securities at the time of the acceleration resulting
from such Event of Default. However, the Company would remain liable to make
payment of such amounts due at the time of acceleration.
GOVERNING LAW
The Indenture, the Old Notes and the New Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Trustee is permitted to engage in other transactions with the Company
and its subsidiaries from time to time, provided that if the Trustee acquires
any conflicting interest it must eliminate such conflict upon the occurrence of
an Event of Default, or else resign.
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the
New Notes, except that (i) the Old Notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are entitled
to certain registration rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer), (ii) the Old
Notes are issuable in minimum denominations of $250,000 compared to minimum
denominations of $1,000 for the New Notes and (iii) the Old Notes provide
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for an increase in the interest rate thereon pursuant to the Registration Rights
Agreement. In that regard, the Old Notes provide that, in the event that the
Exchange Offer is not consummated or a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Old Notes is not
declared effective on or prior to the earlier of the 30th day following the date
on which the Registration Statement is declared effective and June 23, 1997, the
per annum interest rate on the Old Notes will increase by 0.50% following such
date; provided, however, that if the Company requests holders of Old Notes to
provide certain information called for by the Registration Rights Agreement for
inclusion in any such Shelf Registration Statement, then Old Notes owned by
holders who do not deliver such information to the Company or who do not provide
comments on the Shelf Registration Statement when required pursuant to the
Registration Rights Agreement will not be entitled to any such increase in the
interest rate pursuant to the Registration Rights Agreement. Upon the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the earlier of such 30th day following the
date on which the Registration Statement is declared effective and June 23,
1997, the interest rate on any Old Notes which remain outstanding will be
reduced, from the date of such consummation or effectiveness, as the case may
be, to 6 7/8% per annum and the Old Notes will not thereafter be entitled to any
increase in the interest rate thereon pursuant to the Registration Rights
Agreement. The New Notes are not entitled to any such increase in the interest
rate thereon. Holders of Old Notes should review the information set forth under
"Summary--Certain Consequences of a Failure to Exchange Old Notes" and
"Description of the New Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States Federal income tax
considerations to holders of the New Notes who are subject to U.S. income tax
with respect to the New Notes ("U.S. persons") and who will hold the New Notes
as capital assets. There can be no assurance that the U.S. Internal Revenue
Service (the "IRS") will take a similar view of the purchase, ownership or
disposition of the New Notes. This discussion is based upon the Company's
analysis of the provisions of the Internal Revenue Code and regulations, rulings
and judicial decisions now in effect, all of which are subject to change. It
does not include any description of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the New Notes or holders thereof, it does not discuss all aspects of U.S.
Federal income taxation that may be relevant to a particular investor in light
of his particular investment circumstances or to certain types of investors
subject to special treatment under the U.S. Federal income tax laws (for
example, dealers in securities or currencies, S corporations, life insurance
companies, tax-exempt organizations, taxpayers subject to the alternative
minimum tax and non-U.S. persons) and also does not discuss the treatment of New
Notes held as a hedge against currency risks or as part of a straddle with other
investments or as part of a "synthetic security" or other integrated investment
(including a "conversion transaction") comprised of a New Note and one or more
other investments, or situations in which the functional currency of the holders
is not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to
holders for federal income tax purposes. The exchange of Old Notes for New Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the New Notes should not be considered to
differ materially in kind or extent from the Old Notes. If, however, the
exchange of the Old Notes for the New Notes were treated as an exchange for
federal income tax purposes, such exchange should constitute a recapitalization
for federal income tax purposes. Accordingly, a holder should have the same
adjusted basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
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INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as ordinary interest
income for U.S. Federal income tax purposes interest earned on the New Note in
accordance with the holder's method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note generally will be the holder's purchase
price for the Old Note. Upon the sale, exchange, redemption, retirement or other
disposition of a New Note, a holder will recognize gain or loss equal to the
difference (if any) between the amount realized and the holder's tax basis in
the New Note. Such gain or loss will be long-term capital gain or loss if the
New Note has been held for more than one year and otherwise will be short-term
capital gain or loss (with certain exceptions to the characterization as capital
gain if the New Note was acquired at a market discount).
BACKUP WITHHOLDING
A holder of a New Note may be subject to backup withholding at the rate of
31% with respect to interest paid on the New Note and proceeds from the sale,
exchange, redemption or retirement of the New Note, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of a New Note who does not provide the Company with his correct taxpayer
identification number may be subject to penalties imposed by the IRS.
A holder of a New Note who is not a U.S. person will generally be exempt
from backup withholding and information reporting requirements, but may be
required to comply with certification and identification procedures in order to
obtain an exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's U.S. Federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making or other trading activities. The Company has agreed that
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such New
Notes for a period ending 90 days (subject to extension under certain limited
circumstances described herein) after the Expiration Date or, if earlier, when
all such New Notes have been disposed of by such Participating Broker-Dealer.
However, a Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Notes received in exchange for Old Notes
pursuant to the Exchange Offer must notify the Company, or cause the Company to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer--Exchange Agent." See
"The Exchange Offer--Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive
67
<PAGE> 69
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its
own account in connection with the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes will be passed upon
for the Company by Mark K. McNally, Senior Vice President, General Counsel and
Corporate Secretary of the Company and by Kirkpatrick & Lockhart LLP, counsel to
the Company.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus and the related financial statement schedule included
elsewhere in the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement (which reports express an unqualified
opinion and include an explanatory paragraph referring to changes in accounting
methods for income taxes, depreciation and postretirement benefits other than
pensions), and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
68
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................... F-2
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and
1995................................................................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995.......................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995................................................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995.......................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Income for the nine months ended September 30, 1995 and
1996................................................................................ F-20
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996............ F-21
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and
1996................................................................................ F-22
Selected Notes to Interim Financial Statements........................................ F-23
PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Statement of Income............................................... F-25
Pro Forma Condensed Balance Sheet..................................................... F-26
Notes to Pro Forma Condensed Financial Statements..................................... F-27
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
Aristech Chemical Corporation:
We have audited the accompanying consolidated balance sheets of Aristech
Chemical Corporation and its subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its methods of accounting for income taxes, depreciation, and
postretirement benefits other than pensions in 1993.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 29, 1996, except for Note 19, as to
which the date is November 19, 1996
F-2
<PAGE> 72
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
----------------------------
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Sales............................................................. $788.5 $945.5 $1,023.3
Operating Costs:
Cost of sales................................................... 669.4 763.5 758.9
Selling, general and administrative expenses.................... 61.7 61.3 43.6
Depreciation and amortization................................... 49.1 50.3 48.4
------ ------ --------
Total Operating Costs........................................ 780.2 875.1 850.9
------ ------ --------
Operating Income.................................................. 8.3 70.4 172.4
Loss on Disposal of Assets........................................ (.3) (4.3) (19.0)
Other (Expense) Income............................................ .2 3.4 (1.1)
Interest Income................................................... .7 1.2 2.1
Interest Expense.................................................. (54.6) (56.0) (49.8)
------ ------ --------
Income (Loss) Before Provision for Taxes on Income and
Extraordinary Loss.............................................. (45.7) 14.7 104.6
Provision (Benefit) for Taxes on Income........................... (5.8) 9.5 44.4
------ ------ --------
Income (Loss) Before Extraordinary Loss........................... (39.9) 5.2 60.2
Extraordinary Loss, Net of Income Tax Benefit of $3.2............. -- 5.1 --
Cumulative Effect on Prior Years of Change in Accounting for
Income Taxes and Change in Depreciation Method.................. .2 -- --
------ ------ --------
Net Income (Loss)................................................. $(39.7) $ .1 $ 60.2
====== ====== =======
Pro forma amounts assuming the accounting change for depreciation
had been applied retroactively:
Loss before Cumulative Effect of Change in Accounting
Principles...................................................... $(39.9) $ -- $ --
Net (Loss)........................................................ $(43.7) $ -- $ --
Related party transactions:
Sales............................................................. $ 39.8 $ 52.6 $ 83.4
Interest Expense.................................................. $ 22.7 $ 31.4 $ 50.6
Purchases......................................................... $ 9.5 $ 15.7 $ 27.2
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 73
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents........................................................ $ 28.7 $ .4
Short-term investments...................................................... -- 17.0
Receivables (less allowance for doubtful accounts of $.8 for 1994 and $.6
for 1995)................................................................. 134.1 121.3
Inventories................................................................. 85.7 101.1
Net assets held for sale.................................................... 94.2 42.3
Deferred income taxes....................................................... -- 8.7
Other current assets........................................................ 3.8 5.0
-------- --------
Total Current Assets...................................................... 346.5 295.8
Property, plant and equipment, net of accumulated depreciation................ 623.6 602.3
Excess cost over assets acquired, net......................................... 193.5 174.6
Other assets.................................................................. 19.8 17.3
-------- --------
Total Assets.............................................................. $1,183.4 $1,090.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other current liabilities.............................. $ 126.6 $ 91.9
Payroll and benefits payable................................................ 40.0 11.9
Accrued taxes............................................................... 10.2 8.4
Deferred income taxes....................................................... 3.3 --
Short-term borrowings....................................................... -- 8.7
-------- --------
Total Current Liabilities................................................. 180.1 120.9
Long-term debt--related parties............................................... 551.8 572.0
Long-term debt--other......................................................... 156.1 .2
Deferred income taxes......................................................... 139.2 177.7
Other liabilities............................................................. 31.8 34.5
Commitment and contingencies.................................................. -- --
-------- --------
Total liabilities......................................................... 1,059.0 905.3
-------- --------
Redeemable preferred stock, series A, convertible (no par, 1,000,000 shares
authorized, 556,989 shares issued at December 31, 1994 and 509,983 at
December 31, 1995).......................................................... 55.7 51.0
Common stock ($.01 par value, 2,245 shares issued at December 31, 1994)....... -- --
Additional paid-in capital.................................................... 68.3 --
Deferred compensation......................................................... (.9) --
-------- --------
Redeemable Preferred and Other Temporary Equity............................. 123.1 51.0
-------- --------
Common stock ($.01 par value, 20,000 shares authorized, 7,605 shares issued at
December 31, 1994 and 10,050 shares issued at December 31, 1995)............ -- --
Additional paid-in capital.................................................... 80.0 154.5
Treasury stock, at cost (105 shares at December 31, 1994)..................... (3.0) --
Retained deficit.............................................................. (75.7) (20.8)
-------- --------
Total Stockholders' Equity................................................ 1.3 133.7
-------- --------
Total Liabilities and Equity.............................................. $1,183.4 $1,090.0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 74
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
----------------------------
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss).............................................................. $(39.7) $ .1 $ 60.2
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation................................................................. 43.5 44.7 43.4
Amortization of excess cost over assets acquired............................. 5.6 5.6 5.6
Amortization of merger expenses.............................................. 3.1 2.6 1.9
Amortization of deferred compensation........................................ 7.6 5.3 .9
Amortization of compensation and anti-dilution option liabilities............ 10.4 12.3 --
Deferred income taxes........................................................ (5.9) 9.4 26.5
Loss on disposal of assets................................................... .3 4.3 19.0
Loss from equity investee.................................................... .1 .1 1.2
Decrease (increase) in accounts receivable................................... (2.3) (53.5) 2.7
Decrease (increase) in inventories........................................... 3.6 3.2 (17.8)
(Decrease) increase in accounts payable and other current liabilities........ 7.9 38.5 (57.3)
Payment-in-kind debenture interest expense................................... 19.0 20.9 5.7
All other.................................................................... (1.7) (13.0) (4.8)
Extraordinary loss........................................................... -- 5.1 --
(Increase) in long-term receivable........................................... -- (4.9) --
(Increase) in goodwill....................................................... -- (2.8) (1.7)
Cumulative effect of changes in accounting principles........................ (.2) -- --
------ ------- -------
Net Cash Provided by Operating Activities...................................... 51.3 77.9 85.5
Cash Flows From Investing Activities:
Capital expenditures........................................................... (21.6) (33.4) (55.3)
Purchase of short-term investment.............................................. -- -- (17.0)
Cash received on disposal of assets............................................ -- 3.0 91.9
------ ------- -------
Net Cash Provided by (Used in) Investing Activities............................ (21.6) (30.4) 19.6
Cash Flows From Financing Activities:
Short-term debt increase (decrease)............................................ 3.8 (12.8) 8.7
Repayment of long-term debt.................................................... (33.5) (531.4) (155.9)
Proceeds from issuance of long-term debt....................................... 1.0 527.0 39.0
Dividends paid................................................................. -- -- (3.8)
Payments for purchase of treasury stock........................................ (1.0) (2.0) (68.3)
Redemption of preferred stock.................................................. -- -- (6.1)
Redemption of PIK debentures................................................... -- -- (24.5)
Issuance of common stock....................................................... -- -- 77.5
------ ------- -------
Net Cash Used in Financing Activities.......................................... (29.7) (19.2) (133.4)
Net (Decrease) Increase in Cash and Equivalents.................................. -- 28.3 (28.3)
Cash and equivalents, beginning of year.......................................... .4 .4 28.7
------ ------- -------
Cash and equivalents, end of year................................................ $ .4 $ 28.7 $ .4
====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest..................................................................... $ 34.9 $ 34.6 $ 46.7
Income taxes................................................................. 3.1 .9 13.8
</TABLE>
Non-cash investing activities include the pending sale of $55.6 million and
$28.2 million of net property, plant and equipment at December 31, 1994 and
1995, respectively, resulting in a decrease in net property, plant and equipment
and a corresponding increase in assets held for sale.
Non-cash financing activities include debentures issued in lieu of cash payments
for interest of $19.0 million in 1993, $20.9 million in 1994, and $5.7 million
in 1995. Such activities also include the issuance of additional shares for
dividends on the Redeemable Series A Convertible PIK Preferred Stock of $4.7
million in 1993, $5.2 million in 1994, and $1.5 million in 1995.
Non cash activities resulting from the implementation of SFAS 109 "Accounting
for Income Taxes," during the First Quarter 1993, resulted in an increase in the
cost basis of property, plant and equipment of $130.7 million with a
corresponding increase in deferred income taxes.
Non cash activities, resulting from the change in depreciation method in 1993,
resulted in an increase in net property of $6.4 million and an increase in
deferred income taxes of $2.4 million.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 75
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
NUMBER TREASURY PAID-IN TREASURY RETAINED
OF SHARES SHARES CAPITAL STOCK EARNINGS
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1992............... 7,500 -- $ 77.0 $ -- $(19.3)
Dividend on Series A Convertible
Preferred Stock........................ -- -- -- -- (4.7)
Transfer from temporary equity........... 36 -- 1.0 -- .1
Fair market value adjustment of acquired
shares................................. -- -- -- -- (7.0)
Treasury stock purchased................. -- (36) -- (1.0) --
Net loss--1993........................... -- -- -- -- (39.7)
--------- -------- ---------- -------- --------
Balance--December 31, 1993............... 7,536 (36) 78.0 (1.0) (70.6)
Dividend on Series A Convertible
Preferred Stock........................ -- -- -- -- (5.2)
Transfer from temporary equity........... 69 -- 2.0 -- --
Treasury stock purchased................. -- (69) -- (2.0) --
Net Income--1994......................... -- -- -- -- .1
--------- -------- ---------- -------- --------
Balance--December 31, 1994............... 7,605 (105) 80.0 (3.0) (75.7)
Dividend on Series A Convertible
Preferred Stock........................ -- -- -- -- (5.3)
Transfer from temporary equity........... 2,245 -- 68.3 -- --
Treasury stock purchased................. -- (2,245) -- (68.3) --
Treasury stock retired................... -- 2,350 -- 71.3 --
Shares canceled.......................... (2,350) -- (71.3) -- --
Shares issued............................ 2,550 -- 77.5 -- --
Net Income--1995......................... -- -- -- -- 60.2
--------- -------- ---------- -------- --------
Balance--December 31, 1995............... 10,050 -- $154.5 $ -- $(20.8)
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 76
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
On March 7, 1990, a tender offer was completed by which ACC Acquisition
Corporation ("Acquisition"), an indirect wholly owned subsidiary of ACC Holdings
Corporation ("Holdings"), acquired all the shares of Aristech Chemical
Corporation ("Aristech") common stock for $27 per share. Subsequent to
completion of the tender offer, Acquisition was merged with and into Aristech.
