<PAGE>
As filed with the Securities and Exchange Commission on June 18, 1996
Registration No. 333-3313
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
KOPPERS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 2491 25-1588399
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219-1800
(412) 227-2001
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
DONALD P. TRAVISS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KOPPERS INDUSTRIES, INC.
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219-1800
(412) 227-2001
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
---------------
COPIES TO:
CLAYTON A. SWEENEY, ESQUIRE E. WAIDE WARNER, JR., ESQUIRE
DICKIE, MCCAMEY & CHILCOTE, P.C. DAVIS POLK & WARDWELL
TWO PPG PLACE, SUITE 400 450 LEXINGTON AVENUE
PITTSBURGH, PENNSYLVANIA 15222-5402 NEW YORK, NEW YORK 10017
(412) 281-7272 (212) 450-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................... 8,052,210 $16.00 $128,835,360 $44,426
===============================================================================
</TABLE>
(1) Includes 1,050,288 shares subject to an over-allotment option granted to
the U.S. Underwriters.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
KOPPERS INDUSTRIES, INC.
Cross-Reference Sheet Showing Location in Prospectus of Information Pursuant to
Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION OR HEADING IN PROSPECTUS
---------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus............. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and
Risk Factors........... Prospectus Summary; Risk Factors
4. Use of Proceeds......... Use of Proceeds
5. Determination of
Offering Price......... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution................ Not Applicable
7. Selling Security
Holders................ Principal and Selling Stockholders
8. Plan of Distribution.... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of
Securities to be
Registered............. Description of Capital Stock
10. Interests of Named
Experts and
Counsel................ Legal Matters; Experts
11. Information with Respect
to the Registrant...... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The Company;
Use of Proceeds; Dividend Policy; Capitalization;
Selected Historical Financial Data; Pro Forma
Condensed Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Relationships and
Related Transactions; Principal and Selling
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Certain United States Tax
Considerations Applicable to Non-U.S. Holders of the
Common Stock; Description of Certain
Indebtedness; Financial Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 18, 1996
, 1996
7,001,922 SHARES
[LOGO OF KOPPERS INDUSTRIES]
COMMON STOCK
Of the 7,001,922 shares of common stock ("Common Stock") being offered
hereby, 1,800,000 shares are being sold by Koppers Industries, Inc. (the
"Company") and 5,201,922 shares are being sold by certain stockholders (the
"Selling Stockholders"). See "Principal and Selling Stockholders". The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
Of the 7,001,922 shares of Common Stock being offered, 5,601,537 shares are
initially being offered for sale in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 1,400,385 shares are initially being
offered for sale outside of the United States and Canada in a concurrent
offering by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offerings"). See "Underwriting".
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
Application has been made for the Common Stock to be listed on the New York
Stock Exchange ("NYSE") under the symbol "KOP".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
- ------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,050,288 additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
all such shares are purchased, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting".
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of share certificates will be made against payment
in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE DILLON, READ & CO. INC.
SECURITIES CORPORATION
<PAGE>
[Map illustrating the locations of the Company's United States and foreign
joint venture facilities]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information contained in this Prospectus (i) assumes that the
over-allotment option granted by the Company to the U.S. Underwriters is not
exercised and (ii) has been adjusted to give effect to a 3-for-1 stock split of
the Common Stock which occurred on May 23, 1996.
THE COMPANY
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical, railroad,
aluminum and steel industries. The "Koppers" name has been associated with the
carbon compounds and wood treating businesses for over 70 years, and the
Company has leading market positions in most of its products. The Company
operates 24 facilities in the United States and maintains indirect ownership
interests in 17 facilities overseas. The Company recorded net sales and net
income of $525.7 million and $24.4 million, respectively, for the year ended
December 31, 1995. In 1995, the Company's three divisions, Coke Products,
Carbon Materials & Chemicals and Railroad & Utility Products, accounted for
15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, phthalic anhydride
("PAA") and creosote, which are basic materials necessary in the production of
aluminum, polyester resins and plasticizers, and the pressure treatment of
wood. The Company's Railroad & Utility Products division is the largest
supplier of treated wood products, such as railroad crossties and utility
poles, to the United States railroad and utility industries.
The Company's operations are substantially vertically integrated, providing
it with operating flexibility. Coal tar, a by-product of the Company's coke
production, is the primary raw material used in the distillation process of the
Carbon Materials & Chemicals division. Creosote, a major product of the coal
tar distillation process, is used as a raw material in the treatment of wood by
the Company's Railroad & Utility Products division. Other areas in which the
Company is vertically integrated include the production of PAA through the use
of a by-product of coal tar distillation and the utilization of coke oven gas
and recycled wood products to fulfill a portion of its energy needs.
The Company believes it has achieved leading positions in each of its markets
as a result of the following strengths:
Vertical Integration--The Company's ability to utilize by-products
produced in its Coke Products and Carbon Materials & Chemicals divisions,
as well as its ability to generate much of its own energy through the
burning of wood waste and coke oven gas, provides the Company with
significant operating flexibility.
Continuous Investment In Facilities--Since 1988, the Company has invested
over $145 million to modernize its facilities and to meet or exceed
environmental compliance standards.
Strong Customer Relationships--The "Koppers" name has been associated
with quality and reliability since the 1920's and its reputation has
enabled the Company to count among its customers many of the premier
companies in each of its markets. The Company's predecessors have supplied
many of these companies for decades. Since its formation in 1988, the
Company has continued to supply most of these
3
<PAGE>
companies and many of its facilities are strategically located to service
its customers' requirements. In order to enhance these relationships, the
Company continually has instituted programs to ensure quality and customer
satisfaction.
Annual and Multi-Year Sales Contracts--Historically, the Company has
sought to reduce its exposure to industry fluctuations and general economic
conditions by diversifying its customer base and securing commitments for a
large portion of its planned production through annual and multi-year
contracts. In each year since it was formed in 1988, the Company has been
able to secure over 50% of its following year's sales through such
contracts.
Strong Relationships With Multiple Suppliers--The Company's predecessors
have enjoyed long-term relationships, in some cases over 50 years, with
their major suppliers. Since its formation in 1988, the Company has
maintained most of these relationships and its ability to source high-
quality coal, coal tar and wood from multiple suppliers provide it with a
significant competitive advantage in meeting customer requirements in a
timely and economically advantageous manner.
Global Presence--Directly and through its international joint ventures,
the Company serves the North American, European, Asian and Australian
markets with carbon materials and chemical products. The Company works
closely with its joint ventures in Denmark and Australia on marketing
strategy, raw material sourcing and technology sharing. Through its
international joint ventures, the Company has completed several
acquisitions and has entered into marketing agreements enabling the Company
to expand its presence into new and emerging markets, including the
People's Republic of China and other Pacific Rim nations.
The Company's strategy for future growth and enhanced profitability includes
the use of its cash flow for strategic acquisitions, productivity and cost
reduction initiatives and the expansion of existing facilities. The Company
also intends to develop, market and sell new products and broaden its customer
base in new and existing markets. The Company is currently developing new low-
emission and high-softening-point pitches for the aluminum industry, specialty
coal tar pitches to be used to increase carbon content in electrode carbon
markets (currently utilizing petroleum pitches) and additional downstream
applications for naphthalene in the super-plasticizer and other specialty
chemical markets. In addition, in 1995, the Company initiated a strategic
review which identified opportunities to increase capacity at several of its
facilities and to expand services offered, such as plant-assembled track
sections, freight car cleaning and used tie disposal. This review also
identified several areas where logistics, manufacturing processes and
management systems can be improved.
ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to pursue strategic
acquisitions. Over the past three years, the Company has completed five
acquisitions, including the purchase of the largest railroad crosstie treating
facility in the United States, which is located in Somerville, Texas (the
"Somerville Facility"); a coke facility in Monessen, Pennsylvania (the
"Monessen Facility"), which is now one of the most modern coking facilities in
the United States; and the coal chemical business of Aristech Chemical
Corporation ("Aristech"), which included a low-cost coal tar processing
facility in Clairton, Pennsylvania (such business and facility hereinafter
referred to as "Clairton"). The Company believes each of these acquisitions
will provide the Company with significant financial and strategic benefits, as
they will allow the Company to further integrate and rationalize its businesses
and facilities and gain access to high-quality, low-cost raw materials. As part
of these acquisitions, the Company was also able to secure significant long-
term contracts with customers prior to closing.
The Monessen Facility, acquired in 1995, was an idled facility. After
refurbishment by the Company, the Monessen Facility was restarted in late 1995
and reached full production capacity in the second quarter of 1996. In addition
to improving the Company's strategic position in the merchant coke market, the
Company's
4
<PAGE>
investment in the Monessen Facility provides an advantageous energy tax credit
based on the production of coke as an alternative energy product. The credit is
available through December 31, 2002 and is expected to provide a tax benefit to
the Company of approximately $8 million in 1996 (after offset of a previously
taken energy credit) and $9 million per year thereafter, unadjusted for
inflation and assuming full production at the Monessen Facility.
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of approximately
$8 million in liabilities. The Clairton facility is a low-cost coal tar
processing facility producing carbon pitch and related distillates. As part of
the purchase agreement, the Company received a long-term coal tar supply
contract with USX Corporation ("USX"), the largest North American coal tar
producer. In 1995, this business generated over $64 million of sales, excluding
sales to the Company. The Company has obtained a term loan of $35 million to
effect the acquisition, with remaining funding requirements obtained from its
existing working capital revolving credit line.
THE OFFERINGS
Of the 7,001,922 shares of Common Stock being offered, 5,601,537 shares are
being offered in the U.S. Offering and 1,400,385 shares are being offered in
the International Offering.
<TABLE>
<S> <C>
Common Stock Offered:
By the Company....................................... 1,800,000 shares
By the Selling Stockholders.......................... 5,201,922 shares
-------------------
Total.............................................. 7,001,922 shares
-------------------
-------------------
Common Stock to be outstanding after the Offerings (1). 10,158,587 shares
Use of Proceeds........................................ Repayment of indebtedness and for general
corporate purposes.
Dividend Policy........................................ The Company currently intends to pay
quarterly dividends of $0.11 per share of
Common Stock, subject to general business
conditions, the effect on the Company's
financial condition and compliance with the
covenants governing the Company's long-term
debt. See "Dividend Policy" and
"Description of Certain Indebtedness".
Proposed NYSE symbol................................... KOP
</TABLE>
- --------------------
(1) Excludes 1,125,000 shares of the 2,250,000 shares of Common Stock held by a
subsidiary of Koppers Australia Pty. Limited, a company in which the
Company holds a 50% interest, and 688,606 shares of Common Stock issuable
upon exercise of outstanding employee stock options under the stock option
plan of the Company (the "Stock Option Plan"). See "Principal and Selling
Stockholders" and "Management--Option Exercises and Fiscal Year End
Values".