All of Aristech's outstanding common stock was then owned by ACC Middle
Corporation ("Middle") which was a wholly owned subsidiary of Holdings. The
acquisition of Aristech was accounted for as a purchase transaction with the
purchase price being allocated to assets and liabilities based on their fair
values as of the date of acquisition. The excess cost over the net assets
acquired totaled $235.6 million.
At the time of acquisition, 76.1% of the common stock of Holdings was held
by Mitsubishi Corporation ("MC") and Mitsubishi International Corporation
("MIC") with the balance held by Aristech senior management, Blackstone Capital
Partners, L.P., and Blackstone Family Investment Partnership, L.P.
During 1990, MC sold a portion of its shares to Mitsubishi Kasei
Corporation, Mitsubishi Gas Chemical Company, Inc. ("MGCC"), Mitsubishi
Petrochemical Co., Ltd., and Mitsubishi Rayon Co., Ltd. ("Minority Owners"),
thereby reducing its share of ownership in the Company to 55.7%. Mitsubishi
Kasei Corporation and Mitsubishi Petrochemical Co., Ltd. subsequently merged to
form Mitsubishi Chemical Corporation.
Middle was merged with and into Holdings on August 1, 1994. Holdings was
merged with and into Aristech under the name of Aristech Chemical Corporation
(the "Company") on December 30, 1994. The 1993 financial statements have been
restated to reflect comparative consolidated information.
Combined and separate results of Aristech and Holdings during the periods
preceding the merger were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) ARISTECH HOLDINGS COMBINED
- ------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1993
Sales........................................................ $788.5 -- $788.5
Net (loss)................................................... $(35.4) $ (4.3) $(39.7)
FOR THE PERIOD ENDED DECEMBER 30, 1994
Sales........................................................ $945.5 -- $945.5
Extraordinary loss........................................... $ (5.1) -- $ (5.1)
Net income (loss)............................................ $ 12.6 $(12.5) $ .1
</TABLE>
In March, 1995, the Company purchased all outstanding shares held by the
Blackstone partnerships, and all the outstanding shares and options held by
Aristech senior management. At the same time, 2,550 shares were issued to MC and
MIC. The purchased shares, as well as shares previously held as Treasury Stock,
were retired. In April, 1995, MC acquired all the shares held by MGCC. The
allocation of the 10,050 shares of common stock outstanding at December 31, 1995
is as follows:
<TABLE>
<S> <C>
Mitsubishi Corporation.............................................................. 80.9%
Mitsubishi International Corporation................................................ 5.9%
Mitsubishi Chemical Corporation..................................................... 8.8%
Mitsubishi Rayon Company, Ltd....................................................... 4.4%
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Investments in other entities over which the
Company exercises significant influence are carried on the equity basis. Certain
1994 amounts have been reclassified to conform with the 1995 presentation.
F-7
<PAGE> 77
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has not completed the process of evaluating the impact that
will result from adopting Statement of Financial Accounting Standard ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Company is therefore unable to disclose the
impact that adopting SFAS No. 121 will have on its financial position and
results of operations when such statement is adopted.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of aggregate cost or market. Cost is
determined primarily by the last-in, first-out ("LIFO") method. Inventory costs
include direct and indirect manufacturing costs associated with the production
of product.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Major replacements and
improvements which extend the life of the property are capitalized, while
maintenance and repairs are expensed as incurred. The Company capitalizes the
interest cost associated with major property additions while in progress and
amortizes the amount over the useful lives of the related assets. Depreciation
of plant and equipment is computed on the straight-line method.
When a plant or major facility within a plant is sold or otherwise disposed
of, any gain or loss is reflected in the consolidated statement of income.
Proceeds from the sale of other facilities depreciated on a group basis are
credited to the depreciation reserve.
The Company capitalizes the cost of catalyst replacement and amortizes the
cost over the life of the catalyst. The Company expenses any other planned
maintenance activity during the period the work was performed.
EXCESS COST OVER ASSETS ACQUIRED
The excess cost over the fair value of assets acquired is being amortized
on a straight-line basis over a 40 year period. Such amount has been allocated
to each of the Company's businesses based on historical operating results prior
to the acquisition. Accumulated amortization of the excess costs over assets
acquired was $38.4 million and $44.0 million at December 31, 1994 and 1995.
PENSIONS
The Company maintains defined benefit pension plans with benefits based on
compensation and years of service for substantially all of its employees. The
Company's funding practice is to contribute annually not less than the
actuarially determined minimum funding requirements of the Employee Retirement
Income Security Act of 1974 nor more than the maximum funding limitation under
the Internal Revenue Code. Contributions are intended to provide benefits for
service to date and for benefits expected to be earned in the future.
The Company also maintains defined contribution plans which cover certain
eligible salaried and hourly employees. The Company's cost is determined based
on a percentage of compensation as defined by the plans (see Note 5).
F-8
<PAGE> 78
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for
the estimated taxes ultimately payable or recoverable based on enacted tax law.
The deferred income taxes are computed annually for differences between book and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future (see Note 6).
INCOME RECOGNITION
Sales and related costs of sales are included in income when goods are
shipped or services are rendered to the customer.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less at the date of purchase to be cash equivalents. Such
investments are carried at cost which approximates market.
SHORT-TERM INVESTMENTS
Instruments with a maturity greater than three months but less than one
year at the time of purchase are considered short-term investments. At December
31, 1995, the Company held a $17.0 million investment in a time deposit maturing
in February, 1996 for purposes of securing various letters of credit. The
Company intends to hold such investment to maturity, therefore, the investment
is reported at amortized cost which approximates fair value.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received is accrued as interest rates change
over the life of the agreements (see Note 11).
3. ACCOUNTING CHANGES
In 1993, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," requiring the accrual of
postretirement benefits over the period during which active employees become
eligible for such benefits. Previously, the Company recognized the cost of
providing these benefits as the benefits were paid. The Company has chosen to
amortize the transition obligation of $5.9 million related to SFAS No. 106 over
a 20 year period. This accounting change resulted in a charge to 1993 net income
of $1.4 million (see Note 5).
As discussed in Note 2, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," in 1993. The cumulative effect as of January 1, 1993, of the
adoption of SFAS No. 109 was a charge of $3.8 million. The effect of the
accounting change in 1993 was to decrease the net loss by $.7 million.
Effective January 1, 1993, the Company changed its method of accounting for
depreciation of plant and equipment from a modified straight-line basis to a
straight-line basis. The new method of depreciation was adopted as the
preferable method because the Company believes that it is the most common method
used by the chemical industry. The effect of the change in 1993 was to decrease
the loss before income taxes by $7.9 million. The adjustment of $4.0 million
(after reduction of income taxes of $2.4 million) to apply retroactively the new
method is included in the loss for 1993. The pro forma amounts shown on the
income statement have been adjusted for the effect of retroactive applications
on depreciation and related income taxes.
F-9
<PAGE> 79
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTING CHANGES (CONTINUED)
4. LINES OF BUSINESS
The Company's operations are conducted in one business segment, the
production and marketing of chemical and polymer products. The Company does not
derive significant revenue from any single customer. The Company's products are
sold in domestic and international markets primarily to manufacturers of
automotive parts, construction materials and consumer products.
The Company exported chemical products with a total sales revenue of $97.2
million in 1993, $134.5 million in 1994, and $186.8 million in 1995.
5. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Substantially all employees of the Company are covered by various defined
benefit or defined contribution plans. The cost of such plans was $4.0 million
in 1993, $4.4 million in 1994, and $4.9 million in 1995.
Defined benefit pension cost for 1993, 1994, and 1995 includes the
following components:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
- -------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Cost of benefits earned during the period........................... $ 3.0 $ 3.9 $ 3.2
Interest cost on projected benefit obligation....................... 3.4 3.8 3.8
Actual return on plan assets........................................ (4.8) (.7) (7.6)
Net amortization and deferral....................................... 1.8 (3.0) 4.7
----- ----- -----
Total............................................................. $ 3.4 $ 4.0 $ 4.1
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS 1993 1994 1995
- -------------------------------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Discount rate, net periodic pension cost............................ 9.0% 7.5% 8.5%
Rate of increase in compensation levels, net periodic pension
cost.............................................................. 4.5% 3.5% 4.0%
Expected long-term rate of return on assets......................... 9.0% 10.0% 9.0%
Discount rate, projected benefit obligation......................... 7.5% 8.5% 7.25%
Rate of increase in compensation levels, projected benefit
obligation........................................................ 3.5% 3.0% 4.0%
</TABLE>
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Company's balance sheets at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
----------------- ----------------
(IN MILLIONS) 1994 1995 1994 1995
- -------------------------------------------------------- ------ ------ ----- ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $(27.7) $(25.1) $(4.2) $ (9.4)
====== ====== ===== ======
Accumulated benefit obligation........................ $(31.0) $(28.1) $(4.3) $(10.4)
====== ====== ===== ======
Projected benefit obligation.......................... $(45.8) $(41.2) $(4.6) $(17.1)
Plan assets at fair value............................... 34.2 28.9 1.7 8.8
------ ------ ----- ------
Plan assets less than projected benefit obligation...... (11.6) (12.3) (2.9) (8.3)
Unrecognized net (gain) loss............................ 5.9 8.0 (.2) 3.4
Unrecognized prior service cost......................... (.2) (.3) 1.0 1.9
------ ------ ----- ------
Accrued pension cost recognized in the balance sheets... $ (5.9) $ (4.6) $(2.1) $ (3.0)
====== ====== ===== ======
</TABLE>
As a result of the pending sale of the coal chemicals business (see Note
18), an additional cost of $.8 million has been reflected in the 1995 income
statement and balance sheet due to the curtailment of the
F-10
<PAGE> 80
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
associated pension plan. Amounts recognized due to the sale of the Polyester
Group (see Note 18) were not significant.
Plan assets are invested primarily in listed stocks and bonds.
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits to eligible retired employees. Under the
terms of the benefit plans, which are unfunded, the Company reserves the right
to modify or discontinue the plans.
A transition obligation of $5.9 million existed at the date of adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Company, as permitted by SFAS No. 106, has chosen to amortize
this transition obligation on a straight-line basis over 20 years.
The expense for other postretirement benefits was $1.4 million in 1993,
$1.4 million in 1994, and $2.1 million in 1995. The cash payments for such
benefits were $.5 million in 1993, $.6 million in 1994, and $.7 million in 1995.
Postretirement benefit cost for 1993, 1994 and 1995 included the following
components:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
- --------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Cost of benefits earned during the period............................ $.5 $.5 $.4
Interest cost on accumulated postretirement obligation............... .6 .6 1.4
Amortization of transition obligation................................ .3 .3 .3
---- ---- ----
Total.............................................................. $1.4 $1.4 $2.1
==== ==== ====
</TABLE>
For measurement purposes, the discount rates used for calculating the
present value of postretirement benefit liabilities were 4.0% for 1993, 8.75%
for 1994, and 7.25% for 1995, respectively.
The following table sets forth the plans' postretirement benefit liability
as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1995
- -------------------------------------------------------------------------- ------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ (6.2) $ (7.3)
Fully eligible active plan participants................................. (3.1) (3.6)
Other active plan participants.......................................... (7.1) (7.0)
------ ------
Total................................................................ (16.4) (17.9)
Unrecognized loss......................................................... .7 1.0
Unrecognized transition obligation........................................ 5.3 4.6
------ ------
Accrued postretirement benefit liability recognized in the balance
sheet................................................................... $(10.4) $(12.3)
====== ======
</TABLE>
A health care cost trend rate starting at 8.0% and declining to 4.0% over a
six-year period to the year 2002 was assumed for 1995. A 1.0% increase in the
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by 6.1% and the sum of the service
and interest costs in 1995 by 7.4%.
F-11
<PAGE> 81
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. TAX PROVISION
Provision for taxes on income is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
- ------------------------------------------------------------------- ------ ---- -----
<S> <C> <C> <C>
Current federal income taxes....................................... $ .1 $1.1 $16.3
Current state and local income taxes............................... -- 1.5 3.3
Deferred income taxes.............................................. 3.1 6.9 24.8
Benefit of net operating loss carryforwards........................ (13.0) -- --
Statutory tax rate change.......................................... 4.0 -- --
------ ---- -----
Total provision (benefit)........................................ $ (5.8) $9.5 $44.4
====== ==== =====
</TABLE>
A reconciliation of the differences between income taxes computed at the
federal statutory rate of 35% to the total provision for income taxes is as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
- ------------------------------------------------------------------- ------ ---- -----
<S> <C> <C> <C>
Statutory rate applied to income (loss) before tax................. $(16.0) $5.1 $36.6
Foreign Sales Corporation benefits & other tax credits............. (.3) (.5) (.7)
Goodwill amortization.............................................. 2.0 2.0 2.1
Goodwill write-off................................................. -- 2.3 5.9
State income taxes after federal income tax benefit................ (.6) .1 1.4
Statutory tax rate change.......................................... 4.0 -- --
NOL benefit limitation............................................. 4.8 -- --
Other.............................................................. .3 .5 (.9)
------ ---- -----
Total provision for income taxes................................. $ (5.8) $9.5 $44.4
====== ==== =====
</TABLE>
The tax effect of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 31, 1994 and 1995 follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1995
- -------------------------------------------------------------------------- ------ ------
<S> <C> <C>
Deferred tax assets:
Deferred compensation................................................... $ 22.3 $ --
Interest expense........................................................ 10.9 --
Accruals different than payments........................................ 14.4 16.5
Net operating loss...................................................... 19.5 --
Other tax credit carryforwards.......................................... 10.2 10.6
Other................................................................... .1 .1
------ ------
Gross deferred tax assets............................................... 77.4 27.2
------ ------
Deferred tax liabilities:
Property................................................................ 221.9 197.0
Losses from equity investee............................................. (4.0) (4.3)
Accrual different than payments......................................... -- 2.3
Other................................................................... 2.0 1.2
------ ------
Gross deferred tax liabilities.......................................... 219.9 196.2
------ ------
Net deferred tax liabilities............................................ $142.5 $169.0
====== ======
</TABLE>
During 1994, the Company settled an IRS examination relating to audit years
which preceded the acquisition of Aristech on March 7, 1990. Also, during 1995,
the Company changed its best estimate of the ultimate settlement for an IRS
examination relating to other audit years preceding the acquisition. Since this
acquisition was accounted for as a purchase business combination, the Company
followed the accounting in
F-12
<PAGE> 82
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. TAX PROVISION (CONTINUED)
Emerging Issues Task Force ("EITF") Abstract No. 93-7, "Uncertainties Related to
Income Taxes in a Purchase Business Combination." As a result, the excess cost
over assets acquired account was increased by $2.8 million and $1.7 million
during 1994 and 1995, respectively.
7. INVENTORIES
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1995
- -------------------------------------------------------------------------- ------ ------
<S> <C> <C>
Raw materials............................................................. $ 32.7 $ 28.8
Finished products......................................................... 50.6 61.5
Supplies and sundry items................................................. 16.8 15.7
------ ------
Total Inventory......................................................... 100.1 106.0
Less inventory held for sale.............................................. 14.4 4.9
------ ------
Net Inventory........................................................... $ 85.7 $101.1
====== ======
</TABLE>
The current cost of inventories at December 31, 1994 and 1995 was $101.0
million and $98.5 million, respectively.
The Company had LIFO liquidations resulting in an increase in cost of sales
of $.2 million in 1993, a decrease in cost of sales of $2.6 million in 1994, and
an increase in cost of sales of $.1 million in 1995.
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1995
- -------------------------------------------------------------------------- ------ ------
<S> <C> <C>
Land...................................................................... $ 13.2 $ 13.5
Buildings................................................................. 42.4 37.1
Machinery and equipment................................................... 820.3 794.2
------ ------
Total property, plant and equipment..................................... 875.9 844.8
Less accumulated depreciation........................................... 196.7 214.3
Less net property, plant and equipment held for sale.................... 55.6 28.2
------ ------
Net property, plant and equipment....................................... $623.6 $602.3
====== ======
</TABLE>
9. EQUITY INVESTMENT
On December 15, 1987, the Company acquired for $5.0 million a 50% interest
in Avonite, Inc. ("Avonite") of Belen, New Mexico, a producer and marketer of
premium unsaturated polyester sheet. The investment is accounted for under the
equity method. As of December 31, 1994 and 1995, the Company had made loans to
Avonite totaling $8.8 million for working capital and construction of a new
production facility completed in 1989. Interest receivable relating to the loans
at December 31, 1994 and 1995 was $4.9 million and $5.9 million, respectively.
The Company also guaranteed an Industrial Revenue Bond obtained by Avonite for
construction of the new production facility. The outstanding balance of the bond
at December 31, 1994 and 1995 was $.7 million for each year. In the ordinary
course of business, the Company sells products to Avonite. The outstanding
receivable balance relating to these sales at December 31, 1994 and 1995 was
$2.6 million for each year.
10. LEASE COMMITMENTS
The Company has operating leases primarily for buildings, railway
equipment, data processing and automotive equipment. Capital leases are
immaterial.
F-13
<PAGE> 83
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASE COMMITMENTS (CONTINUED)
Minimum annual rentals for operating leases with initial or remaining lease
terms in excess of one year were as follows at December 31, 1995:
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------------------
<S> <C>
1996............................................... $12.8
1997............................................... 12.0
1998............................................... 8.9
1999............................................... 6.8
2000............................................... 5.6
Later years........................................ 7.3
-----
Total minimum lease payments......................... $53.4
=====
</TABLE>
Operating lease rental expense for 1993 was $13.0 million, $12.0 million
for 1994, and $11.0 million for 1995.
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
INTEREST
(IN MILLIONS) MATURITY RATES 1994 1995
- --------------------------------------------------- --------- --------- ------ ------
<S> <C> <C> <C> <C>
Term Loan--MC...................................... 2002 Variable $203.0 $203.0
Term Loan--MIC..................................... 1997 Variable 100.0 100.0
Revolving Loan--MIC................................ 1997 Variable 26.0 65.0
Bank Term Loans.................................... 1995 Variable 156.0 --
Subordinated PIK Debentures........................ 2005-2007 10% 222.8 204.0
Capital lease obligations.......................... 1996-1998 .1 .2
------ ------
Total............................................ $707.9 $572.2
====== ======
</TABLE>
On August 1, 1994, the Company refinanced the prior $825.0 million Credit
Agreement dated April 18, 1990 through a combination of permanent and temporary
financing. The permanent financing was provided by MC in the form of a $203.0
million Term Loan due July 31, 2002. The agreement governing this financing
provides for interest on outstanding borrowings at a variable rate based on the
London Interbank Offered Rate (LIBOR), plus 1.375%. The temporary financing,
which was guaranteed by MC, was arranged through MIC and three commercial banks.
The MIC financing was provided in the form of a $100 million Term Loan and a
Revolving Loan with a maximum commitment of $100.0 million, with both facilities
maturing March 31, 1995. The commercial bank financing was provided in the form
of three Term Loans totaling $156.0 million and a Revolving Loan with a maximum
commitment of $20 million, all maturing on March 31, 1995.
Due to this refinancing, the unamortized portion of deferred finance
charges related to the Credit Agreement of $8.3 million was recognized as a
loss. This amount, net of the related income tax benefit of $3.2 million, is
presented as an extraordinary loss in the 1994 consolidated statement of income.
Effective January 4, 1995, the commercial bank financing was repaid in its
entirety by increasing the commitment amount of the MIC Revolving Loan to $250.0
million and by replacing the previous $20.0 million committed Revolving Loan
with a $20.0 million discretionary line of credit available through two
commercial banks. The original maturity of the MIC financing scheduled for March
31, 1995, has been extended annually and is currently due on March 31, 1997.
This financing is renewable upon mutual consent of the parties. The increase in
financing through MIC is also guaranteed by MC. Due to the subsequent
refinancings, the MIC loans and the bank Term Loans are presented as long-term
debt on the December 31, 1994 consolidated balance sheet. Likewise, the MIC
loans are presented as long-term debt on the December 31, 1995 consolidated
balance sheet.
F-14
<PAGE> 84
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT (CONTINUED)
The discretionary line of credit expires January 3, 1997. The interest
charged on the outstanding balance is based upon a mutually agreed upon rate.
This rate was 6.1% at December 31, 1995 and the outstanding balance at that date
was $8.7 million.
During 1992, the Company hedged some of its exposure to upward movements in
interest rates by entering into interest rate swap arrangements on $250 million
of debt by fixing the effective rate of interest at approximately 7.4%. These
swaps consisted of varying maturity dates ranging from January 1994 to July
1995. As of December 31, 1994, $200 million in swap arrangements remained
outstanding. There are no swap arrangements outstanding as of December 31, 1995.
On March 7, 1990, the Company issued $80.0 million in 10% Series A
Convertible Subordinated Payment-In-Kind ("PIK") Debentures to MC and MIC. An
additional $64.0 million of PIK debentures was issued to the Minority Owners on
November 27, 1990. Interest on these debentures was paid from issue date to
March 1, 1995, in the form of additional debentures bearing the same terms as
the original issue. Additional issues of debentures in lieu of cash payments for
interest were $19.0 million in 1993, $20.9 million in 1994 and $5.7 million in
1995. Commencing with the June 1, 1995, payment date, interest is payable at
Aristech's option, either in cash or Series B (non-convertible) PIK debentures.
From June 1, 1995, to December 1, 1995, Aristech elected to pay interest in
cash. Total cash interest payments for 1995 were $15.3 million. On March 23,
1995, the Company redeemed all of the debentures held by MGCC for $24.5 million.
The PIK debentures are convertible at the option of the holder(s) into 28%
of the Fully Diluted Common Stock of the Company as defined in the Debenture
Certificate. The conversion rights are exercisable upon the first to occur of
March 1, 1995, Change in Control (as defined in the Debenture Certificate), or
the closing of an initial public offering of the Company's common stock. To
date, no conversion rights have been exercised.
It is not practical to estimate the fair value of the PIK debentures. The
instrument is carried at its face amount plus accrued interest. The debt is not
traded and the cost is prohibitive to have a valuation of the Company performed
in order to establish the fair value of the conversion feature.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
The Company has agreed to pay MC a guarantee fee of 2% annually on the
outstanding principal balance of the Guaranteed Subordinated Term Loan (which
was repaid in entirety on August 1, 1994) and 1.125% annually on all subsequent
financings (other than that directly provided by MC) in consideration for their
guarantee of payment of the Company's obligation on these loans. Effective
January 4, 1995, the annual guarantee fee was revised to .60% calculated on a
daily basis on the outstanding principal balance of the MIC Term Loan and
Revolving Loan and the discretionary line of credit with the commercial banks.
The guarantee fee expense for 1993 was $3.6 million, $4.3 million for 1994, and
$2.2 million for 1995.
Of the $572.2 million in debt outstanding as of December 31, 1995, $165.0
million is scheduled to mature during 1997. No other repayments are due within
the next five years.
12. OTHER ITEMS
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
- -------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Operating costs include:
Maintenance and repairs of plant and equipment.................... $28.3 $28.3 $31.8
Research and development.......................................... $12.5 $13.1 $11.9
</TABLE>
F-15
<PAGE> 85
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EQUITY
The Subscription and Stockholders Agreement ("Stockholders Agreement"),
dated January 31, 1990, among MC, MIC, Blackstone Capital Partners L.P.,
Blackstone Family Investment Partnership L.P., Holdings, Middle, Acquisition and
certain management investors provided for the initial capitalization of
Holdings. Under the Stockholders Agreement, management investors acquired from
Holdings 1,250 shares of common stock ("Acquired Shares") in return for shares
of Aristech common stock and cash with a combined total value of $12.5 million.
MC and MIC together acquired from Holdings 7,500 shares of common stock for
$84.7 million and the Blackstone partnerships together acquired from Holdings
250 shares of common stock for $2.8 million. In addition, management investors
received, at no cost, 850 shares of Holding's common stock ("Restricted
Shares"). The Restricted Shares are subject to vesting and forfeiture as
provided by the Stockholders Agreement.
As defined in the Stockholders Agreement, after March 7, 1995, or upon the
occurrence of certain events, the shares held by management investors and the
Blackstone partnerships may be put by the holder or called by the Company. On
January 4, 1993, the Stockholders Agreement was amended to establish an Assigned
Value Per Share ("Fixed Price") of $30,431 per share of common stock. Therefore,
such shares have been presented at the Fixed Price and recorded in the temporary
equity section of the 1994 consolidated balance sheet.
On March 23, 1995, the Company exercised its call option with respect to
2,245 shares of common stock held by the management investors and the Blackstone
partnerships at the Fixed Price, in addition to options on 200 shares granted to
the management investors by the Performance Option Plan ("POP")(see Note 15).
The shares and options were purchased using proceeds obtained from issuing 2,550
shares of common stock to MC and MIC at the Fixed Price.
Deferred compensation was recognized for the Fixed Price of the Restricted
Shares and for the difference between the Fixed Price of the Acquired Shares and
the amount paid by management investors for such shares. The deferred
compensation attributable to Restricted Shares was amortized to expense over the
restriction period beginning on March 8, 1990 and ending on March 23, 1995.
14. REDEEMABLE PREFERRED STOCK
The redeemable Series A Convertible PIK Preferred Stock ("Series"), of
which 1,000,000 shares are authorized, has a liquidation value of $100 per share
plus all accumulated and unpaid dividends to the date of final distribution. No
other stock shall rank senior to this Series upon liquidation. Dividends are
payable quarterly at the rate of 10% per annum. Prior to June 1, 1995, dividends
were paid in additional shares of this Series (the payment-in-kind feature)
rather than in cash. Specifically, each quarter, holders received .025 shares of
this Series for each share held. Additional shares issued in lieu of cash
dividends were $4.7 million in 1993, $5.2 million in 1994, and $1.5 million in
1995. Shares issued as a dividend carry the same liquidation rights and
preferences as the originally issued preferred stock in this Series. All
dividends payable on or after June 1, 1995 are to be paid in cash. Total cash
dividends for 1995 were $3.8 million. This Series is convertible at the option
of the holder(s) into 7% of the Fully-Diluted Common Stock of the Company as
defined in the Certificate of Designation for this issuance. The conversion
rights are exercisable upon the first to occur of March 1, 1995, a Change in
Control (as defined in the Certificate of Designation), or the closing of an
initial public offering of the Company's common stock. To date, no conversion
rights have been exercised. The shares are also subject to redemption at the
Company's option after March 1, 1995. Such redemptions would be at the
liquidation value plus accrued and unpaid dividends. On March 23, 1995, the
Company redeemed all of the shares held by MGCC for $6.1 million. From March 1,
2005 through March 1, 2007, each holder of this Series may require the Company
to redeem any or all shares held by the holder at a price equal to the
liquidation value plus accrued and unpaid dividends.
F-16
<PAGE> 86
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REDEEMABLE PREFERRED STOCK (CONTINUED)
It is not practical to estimate the fair value of this Series. The
instrument is carried at its face amount plus accrued dividends. The preferred
stock is not traded and the cost is prohibitive to have a valuation of the
Company performed in order to establish the fair value of the conversion
feature.
15. PERFORMANCE STOCK OPTION PLAN, PERFORMANCE OPTION PLAN AND EMPLOYMENT
COMPENSATION AGREEMENTS
The Performance Stock Option Plan was replaced by the POP in 1992 and, on
January 4, 1993, the Stockholders Agreement was amended to terminate the POP and
the Company entered into an Employment Compensation Agreement with each
participant. This agreement provided for the payment of a fixed cash settlement
amount to each participant. The payment of the settlement took place on January
3, 1995, amounting to $27.0 million. Amounts recorded to expense for this
liability were $9.3 million in 1993 and $10.1 million in 1994.
16. OTHER RELATED PARTY TRANSACTIONS
The Company had sales of $39.8 million for 1993, $52.6 million for 1994,
and $83.4 million for 1995 to MIC and MGCC associated with shipments of chemical
products. Accounts receivable due from MIC were $6.1 million and $9.7 million at
December 31, 1994 and 1995, respectively. Accounts receivable due from MGCC were
$.7 million and $.9 million at December 31, 1994 and 1995, respectively. The
Company purchased chemical products from MIC and MGCC in the amount of $9.5
million in 1993, $15.7 million in 1994, and $27.2 million in 1995. Accounts
payable due to MIC were $.3 million and $.5 million at December 31, 1994 and
1995, respectively.
17. COMMITMENTS AND CONTINGENCIES
Contract commitments for capital expenditures for property, plant and
equipment totaled $10.2 million and $12.7 million at December 31, 1994 and 1995,
respectively.
The Company has agreed to indemnify USX Corporation ("USX") against certain
claims or liabilities which USX may incur relating to USX's prior ownership and
operation of the facilities transferred to the Company in 1986, including
liabilities under laws relating to the protection of the environment and the
workplace. Such liabilities have been provided for in the financial statements.
USX has retained responsibility for environmental liabilities relating to
occurrences at the Company's operating facilities located in Clairton,
Pennsylvania during USX's ownership. The Company has agreed to share in certain
costs relating to this site providing the Company's share does not exceed
$500,000.
As of December 31, 1994 and 1995, the Company had outstanding irrevocable
standby letters of credit in the amount of $16.8 million and $16.0 million,
respectively, primarily in connection with environmental matters.
Phillips Petroleum filed suit against the Company in November 1987,
alleging that the Company had infringed Phillips' patents relating to copolymer
produced at the LaPorte, Texas plant. A Special Master appointed by the court to
hear cross motions for summary judgment recommended in September 1991 that the
Phillips' motion be denied and the Company's motion for summary judgment be
granted. Exceptions have been filed by Phillips seeking disqualification of the
Special Master and rejection of his recommendations. On October 6, 1993, the
court denied Phillips' request for disqualification, but has taken no action on
the motion filed by Phillips for rejection of the Special Master's
recommendation.
The Company is subject to pervasive environmental laws and regulations
concerning the production, handling, storage, transportation, emission, and
disposal of waste materials and is also subject to other federal and state laws
and regulations regarding health and safety matters. These laws and regulations
are constantly
F-17
<PAGE> 87
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
evolving, and it is impossible to predict accurately the effect these laws and
regulations will have on the Company in the future.
The Company is also the subject of, or party to, a number of other pending
or threatened legal actions involving a variety of matters. In the opinion of
management, any ultimate liability arising from these contingencies, to the
extent not otherwise provided for, should not have a material adverse effect on
the consolidated financial position, results of operations, or cash flows of the
Company.