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully, among
others, such risk factors as: (i) the cyclicality of the industries to which
the Company sells its coke, pitch, PAA and railroad and utility products; (ii)
the Company's dependence on United States integrated steel producers for its
coke sales and on certain major customers for its railroad and utility products
and coke sales; (iii) the fluctuation in prices, and occasional reductions in
availability, of the raw materials used by the Company; and (iv) the federal,
state and local environmental laws and regulations to which the Company is
subject. See "Risk Factors".
------------------------
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Pro Forma Consolidated Financial Data on pages 21 through 24
of this Prospectus and the Consolidated Financial Statements, related notes,
and other financial information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Net sales............. $ 451,242 $ 444,255 $ 461,219 $ 476,448 $ 525,730 $ 122,201 $ 126,701
Gross profit (1)...... 69,252 73,667 64,088 68,196 84,984 19,434 15,446
Operating profit...... 30,592 31,799 25,104 25,709 39,848 9,723 4,247
Equity in earnings of
affiliates........... 5,663 4,666 4,578 5,314 9,239 1,265 1,791
Other income.......... 3,516 324 468 531 376 15 8
Litigation judgment
(2).................. -- -- -- -- -- -- (10,946)
Interest expense...... 17,413 13,949 13,177 13,620 15,060 3,572 3,734
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
taxes................ 22,358 22,840 16,973 17,934 34,403 7,431 (8,634)
Income taxes
(benefit)............ 7,335 8,104 6,508 5,017 9,963 2,320 (894)
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
extraordinary item
and cumulative effect
of changes in
accounting methods... 15,023 14,736 10,465 12,917 24,440 5,111 (7,740)
Net income (loss) (3). 15,023 14,736 4,748 11,102 24,440 5,111 (7,740)
Payment-in-kind
dividends on
preferred stock (4).. 5,382 6,244 7,242 944 -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
available to common
stockholders......... $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440 $ 5,111 $ (7,740)
========= ========== ========== ========== ========== ========== =========
Earnings (loss) per
common share (5)..... $ 0.98 $ 0.85 $ (0.25) $ 0.96 $ 2.36 $ 0.50 $ (0.78)
========= ========== ========== ========== ========== ========== =========
Average common shares
outstanding (5)...... 9,809,775 10,019,799 10,034,406 10,570,971 10,376,658 10,300,812 9,911,202
Cash dividends per
common share......... $ -- $ -- $ -- $ -- $ 0.25 $ -- $ 0.08
OTHER DATA:
Required EBITDA (6)... $ 52,786 $ 51,761 $ 46,443 $ 44,342 $ 60,699 $ 13,825 $ 9,198
Dividends received
from affiliates...... 756 787 1,446 1,422 2,943 -- --
Depreciation and
amortization (7)..... 17,922 18,851 19,425 16,680 17,532 4,087 4,943
Capital expenditures
(8).................. 18,538 12,912 14,661 16,326 50,141 12,787 6,647
BALANCE SHEET DATA (END
OF PERIOD):
Working capital....... $ 28,030 $ 61,082 $ 83,856 $ 79,078 $ 80,095 $ 91,839
Total assets.......... 279,013 271,390 282,520 294,193 348,955 361,432
Total debt (4)........ 130,892 114,652 113,461 159,000 174,000 203,000
Preferred stock (4)... 39,282 45,526 52,768 260 260 --
Redeemable common
stock (9)............ 100 550 800 15,450 23,715 15,735
Common equity (9)..... 35,235 41,209 36,864 36,490 54,255 43,750
</TABLE>
- --------------------
(1) Reflects a change in accounting method effective January 1, 1992, from the
first-in, first-out ("FIFO") method of inventory valuation to the last-in,
first-out ("LIFO") method. The adoption of LIFO decreased gross profit by
$1.3 million for the year ended December 31, 1992.
(2) Consists of a charge related to a legal judgment rendered against the
Company in connection with the OCF Litigation (as hereinafter defined) in
1996. See "Risk Factors--Legal Proceedings" and "Business--Legal
Proceedings".
(3) Net income for 1993 includes effects of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" of $(5.2)
million net of tax, and SFAS No. 109, "Accounting for Income Taxes" of
$(0.5) million. See Notes 7 and 8 of the Notes to Consolidated Financial
Statements of the Company. Net income for 1994 includes extraordinary loss
on early extinguishment of debt of $1.8 million.
6
<PAGE>
(4) On February 10, 1994 the Company issued $110 million of unsecured ten-year,
8 1/2% senior notes, of which $53.5 million was used to redeem all the
Series A exchangeable preferred stock of the Company. See "Description of
Certain Indebtedness".
(5) In accordance with generally accepted accounting principles, average common
shares outstanding have been reduced by 1,125,000 of the 2,250,000 shares
held by a subsidiary of Koppers Australia Pty. Limited to reflect the
Company's 50% ownership interest therein. See Note 9 of the Notes to
Consolidated Financial Statements of the Company.
(6) Required EBITDA is presented because it is a component of a ratio included
in a covenant in the Company's Bank Credit Facilities (as hereinafter
defined). "Required EBITDA" is defined as net income plus interest expense,
income taxes, depreciation and amortization; less equity income or losses,
non-cash extraordinary gains and non-cash foreign currency gains; plus cash
dividends received from affiliates, certain non-cash extraordinary losses,
non-cash foreign currency losses and certain equity losses. Required EBITDA
should not be considered by an investor as an alternative to net income, as
an indicator of the Company's operating performance, or to cash flows as a
measure of liquidity.
(7) The 1994 results reflect a $1.4 million reduction in depreciation expense
for change in estimate of useful lives of certain assets effective July 1,
1994. See Note 1 of the Notes to Consolidated Financial Statements.
(8) Includes approximately $35 million related to acquisitions in 1995.
(9) The Company's Stockholders' Agreement (as hereinafter defined) requires the
Company, subject to limitations under the terms of covenants contained in
the Bank Credit Facilities, to redeem stock held by Management Investors
(as hereinafter defined) upon termination of their employment with the
Company. Pursuant to its terms, the Stockholders' Agreement will terminate
upon consummation of the Offerings and, as a result, the number of shares
of Common Stock subject to redemption shall be reduced to the number of
shares owned by Management Investors who will have retired or otherwise
terminated employment with the Company prior to the consummation of the
Offerings. If the Offerings had been consummated on March 31, 1996, the
value of such shares on that date would have been approximately $4.0
million, and the remaining $11.7 million would have been reclassified to
common equity, $2.2 million to additional capital and $9.5 million to
retained earnings. See "Management--Board of Directors; Stockholders'
Agreement".
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
CYCLICALITY OF MARKETS
The Company's products are sold primarily into mature industries which
historically have been cyclical. The principal customers for the Company's
coke are United States integrated steel producers, whose consumption of coke
has been cyclical in the past and may be so in the future. The prices at which
the Company will be able to sell its coke in the future will be greatly
affected by the demand for coke from the iron and steel industries and the
supply of coke from the United States integrated steel producers' own coke
production and from foreign sources.
In 1995, the Company sold 49% of its total coke production pursuant to long-
term contracts. Approximately 62% of its furnace coke production was sold
pursuant to two contracts with LTV Steel Company, Inc. ("LTV"). Although the
Company believes that entering into such long-term contracts ameliorates some
of the short-term fluctuations in its sales of coke, the price and terms
obtainable by the Company under such contracts generally depend on relevant
market conditions in effect at the time that such contracts are negotiated,
and the price remains subject to periodic adjustments during the terms of the
contracts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Coke Products".
The principal customers of the Company's pitch, the most significant product
of its Carbon Materials & Chemicals division, are United States primary
aluminum smelters. Although the aluminum industry has experienced growth on a
long-term basis, it generally is cyclical in nature and experiences
fluctuations in production levels. Sales of the Company's products have
historically been affected adversely by weakness in the aluminum industry. In
1993, United States aluminum producers reduced production by approximately 25%
in anticipation of a memorandum of understanding ("MOU") entered into by
several aluminum producing nations. The MOU was entered into in order to
reduce worldwide aluminum inventories which had increased to unprecedented
levels following the fall of the Soviet Union and its subsequent increased
level of exports. In 1995, as a result of the MOU and increased levels of
worldwide aluminum consumption, inventory levels were reduced to a more
sustainable level. Although the long-term outlook for United States aluminum
production is favorable, cyclical weakness in demand could result in decreased
United States primary aluminum production.
A principal market for the Company's PAA is in the production of flexible
vinyl used mainly in the automobile industry. Therefore, fluctuations in
domestic and international automobile production affect the demand for PAA.
Finally, the markets for the Company's railroad and utility products are
subject to cyclical demand depending upon, among other things, the financial
ability of domestic railroads and utility companies to implement capital
maintenance and improvement programs.
DEPENDENCE ON INTEGRATED STEEL PRODUCERS
The principal customers for the Company's coke are United States integrated
steel producers. Demand for and pricing of coke in the United States relate
directly to the volume of iron consumed by integrated steel producers which
has historically fluctuated with general economic activity. Due to ongoing
advances in blast furnace steel production technology, including pulverized
coal injection ("PCI"), the proportion of coke consumed per ton of iron
produced by United States integrated steel producers has declined by
approximately 14% since 1985. In addition, the demand for coke in the future
may be affected adversely by the idling of United States blast furnace steel
production capacity due to increases in electric arc furnace production
facilities in the United States and more stringent environmental compliance
standards. Although the Company believes future declines in domestic coke
demand will be offset by additional reductions in domestic coking capacity,
there can be no assurance that this will occur.
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DEPENDENCE ON MAJOR CUSTOMERS
For the year ended December 31, 1995, the Company's top five customers
represented approximately 27% of the Company's net sales. During this period,
the Company's two largest customers, CSX Transportation, Inc. ("CSX") and LTV,
accounted for approximately 20% and 45% of Railroad & Utility Products and
Coke Products net sales, respectively, and approximately 9% and 7% of the
Company's total net sales, respectively. The permanent loss of, or a
significant decrease in the level of purchases by, one or more of the
Company's major customers would have a material adverse effect on the
Company's results of operations. See "Business-- Legal Proceedings".
McLouth Steel Products Corp. ("McLouth"), an integrated steel manufacturer
which accounted for 10% of net sales of the Coke Products division and 2% of
the Company's total net sales in 1995, filed a petition for bankruptcy
protection in September 1995 and ceased steel production in March 1996. The
Company's contract with McLouth provided for the Company to supply
approximately 90,000 tons of coke for the remainder of 1996. As a result of
the bankruptcy, the Company has negotiated with LTV to sell through July 1996
approximately half of the resulting 10,000 tons of surplus coke production per
month at prices lower than those set in the McLouth contract with the Company.