18. ASSETS HELD FOR SALE
In November 1994, the Company announced that a letter of intent had been
signed with Ashland Inc. for the purchase of the Company's unsaturated polyester
resin, polyester distribution and maleic anhydride businesses (the "Polyester
Group"). The sale was completed in April, 1995 for $91.9 million. Losses of $6.2
million in 1994 and $3.5 million in 1995 were recorded primarily due to the
write-off of excess cost over assets acquired, anticipated severance costs and
less than projected operating income of the Polyester Group through April 1995.
The net sales and operating income of the Polyester Group, excluding certain
corporate charges, for 1993 and 1994 were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994
---------------------------------------------------------- ------ ------
<S> <C> <C>
Net sales................................................. $123.6 $135.3
Operating income.......................................... 2.9 3.9
</TABLE>
The assets purchased by Ashland Inc. totaled $94.2 million at December 31,
1994 and are reflected on the 1994 consolidated balance sheet as "Net assets
held for sale". Such assets included accounts receivable of $22.4 million,
inventory of $14.4 million and net property, plant and equipment of $55.6
million.
In November 1995, the Company announced that a letter of intent had been
signed with Koppers Industries, Inc. for the purchase of the Company's coal
chemicals business. A loss of $7.9 million is included in the 1995 loss on sale
of assets as a result of the pending sale, primarily due to the write-off of
excess cost over assets acquired.
The net sales and operating income of coal chemicals, excluding certain
corporate charges, for 1993, 1994, and 1995 were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1994 1995
---------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Net sales........................................... $66.0 $69.1 $76.0
Operating income.................................... $10.8 $ 9.1 $10.3
</TABLE>
The net assets to be purchased by Koppers Industries, Inc. totaling $42.3
million at December 31, 1995 are reflected on the consolidated balance sheet as
"Net assets held for sale" and include accounts receivable of $10.3 million,
inventory of $4.9 million, net property, plant and equipment of $28.2 million
and accounts payable of $9.0 million.
19. SUBSEQUENT EVENTS
In March 1996, the maturity date of the MIC financing (see Note 10) was
extended to March 31, 1997.
On February 22, 1996, a cash dividend of $1,990 per share was declared to
holders of record of the Company's common stock as of that date and paid in June
1996.
In March 1996, the Company settled certain issues relating to prior years
with the IRS. The 1995 consolidated balance sheet has been adjusted to reflect
these amounts.
F-18
<PAGE> 88
ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUBSEQUENT EVENTS (CONTINUED)
On March 31, 1996 the Company completed the sale of the coal chemicals
business to Koppers Industries, Inc.
On July 1, 1996, the Company acquired an additional 10% of the outstanding
common stock of Avonite in exchange for cancellation of $1 million of loans the
Company had previously made to Avonite. As a result, Avonite became a
consolidated subsidiary of the Company.
On September 30, 1996, all of the PIK debentures and all outstanding shares
of Series preferred stock were converted or redeemed. As a result, the Company
issued 4,858 shares of common stock and paid cash of $30.5 million. As a result
of the transaction, common stock ownership consists of MC, 11,589 shares;
Mitsubishi Chemical Corporation, 2,200 shares; MIC, 678 shares; and Mitsubishi
Rayon Co., Ltd., 441 shares.
On November 19, 1996, the district court entered an order that granted the
Company's motion for summary judgment in the Phillips litigation described in
Note 17. The order is subject to appeal.
F-19
<PAGE> 89
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDING
SEPTEMBER 30,
-------------------
1996
1995 -
------
<S> <C> <C>
Sales................................................................... $786.7 $691.6
Operating Costs:
Cost of sales......................................................... 579.4 536.0
Selling, general and administrative expenses.......................... 32.0 35.2
Depreciation and amortization......................................... 36.2 35.6
------ ------
Total Operating Costs.............................................. 647.6 606.8
------ ------
Operating Income........................................................ 139.1 84.8
Loss on Disposal of Assets.............................................. (8.5) (8.8)
Other Expense........................................................... (.9) (.7)
Interest Income......................................................... 1.6 .7
Interest Expense........................................................ (38.1) (32.3)
------ ------
Income Before Taxes on Income........................................... 93.2 43.7
Provision for Taxes on Income........................................... 40.2 19.7
------ ------
Income Before Minority Interest......................................... 53.0 24.0
------ ------
Minority Interest in Subsidiary......................................... -- .1
------ ------
Net Income.............................................................. $ 53.0 $ 24.1
====== ======
Related party transactions:
Sales................................................................... $ 56.6 $ 59.7
Interest Expense........................................................ $ 38.7 $ 31.1
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 90
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents......................................... $ .4 $ 1.2
Short term investments....................................... 17.0 --
Receivables (less allowance for doubtful accounts of $.6).... 121.3 124.1
Inventories.................................................. 101.1 102.7
Net assets held for sale..................................... 42.3 --
Deferred income taxes........................................ 8.7 8.7
Other current assets......................................... 5.0 1.0
-------- ---------
Total Current Assets...................................... 295.8 237.7
Property, plant and equipment, net of accumulated
depreciation................................................. 602.3 596.1
Excess cost over assets acquired............................... 174.6 174.1
Other assets................................................... 17.3 9.6
-------- ---------
Total Assets.............................................. $1,090.0 $ 1,017.5
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other current liabilities............... $ 91.9 $ 86.6
Payroll and benefits payable................................. 11.9 13.9
Accrued taxes................................................ 8.4 5.5
Short-term borrowing......................................... 8.7 5.0
Long-term debt due within one year........................... -- 100.1
-------- ---------
Total Current Liabilities................................. 120.9 211.1
Long-term debt--related parties................................ 572.0 237.0
Long-term debt--other.......................................... .2 14.0
Deferred income taxes.......................................... 177.7 179.0
Other liabilities.............................................. 34.5 32.6
Commitments and contingencies.................................. -- --
-------- ---------
Total liabilities......................................... 905.3 673.7
-------- ---------
Redeemable preferred stock, series A, convertible (no par,
1,000,000 shares authorized, 509,983 shares issued at
December 31, 1995)........................................... 51.0 --
Common stock ($.01 par value, 20,000 shares authorized, 10,050
shares issued at December 31, 1995 and 14,908 shares issued
at September 30, 1996)....................................... -- --
Additional paid-in capital..................................... 154.5 378.8
Retained deficit............................................... (20.8) (35.0)
-------- ---------
Total Stockholders' Equity................................ 133.7 343.8
-------- ---------
Total Liabilities and Equity.............................. $1,090.0 $ 1,017.5
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 91
ARISTECH CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDING
SEPTEMBER 30,
---------------------
1995 1996
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income.......................................................... $ 53.0 $ 24.1
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 32.6 31.7
Amortization of excess cost over assets acquired................. 4.0 3.9
Amortization of merger expenses.................................. 1.5 1.5
Amortization of deferred compensation............................ .9 --
Amortization of anti-dilution option liabilities................. .4 --
Deferred income taxes............................................ 16.1 1.3
Loss on disposal of assets....................................... 4.3 8.8
Loss from equity investee........................................ .9 .5
Change in assets and liabilities net of effects from purchase of
Avonite:
Increase in accounts receivable................................ (4.2) (2.9)
Decrease (increase) in inventories............................. (20.4) 1.4
Decrease in accounts payable and other current liabilities..... (64.1) (7.4)
Payment-in-kind debenture interest expense....................... 5.7 --
All other........................................................ 2.7 (.6)
------- -------
Net Cash Provided by Operating Activities........................... 33.4 62.3
Cash Flows From Investing Activities:
Capital expenditures................................................ (38.3) (28.6)
Cash received on disposal of assets................................. 91.9 39.0
Maturation of short-term investment................................. -- 17.0
Cash acquired, purchase of Avonite.................................. -- .7
------- -------
Net Cash Provided by Investing Activities........................... 53.6 28.1
Cash Flows From Financing Activities:
Short-term debt increase (decrease)................................. 12.6 (3.7)
Repayment of long-term debt......................................... (156.0) (103.0)
Proceeds from issuance of long-term debt............................ 60.0 72.0
Dividends paid...................................................... (2.4) (24.2)
Payments for purchase of treasury stock............................. (68.3) --
Redemption of preferred stock....................................... (6.1) (6.2)
Redemption of PIK debentures........................................ (24.5) (24.5)
Issuance of common stock............................................ 77.5 --
------- -------
Net Cash Used in Financing Activities............................... (107.2) (89.6)
Net Increase (Decrease) in Cash and Equivalents....................... (20.2) .8
Cash and equivalents, beginning of period............................. 28.7 .4
------- -------
Cash and equivalents, end of period................................... $ 8.5 $ 1.2
======= =======
Supplemental disclosure of cash flow information:
Cash Paid during period for:
Interest......................................................... $ 34.3 $ 32.6
Income taxes..................................................... $ 19.2 $ 21.7
</TABLE>
Non-cash financing activities include the conversion of debentures of $179.5
million and Redeemable Series A Convertible PIK Preferred Stock of $44.8 million
for common stock totaling $224.3 million.
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 92
SELECTED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 AND
DECEMBER 31, 1995
1. In the opinion of management, the unaudited financial information for the
nine months ended September 30, 1996 and September 30, 1995, reflects all
adjustments necessary to fairly state the results of operations and the
changes in financial position for such interim periods. Such adjustments are
of a normal recurring nature.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
2. In March 1995, the Company purchased all the outstanding shares held by the
Blackstone partnerships, and all the outstanding shares and options held by
Aristech senior management. At the same time, 2,550 shares were issued to MC
and MIC. The purchased shares, as well as shares previously held as Treasury
Stock, were retired. In April 1995, MC acquired all the shares held by MGCC.
The allocation of the 14,908 shares of common stock currently outstanding is
as follows:
<TABLE>
<S> <C>
Mitsubishi Corporation............................................ 77.7%
Mitsubishi International Corporation.............................. 4.5%
Mitsubishi Chemical Corporation................................... 14.8%
Mitsubishi Rayon Company, Ltd..................................... 3.0%
</TABLE>
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1995 1996
------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Raw materials................................................ $ 28.8 $ 25.7
Finished products............................................ 61.5 56.5
Supplies and sundry items.................................... 15.7 20.5
----------- ------------
Total Inventory............................................ 106.0 102.7
Less inventory held for sale................................. 4.9 0.0
----------- ------------
Net Inventory................................................ $ 101.1 $102.7
============ ============
</TABLE>
Inventory at current cost was $98.5 million and $93.7 million at December
31, 1995 and September 30, 1996 respectively.
4. The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Adoption did not have a material effect on
financial position and results of operations.
5. Other expense for the first nine months of 1996 included a loss provision of
$3.6 million relating to the sale of the Company's coal chemicals business,
and writeoffs of obsolete equipment and facilities totaling $5.2 million.
Other expense for the first nine months of 1995 included a loss provision of
$3.7 million relating to the sale of the Company's unsaturated polyester
resin, distribution, and maleic anhydride businesses and writeoffs of
obsolete equipment and facilities totaling $4.8 million.
6. The provision for U.S. income taxes is based upon tax rates and amounts
which recognize management's best estimate of annual financial and taxable
income.
7. On September 30, 1996, three holders of the PIK debentures and Series
preferred stock exercised their option to convert their debentures and
preferred shares into Common Stock of the Company. Mitsubishi Corporation,
Mitsubishi International Corporation, and Mitsubishi Chemical Corporation
converted PIK Debentures of $127.6 million, $3.3 million and $48.7 million,
respectively, into 2,763 common shares, 70 common shares and 1,055 common
shares, respectively, and converted preferred stock of $31.9 million,
F-23
<PAGE> 93
$818 thousand and $12.2 million, respectively, into 690 common shares, 17 common
shares and 263 common shares, respectively. On September 30, 1996, the Company
exercised its right to redeem the PIK debentures and Series preferred stock held
by Mitsubishi Rayon Company, Ltd. for $24.4 million and $6.1 million,
respectively.
On February 22, 1996, a cash dividend of $1,990 per share was declared to
holders of record of the Company's common stock as of that date and paid in
June 1996.
Changes in stockholders' equity from December 31, 1995 to September 30, 1996
were as follows:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
NUMBER TREASURY PAID-IN TREASURY RETAINED
OF SHARES SHARES CAPITAL STOCK EARNINGS
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1995......... 10,050 -- $154.5 $ -- $(20.8)
Dividend on Series A Convertible
Preferred Stock.................. -- -- -- -- (4.2)
Dividends declared--Common Stock... -- -- -- -- (20.0)
Conversion of PIK Debentures into
Common Stock..................... 3,888 -- 179.5 -- --
Conversion of PIK Preferred Stock
into Common Stock................ 970 -- 44.8 -- --
Acquisition of Equity Interest in
Avonite.......................... -- -- -- -- (14.1)
Net Income--September, 1996........ -- -- -- -- 24.1
--------- -------- ---------- -------- --------
Balance--September 30, 1996........ 14,908 -- $378.8 $ -- $(35.0)
======== ======== ========= ======== ========
</TABLE>
8. On January 3, 1995, the Company paid $27.0 million in full settlement of
incentive and stock option plans granted to key management.
9. On July 1, 1996, the Company acquired an additional 10% of the outstanding
common stock of Avonite in exchange for cancellation of $1.0 million in debt
owed by Avonite to the Company. As a result, Avonite became a consolidated
subsidiary of the Company. Previously, the Company accounted for Avonite
using the equity method of accounting. On July 1, 1996, the balance sheet of
Avonite included the following:
<TABLE>
<S> <C>
Current assets.................................................. $ 7.2
Noncurrent assets............................................... 2.0
------
Total assets.......................................... $ 9.2
======
Current liabilities............................................. $ 2.6
Noncurrent liabilities.......................................... 30.1
Common stock and paid-in capital................................ 5.2
Retained deficit................................................ (28.7)
------
Total liabilities and equity.......................... $ 9.2
======
</TABLE>
The Company had recognized a deferred tax benefit related to its cumulative
equity losses in Avonite. Subsequent to the July 1, 1996 consolidation of
Avonite the deferred tax benefit was reversed pending satisfaction of the
recognition criteria of SFAS No. 109 "Accounting for Income Taxes" related
to net operating losses.
10. On October 31, 1996, the Company entered into an interest rate hedging
contract with a commercial bank that effectively fixed at 6.404% the
treasury rate component of the all-in interest cost (treasury rate component
plus credit margin) to the Company of $150.0 million in principal amount of
notes due 2006. The Company settled the interest rate hedging contract at a
cost of approximately $2.5 milion on November 22, 1996.
F-24
<PAGE> 94
PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following tables set forth pro forma condensed financial information of
the Company. The information in these tables should be read in conjunction with
the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Prospectus, the
Consolidated Financial Statements and notes thereto and the Interim Financial
Statements and notes thereto.
The historical information set forth below was derived from the
Consolidated Financial Statements and the notes thereto and the unaudited
Interim Financial Statements and the notes thereto. The unaudited Interim
Financial Statements have been prepared on the same basis as the audited
Consolidated Financial Statements and, in the opinion of management, reflect all
adjustments necessary to fairly state results of operations and cash flows for
such interim periods. Such adjustments are of a normal recurring nature. Results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the full year.
The unaudited pro forma condensed financial information set forth below
gives effect to (i) the sale of $150.0 million aggregate principal amount of
6 7/8% notes due 2006 (the "Old Notes"), plus an incremental interest cost of
0.34% due to the amortization of the debt discount on the Notes and the cost to
settle the interest rate hedging contract entered into on October 31, 1996, and
the application of the net proceeds from the sale of the Old Notes as described
under "Use of Proceeds" in the Prospectus and (ii) the implementation of a new
discretionary working capital facility and the application of borrowings
thereunder. The Pro Forma Condensed Statement of Income also reflects the
conversion of $179.6 million of 10% Series A Convertible Subordinated
Payment-in-Kind Debentures due March 1, 2007 ("Payment-in-Kind Debentures") to
common equity of the Company, and the redemption of $24.4 million of
Payment-in-Kind Debentures, as if each had occurred on January 1, 1995. The
unaudited pro forma condensed financial information presented is not necessarily
indicative of actual results that would have been achieved had the
aforementioned transactions been completed on the dates assumed and does not
purport to project the Company's financial position at any future date or its
results of operations for any future period.
PRO FORMA CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995 SEPTEMBER 30, 1996
---------------------------------- ----------------------------------
(DOLLARS IN MILLIONS) HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
- ------------------------------------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES................................ $1,023.3 $ -- $1,023.3 $ 691.6 $ -- $ 691.6
OPERATING COSTS:
Cost of sales...................... 758.9 -- 758.9 536.0 -- 536.0
Selling, general and administrative
expenses......................... 43.6 -- 43.6 35.2 -- 35.2
Depreciation and amortization...... 48.4 -- 48.4 35.6 -- 35.6
-------- ------- -------- -------- ------- --------
Total operating costs............ 850.9 -- 850.9 606.8 -- 606.8
-------- ------- -------- -------- ------- --------
OPERATING INCOME (excludes items
shown below)....................... 172.4 -- 172.4 84.8 -- 84.8
Other income (expense)............... (20.1) -- (20.1) (9.5) -- (9.5)
Interest expense-net................. (47.7) 17.0 (30.7) (31.6) 11.8 (19.8)
-------- ------- -------- -------- ------- --------
TOTAL INCOME BEFORE TAXES ON
INCOME............................. 104.6 17.0 121.6 43.7 11.8 55.5
Less provision for estimated
income taxes....................... 44.4 7.2 51.6 19.7 5.3 25.0
-------- ------- -------- -------- ------- --------
Net Income Before Minority
Interest........................... 60.2 9.8 70.0 24.0 6.5 30.5
-------- ------- -------- -------- ------- --------
Minority Interest.................... -- -- -- 0.1 -- 0.1
-------- ------- -------- -------- ------- --------
NET INCOME........................... $ 60.2 $ 9.8 $ 70.0 $ 24.1 $ 6.5 $ 30.6
======== ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-25
<PAGE> 95
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------
(DOLLARS IN MILLIONS) HISTORICAL ADJUSTMENTS PRO FORMA
- --------------------------------------------------------- ---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash................................................... $ 1.2 $ (1.2) $ 0.0
Receivables (less allowance for doubtful accounts of
$0.6)............................................... 124.1 -- 124.1
Inventories............................................ 102.7 -- 102.7
Other current assets................................... 9.7 -- 9.7
-------- ------- --------
Total current assets................................... 237.7 (1.2) 236.5
Property, plant and equipment, net of accumulated
depreciation........................................... 596.1 -- 596.1
Goodwill................................................. 174.1 -- 174.1
Other assets............................................. 9.6 1.5 11.1
-------- ------- --------
Total assets........................................ $1,017.5 $ .3 $1,017.8
======== ======= ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, including payroll and benefits
payable............................................. $ 100.5 $ .3 $ 100.8
Accrued taxes and interest............................. 5.5 -- 5.5
Short-term debt and long-term debt due within one
year................................................ 105.1 (65.0) 40.1
-------- ------- --------
Total current liabilities........................... 211.1 (64.7) 146.4
Long-term debt........................................... 251.0 65.0 316.0
Deferred income taxes.................................... 179.0 -- 179.0
Other liabilities........................................ 32.6 32.6
-------- ------- --------
Total liabilities................................... 673.7 .3 674.0
Equity:
Common shareholders' equity............................ 378.8 -- 378.8
Retained deficit....................................... (35.0) -- (35.0)
-------- ------- --------
Total shareholders' equity.......................... 343.8 -- 343.8
-------- ------- --------
Total liabilities and equity........................ $1,017.5 $ .3 $1,017.8
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-26
<PAGE> 96
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Underwriting fees and issuance fees for the Old Notes and the 6 7/8% notes
due 2006 which have been registered under the Securities Act of 1933, as
amended (the "New Notes," and collectively with the Old Notes, the "Notes")
are estimated to be $1.5 million. Issuance fees consist of SEC filing fees,
accounting, printing, issuer's counsel and trustee expenses. The $1.5
million will be recorded as a deferred charge on the Company's balance sheet
and charged to expense ratably over the ten year term of the Notes.
(b) The Company maintained an agreement to pay MC a guarantee fee of 1.125%
annually on the outstanding principal balance of all financings (other than
that directly provided by MC) in consideration for their guarantee of
payment of the Company's obligation on these loans. Effective January 4,
1995 and June 3, 1996, the annual guarantee fee was revised to 0.6% and 0.3%
respectively, calculated on a daily basis on the outstanding balance of the
MIC Term Loan and MIC Revolving Loan and the Company's old discretionary
line of credit with certain commercial banks. The guarantee fee payment for
the first nine months of 1996 and the year ended 1995 was $0.9 million and
$1.9 million, respectively. The Old Notes have not been, and the New Notes
will not be, guaranteed by MC.
(c) For purposes of the pro forma calculations, the net interest cost to the
Company of the Notes will be at an interest rate of 6 7/8%, plus an
incremental interest cost of 0.34% due to the amortization of the debt
discount on the Notes and the cost to settle the interest rate hedging
contract entered into on October 31, 1996, which in the aggregate is higher
than the current cost of the Company's variable rate debt instruments. It is
estimated by the Company that such increase in interest costs would amount
to $1.2 million and $0.6 million in the first nine months of 1996 and the
year ended 1995, respectively.
The detailed calculation of decreases in interest expense for the year ended
December 31, 1995 and the nine months ended September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
EFFECT (FAVORABLE) EFFECT (FAVORABLE)
------------------- -------------------
<S> <C> <C> <C>
1.) PIK DEBENTURE CONVERSION EFFECT:
Interest expense on Payment-in-Kind Debentures $ (20.9) $ (15.2)
Additional interest expense due to borrowing 0.9 0.6
2.) NONCALLABLE NOTES EFFECT:
Interest expense on $150.0 million 10-year notes 10.8 8.1
Interest expense on MIC Term Loan (6.8) (4.6)
Interest expense on MIC Revolving Loan (3.4) (2.3)
3.) REDEMPTION AND FINANCING FEES: 2.4 1.6
------- -------
$ (17.0) $ (11.8)
======= =======
</TABLE>
(d) The adjustment to the total provision for estimated income taxes recognizes
the effect of the above adjustments to total income before taxes.
F-27
<PAGE> 97
------------------------------------------------------
------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF ITS AFFILIATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL FOR SUCH PERSON
TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 4
Summary................................ 6
Risk Factors........................... 13
The Exchange Offer..................... 16
Use of Proceeds........................ 24
Capitalization......................... 25
Selected Consolidated Historical and
Pro Forma Condensed Financial Data... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
The Company............................ 34
Management............................. 48
Stockholders of the Company............ 54
Certain Transactions................... 54
Description of the New Notes........... 56
Description of the Old Notes........... 65
Certain United States Federal Income
Tax Considerations................... 66
Plan of Distribution................... 67
Legal Matters.......................... 68
Experts................................ 68
Index to Financial Statements.......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
LOGO
ARISTECH CHEMICAL
CORPORATION
OFFER TO EXCHANGE ITS
6 7/8% NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS
OUTSTANDING 6 7/8% NOTES DUE 2006
---------------------------------------------
PROSPECTUS
---------------------------------------------
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
- --------- -------------------------------------------------------- -------------------------
<C> <S> <C>
3.01 Restated Certificate of Incorporation of Aristech
Chemical Corporation, as amended (previously filed)
3.02 By-Laws of Aristech Chemical Corporation, as amended
(previously filed)
4.01 Indenture dated as of November 1, 1996 between Aristech
Chemical Corporation, as Issuer, and The Chase Manhattan
Bank, as Trustee (previously filed)
4.02 Registration Rights Agreement dated as of November 25,
1996 among Aristech Chemical Corporation, as Issuer, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, J.P. Morgan Securities Inc. and
Morgan Stanley & Co. Incorporated, as Initial Purchasers
(previously filed)
4.03 Form of Security for 6 7/8% Notes due 2006, originally
issued by Aristech Chemical Corporation on November 25,
1996 (previously filed)
4.04 Form of Security for 6 7/8% Notes due 2006, to be issued
by Aristech Chemical Corporation and registered under
the Securities Act of 1933 (previously filed)
5.01 Opinion of Mark K. McNally, General Counsel of Aristech
Chemical Corporation (previously filed)
5.02 Opinion of Kirkpatrick & Lockhart LLP
10.01 Term Loan Agreement dated as of August 1, 1994 between
Aristech Chemical Corporation and Mitsubishi
Corporation, as amended through September 30, 1996
(previously filed)
10.02 Term Loan and Revolving Credit Agreement dated as of
August 1, 1994 between Aristech Chemical Corporation and
Mitsubishi International Corporation, as amended through
September 30, 1996 (previously filed)
10.03 Discretionary Credit Agreement dated as of January 4,
1995 among Aristech Chemical Corporation, Mitsubishi
Corporation, The Chase Manhattan Bank and PNC Bank,
National Association, as amended through December 20,
1995
(previously filed)
10.04 Agreement regarding Guarantees dated January 4, 1995
between Aristech Chemical Corporation and Mitsubishi
Corporation, as amended through June 3, 1996 (previously
filed)
10.05 Asset Purchase Agreement dated as of April 28, 1995
between Ashland Inc. and Aristech Chemical Corporation
(previously filed)
</TABLE>
II-1
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
- --------- -------------------------------------------------------- -------------------------
<C> <S> <C>
10.06 Form of Change in Control Agreement between Aristech
Chemical Corporation and each of Charles W. Hamilton,
Michael J. Egan, James J. Driscoll, Mark K. McNally and
Charles P. Costanza (previously filed)
10.07 Aristech Chemical Corporation Deferred Compensation Plan
(previously filed)
10.08 Aristech Chemical Corporation Long Term Incentive Plan
10.09 Aristech Chemical Corporation Executive Life Insurance
Plan (previously filed)
10.10 Summary of Aristech Chemical Corporation Long Term
Disability Plan (previously filed)
10.11 Aristech Chemical Corporation 1996 Supplemental Pension
Plan (previously filed)
10.12 Aristech Chemical Corporation Variable Bonus Program
(previously filed)
12.01 Statement re: Computation of Ratio of Earnings to Fixed
Charges (previously filed)
23.01 Consent of Mark K. McNally, General Counsel of Aristech
Chemical Corporation (included in Exhibit 5.01)
(previously filed)
23.02 Consent of Deloitte & Touche LLP
23.03 Consent of Kirkpatrick & Lockhart LLP (included in
Exhibit 5.02)
24.01 Powers of Attorney (previously filed on signature page)
25.01 Statement re: Eligibility of Trustee (previously filed)
27.01 Financial Data Schedule (previously filed)
99.01 Form of Letter of Transmittal
99.02 Form of Notice of Guaranteed Delivery (previously filed)
99.03 Exchange Agency Letter Agreement (previously filed)
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule is filed as part of this Registration Statement:
Independent Auditors' Report on Schedule.
Schedule II--Valuation and Qualifying Accounts.
II-2
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh,
Commonwealth of Pennsylvania, on January 21, 1997.
ARISTECH CHEMICAL CORPORATION
By: /s/ MICHAEL J. EGAN
--------------------------
Michael J. Egan
Senior Vice President,
Chief Financial Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ -----------------
<C> <S> <C>
/s/ JIRO KAMIMURA Chairman of the Board, January 21, 1997
----------------------------------- Chief Executive Officer and Director
Jiro Kamimura (Principal Executive Officer)
* President, Chief Operating Officer January 21, 1997
----------------------------------- and Director
Charles W. Hamilton
/s/ MICHAEL J. EGAN Senior Vice President, January 21, 1997
----------------------------------- Chief Financial Officer and Director
Michael J. Egan (Principal Financial Officer)
/s/ MICHAEL J. PRENDERGAST Corporate Comptroller January 21, 1997
----------------------------------- (Principal Accounting Officer)
Michael J. Prendergast
* Director January 21, 1997
-----------------------------------
Masatake Bando
* Director January 21, 1997
-----------------------------------
Hajime Koga
* Director January 21, 1997
-----------------------------------
Yoshizo Shimizu
* Director January 21, 1997
-----------------------------------
Yasuo Sone
* Director January 21, 1997
-----------------------------------
Muneo Suzuki
* Director January 21, 1997
-----------------------------------
Takayori Tsuboi
* By: /s/ MARK K. MCNALLY January 21, 1997
---------------------------
Mark K. McNally
Attorney-in-fact, pursuant to power
of attorney previously filed as part
of
this Registration Statement
</TABLE>
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
Aristech Chemical Corporation:
We have audited the consolidated balance sheets of Aristech Chemical Corporation
and its subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995, and have issued our
report thereon dated January 29, 1996 (except for Note 19 as to which the date
is November 19, 1996) (which expresses an unqualified opinion and includes an
explanatory paragraph relating to changes in accounting methods for income
taxes, depreciation and postretirement benefits other than pensions); such
financial statements and report are included in the Prospectus, which is part of
this Registration Statement. Our audits also included the financial statement
schedule of Aristech Chemical Corporation and subsidiaries, listed in Item 21
(b). This financial statement schedule is the responsibility of the Company's
management. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 29, 1996
<PAGE> 102
SCHEDULE II
ARISTECH CHEMICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN B- ADDITIONS ADDITIONS COLUMN
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS COLUMN D- END OF
COLUMN A-DESCRIPTION PERIOD EXPENSES -DESCRIBE DEDUCTIONS PERIOD
- -------------------------- ------------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/95
Reserve for bad debts..... $ .8 $ .5 $ -- $ (.7) $ .6
Inventory reserve for
lower of cost or
market.................. -- -- -- -- --
YEAR ENDED 12/31/94
Reserve for bad debts..... $ .8 $ .2 -- $ (.2) $ .8
Inventory reserve for
lower of cost or
market.................. 7.2 -- -- (7.2) --
YEAR ENDED 12/31/93
Reserve for bad debts..... $ .7 $ 1.2 -- $ (1.1) $ .8
Inventory reserve for
lower of cost or
market.................. -- 7.2 -- -- (7.2)
</TABLE>
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR
NO. DESCRIPTION SEQUENTIAL PAGE NUMBER
- --------- -------------------------------------------------------- -------------------------
<C> <S> <C>
3.01 Restated Certificate of Incorporation of Aristech
Chemical Corporation, as amended (previously filed)
3.02 By-Laws of Aristech Chemical Corporation, as amended
(previously filed)
4.01 Indenture dated as of November 1, 1996 between Aristech
Chemical Corporation, as Issuer, and The Chase Manhattan
Bank, as Trustee (previously filed)
4.02 Registration Rights Agreement dated as of November 25,
1996 among Aristech Chemical Corporation, as Issuer, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, J.P. Morgan Securities Inc. and
Morgan Stanley & Co. Incorporated, as Initial Purchasers
(previously filed)
4.03 Form of Security for 6 7/8% Notes due 2006, originally
issued by Aristech Chemical Corporation on November 25,
1996 (previously filed)
4.04 Form of Security for 6 7/8% Notes due 2006, to be issued
by Aristech Chemical Corporation and registered under
the Securities Act of 1933 (previously filed)
5.01 Opinion of Mark K. McNally, General Counsel of Aristech
Chemical Corporation (previously filed)
5.02 Opinion of Kirkpatrick & Lockhart LLP
10.01 Term Loan Agreement dated as of August 1, 1994 between
Aristech Chemical Corporation and Mitsubishi
Corporation, as amended through September 30, 1996
(previously filed)
10.02 Term Loan and Revolving Credit Agreement dated as of
August 1, 1994 between Aristech Chemical Corporation and
Mitsubishi International Corporation, as amended through
September 30, 1996 (previously filed)
10.03 Discretionary Credit Agreement dated as of January 4,
1995 among Aristech Chemical Corporation, Mitsubishi
Corporation, The Chase Manhattan Bank and PNC Bank,
National Association, as amended through December 20,
1995
(previously filed)
10.04 Agreement regarding Guarantees dated January 4, 1995
between Aristech Chemical Corporation and Mitsubishi
Corporation, as amended through June 3, 1996 (previously
filed)
10.05 Asset Purchase Agreement dated as of April 28, 1995
between Ashland Inc. and Aristech Chemical Corporation
(previously filed)
10.06 Form of Change in Control Agreement between Aristech
Chemical Corporation and each of Charles W. Hamilton,
Michael J. Egan, James J. Driscoll, Mark K. McNally and
Charles P. Costanza (previously filed)
10.07 Aristech Chemical Corporation Deferred Compensation Plan
(previously filed)
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR
NO. DESCRIPTION SEQUENTIAL PAGE NUMBER
- --------- -------------------------------------------------------- -------------------------
<C> <S> <C>
10.08 Aristech Chemical Corporation Long Term Incentive Plan
10.09 Aristech Chemical Corporation Executive Life Insurance
Plan (previously filed)
10.10 Summary of Aristech Chemical Corporation Long Term
Disability Plan (previously filed)
10.11 Aristech Chemical Corporation 1996 Supplemental Pension
Plan (previously filed)
10.12 Aristech Chemical Corporation Variable Bonus Program
(previously filed)
12.01 Statement re: Computation of Ratio of Earnings to Fixed
Charges (previously filed)
23.01 Consent of Mark K. McNally, General Counsel of Aristech
Chemical Corporation (included in Exhibit 5.01)
(previously filed)
23.02 Consent of Deloitte & Touche LLP
23.03 Consent of Kirkpatrick & Lockhart LLP (included in
Exhibit 5.02)
24.01 Powers of Attorney (previously filed on signature page)
25.01 Statement re: Eligibility of Trustee (previously filed)
27.01 Financial Data Schedule (previously filed)
99.01 Form of Letter of Transmittal
99.02 Form of Notice of Guaranteed Delivery (previously filed)
99.03 Exchange Agency Letter Agreement (previously filed)
</TABLE>
<PAGE> 1
---------------------------------------------
KIRKPATRICK & LOCKHART LLP
---------------------------------------------
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020-1104
TELEPHONE (212) 536-3900
FACSIMILE (212) 536-3901
Exhibit 5.02
January 21, 1997
Aristech Chemical Corporation
600 Grant Street
Pittsburgh, PA 15219
Ladies and Gentlemen:
We have acted as counsel to Aristech Chemical Corporation, a Delaware
corporation (the "Company"), in connection with the filing by the Company of a
Registration Statement on Form S-4 (No. 333-17961) (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission. The Registration Statement relates
to the proposed issuance of up to $150,000,000 aggregate principal amount of
the Company's 6-7/8% notes due 2006 (the "New Notes") registered under the
Securities Act in exchange for an identical principal amount of the Company's
outstanding 6-7/8% notes due 2006 (the "Old Notes"). The New Notes are
issuable, and the Old Notes were issued, under an Indenture dated as of
November 1, 1996 (the "Indenture") between the Company and The Chase Manhattan
Bank, as Trustee (the "Trustee").