The Company is currently seeking to sell the remaining portion of its
production through the spot market or under new contracts, but no assurances
can be given that it will succeed in doing so.
On April 2, 1996, an explosion disabled a blast furnace in the Gary, Indiana
plant of U.S. Steel, which is serviced by the Company's facility in Woodward,
Alabama (the "Woodward Facility"). As a result of the explosion, U.S. Steel
suspended coke shipments from the Company. Although the Company resumed such
shipments on June 1, 1996, it has been unable to place with alternative
customers the approximately 30,000 tons of surplus coke available as a result
of the U.S. Steel shutdown. The Company is currently seeking to sell such
surplus coke through the spot market or under new contracts, but no assurances
can be given that it will succeed in doing so. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Coke Products".
PRICE AND AVAILABILITY OF RAW MATERIAL
An inability by the Company to source high quality raw materials in a timely
fashion and pass through price increases to its customers could have a
material adverse impact on the Company. In the Coke Products division,
metallurgical coal is the primary raw material used in the production of coke.
An increase in the price of metallurgical coal, or a prolonged interruption in
supply, would have a material adverse effect on the Company.
The primary raw material used by the Carbon Materials & Chemicals division
is coal tar, a by-product of coke production. Following the Clean Air Act
Amendments of 1990 (the "Clean Air Act Amendments") and other environmental
regulations, there have been significant reductions in the United States
coking capacity. Due to potential additional shutdowns of United States coking
capacity, future coal tar availability is a concern for the Company. A
shortage in the supply of domestic coal tar could require the Company to
increase imports of coal tar and the use of petroleum substitutes to meet
future carbon pitch demand; such increases could have a material adverse
effect on the Company's financial condition and results of operations.
The Company has the ability to use two raw materials interchangeably in its
production of PAA: naphthalene, which is a by-product of its carbon pitch
production, and orthoxylene, which is a petroleum derivative. The Company is
the only domestic producer capable of using naphthalene interchangeably with
orthoxylene as a feedstock. PAA pricing is based primarily on a spread over
orthoxylene and, therefore, the Company's price realization and profit margin
for PAA historically have fluctuated with the spot price of orthoxylene and
its relationship to the Company's cost to produce naphthalene. Although the
price of orthoxylene was relatively stable prior to 1994, due to strong
demand, the price of orthoxylene increased from $0.14 per pound in March 1994
to $0.38 per pound in May 1995. As a result, PAA prices increased by
approximately 101% during that period, providing the Company with a
significant cost advantage over its competition and a temporary expansion of
its margins. In the first quarter of 1996, however, the price for orthoxylene
declined to approximately $0.16 per pound, resulting in a corresponding
decline in PAA prices and margins.
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The availability and cost of softwood and of hardwood lumber are critical
elements in the Company's production of pole products and railroad crossties,
respectively. The supply of trees of acceptable size for the production of
utility poles has decreased in recent years in relation to the demand, and the
Company accordingly has been required to pay a higher price for these
materials. Historically, the supply and cost of hardwood for railroad
crossties have also been subject to availability and price pressures. There
can be no assurance that the Company will be able to source wood raw materials
at economical prices in the future.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state and local environmental
laws and regulations, including those concerning the treatment, storage and
disposal of wastes, the discharge of effluents into waterways, the emissions
of substances into the air, and various other health and safety matters. The
Clean Air Act Amendments directly affect the operations of many of the
Company's facilities. Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and comparable
state laws, an owner or operator of property at which releases of hazardous
substances have occurred may be liable for investigation and remediation of
any resulting contamination. In addition, the generator of hazardous
substances may be responsible for all or a portion of any required
investigation or remediation at offsite disposal locations. Under the Resource
Conservation and Recovery Act, as amended ("RCRA"), a facility that treats,
stores or disposes of hazardous wastes on-site may be liable for corrective
action costs. In addition, any facility that holds a RCRA Part B permit (or
has submitted a RCRA Part A permit application) may have to incur costs
relating to the closure of certain "hazardous" or "solid" waste management
units.
For each of the last three fiscal years, the Company's average capital
expenditures and operating expenses for environmental matters including
depreciation amounted to approximately $6 million and $15 million,
respectively. The Company believes that annual environmental operating costs
will not change materially from those incurred during each of the past three
years. The Company currently estimates that capital expenditures in connection
with matters relating to environmental control will be approximately $4.7
million and $4.5 million for 1996 and 1997, respectively. Since environmental
laws have traditionally become increasingly more stringent, costs and expenses
relating to environmental control and compliance may increase in the future.
While the Company does not believe that the costs of compliance with existing
or future environmental laws and regulations (including regulations
promulgated pursuant to the Clean Air Act Amendments) will have a material
adverse effect on its business, financial condition or results of operations,
there can be no assurance that costs of compliance will not exceed current
estimates and will not have a material adverse effect on the Company's
business, financial condition and results of operations.
Five of the sites owned or operated by the Company are listed on the
National Priorities List ("NPL") promulgated pursuant to CERCLA. In addition,
many of the Company's sites are or have been operated under RCRA permits. The
Company was formed in conjunction with the acquisition (the "Acquisition") by
management, Beazer, Inc. and KAP Investments, Inc. ("KAP") of certain assets
of Koppers Company, Inc., now known as Beazer East, Inc. ("Beazer East," but
referred to herein as "Old Koppers" for periods prior to the Acquisition) in
1988. Old Koppers was acquired in June 1988 by BNS Acquisitions, Inc., a
wholly-owned indirect subsidiary of Beazer PLC, now known as Beazer Limited
("Beazer Limited"). Under the agreement entered into in connection with the
Acquisition, Beazer East retained responsibility for and indemnified the
Company against certain liabilities, damages, losses and costs, to the extent
attributable to acts or omissions occurring prior to the Acquisition,
including, with certain limited exceptions, liabilities and costs of
compliance with environmental law (the "Indemnity"). Beazer Limited
unconditionally guaranteed Beazer East's performance of the Indemnity pursuant
to a guarantee (the "Guarantee"). See "Business--Environmental Matters".
Currently, at the Company's properties acquired from Beazer East, which
include all of the NPL sites and all but one of the RCRA permitted sites,
substantially all investigative and cleanup activities are being handled and
paid for by Beazer East pursuant to the Indemnity. Although Cornerstone-
Spectrum, Inc., an entity under common control with the Beazer entities, is
selling all of its shares in the Company in connection with the Offerings, the
Company has no reason to believe that such sale will affect the performance of
Beazer East and
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Beazer Limited under the Indemnity and the Guarantee, respectively. Since
1991, Beazer East and Beazer Limited have been wholly-owned indirect
subsidiaries of Hanson PLC. Hanson PLC has announced its intention to
reorganize by spinning-off its chemicals, tobacco and energy subsidiaries. The
Company has been informed that Beazer East and Beazer Limited will remain
wholly-owned indirect subsidiaries of Hanson PLC. However, the Company has not
received any additional information as to the impact, if any, of this spin-off
on Beazer East and Beazer Limited.
Although Beazer East and Beazer Limited have performed their respective
obligations under the Indemnity and the Guarantee since 1989, no assurances
can be given that Beazer East and Beazer Limited or their successors will
continue to perform such obligations. If the Company were required to pay
remedial and investigative costs covered by the Indemnity without
reimbursement, it would have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
Furthermore, if the Company were required to record a contingent liability in
respect of environmental matters covered by the Indemnity on its balance
sheet, the result could be that the Company would have significant negative
net worth.
The Company is aware of environmental contamination at the Somerville
Facility (the other RCRA permitted site owned by the Company) and the Clairton
facility. The Company has received indemnities for pre-closing environmental
contamination from the seller of the Somerville Facility and from both the
seller and the predecessor of the seller of the Clairton facility. The Company
believes that the indemnitors will handle most investigative and cleanup
activities at such sites directly. See "Business--Environmental Matters".
Although the Company is not aware of any reason why such indemnification
obligations will not be performed, no assurances can be given that the sellers
or their predecessors will fulfill their respective indemnification
obligations. If the Company were required to pay costs associated with such
environmental contamination, it could have a material adverse effect on the
business, financial condition, cash flow and results of operations of the
Company.
On May 24, 1996, the Company was served with a Complaint by CSX (the "CSX
Complaint"), one of its principal customers (see "Risk Factors--Dependence on
Major Customers") filed in federal district court in Florida in March 1996 in
connection with two contracts executed by CSX and Old Koppers in 1988 and
performed by the Company. The CSX Complaint, alleging breach of contract,
fraud and unjust enrichment, claims that the Company has not lived up to its
obligations under such contracts, which allegedly required the Company to
undertake certain environmental expenditures and relieve CSX of certain
environmental liabilities. See "Business--Legal Proceedings." CSX has been
sued by Beazer East for contribution for environmental cleanup at certain
facilities, including some presently owned by the Company, and the CSX
Complaint seeks to hold the Company liable, among other claims, for any costs
CSX might be required to pay Beazer East in connection with environmental
liabilities at the Company's facilities, as well as any defense costs incurred
by CSX. While Beazer East has agreed, under the Indemnity, to provide a
defense and indemnify the Company for damages resulting from the CSX
Complaint, Beazer East retains the right to seek contribution from the Company
in connection with such damages in accordance with the provisions of the
agreement entered into in connection with the Acquisition. Given the
preliminary nature of this matter, the Company is not in a position to
determine its outcome or the availability of the Indemnity to cover any
resulting damages. As a result, there can be no assurance that the resolution
of this matter will not have a material adverse effect on the Company's
business, financial condition, cash flow and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION
In the future, the Company intends to pursue acquisitions as a part of its
growth strategy. The success of this strategy depends upon, among other
things, the ability of the Company and its management to identify attractive
acquisition prospects, consummate acquisitions on favorable terms, operate
acquired businesses effectively and integrate new personnel, operations,
products and technologies into its organization, and to retain customers of
acquired businesses. In addition, the Company is evaluating opportunities at
its existing facilities to expand production capacity, which will require a
period of construction and start-up testing, and to rationalize unneeded
capacity.
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There can be no assurance that the Company will be able to identify and
consummate attractive acquisitions, start-up such operations or integrate
acquired businesses into its existing operations effectively. For example, the
Company expended significantly more than anticipated in the refurbishment of
the Monessen Facility, an idled facility it acquired in 1995. Part of the
refurbishment included the purchase of new boilers, which enable the Company to
use coke oven gas as opposed to purchasing natural gas. However, due to delays
in the start-up of such boilers, the Company had to continue purchasing natural
gas from external sources until April 20, 1996. In addition, adverse weather
conditions in the winter months of 1996 impaired the ordinary handling of coal
in the facility, which required the purchase of additional coal. As a result of
these and other unforeseen circumstances, the start-up period took longer and
the Company spent significantly more in start-up costs than it had estimated at
the time of acquisition.