We have examined the Registration Statement, the Indenture and the
Company's Restated Certificate of Incorporation and By-laws, each as amended to
date. We have also examined such other public and corporate documents,
certificates, instruments and corporate records, and such questions of law, as
we have deemed necessary for purposes of this opinion.
In making such examination and rendering the opinion set forth below, we
have assume the authenticity of all documents submitted to us as originals and
the conformity to original documents of documents submitted to us as certified,
telecopied, photostatic or reproduced copies and the authenticity of the
originals of such documents, and the execution and delivery of all such
documents and instruments.
To the extent relevant to the opinion set forth below, we have assumed
that the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; that the Trustee is duly
qualified to engage in the activities contemplated by the Indenture and is
qualified and eligible under the terms of the Indenture to act as trustee
<PAGE> 2
Aristech Chemical Corporation
January 19, 1997
Page 2
thereunder; that the Indenture was duly authorized, executed and delivered by
the Trustee; that the Indenture is a valid and binding obligation of the
Trustee; and that the Trustee has the requisite organizational and legal power
and authority to perform its obligations under the Indenture.
Based upon the foregoing, and subject to the effectiveness of the
Registration Statement under the Securities Act and the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, we are of the
opinion that, when the New Notes are duly executed, attested, issued and
delivered by duly authorized officers of the Company and duly authenticated by
Trustee, all in accordance with the terms of the Indenture, against surrender
and cancellation of an identical principal amount of Old Notes, the New Notes
will constitute legally issued and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principals of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
We consent to the use of this opinion as Exhibit 5.02 to the Registration
Statement and to the reference to the undersigned in the prospectus that forms
part of the Registration Statement.
Sincerely,
/s/ KIRKPATRICK & LOCKHART LLP
<PAGE> 1
Exhibit 10.08
ARISTECH CHEMICAL CORPORATION
LONG TERM INCENTIVE PLAN
PLAN DOCUMENT
1. PURPOSE
The Aristech Chemical Corporation (the "Company" or "Aristech") Long Term
Incentive Plan ("LTIP" or the "Plan") has four key objectives:
* Focus executives on measures of performance that lead to the sustained
creation of value in the commodity chemicals industry
* Attract and retain talented executives for senior positions
* Provide the opportunity for executives to earn competitive long term
incentive awards, commensurate with performance
* Align long term incentive payments with Aristech's performance over a
multi-year period
2. EFFECTIVE DATE
The LTIP shall be effective upon approval by the Board of Directors of the
Company (the "Board"), including the retroactive design of the Plan which
allows performance cycles to commence the measurement of performance as of
January 1, 1995.
3. PLAN ADMINISTRATION
The LTIP shall be administered by the Board. Mitsubishi Corporation, which
maintains majority control (i.e., more than 50% of voting stock) of the
Company, shall have the authority to designate a representative(s) (the
"Mitsubishi Representative") to review and approve all aspects of the Plan,
including the calculation of awards earned and payments to be made under the
Plan. All determinations of the Board in the administration of the Plan shall
be binding and conclusive on all parties. The Board may delegate all or any
portion of its administrative responsibilities hereunder to a committee of the
Board or any other designated individual or committee. In the event of such
designation, references in this plan to the Board shall be deemed to refer to
the Board's delegate.
- 1 -
<PAGE> 2
4. OVERVIEW
The LTIP establishes a target long term incentive opportunity for each selected
Aristech executive that is intended to be competitive with the opportunities
granted to similar executives at comparable companies. Actual awards earned
may vary significantly from this target amount, based on the degree of
attainment of performance objectives as set forth in this document. Awards
earned under the provisions of this Plan will be paid in cash, although Plan
participants will have the opportunity to defer receipt of such awards, if and
to the extent permitted under the Company's deferred compensation plan(s).
5. LENGTH OF PERFORMANCE CYCLES
Performance cycles of the LTIP shall be four years in length. A new four-year
performance cycle of the Plan shall start every two years; therefore, two
performance cycles will be active at a given time.
Notwithstanding the aforementioned, performance cycles of shorter duration than
four years may be established at the inception or conclusion of the Long Term
Incentive Plan, as deemed appropriate by the Board and the Mitsubishi
Representative, in order to provide appropriate long term incentive
opportunities to management during periods of administrative transition.
For example, the first performance cycle payments under the LTIP shall be made
in conjunction with a two-year transition performance cycle covering the
1995-1996 performance period. The first full, four-year performance cycle of
the Plan shall start concurrently and cover the 1995-1998 period.
6. ELIGIBILITY FOR INDIVIDUAL PARTICIPATION
Members of Aristech's management team may be selected for participation in the
LTIP by the Board. Criteria for selection include executives who hold
positions that are typically eligible for long term incentives among comparable
companies and executives who significantly contribute to decisions impacting
the long term performance of the Company. Each participant shall be informed
by the Company that he or she has been selected to participate in the Plan, and
the amount of his or her individual target award, as defined under the first
paragraph of Section 8, at the beginning of each cycle.
- 2 -
<PAGE> 3
7. SUPPLEMENTAL POOL ELIGIBILITY
The Board has the authority to establish the target amount of a supplemental
award pool under the LTIP. The maximum amount of this pool shall be determined
at the conclusion of the performance cycle, by multiplying the target amount of
the supplemental pool by the percentage of the target award earned for the
Company's performance during the performance cycle, as determined under the
provisions of Section 15.
At the end of a performance cycle, this pool shall be distributed to top line
and staff executives who are not eligible for individual target awards for that
cycle.
The selection of recipients and amounts of individual awards under this
supplemental LTIP pool shall be determined by the Corporate Management
Committee (CMC) at the conclusion of a cycle, based on an individual's
contribution to Company performance during the performance cycle.
Although the allocation of this supplemental pool shall occur only at the
conclusion of a performance cycle, the CMC retains the authority to identify at
any time during a cycle executives who may qualify for awards under this
supplemental LTIP pool, and communicate to them the performance objectives by
which the total amount of the pool will be determined. This identification
shall in no circumstance entitle an executive to an award, of any size, under
the supplemental pool. The Company has no obligation to distribute any amount
of the supplemental pool earned.
8. TARGET AWARD LEVELS
At the beginning of each cycle, a target LTIP award, expressed as a percentage
of an individual's base salary, will be established for each executive named as
a participant in the Plan in accordance with Section 6. A participant's target
award under the LTIP shall equal the stated percentage of salary multiplied by
that individual's average base salary during the performance cycle, defined as
the individual's entire aggregate salary during the performance cycle divided
by the number of years in the cycle.
The total amount of the Company's target award pool shall equal the sum of the
individual target awards as defined above, plus any supplemental target amount
established by the Board in accordance with Section 7.
- 3 -
<PAGE> 4
9. PERFORMANCE MEASURES
Performance assessment under the plan is based on two performance measures:
Relative Return on Gross Assets (ROGA) and Growth in Gross Assets. The
procedure for calculating actual performance on each of these measures is set
forth below in Section 14.
10. WEIGHTING OF PERFORMANCE MEASURES
For the purpose of determining actual awards to be paid from the target and
supplemental pools, Relative ROGA shall be weighted 75% and Growth in Gross
Assets shall be weighted 25%. In addition, the portion of the award from the
target and supplemental pools based on Growth in Gross Assets is payable only
if Aristech's ROGA during the period exceeds a minimum Return on Gross Assets
established at the beginning of the cycle (the "ROGA threshold"). The ROGA
threshold will be established for each cycle by the Board.
11. DETERMINATION OF RELATIVE ROGA
Relative ROGA is defined as the comparison of Aristech's ROGA with the median
ROGA of comparable chemical manufacturing companies with publicly-available
data. These companies, as a group, are referred to as the "Peer Group." A
schedule of awards to be earned based on this comparison is set forth in
Section 15.
In order to maintain a high degree of accuracy and comparability in determining
the peer group median performance during a performance cycle, data must be
available for a peer company in all years of the cycle. In the event that a
peer's data are not available for all years, that company should be removed
from the group (see also Sections 12 and 13 below).
The peer group for the initial cycle of the Plan has been developed in
accordance with the provisions set forth above (see Attachment 1 for a list of
companies included in the peer group).
12. ADDITIONS TO THE PEER GROUP
From time to time, the Board may become aware that additional companies meet
the criteria established in Section 11 for inclusion in the peer group. The
Board may exercise the authority to add these companies to the peer group for
subsequent cycles (i.e., cycles that have not begun at the time of potential
peer additions).
- 4 -
<PAGE> 5
13. SUBTRACTIONS FROM THE PEER GROUP
In the event that a peer company no longer publicly releases the data necessary
for the calculations described in Section 14, that company will no longer be
considered a member of the peer group. This removal from the peer group shall
apply to both active and subsequent performance cycles, unless the removed
company is reinstated to the peer group for future cycles in accordance with
Section 12.
From time to time, the Board may become aware that a member of the peer group
has ceased to maintain comparability with the Company, as described in Section
11. The Board may exercise the authority to remove this company from the peer
group for active and/or subsequent cycles. As a general rule, for active
cycles, a company should not be removed from the peer group if it was
comparable to Aristech for at least half of the cycle.
14. CALCULATION OF PERFORMANCE
For the purpose of determining amounts to be paid from the target and
supplemental pools under the Plan, Aristech's performance shall be calculated
in accordance with the following definitions:
Return on Gross Assets (ROGA):
EBIDAT (defined below)
divided by
Average Gross Assets (defined below; each
year, the average of 13 month-end Gross
Asset calculations, from December 31 of the
preceding year to December 31 of that year)
Earnings before Interest and Depreciation After Taxes (EBIDAT):
Net Income (after taxes) before
Extraordinary Items
plus After-Tax Interest Expense (defined below)
plus Depreciation and Amortization Expense
Gross Assets:
Total Assets
less NIBCL's (defined below)
plus Accumulated Depreciation and Amortization
Non-Interest Bearing Current Liabilities (NIBCL's):
Current Liabilities
less Current Portion of Long Term Debt
After-Tax Interest Expense:
Pre-Tax Interest Expense
times (1 minus Statutory Tax Rate)
- 5 -
<PAGE> 6
Growth in Gross Assets (in percentage terms):
End-of-year Gross Assets
divided by
Beginning-of-year Gross Assets
minus 1
The LTIP is designed to measure "steady-state" operating performance. The Board
may consider, as appropriate, the exclusion of major investments/divestitures
from performance calculation for the year of the event and future years
remaining in an active cycle, and such determination should be communicated to
participants at the time of the event. As a general rule, for example, an asset
such as a new plant would be included in performance calculations at the
beginning of the next year after it is operational.
ROGA and Growth in Gross Assets shall be calculated for Aristech on an annual
basis. At the conclusion of each cycle, Aristech's ROGA performance over the
cycle shall be determined by averaging the Company's ROGA for each of the years
comprising the cycle. Aristech's Growth in Gross Assets for the cycle shall be
determined by averaging the Company's Growth in Gross Assets for each of the
years comprising the cycle.
In addition, ROGA shall be calculated annually for each of the companies in the
peer group. At the conclusion of each cycle, each company's ROGA performance
over the period ("average ROGA") shall be determined by averaging that
company's ROGA for each of the years comprising the cycle. The peer group
median shall be defined as the value at which precisely half of the peer
companies have a greater average ROGA and precisely half of the companies have
a lesser average ROGA.
15. AWARD SCHEDULE
75% of the total award opportunity under the target and supplemental pools is
based on Aristech's Relative ROGA. This amount is payable in full if
Aristech's average ROGA is equal to the median average ROGA of the peer group.
In the event that Aristech's ROGA is greater or less than the peer median, the
following schedule applies to all target awards, including the target amount of
the supplemental pool:
<TABLE>
<CAPTION>
Aristech % of Relative ROGA- % of Total
Performance Based Award Earned Award Earned
- ----------- ------------------- ------------
<S> <C> <C>
450+ basis points above median 250% 188%
300 basis points above median 200% 150%
150 basis points above median 150% 113%
Equal to the peer median 100% 75%
150 basis points below median 50% 38%
More than 150 b.p. below median 0% 0%
</TABLE>
- 6 -
<PAGE> 7
NOTE: Interpolation will be used to determine awards for performance that falls
between discrete points on the schedule above. The peer median is defined as
the ROGA level at which precisely half of the companies in the peer group have
a higher ROGA and half of the companies in the peer group have a lower ROGA.