Acquisitions by the Company may involve certain other risks, including
potentially dilutive issuances of equity and debt securities, the realization
of goodwill and the diversion of management's attention from other business
concerns.
RESTRICTIVE DEBT COVENANTS
The Bank Credit Facilities (as hereinafter defined) contain certain covenants
which limit capital expenditures by the Company and restrict its ability to
incur additional indebtedness, create liens on its assets, enter into leases,
and make investments or acquisitions. While in the past the Company has been
able to obtain waivers from these covenants to complete acquisitions, there can
be no assurance that such waivers will be obtained in the future and therefore
these restrictive covenants may limit the ability of the Company to expand
through acquisitions. See "Description of Certain Indebtedness--The Bank Credit
Facilities." The Indenture (as hereinafter defined), under which the Senior
Notes (as hereinafter defined) were issued, also contains similar restrictive
covenants. See "Description of Certain Indebtedness--The Senior Notes."
SUBSTANTIAL INDEBTEDNESS
As of March 31, 1996, on a pro forma basis after giving effect to the
Clairton acquisition, indebtedness of the Company was approximately $242
million. The Company's indebtedness could limit its ability to finance
expenditures required to compete effectively, to operate successfully under
adverse economic conditions and to pay dividends. A significant portion of the
Company's assets are encumbered to secure the Company's indebtedness. The
ability of the Company to meet its obligations, to comply with covenants
contained in the Indenture (as hereinafter defined) and to comply with
financial covenants contained in, and to maintain available revolving credit
and long-term facilities under, the Bank Credit Facilities (as hereinafter
defined), depends on the Company's future financial performance, which will be
subject to financial, business and other factors, including the outcome of
pending litigation and the possible rationalization of existing facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Pending Litigation" and
"Business--Legal Proceedings". To the extent that cash flow from operations is
insufficient to satisfy the Company's fixed charges, the Company may obtain
funds from additional borrowings (which ability may be restricted by the
Indenture and the Bank Credit Facilities), seek to sell a portion of its
business or raise additional equity capital. There can be no assurance that any
of these sources of funds would be available in amounts sufficient for the
Company to meet its obligations. In addition, certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
causes the Company to be vulnerable to increases in interest rates. See
"Description of Certain Indebtedness".
SEASONALITY; EFFECTS OF WEATHER
The Company's quarterly operating results fluctuate due to a variety of
factors that are outside the Company's control, including inclement weather
conditions, which in the past have affected negatively the Company's operating
results. Operations at several of the Company's facilities have been halted for
short periods of time during the winter months. Moreover, demand for many of
the Company's products declines during
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periods of inclement weather. As a result of the foregoing, the Company
anticipates that it may experience material fluctuations in quarterly results
of operations.
LABOR RELATIONS
As of April 30, 1996, approximately 1,300 of the Company's 2,048 employees
were represented by nine different unions and covered under 21 separate labor
contracts. Labor negotiations are conducted on a plant-by-plant basis and
approximately one-fourth of the outstanding contracts are renegotiated in any
one year. Although the Company believes that it generally enjoys satisfactory
relations with its unions, there can be no assurance that new agreements will
be reached without union action or on terms satisfactory to the Company. A
material work stoppage could adversely affect the Company's results of
operations. See "Business--Employees and Employee Relations".
Since its formation in 1988, the Company has had three work stoppages due to
strikes at its Follansbee, Somerville and Galesburg facilities. The Follansbee
strike occurred in November 1993 and the Somerville and Galesburg strikes
occurred in March 1996. In each instance, the Company was able to continue
operation of the respective facilities at approximately 85% of capacity and to
reach agreement with each of the unions on terms satisfactory to the Company.
There can be no assurance that the Company would be able to continue operating
facilities in the event of further work stoppages or union disputes in the
future.
COMPETITION
The markets that the Company serves are highly competitive. Although
management believes that the Company has significant competitive advantages
due to its market share, sourcing, strategically located facilities and
reputation for quality products and services, selling price is the most
significant element in the market for the Company's principal products. In
addition, some of the purchasers of the Company's coke are capable of
supplying a portion of their needs from their own coke production as well as
from suppliers outside the United States who are able to import coke into the
United States and sell it at prices competitive with those of United States
suppliers. There can be no assurances that competitive pressures on the price
of the Company's products will not materially and adversely affect its
business, results of operations, cash flow and financial condition.
LEGAL PROCEEDINGS
On May 11, 1990 Owens-Corning Fiberglas Corporation ("OCF") filed a
Complaint (the "OCF Litigation") against the Company seeking damages allegedly
resulting from the sale by Old Koppers (as hereinafter defined) of coal-tar
bitumen ("CTB") from the mid 1970's to the mid 1980's. The OCF Litigation
related to problems experienced with roofing systems sold by OCF which
contained CTB sold by Old Koppers. OCF identified 11 roofs it alleged were
built using defective Old Koppers' CTB. On April 3, 1996 a jury verdict was
returned against the Company for a total of $10.3 million including $0.5
million in punitive damages. The Company will appeal the judgment. In addition
to damages, OCF has sought approximately $3 million in attorney's fees, as
well as prejudgment interest for an amount estimated by the Company to be
approximately $5 million, alleging that the Company failed to engage in good
faith settlement negotiations. The Company had provided reserves of $14
million at March 31, 1996 ($11 million in the first quarter of 1996 and $3
million in prior periods) in connection with the OCF Litigation.
It is the opinion of management that the ultimate resolution of this matter,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of this matter, it is possible
that results of operations and cash flow of the Company could be materially
adversely affected in a particular period and that the Company's ability to
incur additional debt could be reduced. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Pending Litigation".
On May 24, the Company was served with a Complaint filed by CSX (the "CSX
Complaint") in federal district court in Florida one of its principal
customers, alleging breach of contract, fraud and unjust
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enrichment in connection with two contracts executed by CSX and Old Koppers in
1988 and performed by the Company. See "--Environmental Matters" and
"Business--Legal Proceedings."
The Company is involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these
other proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
INFLUENCE OF CERTAIN STOCKHOLDERS AND POSSIBLE ANTI-TAKEOVER EFFECTS
Upon consummation of the Offerings, 22.7% of the Company's outstanding
Common Stock will be beneficially owned by certain members of management of
the Company and 20.0% by KAP, a wholly-owned subsidiary of a company 50% of
whose common stock is owned by a subsidiary of the Company. As a result of
this ownership, KAP and management will have significant influence over the
management policies and corporate affairs of the Company. Concentration of
large amounts of the Company's common stock in the hands of KAP and management
may also make more difficult any takeover or change of control of the Company
not approved by such stockholders. KAP has indicated an interest in purchasing
750,000 shares of Common Stock in the Offerings.
It is an event of default under the Bank Credit Facilities (as hereinafter
defined) (i) if any person other than the Management Investors (as hereinafter
defined) and their affiliates becomes the beneficial owner of more than 50% of
the voting stock of the Company or obtains the power to nominate or elect at
least a majority of the Board of Directors, (ii) if the Management Investors
as a group cease to own at least 10% of the voting stock of the Company, or
(iii) if a Change of Control occurs as defined in the Indenture (as
hereinafter defined). See "Description of Certain Indebtedness".
BENEFITS TO CURRENT STOCKHOLDERS
The Company's current stockholders will benefit from the Offerings through
the creation of a public market for the Common Stock and the potential
unrealized gains in the value of the Common Stock held by them. Based upon the
difference between $15.00 per share (the midpoint of the estimated range of
the initial public offering price set forth on the cover page of this
Prospectus) and the average price per share of $1.77 paid by such current
stockholders, the current stockholders will have potential unrealized gains of
$13.23 per share, or an aggregate of approximately $56.6 million.
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company has restated and amended its Articles of Incorporation (the
"Restated Articles") and Bylaws (the "Restated Bylaws") which will take effect
upon the consummation of the Offerings.
Pursuant to the terms of its Restated Articles, the Company's Board of
Directors has the authority to issue up to 10,000,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will
be subject to, and may be affected adversely by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue preferred stock.
Certain other provisions of the Restated Articles and of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"), which govern the
Company, may have the effect of discouraging a third party from making an
acquisition proposal for the Company or otherwise inhibiting a change in
control of the Company under circumstances that could give the stockholders an
opportunity to realize a premium over the then prevailing market price for the
Common Stock. These provisions include various sections of the BCL
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restricting certain business combinations. See "Description of Capital Stock--
Pennsylvania Anti-Takeover Law Provisions" and "Description of Capital Stock--
Certain Corporate Anti-Takeover Provisions".
Pursuant to the terms of the Restated Bylaws, the Board of Directors will
consist of at least five and no more than fifteen members. Effective as of the
completion of the Offerings, Brian C. Beazer and Donald V. Borst intend to
resign as directors and the Board of Directors intends to increase its
membership to nine members. The resulting vacancies shall be filled by the
Board of Directors. See "Management--Board of Directors; Stockholders'
Agreement".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offerings, or the perception that such sales could occur, could
affect adversely the prevailing market price for the Common Stock and the
Company's ability to raise capital through an offering of its equity
securities. Upon consummation of the Offerings, the Company will have
outstanding 11,283,587 shares of Common Stock, assuming no exercise of
outstanding options. Of such shares, the 7,001,922 shares of Common Stock sold
in the Offerings will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such shares are owned by "affiliates" of the Company, as that
term is defined in Rule 144 ("Rule 144") under the Securities Act. An
additional 323,591 shares of the 11,283,587 shares of Common Stock outstanding
are held by former employees of the Company and are subject to mandatory
resale to and redemption by the Company pursuant to the Stockholders'
Agreement (as hereinafter defined). Of the remaining 3,958,074 shares of
Common Stock, 697,482 shares have been registered under the Securities Act and
sold by the Company to certain of its employees and 3,260,592 shares are
"restricted securities" as that term is defined under Rule 144 and,
accordingly, may not be sold unless they are registered under the Securities
Act or sold pursuant to an applicable exemption from registration, including
Rule 144. Of such 3,958,074 shares of Common Stock, 3,510,696 shares will be
subject to lock-up agreements with the Underwriters and will become available
for resale 180 days after the date of this Prospectus, unless otherwise
permitted in writing by Donaldson, Lufkin & Jenrette, subject to the
provisions of Rule 144 under the Securities Act. The Company is unable to
estimate the number of shares which may be sold, including under Rule 144 or
any other applicable exemption, since this will depend upon the market price
of the Common Stock, the individual circumstances of the sellers and other
factors. See "Shares Eligible for Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
that the purchasers of the Common Stock will be able to resell their Common
Stock at prices equal to or greater than the initial public offering price.
The initial public offering price of the Common Stock will be determined
through negotiations among the Company, the Selling Stockholders and the
Representatives (as hereinafter defined) of the Underwriters (as hereinafter
defined) and may not reflect the market price of the Common Stock after the
Offerings. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, changes in financial estimates
by securities analysts and other events or factors.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company,
including the Company's expectations of its future operating performance as a
result of the Clairton acquisition and the unfavorable outcome of pending
litigation against the Company. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
consider specifically
the various factors identified in this Prospectus, including the risk factors
set forth herein, which could cause actual results to differ materially from
those indicated by such forward-looking statements.
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THE COMPANY
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical, railroad,
aluminum and steel industries. The "Koppers" name has been associated with the
carbon compounds and wood treating businesses for over 70 years, and the
Company has leading market positions in most of its products. The Company
operates 24 facilities in the United States and maintains indirect ownership
interests in 17 facilities overseas. The Company recorded net sales and net
income of $525.7 million and $24.4 million, respectively, for the year ended
December 31, 1995. In 1995, the Company's three divisions, Coke Products,
Carbon Materials & Chemicals and Railroad & Utility Products, accounted for
15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote,
which are basic materials necessary in the production of aluminum, polyester
resins and plasticizers, and the pressure treatment of wood. The Company's
Railroad & Utility Products division is the largest supplier of treated wood
products, such as railroad crossties and utility poles, to the United States
railroad and utility industries.
The Company was formed in October 1988 by management, Beazer, Inc. and KAP,
to facilitate the acquisition of certain assets of Old Koppers for a purchase
price of $226.8 million subject to closing adjustments. The assets acquired
from Old Koppers included the Woodward Facility and certain assets of its
Chemicals and Allied Products Group which then became the Coke Products, Carbon
Materials & Chemicals and Railroad & Utility Products divisions of the Company.
The purchase was financed through (i) the issuance of $35.2 million of common
and preferred stock, (ii) term and working capital loans of $161.6 million,
with attached warrants, and (iii) a subordinated bridge loan of $30.0 million.
In February 1994, the Company issued $110 million of Senior Notes (as
hereinafter defined) to refinance existing indebtedness and to redeem $53.5
million of preferred stock. See "Description of Certain Indebtedness--The
Senior Notes".
The Company's principal executive offices are located at 436 Seventh Avenue,
Pittsburgh, Pennsylvania 15219-1800, and its telephone number is (412) 227-
2001.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby (after deduction of estimated underwriting discounts and commissions
and offering expenses payable by the Company) are estimated to be
approximately $24.3 million ($38.9 million if the over-allotment option
granted to the U.S. Underwriters is exercised in full). The Company intends to
use the net proceeds to reduce the aggregate indebtedness under the Bank
Credit Facilities (as hereinafter defined). See "Business--Carbon Materials &
Chemicals". The indebtedness, to be reduced with the net proceeds of the
Offerings, matures on March 18, 2001 and bears interest at one percent (1%)
over the London Inter-Bank Offered Rate ("LIBOR").
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders".
DIVIDEND POLICY
The Company currently intends to pay quarterly dividends of $0.11 per share
of Common Stock. The decision whether to apply legally available funds to the
payment of dividends on the Common Stock in the future will be made by the
Board of Directors of the Company from time to time in the exercise of its
prudent business judgment, taking into account, among other things, the
Company's results of operations and financial condition, any then existing or
proposed commitments for the use by the Company of available funds, and the
Company's obligations with respect to any then outstanding class or series of
its preferred stock. In addition, the amount of cash dividends payable by the
Company is limited by the terms of the Bank Credit Facilities and the Senior
Notes (as hereinafter defined; see "Description of Certain Indebtedness"), and
the Company may in the future enter into loan or other agreements or issue
debt securities or preferred stock that restrict the payment of cash
dividends. After giving pro forma effect to the issuance of the Common Stock
and the Clairton acquisition and the financing thereof, such agreements would
have permitted dividend payments of $31.9 million as of March 31, 1996.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996, (ii) on a pro forma basis to reflect the Clairton acquisition
and the financing thereof, and (iii) as adjusted to reflect such acquisition
and the issuance and sale by the Company of 1,800,000 shares of Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated offering expenses of $2.8 million, and the application of the
estimated net proceeds of $24.3 million therefrom. This table should be read
in conjunction with the Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
Short-term debt................................ $ 4,000 $ 4,000 $ 4,000
======== ======== ========
Long-term debt:
Revolving Credit Facility (1)................ $ 68,000 $ 72,000 $ 47,750
Term loans (1)............................... 21,000 56,000 56,000
Unsecured senior notes due 2004.............. 110,000 110,000 110,000
-------- -------- --------
Total long-term debt....................... 199,000 238,000 213,750
Common Stock value subject to redemption (2)... 15,735 15,735 3,987
Common Stock, par value $.01 per share;
10,000,000 shares authorized, actual and pro
forma; 40,000,000 shares authorized, as
adjusted; 5,385,909 shares issued and
outstanding, actual and pro forma;
10,269,879 shares issued and outstanding, as
adjusted...................................... 67 67 116
Non-voting common stock, par value $.01 per
share; 10,000,000 shares authorized; 3,628,200
shares issued and outstanding, actual and pro
forma; 0 shares authorized issued and
outstanding, as adjusted...................... 36 36 --
Additional capital (2)(4)...................... 11,675 11,675 38,087
Retained earnings (2).......................... 34,782 34,782 44,355
Cumulative translation adjustment.............. 473 473 473
Treasury stock at cost, 1,322,043 shares
(3)(4)........................................ (3,283) (3,283) (3,283)
-------- -------- --------
Total capitalization........................... $258,485 $297,485 $297,485
======== ======== ========
</TABLE>
- ---------------------
(1) Of these pro forma amounts, $39.0 million was incurred in connection with
the Clairton acquisition: $35.0 million was borrowed under the Clairton
Term Loan (as hereinafter defined) and $4.0 million was borrowed under the
Amended and Restated Bank Credit Agreement (as hereinafter defined; see
"Description of Certain Indebtedness").
(2) The Company's Stockholders' Agreement (as hereinafter defined) requires
the Company, subject to limitations under the terms of covenants contained
in the Bank Credit Facilities (as hereinafter defined), to redeem stock
held by Management Investors (as hereinafter defined) upon termination of
their employment with the Company. Pursuant to its terms, the
Stockholders' Agreement will terminate upon consummation of the Offerings
and, as a result, the number of shares of Common Stock subject to
redemption shall be reduced to the number of shares owned by Management
Investors who will have retired or otherwise terminated employment with
the Company prior to the consummation of the Offerings. If the Offerings
had been consummated on March 31, 1996, the value of such shares on that
date would have been approximately $4.0 million, and the remaining $11.7
million would have been reclassified to common equity, $2.2 million to
additional capital and $9.5 million to retained earnings. See
"Management--Board of Directors; Stockholders Agreement".
(3) Includes 1,125,000 shares of Common Stock held by a subsidiary of Koppers
Australia Pty. Limited ("KAP"), a company in which the Company holds a 50%
interest.
(4) KAP has indicated an interest in purchasing 750,000 shares of Common Stock
in the Offerings. Due to the Company's 50% ownership in KAP, the Pro Forma
As Adjusted effect of KAP's purchase of shares would be to increase
Treasury stock and decrease total capitalization by $5.6 million.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995, are derived from the Consolidated Financial Statements of the Company,
which have been audited by Ernst & Young LLP, independent auditors. The
selected financial data for the three months ended March 31, 1995 and 1996 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Pro Forma
Condensed Consolidated Financial Data on pages 21 through 24 of this Prospectus
and the Consolidated Financial Statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 451,242 $ 444,255 $ 461,219 $ 476,448 $ 525,730 $ 122,201 $ 126,701
Cost of sales (1)..... 381,990 370,588 397,131 408,252 440,746 102,767 111,255
Depreciation and
amortization (2)..... 17,922 18,851 19,425 16,680 17,532 4,087 4,943
Selling, general and
administrative....... 20,738 23,017 19,559 25,807 27,604 5,624 6,256
--------- ---------- ---------- ---------- ---------- ---------- ---------
Operating profit........ 30,592 31,799 25,104 25,709 39,848 9,723 4,247
Equity in earnings of
affiliates............. 5,663 4,666 4,578 5,314 9,239 1,265 1,791
Other income............ 3,516 324 468 531 376 15 8
Litigation judgment (3). -- -- -- -- -- -- (10,946)
Interest expense........ 17,413 13,949 13,177 13,620 15,060 3,572 3,734
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
taxes.................. 22,358 22,840 16,973 17,934 34,403 7,431 (8,634)
Income taxes (benefit).. 7,335 8,104 6,508 5,017 9,963 2,320 (894)
--------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
methods................ 15,023 14,736 10,465 12,917 24,440 5,111 (7,740)
Net income (loss) (4)... 15,023 14,736 4,748 11,102 24,440 5,111 (7,740)
Payment-in-kind
dividends on preferred
stock (5).............. 5,382 6,244 7,242 944 -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
available to common
stockholders........... $ 9,641 $ 8,492 $ (2,494) $ 10,158 $ 24,440 $ 5,111 $ (7,740)
========= ========== ========== ========== ========== ========== =========
Earnings (loss) per
common share (6)....... $ 0.98 $ 0.85 $ (0.25) $ 0.96 $ 2.36 $ 0.50 $ (0.78)
========= ========== ========== ========== ========== ========== =========
Average common shares
outstanding (6)........ 9,809,775 10,019,799 10,034,406 10,570,971 10,376,658 10,300,812 9,911,202
Cash dividends per
common share........... $ -- $ -- $ -- $ -- $ 0.25 $ -- $ 0.08
OTHER DATA:
Required EBITDA (7)..... $ 52,786 $ 51,761 $ 46,443 $ 44,342 $ 60,699 $ 13,825 $ 9,198
Dividends received from
affiliates............. 756 787 1,446 1,422 2,943 -- --
Capital expenditures
(8).................... 18,538 12,912 14,661 16,326 50,141 12,787 6,647
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 28,030 $ 61,082 $ 83,856 $ 79,078 $ 80,095 $ 91,839
Total assets............ 279,013 271,390 282,520 294,193 348,955 361,432
Total debt (5).......... 130,892 114,652 113,461 159,000 174,000 203,000
Preferred stock (5)..... 39,282 45,526 52,768 260 260 --
Redeemable common stock
(9).................... 100 550 800 15,450 23,715 15,735
Common equity (9)....... 35,235 41,209 36,864 36,490 54,255 43,750
</TABLE>
- ---------------------
(1) Reflects a change in accounting method effective January 1, 1992, from the
FIFO method of inventory valuation to the LIFO method. The adoption of LIFO
decreased gross profit by $1.3 million for the year ended December 31,
1992.