The other 25% of the total award opportunity is based on Aristech's Growth in
Gross Assets, provided that a minimum return is achieved. Assuming that
Aristech's average ROGA over the performance cycle exceeds the threshold level,
the following schedule applies for the Growth in Gross Assets portion of the
LTIP:
<TABLE>
<CAPTION>
Average Annual Growth % of Gross Asset Growth- % of Total
in Gross Assets Based Award Earned Award Earned
- --------------------- ------------------------- -------------
<S> <C> <C>
10% or more 250% 63%
8% 200% 50%
6% 150% 38%
4% 100% 25%
2% 50% 13%
Below 2% 0% 0%
or if 4-year average ROGA is
less than or equal to threshold 0% 0%
</TABLE>
NOTE: Interpolation will be used to determine awards for performance that
falls between discrete points on the schedule above.
See Attachments 2 and 3 for an illustration of the calculation of awards.
16. DISCRETIONARY ADJUSTMENTS
In determining the actual payments to be made to participants upon completion
of a cycle, the Board may, in its discretion, increase or decrease the
calculated value of the award; provided, however, this adjustment -- whether
positive or negative -- may not exceed 10% of the total target award pool, as
defined in Section 8, and the adjustments shall be proportioned among all of
the participants.
Criteria for making discretionary adjustments include (but are not limited to):
relative cost in the core businesses, new product development, cooperation with
Mitsubishi Corporation to optimize commercial synergies, and environmental,
health, and safety performance.
- 7 -
<PAGE> 8
17. PAYOUT SCHEDULE
At the completion of each performance cycle, Aristech's performance will be
evaluated and the award values for each participant under the target and
supplemental pools will be determined based on the above schedules. Following
review and approval by the Board, and subject to any discretionary adjustment
the Board may make, 50% of the award will be paid to participants immediately.
The remaining 50% of the award will be paid without interest during January of
the following year (i.e., approximately one year after the completion of the
performance cycle). Plan participants shall have the opportunity to defer
receipt of such awards, if and to the extent permitted under the Company's
deferred compensation plan(s).
18. METHOD OF PAYMENT
All awards from the target and supplemental pools shall be paid in cash. The
general funds of the Company shall be the sole source of payments under the
Plan, and the Company shall have no obligation to establish any separate fund
or trust or other segregation of assets to provide for LTIP payments. Nothing
contained in this plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a participant or any other person. To
the extent any person acquires rights to receive payments hereunder from the
Company, such rights shall be no greater than those of an unsecured creditor.
19. WITHHOLDING
The Company shall, to the extent required by law, have the right to deduct from
payments of any kind otherwise due to the recipient the amount of any federal,
state, or local taxes required by law to be withheld with respect to the
amounts earned under the Plan.
20. TERMINATION OF EMPLOYMENT
A participant's right to receive full or partial award payment from the target
and supplemental pools in the event of termination of employment prior to
completion of payment of awards for the performance cycle shall depend on the
reason for termination:
a) Retirement, disability, or involuntary termination without
cause. The participant shall be entitled to a pro-rated award payment for all
active cycles, based on the percentage of a
- 8 -
<PAGE> 9
cycle (defined as the number of full months actively worked divided by the
maximum number of months in the cycle) in which the participant was actively
employed by the Company. This payment shall be made not at the time of
termination, but at the same time as payments are made to participants
continuing in the employ of the Company. Payment as a percentage of the target
award to a participant shall be based on performance over the entire
performance cycle, and be equal to the same percentage of target earned by
participants in the Plan who remain employed by the Company for the entire
cycle.
b) Death. The beneficiary designated by a participant in
accordance with Section 25 shall be entitled to a pro-rated award payment for
all active cycles, based on the percentage of a cycle (defined as the number of
full months actively worked divided by the maximum number of months in the
cycle) in which the participant was actively employed by the Company. This
payment shall be made at the same time as payments are made to other
participants in the performance cycle, with payment as a percentage of the
target award based on performance over the entire performance cycle, and equal
to the same percentage of target earned by other participants in the Plan,
unless the Board determines, in its discretion, that payment to the
participant's beneficiary should be made as soon as practical following the
participant's death. In the event that the Board elects to accelerate payment
to the beneficiary, the award earned as a percentage of target shall be equal
to the greater of 100%, or the actual amount earned as a percentage of target
through the most recently-completed fiscal year.
c) Voluntary termination or involuntary termination for cause.
The participant will forfeit all rights to payments not yet made in connection
with active cycles, or in connection with the 50% portion of earned awards for
which it is mandatory for payment to be deferred for one year. The participant
shall not forfeit amounts deferred at the election of the participant, except
to the extent expressly provided in the applicable deferred compensation plan.
Following retirement, disability, or involuntary termination without cause, a
participant shall forfeit any right to receive payment upon the commencement of
employment or a consulting relationship with another company deemed to be a
competitor of the Company by the Board.
For the purpose of this provision, "disability" shall be defined as the
inability of a participant to complete the duties of the position that resulted
in his/her selection to the Plan, for a period of at least 180 consecutive
days. "Cause" shall be defined as (i) action by a participant involving
willful and wanton malfeasance involving specifically a wholly wrongful and
unlawful act; (ii) a participant being convicted of a felony;
- 9 -
<PAGE> 10
(iii) a material violation by a participant of any rule, regulation, or policy
of the Company generally applicable to all employees; or (iv) a participant's
failure or refusal to substantially perform a material duty of such
participant's employment, as determined in the unanimous judgment of the
Executive Committee of the Board, other than the participant if such
participant is a member of the Executive Committee of the Board. For the
purpose of the Plan, a participant shall not be subject to termination for
"Cause" without (A) reasonable written notice to the participant setting forth
the reasons for the Company's intent to terminate the participant and (B) an
opportunity for the participant to cure any of the actions or omissions forming
the basis for such intended termination, if possible, within 15 days after
receipt of such written notice.
21. AMENDMENT AND TERMINATION OF THE PLAN
The LTIP shall remain in effect unless revoked by the Board.
The Board may modify, alter, amend, or terminate the Plan at any time. Any
such action shall take effect at the beginning of the next cycle of the Plan,
unless stated otherwise by the Board, and shall continue for any subsequent
cycles of the Plan. Notwithstanding the foregoing, after the occurrence of a
change in control (as defined in Section 22), no amendment to the Plan may
reduce the benefits payable under the Plan to a participant with respect to a
performance cycle that is active at the time such change in control occurs.
Notwithstanding the aforementioned, the Board also retains the authority to
terminate a cycle while in progress. In this event, payment to participants,
as a percentage of the target award, shall be the greater of:
i) 100% of the target award level, or
ii) The actual percentage of the award earned prior to termination
The actual amount paid shall be pro-rated by multiplying the amount earned as a
percentage of target, as defined above, times a participant's target award,
times the fraction representing the number of full months completed in the
cycle divided by the maximum number of months in the cycle (i.e., 48 months for
a four-year cycle).
22. CHANGE IN CONTROL
a) Change in Control. The LTIP shall terminate upon the
consummation of a change in control, as defined below, or an
- 10 -
<PAGE> 11
initial public offering of Company stock, unless extended by the acquiring or
continuing entity. If the Plan is terminated in accordance with this
provision, all cycles of the Plan shall terminate immediately, and a pro-rated
award payment shall be made in cash, in accordance with Section 22 (b).
b) Calculation of Award Payment following a Change in Control.
The amount of the award earned for each cycle, as a percentage of the target
award, shall be defined as the greater of:
i) 100% of the target award level, or
ii) The actual percentage of the award earned prior to the change
in control
The actual amount paid shall be pro-rated by multiplying the amount earned as a
percentage of target, as defined above, times a participant's target award,
times the fraction representing the number of full months completed in the
cycle divided by the maximum number of months in the cycle (i.e., 48 months for
a four-year cycle; see Attachment 4 for an illustration of this calculation).
Inasmuch as the LTIP is designed to have two active cycles at any given time,
the total amount paid to participants will, under most circumstances, equal the
sum of two awards earned based on this methodology.
Payments shall be made to participants within 90 days following the termination
of the Plan under these provisions.
A change in control shall be defined as: (i) any transaction that results in
Mitsubishi Corporation and its subsidiaries (collectively, the "MC Group") no
longer being the beneficial owner of stock possessing at least fifty percent
(50%) of the combined voting power of the issued and outstanding shares of all
classes of the Company's stock entitled to vote generally in the election of
directors ("Voting Stock"), whether as a result of the issuance of securities
of the Company, any direct or indirect transfer of securities of the Company or
otherwise; or (ii) approval by the stockholders of the Company of a
reorganization, merger or consolidation, unless, following such reorganization,
the MC Group beneficially owns, directly or indirectly, stock possessing at
least fifty percent (50%) of the total combined voting power of the issued and
outstanding shares of all classes of Voting Stock of the corporation resulting
from such reorganization, merger or consolidation; or (iii) approval by the
stockholders of the Company of a complete liquidation or dissolution of the
Company; or (iv) the sale or disposition of 60% or more by value of the assets
of the Company other than to a corporation with respect to which, following
such sale or
- 11 -
<PAGE> 12
disposition, the MC Group beneficially owns, directly or indirectly, stock
possessing at least fifty percent (50%) of the total combined voting power of
the issued and outstanding shares of all classes of Voting Stock.
23. EXCLUSION FROM EMPLOYEE BENEFITS
Payments under the Plan shall in no circumstance be included as compensation
for the purpose of determining any retirement income, life insurance, or any
other related employee benefit program.
24. ASSIGNMENT OF EMPLOYEE RIGHTS
No employee has a claim or right to be a participant in the Plan, to continue
as a participant, or to be granted awards under the Plan. The Company is not
obligated to give uniform treatment (e.g., equal target amounts, etc.) to
participants. Participation in the Plan does not give a participant the right
to be retained in the employment of the Company, nor does it imply or confer
any other employment rights.
Nothing contained in the Plan will be construed to create a contract of
employment with any participant.
25. BENEFICIARY DESIGNATION
A participant may designate a beneficiary or beneficiaries to receive, in the
event of the participant's death, all or part of the amounts to be distributed
to the participant under the Plan. A designation of a beneficiary may be
replaced by a new designation or may be revoked by the participant at any time.
A designation or revocation shall be on a form to be provided for such purpose
and shall be signed by the participant and delivered to the Company prior to
the participant's death. Any amount that is distributable to a participant
upon death and is not subject to such a designation shall be distributed to the
participant's estate. If there shall be any question as to the legal right of
any beneficiary to receive a distribution under the Plan, the amount in
question may be paid to the estate of the participant, in which event the
Company shall have no further liability to any one with respect to such amount.
26. DEMOTION
The Board has the authority to remove from the Plan during an active cycle a
participant who has been demoted to a position within the Company which is not
eligible for participation in the
- 12 -
<PAGE> 13
LTIP. In this event, the participant shall be entitled to a pro-rated payment,
based on performance over the entire Plan cycle, and made at the same time as
payments to continuing participants are made. The amount of this payment shall
be equal to the percentage of the target award earned by participants for the
entire cycle, multiplied by the demoted participant's target award, multiplied
by the fraction equal to the number of full months in the cycle completed prior
to the demotion divided by the maximum number of months in the cycle.
27. VALIDITY
In the event any provision of the Plan is held invalid, void, or unenforceable,
the same will not affect, in any respect whatsoever, the validity of any other
provision of the Plan.
28. APPLICABLE LAW
The Plan will be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania other than the conflict of laws provisions
thereof.
- 13 -
<PAGE> 14
Attachment 1
COMPANY NAME
------------
Albemarle Corp.
Arco Chemical
Borden Chemicals & Plastics
Ethyl Corp.
Geon Company
Georgia Gulf Corp.
Hercules Inc
Lyondell Petrochemical Co.
Rohm & Haas Co.
Uniroyal Chemical Corp.
Witco Corp.
<PAGE> 15
Attachment 2
Illustration -- CALCULATION OF AWARDS
Aristech LTIP
1995-1996 Cycle (2-Year Transition Cycle)
<TABLE>
<CAPTION>
Performance LTIP Award
------------ Cycle Pool
Year 1 Year 2 Average ($000's)
<S> <C> <C> <C> <C>
TARGET AWARD POOL* $2,600
RETURN ON GROSS ASSETS
Weighting: 75% of Total
Award $1,950
Example:
Aristech 15.0% 10.5% 12.8%
Peer Group Median 10.0% 12.0% 11.0%
-----
Performance
(Basis point spread) 180 basis
points
above peer
median
ROGA-based payment 160% $3,120
as a % of Target of
Target
GROWTH IN GROWTH ASSETS
Weighting: 25% of Total Award $650
Example:
Aristech 2.7% 6.6% 4.7%
----
Growth-based payment 118% $767
as a % of Target of
Target ____
TOTAL AWARD POOL EARNED based on Performance* $3,887
as a % of Target Award Pool 150%
</TABLE>
* Includes supplemental award pool
<PAGE> 16
Attachment 3
Illustration -- CALCULATION OF AWARDS
Aristech LTIP
1995-1998 Cycle (First Full 4-Year Cycle)
<TABLE>
<CAPTION>
Performance
Year Year Year Year LTIP Cycle Award Pool
1 2 3 4 Average ($000's)
<S> <C> <C> <C> <C> <C> <C>
TARGET AWARD POOL* $2,600
RETURN ON GROSS ASSETS
Weighting: 75% of Total Award $1,950
Example:
Aristech 15.0% 10.5% 12.5% 20.0% 14.5%
Peer
Group Median 10.0% 12.0% 10.5% 11.5% 11.0%
-----
Performance 350 basis points
(Basis point spread) above peer median
ROGA-based payment 217% $4,232
as a % of Target of Target
GROWTH IN GROSS ASSETS
Weighting: 25% of Total Award $650
Example:
Aristech 2.7% 6.6% 4.3% 6.4% 5.0%
----
Growth-based payment 125% $813
as a % of Target of Target
TOTAL AWARD POOL EARNED based on Performance* $5,044
as a % of Target Award Pool 194%
</TABLE>
*Includes supplemental award pool
<PAGE> 17
Attachment 4
Illustration -- CALCULATION OF AWARDS
Aristech LTIP
Change in Control Provisions
<TABLE>
All dollars in thousands
Performance ---------------------------------------Year---------------------------------
Assumptions 1995 1996 1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAYMENT SCHEDULE: Without Change in Control
Cycle A
Amount Earned as %
of Target 149%
Total Award Pool
Earned $3,874
50% Paid at 50% Paid
End of Cycle One Year Later
($1,937) ($1,937)
Cycle B
Amount Earned as %
of Target 194%
Total Award Pool Earned $5,044
50% Paid at 50% Paid
End of Cycle One Year Later
($2,522) ($2,522)
Cycle C
Amount Earned as % of Target 130%
Total Award Pool Earned $3,380
50% Paid at 50% Paid
End of Cycle One Year Later
($1,690) ($1,690)
</TABLE>
<PAGE> 18
Attachment 4 (Cont)
PAYMENT SCHEDULE: Assumes Change in Control January 1,1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Cycle A
Amount Earned as % of Target* 149%
Total Award Pool Earned $3,874
50% Paid at 50% Paid
End of Cycle One Year Later
($1,937) ($1,937)
Cycle B (Based on Performance from Jan '95 to Dec '97)
Amount Earned as % of Target 148%
Award Pool Earned for Full Cycle $3,848
Pro-Rated at 75% (Jan '95 - Dec '97) $2,886
Paid at Change
in Control
($2,886)
Cycle C (Based on Performance from Jan '97 to Dec '97)
Amount Earned as % of Target* 152%
Award Pool Earned for Full Cycle $3,952
Pro-Rated at 25% (Jan '97 - Dec '97) $988
Total Change in Control Payment $2,886 Paid at Change
+ $988 in Control
------ ($988)
$3,874
</TABLE>
* In the event of a change in control, the minimum amount earned as a percent
of target is 100%
NOTE: Assumes total target pool of $2.6 million (including the supplemental
pool) for all LTIP cycles
Performance levels shown are for illustrative purposes only
<PAGE> 19
Attachment 5
APPROVED PARAMETERS FOR FIRST TWO CYCLES
Aristech LTIP
1995-1996 and 1995-1998 Cycles
<TABLE>
<CAPTION>
2-Year First
Transition Cycle Full Cycle
Issue 1995-1996 1995-1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Target Awards for Individual Participants (as % of Salary)
CEO 160% 160%
COO 120% 120%
Other CMC Members 100% 100%
Approximate Target Award Pool $1,600,000 $1,600,000
(assuming 6 Individual Participants)
Supplemental Target Award Pool $1,000,000 $1,000,000
Approximate Total Target Award Pool $2,600,000 $2,600,000
ROGA Threshold 8% 8%
</TABLE>
<PAGE> 1
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendent No. 1 to Registration Statement No.