(2) The 1994 results reflect a $1.4 million reduction in depreciation expense
for change in estimate of useful lives of certain assets effective July 1,
1994. See Note 1 of the Notes to Consolidated Financial Statements.
19
<PAGE>
(3) Consists of a charge related to a legal judgment rendered against the
Company in connection with the OCF Litigation in 1996. See "Risk Factors--
Legal Proceedings" and "Business--Legal Proceedings".
(4) Net income for 1993 includes effects of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" of $(5.2)
million net of tax, and SFAS No. 109, "Accounting for Income Taxes" of
$(0.5) million. See Notes 7 and 8 of the Notes to Consolidated Financial
Statements of the Company. Net income for 1994 includes extraordinary loss
on early extinguishment of debt of $1.8 million.
(5) On February 10, 1994 the Company issued $110 million of unsecured ten-
year, 8 1/2% senior notes, of which $53.5 million was used to redeem all
the Series A exchangeable preferred stock of the Company. See "Description
of Certain Indebtedness".
(6) In accordance with generally accepted accounting principles, average
common shares outstanding have been reduced by 1,125,000 of the 2,250,000
shares held by a subsidiary of Koppers Australia Pty. Limited to reflect
the Company's 50% ownership interest therein. See Note 9 of the Notes to
Consolidated Financial Statements of the Company.
(7) Required EBITDA is presented because it is a component of a ratio included
in a covenant in the Company's Bank Credit Facilities (as hereinafter
defined). "Required EBITDA" is defined as net income plus interest
expense, income taxes, depreciation and amortization; less equity income
or losses, non-cash extraordinary gains and non-cash foreign currency
gains; plus cash dividends received from affiliates, certain non-cash
extraordinary losses, non-cash foreign currency losses and certain equity
losses. Required EBITDA should not be considered by an investor as an
alternative to net income, as an indicator of the Company's operating
performance, or to cash flows as a measure of liquidity.
(8) Includes approximately $35 million related to acquisitions in 1995.
(9) The Company's Stockholders' Agreement (as hereinafter defined) requires
the Company, subject to limitations under the terms of covenants contained
in the Bank Credit Facilities, to redeem stock held by Management
Investors (as hereinafter defined) upon termination of their employment
with the Company. Pursuant to its terms, the Stockholders' Agreement will
terminate upon consummation of the Offerings and, as a result, the number
of shares of Common Stock subject to redemption shall be reduced to the
number of shares owned by Management Investors who will have retired or
otherwise terminated employment with the Company prior to the consummation
of the Offerings. If the Offerings had been consummated on March 31, 1996,
the value of such shares on that date would have been approximately $4.0
million, and the remaining $11.7 million would have been reclassified to
common equity, $2.2 million to additional capital and $9.5 million to
retained earnings. See "Management--Board of Directors; Stockholders'
Agreement".
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of approximately
$5 million of tank cleaning and demolition costs and approximately $3 million
of pension and other post-retirement benefit liabilities.
Set forth below are the pro forma condensed consolidated statements of
operations of the Company for the year ended December 31, 1995 and the three
months ended March 31, 1996 and the pro forma condensed consolidated balance
sheet as of March 31, 1996. The pro forma condensed consolidated statements of
operations give effect to the Clairton acquisition and the Offerings (at an
assumed initial public offering price of $15.00 per share, the mid-point of the
range set forth on the cover page of this Prospectus) as if they occurred as of
January 1, 1995. The pro forma condensed consolidated balance sheet as of March
31, 1996 gives effect to the Clairton acquisition and the Offerings (at an
assumed initial public offering price of $15.00 per share, the mid-point of the
range set forth on the cover page of this Prospectus) as if they occurred on
that date.
The pro forma condensed consolidated statement of operations for the year
ended December 31, 1995 is based on the audited historical consolidated
statements of operations of the Company and Clairton for the year then ended
included elsewhere herein. The pro forma condensed consolidated balance sheet
as of March 31, 1996 and the pro forma condensed consolidated statement of
operations for the three months then ended are based on the unaudited condensed
Consolidated Financial Statements for the three months ended March 31, 1996 of
the Company and Clairton included elsewhere herein.
The pro forma condensed consolidated financial data presented herein are not
necessarily indicative of the Company's results of operations that might have
occurred had such transactions been completed at the beginning of the period
specified, and do not purport to represent what the Company's consolidated
results of operations might be for any future period.
The Clairton acquisition has been accounted for using the purchase method of
accounting. The pro forma adjustments described in the notes to the pro forma
condensed consolidated financial statements reflect the estimated allocation of
the purchase price to assets and liabilities. Additional information, primarily
related to the actuarial valuations for pension and post-retirement benefits,
and clarification of currently available information may result in revisions to
this estimated allocation. The pro forma financial statements and accompanying
notes should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the historical
financial statements and related notes thereto appearing elsewhere herein.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------
HISTORICAL
----------------- PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 4,816 $ -- $ -- $ 4,816
Accounts receivable (net of
allowance)........................ 59,969 10,062 -- 70,031
Inventories........................ 78,279 4,682 347 (1) 83,308
Other.............................. 8,345 846 (846)(2) 8,345
-------- ------- -------- --------
Total current assets............. 151,409 15,590 (499) 166,500
Investments (5)...................... 51,783 -- -- 51,783
Fixed assets (net)................... 148,947 28,200 1,513 (1) 178,660
Other assets......................... 9,293 -- 12,994 (1) 22,287
-------- ------- -------- --------
Total assets....................... $361,432 $43,790 $ 14,008 $419,230
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................... $ 27,420 $ 8,287 $ 1,912 (1) $ 37,619
Accrued liabilities................ 28,150 1,101 (831)(2)
260 (1) 28,680
Current portion of long-term debt.. 4,000 -- -- 4,000
-------- ------- -------- --------
Total current liabilities........ 59,570 9,388 1,341 70,299
Long-term debt....................... 199,000 -- 39,000 (1)
(24,250)(3) 213,750
Deferred income taxes................ 14,085 10,419 (10,419)(2) 14,085
Intercompany liability............... -- 21,835 (32,239)(1)
10,404 (2) --
Other liabilities.................... 29,292 2,148 5,921 (1) 37,361
-------- ------- -------- --------
Total liabilities.................. 301,947 43,790 (10,242) 335,495
Common stock subject to redemption... 15,735 -- (11,748)(4) 3,987
Common stock, voting and non-voting.. 103 -- 13 (3) 116
Retained earnings.................... 34,782 -- 9,573 (4) 44,355
Other stockholders' equity (5)....... 8,865 -- 26,412 (3) 35,277
-------- ------- -------- --------
Total liabilities and stockholders'
equity (5)........................ $361,432 $43,790 $ 14,008 $419,230
======== ======= ======== ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the preliminary allocation of the approximately $40
million purchase price and related transaction costs to the fair value of
assets acquired and the assumption of certain liabilities. Liabilities
assumed by the Company include certain pension and post-retirement benefit
costs, and estimated costs for the demolition of unused facilities and
tank cleaning. The acquisition, primarily financed by additional
borrowings of $39 million under the Bank Credit Facilities (as hereinafter
defined), resulted in goodwill of approximately $13.0 million.
(2) Adjusted to reflect the elimination of deferred tax assets, accrued taxes
payable and deferred tax liabilities not assumed by the Company.
(3) Adjusted to reflect the consummation of the Offerings, with estimated net
proceeds to the Company of approximately $24.3 million used to reduce
aggregate indebtedness under the Bank Credit Facilities (as hereinafter
defined).
(4) Adjusted to reflect the termination of the Stockholders' Agreement (as
hereinafter defined) upon consummation of the Offerings and, as a result,
the reduction in the number of shares of common stock subject to
redemption pursuant to such agreement to the number of shares owned by the
Management Investors (as hereinafter defined) who will have retired prior
to that date. The total reduction in common stock subject to redemption of
$11.7 million would have been reclassified to retained earnings ($9.5
million) and other stockholders' equity ($2.2 million).
(5) KAP has indicated an interest in purchasing 750,000 shares of Common Stock
in the Offerings. Due to the Company's 50% ownership in KAP, the effect on
the Company's Pro Forma Condensed Consolidated Balance Sheet of KAP's
purchase of shares would be to reduce Investments and Other stockholders'
equity by $5.6 million.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
HISTORICAL
----------------- PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................ $525,730 $75,984 $(11,638)(1) $590,076
Cost of sales...................... 440,746 62,291 (11,638)(1) 491,399
Depreciation and amortization...... 17,532 1,969 415 (2) 19,916
Selling, general and
administrative.................... 27,604 3,355 (2,036)(3) 28,923
-------- ------- -------- --------
Operating profit..................... 39,848 8,369 1,621 49,838
Equity in earnings of affiliates..... 9,239 -- -- 9,239
Other income......................... 376 14 -- 390
Interest expense..................... 15,060 -- 1,106 (4) 16,166
-------- ------- -------- --------
Income before taxes.................. 34,403 8,383 515 43,301
Income taxes......................... 9,963 3,479 (322)(5) 13,120
-------- ------- -------- --------
Net income........................... $ 24,440 $ 4,904 $ 837 $ 30,181
======== ======= ======== ========
Earnings per share(6)................ $ 2.36 N/A N/A $ 2.59
======== ======= ======== ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the elimination of purchases by the Company from
Clairton.
(2) Adjusted to reflect increased depreciation and amortization expense
resulting from recording the assets acquired at estimated fair value. The
Company records depreciation and amortization using the straight-line
method, over estimated useful lives of 15 years for buildings and
machinery and 25 years for goodwill.
(3) Adjusted to reflect the reversal of corporate overhead costs allocated to
Clairton by its former parent.
(4) Adjusted to reflect increased interest expense to the Company related to
$39 million of borrowings under the Bank Credit Facilities (as hereinafter
defined) in connection with the acquisition of Clairton further adjusted
to reflect the application of an estimated $24.3 million of net proceeds
to the Company from the Offerings to reduce aggregate borrowings. Interest
is calculated at an assumed rate of 7.5% (LIBOR plus 1.0%).
(5) Adjusted to reflect the Company's pro forma effective marginal tax rate of
30.3%, which differs from the statutory rate primarily as a result of non-
cash equity in earnings of affiliates for which no tax expense is
provided.
(6) Average shares outstanding for the year ended December 31, 1995 amounted
to 10,376,658 shares, actual, and 11,632,428 shares, pro forma, after
giving effect to a three-for-one stock split effective May 23, 1996.
23
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------
HISTORICAL
------------------ PRO FORMA COMPANY
COMPANY CLAIRTON ADJUSTMENTS PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................... $126,701 $19,132 $(2,932)(1) $142,901
Cost of sales..................... 111,255 16,093 (2,932)(1) 124,416
Depreciation and amortization..... 4,943 460 136 (2) 5,539
Selling, general and
administrative................... 6,256 926 (483)(3) 6,699
-------- ------- ------- --------
Operating profit.................... 4,247 1,653 347 6,247
Equity in earnings of affiliates.... 1,791 -- -- 1,791
Other income........................ 8 6 -- 14
Interest expense.................... 3,734 -- 240 (4) 3,974
Litigation judgment................. (10,946) -- -- (10,946)
-------- ------- ------- --------
Income (loss) before taxes.......... (8,634) 1,659 107 (6,868)
Income taxes (benefit).............. (894) 678 (491)(5) (707)
-------- ------- ------- --------
Net income (loss)................... $ (7,740) $ 981 $ 598 $ (6,161)
======== ======= ======= ========
Earnings (loss) per share(6)........ $ (0.78) N/A N/A $ (0.55)
======== ======= ======= ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the elimination of purchases by the Company from
Clairton and purchases by Clairton from the Company.
(2) Adjusted to reflect increased depreciation and amortization expense
resulting from recording the assets acquired at estimated fair value. The
Company records depreciation and amortization using the straight-line
method, over estimated useful lives of 15 years for buildings and machinery
and 25 years for goodwill.
(3) Adjusted to reflect the reversal of corporate overhead costs allocated to
Clairton by its former parent.
(4) Adjusted to reflect increased interest expense to the Company related to
$39 million of borrowings under the Bank Credit Facilities (as hereinafter
defined) in connection with the acquisition of Clairton further adjusted to
reflect the application of an estimated $24.3 million of net proceeds to
the Company from the Offerings to reduce aggregate borrowings. Interest is
calculated at an assumed rate of 6.5% (LIBOR plus 1.0%).
(5) Adjusted to reflect the Company's estimated pro forma effective tax rate of
10.3%, which differs from the statutory rate primarily as a result of
projected non-cash equity earnings of affiliates and tax credits earned
beginning in 1996 at the Company's Monessen Facility.
(6) Average shares outstanding for the three months ended March 31, 1996
amounted to 9,911,202 shares, actual, and 11,166,972 shares, pro forma,
after giving effect to a three-for-one stock split effective May 23, 1996.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets. The Company's products and
operations are divided into three divisions: Coke Products, Carbon Materials &
Chemicals and Railroad & Utility Products.
RESULTS OF OPERATIONS
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Coke Products............. $ 73,608 $ 72,363 $ 80,084 $ 19,279 $ 28,218
Carbon Materials &
Chemicals................ 167,000 164,489 197,434 46,099 44,278
Railroad & Utility
Products................. 220,611 239,596 248,212 56,823 54,205
-------- -------- -------- -------- --------
Total................... $461,219 $476,448 $525,730 $122,201 $126,701
======== ======== ======== ======== ========
SEGMENT SALES AS PERCENTAGE
OF TOTAL:
Coke Products............. 16.0% 15.2% 15.2% 15.8% 22.3%
Carbon Materials &
Chemicals................ 36.2% 34.5% 37.6% 37.7% 34.9%
Railroad & Utility
Products................. 47.8% 50.3% 47.2% 46.5% 42.8%
-------- -------- -------- -------- --------
Total................... 100.0% 100.0% 100.0% 100.0% 100.0%
GROSS MARGIN BY SEGMENT:
Coke Products............. 12.8% 11.5% 7.6% 11.9% 8.8%
Carbon Materials &
Chemicals................ 19.8% 19.0% 21.3% 20.6% 14.5%
Railroad & Utility
Products................. 9.8% 11.9% 14.8% 13.4% 12.1%
-------- -------- -------- -------- --------
Total................... 13.9% 14.3% 16.2% 15.9% 12.2%
OPERATING MARGIN BY SEGMENT:
Coke Products............. 2.2% 3.6% 0.0% 4.3% 2.1%
Carbon Materials &
Chemicals................ 11.6% 10.3% 13.9% 13.0% 5.5%
Railroad & Utility
Products................. 4.8% 6.8% 9.1% 7.8% 5.2%
Corporate Unallocated
Overhead................. (1.4%) (2.1%) (1.9%) (1.3%) (1.3%)
-------- -------- -------- -------- --------
Total................... 5.4% 5.4% 7.6% 8.0% 3.4%
</TABLE>
COKE PRODUCTS
The Coke Products division's profitability is primarily dependent on the
pricing and demand for coke in the United States and its cost of metallurgical
coal. The Company has entered into two long-term contracts with LTV covering
approximately 50% of the production at the Company's Woodward and Monessen
Facilities. Both supply contracts are for 240,000 tons per year, plus or minus
10% at LTV's option. Under one of these contracts, which is a four-year
contract ending on December 31, 1997 and can be extended for an additional year
by LTV, the annual base price for 1997 and, if extended, 1998, will be fixed by
the Company at not more than 6% above or below the base price for the preceding
year. If LTV does not find the base price to be satisfactory, it can terminate
the agreement on six months notice. The second contract is a seven-year
contract expiring on December 31, 2002 and is automatically renewed annually
unless six months notice of termination is given by either party on or before
July 1 of the prior year. The annual base price is fixed by LTV within a stated
range per net ton with reference to increases or decreases in the selling price
of base steel products. Both contracts
25
<PAGE>
excuse performance by either party in the event of unforeseeable
circumstances. The Company typically negotiates additional short-term
agreements with other customers to sell a significant portion of its remaining
production at prices based upon the spot market.
Although the spot price for coke generally fluctuates with the coke demand
generated by United States integrated steel producers and foundries, due to
the contract nature of a large proportion of the Company's business, the
Company's average price realized per ton has remained in a relatively narrow
range of $107 to $117 between 1993 and 1995. Due to the strength of the United
States integrated steel market in 1995, the Company's average price
realization for coke increased from $112 per ton in the first quarter of 1995
to $118 per ton in the first quarter of 1996. Over the last three years, the
Company's metallurgical coal costs, the most significant cost component of
coke production, have remained relatively stable.
Since initiating an oven rebuilding program at its Woodward Facility in
1991, the Company's effective capacity has fluctuated based on the number of
ovens being rebuilt at one time. The Company has operated the Woodward
Facility, which currently has an annual capacity of approximately 637,000
tons, at 90% to 95% of its total capacity. With the completion of the start-up
of the newly acquired Monessen Facility in April 1996, the Company's annual
production capacity has been increased to over 1 million tons. In connection
with the refurbishment of the facility, the Company incurred substantial
start-up expenses which it has expensed in the third and fourth quarters of
1995 and the first quarter of 1996.
In March 1996, McLouth, an integrated steel producer which accounted for
approximately $8 million of net sales of the Coke Products division in 1995,
ceased steel production, having filed a petition for bankruptcy protection.
The Company's contract with McLouth provided for the Company to supply
approximately 90,000 tons of coke for the remainder of 1996. As a result of
the bankruptcy, the Company had accumulated approximately 13,000 tons of
surplus coke production as of June 10, 1996. In addition, on April 2, 1996 an
explosion disabled the largest blast furnace in the United States, located in
the Gary, Indiana plant of U.S. Steel, which is serviced by the Woodward
Facility. As a result of the explosion, U.S. Steel suspended approximately
30,000 tons of scheduled coke shipments from the Company. On June 1, 1996,
U.S. Steel resumed receiving shipments from the Company. The Company is
currently seeking to sell all of its surplus coke through the spot market or
under new contracts, but there can be no assurance that it will succeed in
doing so or that it will sell it at prices comparable to those set in its
contracts with McLouth and U.S. Steel.
The Company estimates that failure to sell such surplus coke production by
December 31, 1996 could result in an increased coke inventory of approximately
70,000 tons at that date. If such surplus coke is not sold by that date, the
Company estimates that its revenues from coke sales for 1996 would be
approximately $8.3 million lower than if it had sold such coke at the average
price obtained by the Company during the first quarter of 1996. The Company
believes that such increases in coke inventories, when they occur, are
temporary events.
CARBON MATERIALS & CHEMICALS
The Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote.
The Carbon Materials & Chemicals division's profitability is primarily
influenced by its cost to purchase coal tar and its prices obtained for carbon
pitch, PAA and creosote.
The primary product produced through coal tar distillation is carbon pitch.
The Company sells carbon pitch principally to primary aluminum smelters, who
use carbon pitch as a binding agent in the manufacture of carbon anodes.
Smaller quantities of carbon pitch are also sold to graphite electrode
producers. Since 1993, the Company's sales volume of carbon pitch has
increased from 263,000 tons in 1993 to 279,000 tons in 1995, due to improved
aluminum market conditions, while pricing has remained relatively stable.
As part of the distillation of coal tar into carbon pitch, by-products
including creosote and chemical oils are obtained. Creosote is used as a wood
preservative in the treatment of railroad crossties and utility poles. The
Company sells approximately 40% of its creosote production to its Railroad &
Utility Products division. The
26
<PAGE>
remaining 60% is sold to other wood treating companies or into the carbon black
market for use in the manufacture of rubber tires. Since 1993, the price
obtained by the Company for creosote has increased approximately 8%, reflecting
the increased cost to purchase coal tar, and volumes have remained relatively
flat.
Chemical oils produced during coal tar distillation are further refined by
the Company primarily into naphthalene, which is a basic ingredient used in the
production of PAA. PAA is used in the production of polyester resins, paints
and coatings and plasticizers. On a worldwide basis, naphthalene and
orthoxylene, a petroleum derivative, are both used in the manufacture of PAA
and are considered to be interchangeable. In the United States, however, the
Company is the only PAA producer capable of utilizing naphthalene as a
feedstock. Historically, the Company's cost to produce naphthalene has been
lower than its cost to purchase orthoxylene, which is generally a higher cost
feedstock. The Company's price realizations and profit margins for PAA have
historically fluctuated with the price of orthoxylene and its relationship to
the Company's cost to produce naphthalene. Although the price of orthoxylene
was relatively stable prior to 1994, due to increased demand, the price of
orthoxylene increased from $0.14 per pound in March 1994 to $0.38 per pound in
May 1995. As a result, PAA prices increased by approximately 101% during that
period, providing the Company with a significant cost advantage over its
competition and a temporary expansion of margins. In the first quarter of 1996,
however, the price for orthoxylene declined to approximately $0.16 per pound,
resulting in a corresponding decline in PAA prices and margins. The Company's
cost to produce naphthalene and PAA is primarily driven by its cost to procure
coal tar.