333-17961 of Aristech Chemical Corporation of our report dated January 29, 1996
(except for Note 19, as to which the date is November 19, 1996) (which expresses
an unqualified opinion and includes an explanatory paragraph relating to changes
in accounting methods for income taxes, depreciation and postretirement benefits
other than pensions), appearing in the Prospectus, which is a part of this
Registration Statement, and of our report dated January 29, 1996 relating to the
financial statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 21, 1997
<PAGE> 1
EXHIBIT 99.01
LETTER OF TRANSMITTAL
ARISTECH CHEMICAL CORPORATION
OFFER TO EXCHANGE ITS 6 7/8% NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 6 7/8% NOTES DUE 2006
PURSUANT TO THE PROSPECTUS
DATED , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED (SUCH TIME ON SUCH
DATE, AND AS SUCH TIME AND DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
If you desire to accept the Exchange Offer (as defined below), this Letter of
Transmittal should be completed, signed, and submitted to:
THE CHASE MANHATTAN BANK
Exchange Agent
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT DELIVERY OR HAND:
-------------------------------- ------------------------------
The Chase Manhattan Bank The Chase Manhattan Bank
450 West 33rd Street, 15th Floor 450 West 33rd Street, 15th Floor
New York, NY 10001 New York, NY 10001
Attention: Corporate Trust Department Attention: Corporate Trust Department
(Aristech Chemical Corporation, (Aristech Chemical Corporation,
6 7/8% Notes due 2006) 6 7/8% Notes due 2006)
OR
BY HAND ONLY:
-------------
The Chase Manhattan Bank
Institutional Trust Group
One Chase Manhattan Plaza, Floor 1B
New York, NY 10081
(Aristech Chemical Corporation,
6 7/8% Notes due 2006)
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 946-3089
FACSIMILE TRANSMISSIONS:
(212) 946-8161
(Originals of all documents sent by facsimile should be sent promptly by hand,
overnight courier or registered or certified mail.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by The
Chase Manhattan Bank (the "Exchange Agent") at The Depository Trust
Company("DTC") pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date or who cannot complete the procedures for book-entry transfer on a timely
basis, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes"
in the Prospectus. See Instruction 1 hereto. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Aristech Chemical Corporation, a Delaware
corporation (the "Company"), the aggregate principal amount of the Company's
6 7/8% Notes due 2006 (the "Old Notes") described in Box 1 below in exchange for
a like aggregate principal amount of the Company's 6 7/8% Notes due 2006 (the
"New Notes") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitutes the "Exchange Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT (AS DEFINED IN THE PROSPECTUS). THE UNDERSIGNED HAS READ AND
AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed in Box 1 below, if they are not already set
forth below, as they appear on the Certificate representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate box below.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the Company's
acceptance for exchange of such tendered Old Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange and of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the New Notes
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account indicated
below maintained at DTC. If applicable, substitute Certificates representing Old
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Notes, will be
credited to the account indicated below
<PAGE> 3
maintained a DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions" (Box 8), please deliver New Notes to the undersigned at the
address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (1) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER
OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE
SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES, FOR A PERIOD
ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN
LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH
NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT
REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-
DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY
EVENT OF THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED IN THE
PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT
TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING, OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR
SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO SUCH PARTICIPATING
BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY
BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE
SALE OF THE NEW NOTES, IT SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE
DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. A PARTICI-
<PAGE> 4
PATING BROKER-DEALER WHO INTENDS TO USE THE PROSPECTUS IN CONNECTION WITH THE
RESALE OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER MUST NOTIFY THE COMPANY, OR CAUSE THE COMPANY TO BE NOTIFIED, ON OR PRIOR
TO THE EXPIRATION DATE THAT IT IS A PARTICIPATING BROKER-DEALER. SUCH NOTICE MAY
BE GIVEN IN THE BOX ENTITLED "PARTICIPATING BROKER-DEALER" BELOW (BOX 5), OR MAY
BE DELIVERED TO THE EXCHANGE AGENT AT ONE OF THE ADDRESSES SET FORTH ON PAGE ONE
HEREOF. ANY PARTICIPATING BROKER-DEALER WHO IS AN "AFFILIATE" OF THE COMPANY MAY
NOT RELY ON THE INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF
CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES
REFERENCED ABOVE AND MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE TRANSACTION.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after November
25, 1996.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representative, successors and assigns of the undersigned. Except pursuant
to the withdrawal rights set forth in the Prospectus, this tender is
irrevocable.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE
BOXES BELOW AND FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE HEREOF.
ALL TENDERING HOLDERS COMPLETE THIS BOX 1:
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OF
OLD NOTES
IF BLANK, PLEASE PRINT NAME(S) AND ADDRESS(ES) CERTIFICATE PRINCIPAL TENDERED
OF REGISTERED HOLDER(S) EXACTLY AS NAME(S) NUMBER(S)OF AMOUNT OF (IF LESS
APPEAR(S) ON OLD NOTE CERTIFICATES OLD NOTES* OLD NOTES THAN ALL)**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Total Principal
Total Principal Amount
Amount $_______ Tendered $_______
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof, provided that, if any Old Note is tendered
for exchange in part, the untendered principal amount thereof must be
$250,000 or any integral multiple of $1,000 in excess thereof. All Old
Notes held shall be deemed tendered unless a lesser number is specified in
this column. See Instruction 4.
- --------------------------------------------------------------------------------
<PAGE> 5
BOX 2
BOOK-ENTRY TRANSFER
(See Instruction 1 Below)
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution:_____________________________________________
DTC Account Number:________________________________________________________
Transaction Code Number:___________________________________________________
- --------------------------------------------------------------------------------
BOX 3
NOTICE OF GUARANTEED DELIVERY
(See Instruction 1 Below)
- --------------------------------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):______________________________________________
Window Ticket Number (if any):_____________________________________________
Date of Execution of Notice of Guaranteed Delivery:________________________
Name of Institution which Guaranteed Delivery:_____________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution:_____________________________________________
DTC Account Number:________________________________________________________
Transaction Code Number:___________________________________________________
- --------------------------------------------------------------------------------
BOX 4
RETURN OF NON-EXCHANGED OLD NOTES TENDERED BY BOOK-ENTRY TRANSFER
(See Instructions 4 and 6 below)
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE
- --------------------------------------------------------------------------------
BOX 5
PARTICIPATING BROKER-DEALER
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
- --------------------------------------------------------------------------------
<PAGE> 6
BOX 6
TENDERING HOLDER SIGNATURE
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6 BELOW)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 IN BOX 9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the Company
or the Trustee for the Old Notes to comply with the restrictions on transfer
applicable to the Old Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5 below.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S) )
Date: ______________________________ , 1997
Name(s):________________________________________________________________________
(PLEASE PRINT)
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
________________________________________________________________________________
GUARANTEE OF SIGNATURE(S)
(See Instructions 1, 2 and 5 below)
Authorized Signature:___________________________________________________________
Name:___________________________________________________________________________
(PLEASE PRINT)
Date: ______________________________ , 1997
Capacity or Title:______________________________________________________________
Name of Firm:___________________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
- --------------------------------------------------------------------------------
<PAGE> 7
BOX 7
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6 BELOW)
- --------------------------------------------------------------------------------
To be completed ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:_____________________________________________________________
Name:___________________________________________________________________________
(Please Print)
Address:________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
BOX 8
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6 BELOW)
- --------------------------------------------------------------------------------
To be completed ONLY if New Notes are to be sent to someone other than the
registered holder of the Old Notes whose name(s) appear(s) above, or to such
registered holder(s) at an address other than that shown above.
Mail New Notes to:______________________________________________________________
Name:___________________________________________________________________________
(Please Print)
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
- --------------------------------------------------------------------------------
<PAGE> 8
BOX 9
SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 9 BELOW)
SIGN THIS SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S) REQUIRED IN BOX 6
- --------------------------------------------------------------------------------
PAYER'S NAME: THE CHASE MANHATTAN BANK
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1--Please provide your TIN
FORM W-9 (either your social security
number or employer identification TIN_____________________________
number) in the box to the right
and certify by signing and dating
below.
----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY Part 2-- Part 3--
INTERNAL REVENUE SERVICE
Awaiting TIN [ ] Exempt [ ]
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN) SIGN THIS FORM and THE CERTIFI- See enclosed Guidelines for
AND CERTIFICATION CATION OF AWAITING TAXPAYER additional information and
IDENTIFICATION NUMBER BELOW SIGN THIS FORM
- ---------------------------------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a
number to be issued to me); and
(2) I am not subject to backup withholding because (i) I am exempt from backup withholding, or (ii) I
have not been notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup withholding; and
(3) Any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS--You must cross out item (iii) in Part 2 above if you have been notified by
the IRS that you are subject to backup withholding because of under-reporting interest or dividends on
your tax return and you are no longer subject to backup withholding.
Signature________________________________________________________________ Date ______________________
- ---------------------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
- ---------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (1) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Service Center or Social Security Administrative Office or
(2) I intend to mail or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all payments made to me on
account of the New Notes shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a taxpayer identification number.
Signature________________________________________________________________ Date ______________________
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
FOR ADDITIONAL INFORMATION.
<PAGE> 9
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
Please do not send Certificates for Old Notes directly to the Company. Your
Old Note Certificates, together with your signed and completed Letter of
Transmittal and any required supporting documents should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the Exchange Agent, at
either of the addresses indicated on the first page hereof. THE METHOD OF
DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Old Notes may be
tendered in whole or in part in the principal amount of $1,000 and integral
multiples of $1,000, provided that, if any Old Note is tendered for exchange in
part, the untendered principal amount thereof must be $250,000 or any integral
multiple of $1,000 in excess thereof.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
Guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus and by completing Box 3 hereof. Pursuant
to such procedures: (i) such tender must be made by or through an Eligible
Institution (as defined below); (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form accompanying this
Letter of Transmittal, must be received by the Exchange Agent on or prior to the
Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as
defined in the Prospectus)) representing all tendered Old Notes, in proper form
for transfer, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within five New York Stock Exchange, Inc. trading days after
the date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein, "Eligible Institution" means a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange, Inc. Medallion Signature Program or the
Stock Exchanges Medallion Program.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter or Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Exchange Instructions" (Box 7)
or the box entitled "Special Delivery Instructions" (Box 8) above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal (Box 6). See Instruction 5.
<PAGE> 10
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which should be attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof,
provided that, if any Old Note is tendered for exchange in part, the untendered
principal amount thereof must be $250,000 or any integral multiple of $1,000 in
excess thereof. If less than all the Old Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Old Notes which
are to be tendered in Box 1 under the column "Principal Amount of Old Notes
Tendered." In such case, new Certificate(s) for the remainder of the Old Notes
that were evidenced by your old Certificate(s) will only be sent to the holder
of the Old Notes, promptly after the Expiration Date. All Old Notes represented
by Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if Certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular Certificates for the Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in the Prospectus
under "The Exchange Offer--Procedures for Tendering Old Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written, telegraphic, telex or
facsimile transmission. Withdrawals of tenders of Old Notes may not be
rescinded. Old Notes validly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give such a notification. Any Old Notes which have been tendered but
which are withdrawn on or prior to the Expiration Date will be returned to the
holder thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES OF LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company, must
submit proper evidence satisfactory to the Company, in its sole discretion, of
such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). However, if New Notes are
to be issued in the name of a person other than the registered holder(s),
signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel,
<PAGE> 11
certifications and other information as the Company or the Trustee of the Old
Notes may require in accordance with the restrictions on transfer applicable to
the Old Notes. Signatures on such Certificates or bond powers must be guaranteed
by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal, or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed (Box 7 and
8). Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange
Offer" or any conditions or irregularity in any tender of Old Notes of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent, nor any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification .
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is
required, unless an exemption applies, to provide the Exchange Agent with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
of this Letter of Transmittal (Box 9) and certify, under penalties of perjury,
that such number is correct and he or she is not subject to backup withholding.
If the Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty. In
addition, payments to such holders or other payees with respect to Old Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 (Box 9) may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below Substitute Form W-9 in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Box 9 for "exempt," to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed IRS
Form W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
<PAGE> 12
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is your social
security number. Refer to the following chart to determine the appropriate
number:
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- -----------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. Adult and minor The adult or if the minor
(joint account) is the contributor, the
minor
5. Account in the name of The ward, minor or
guardian or committee for incompetent person
a designated ward, minor
or incompetent person
6. a. The usual revocable The grantor-trustee(1)
savings trust (grantor
is also trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
- -----------------------------------------------------------
- -----------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- -----------------------------------------------------------
7. Sole proprietorship The owner(3)
8. A valid trust, estate, or Legal entity (4)
pension trust
9. Corporate The corporation
10. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
11. Partnership The partnership
12. A broker or registered The broker or nominee
nominee
13. Account with the The public entity
Department of Agriculture
in the name of a public
entity that receives
agricultural program
payments
- -----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B. EXEMPT PAYEES--The following lists exempt payees. If you are exempt, you must
nonetheless complete the form and provide your TIN to establish that you are
exempt. Check the box in Part 3 of the form, sign and date the form.
For this purpose, Exempt Payees include: (1) A corporation; (2) An
organization exempt from tax under section 501(a), or an individual
retirement plan (IRA) or a custodial account under section 403(b)(7); (3) The
United States or any of its agencies or instrumentalities; (4) A state, the
District of Columbia, a possession of the United States, or any of their
political subdivisions or instrumentalities; (5) A foreign government or any
of its political subdivisions, agencies or instrumentalities; (6) An
international organization or any of its agencies or instrumentalities; (7) A
foreign central bank of issue; (8) A dealer in securities or commodities
required to register in the U.S. or a possession of the U.S.; (9) A real
estate investment trust; (10) An entity registered at all times during the
tax year under the Investment Company Act of 1940; (11) A common trust fund
operated by a bank under section 584(a); (12) A financial institution.
C. OBTAINING A NUMBER--If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, application for a Social
Security Number, or Form SS-4, Application for Employer identification
Number, at the local offfice of the Social Security Admmmstration or the
Intemal Revenue Service and apply for a number.
D. PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of
taxable-interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number. Certain penalties may also
apply.
E. PENALTIES.
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as
being due to negligence and will be subject to a penalty of 5% on any
portion of an under-payment attributable to that failure unless there is
clear and convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