On April 1, 1996, the Company completed the acquisition of Clairton. This
acquisition will increase the Company's production of carbon pitch and creosote
by approximately 44% and 38%, respectively, based on Clairton's production of
such products in 1995. Clairton had 1995 sales of approximately $64 million,
excluding sales to the Company. As a result of this acquisition, the Company is
conducting a review of its Carbon Materials & Chemicals division in order to
identify possible efficiencies that could be achieved, including the possible
rationalization of certain of its facilities. Any such rationalization could
involve substantial cash and non-cash charges that could materially adversely
affect the results of operations or cash flows of the Company in a particular
period.
RAILROAD & UTILITY PRODUCTS
The Company's Railroad & Utility Products division is the largest supplier of
treated wood products to the United States railroad and utility industries and
also provides services such as track assembly and the burning of wood waste for
energy. The Railroad & Utility Products division's profitability is primarily
influenced by the demand for railroad products and services by Class I
railroads, demand for transmission and distribution poles by electric utilities
and its cost to procure wood. Historically, sales of railroad products and
services have represented approximately two-thirds of the Railroad & Utility
Products division's net sales.
The railroad crosstie market is a mature market with approximately 14.5
million replacement crossties purchased per year. The demand for crossties is
only partially affected by economic conditions and has been relatively stable
since 1993. Pricing historically has fluctuated with the underlying cost to
purchase hardwood lumber, which accounts for approximately 60% of a finished
crosstie's cost. The Company obtains its hardwood supply from hundreds of small
sawmills throughout the northeastern and southern areas of the United States.
Hardwood prices fluctuate with demand from competing hardwood lumber markets
such as flooring and pallets. In 1993, the price of hardwood increased
significantly, which resulted in a temporary reduction of the Company's
margins. Since 1993, hardwood prices have decreased to more normal levels,
which has resulted in improved margins. Historically, over three-fourths of the
Company's net sales to railroads have been based on annual or multi-year
contracts.
The market for utility poles is highly fragmented, and demand has remained
relatively stable for several years. Utility poles are produced primarily from
softwoods, such as pine and fir, which have been subject to steady price
increases since 1993 primarily due to increased demand for softwood materials
in the paper and
27
<PAGE>
construction markets. In 1993 and 1994, the increased price for wood had a
negative impact on the Company's pole volumes and margins. In order to improve
results, in 1995 the Company increased sales prices of its pole
products. While this strategy has resulted in lower sales volumes, price
realizations have increased and gross margins have improved from 8.8% in 1994
to 11.0% in 1995.
In April 1995, the Company completed the acquisition of the Somerville
Facility, which is the largest railroad crosstie treating facility in the
United States. This acquisition increased the production capacity of the
Company's Railroad & Utility Products division by 20% and resulted in an
increase of $11.5 million in net sales in 1995.
Comparison of Results of Operations for the Three Months Ended March 31, 1996
and 1995.
NET SALES. Net sales for the three months ended March 31, 1996 were 3.7%
higher than the same period in 1995, due primarily to an increase of 46.4% in
sales of Coke Products which offset decreases of 4.0% for Carbon Materials &
Chemicals and 4.6% for Railroad & Utility Products. The increase in net sales
for Coke Products was due primarily to sales of approximately $10 million from
the Monessen Facility, which started production in the fourth quarter of 1995,
coupled with a 5.6% increase in coke price realizations, offset to some extent
by lower production at the Woodward Facility due to oven wall rebuilding. The
reduction in net sales for Carbon Materials & Chemicals was due primarily to a
reduction in PAA prices of 34.0% compared to the same period in the prior year,
more than offsetting a 6.3% increase in carbon pitch volumes coupled with a
4.0% increase in carbon pitch prices. The reduction in net sales for Railroad &
Utility Products was due primarily to a 19.7% reduction in volumes for utility
poles, which was partially offset by a 10.2% increase in selling prices for
utility poles as compared to the same period last year.
GROSS PROFIT. As a percent of sales, gross profit decreased to 12.2% in the
first quarter of 1996 from 15.9% in the same period last year. This decrease
was due to decreases in gross margins to 8.8% from 11.9% for Coke Products, to
14.5% from 20.6% for Carbon Materials & Chemicals, and to 12.1% from 13.4% for
Railroad & Utility Products. The decrease for Coke Products was due primarily
to weather and operational startup expenses at the Monessen Facility in January
and February 1996, as well as higher operating costs at the Woodward and
Monessen Facilities as a result of severe winter weather in 1996. Excluding
expenses of $0.9 million associated with the Monessen startup, the gross margin
would have been 11.8%. The decrease in gross margin for Carbon Materials &
Chemicals was due primarily to a 34.0% reduction in PAA prices. In addition,
gross margin in the Carbon Materials & Chemicals division was negatively
impacted by a number of other factors, including increased plant costs
associated with inclement winter weather; a greater proportion of creosote sold
in the lower margin carbon black market as a result of decreased shipments to
creosote customers, which slowed wood treating operations during the severe
winter; and the utilization of higher priced orthoxylene inventories which were
purchased prior to the sharp decline in orthoxylene prices. The decrease in
gross margin for Railroad & Utility Products was due primarily to higher unit
costs from reduced sales volumes for utility poles, as well as $0.4 million of
higher operating costs at the Company's Somerville Facility as a result of a
strike which lasted approximately one month and was settled in early April
1996. Railroad & Utility Products costs were also negatively affected by severe
winter weather.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
for 1996 as compared to the prior year is due to the acquisitions of the
Somerville and Monessen Facilities, both of which were acquired in April 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the three months ended March 31, 1996 increased to
4.9% of net sales from 4.6% of net sales in the same period last year primarily
as a result of higher costs related to the integration of the acquisition of
the Monessen and Clairton facilities and the implementation of newly initiated
logistics improvements in all of the Company's divisions.
EQUITY IN EARNINGS OF AFFILIATES. Equity earnings increased to $1.8 million
for the three months ended March 31, 1996 compared to $1.3 million for the same
period last year as all three affiliates recorded moderately higher earnings.
28
<PAGE>
INTEREST EXPENSE. Interest expense increased $0.2 million in the first
quarter of 1996 as compared to the prior year as the result of a higher average
debt level.
INCOME TAXES. The Company's effective income tax rate for the three months
ended March 31, 1996 decreased to 10.4% from 31.2% in the prior year period due
primarily to projected tax credits for fiscal year 1996 for the recently
acquired Monessen Facility.
NET INCOME (LOSS). The net loss of $7.7 million for the three months ended
March 31, 1996 compared to net income of $5.1 million for the same period last
year was the result of an $11.0 million litigation charge in 1996, as well as
lower operating profits for the businesses due to an increase in costs of sales
in excess of the increase in net sales for this period. See "Risk Factors--
Legal Proceedings" and "Business--Legal Proceedings".
Comparison of Results of Operations for the Years Ended December 31, 1995 and
1994.
NET SALES. Net sales for the year ended December 31, 1995, were 10.3% higher
than the corresponding period in 1994, as net sales of Coke Products increased
by 10.7%, net sales of Carbon Materials & Chemicals increased by 20.0%, and net
sales of Railroad & Utility Products increased by 3.6%. The increase in net
sales of Coke Products was due to a 6.4% increase in coke prices, as well as a
6.1% increase in coke volumes primarily due to shipments of coke in November
and December from the newly acquired Monessen Facility. The increase in net
sales of Carbon Materials & Chemicals for 1995 primarily reflects a 52.7%
increase in PAA prices and a 13.0% increase in carbon pitch volumes. The
increase in net sales of Railroad & Utility Products for 1995 reflects higher
sales volumes of 10.7% for railroad crossties primarily as a result of sales
from the newly acquired Somerville Facility, offset by a 13.9% decline in
volumes for utility poles. Prices for railroad crossties decreased 2.2%, while
pricing for utility poles increased 9.3% in 1995 compared to the prior year.
GROSS PROFIT. As a percent of net sales, gross profit increased to 16.2% in
1995 from 14.3% in 1994. The decrease in gross margin for Coke Products to 7.6%
from 11.5% was more than offset by an increase in Carbon Materials & Chemicals
gross margin to 21.3% from 19.0%, and an increase in Railroad & Utility
Products gross margin to 14.8% from 11.9% as compared to the prior year. The
decrease in Coke Products gross margin for 1995 was primarily a result of $5.5
million of start-up expenses, which were not capitalized, at the Monessen
Facility in 1995. Excluding the start-up expenses, gross margin would have
increased to 14.5% of sales, reflecting a 6.4% price increase for coke. The
increase in gross margin for Carbon Materials & Chemicals was primarily a
result of a 52.7% increase in selling prices for PAA. This increase was
partially offset by a $1.8 million provision for the effect of a coal tar spill
at a Carbon Materials & Chemicals facility. The increase in Railroad & Utility
Products gross margin was primarily a result of lower raw materials costs
coupled with lower freight costs from logistics improvements and an increase in
selling prices for utility poles.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
in 1995 compared to the prior year is primarily due to approximately $0.8
million of depreciation related to the acquisition of the Somerville Facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1995 decreased to 5.3% of sales from 5.4% of sales
in 1994, primarily due to increased sales and the absence of $3.6 million of
non-recurring legal and severance expenses incurred in 1994.
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates increased
to $9.2 million in 1995 from $5.3 million in 1994, primarily as a result of
stronger carbon pitch and chemicals markets in Australia and Europe.
INTEREST EXPENSE. Interest expense for 1995 increased by $1.4 million as a
result of higher average debt levels due to acquisitions coupled with slightly
higher interest rates.
29
<PAGE>
INCOME TAXES. The Company's effective income tax rate for 1995 increased to
29.0% from 28.0% in 1994. The difference between the effective rates and the
statutory rate is primarily a result of earnings in foreign equity affiliates
not taxed in the United States. Income taxes on equity earnings in foreign
affiliates are limited to the amount of cash dividends received.
NET INCOME BEFORE EXTRAORDINARY ITEM. Net income before extraordinary item
for 1995 increased 89.2% compared to net income before extraordinary item from
the prior year, primarily as a result of a higher level of business activity,
and generally favorable market conditions as detailed in the discussions of
sales and cost of sales for the businesses.
Comparison of Results of Operations for the Years Ended December 31, 1994 and
1993.
NET SALES. Net sales for the year ended December 31, 1994 were 3.3% higher
than the same period in 1993, as reductions of 1.7% for Coke Products and 1.5%
for Carbon Materials & Chemicals were more than offset by an increase of 8.6%
for Railroad & Utility Products. The decrease in net sales of Coke Products for
1994 reflected a 3.0% reduction in coke sales volumes coupled with a 2.4%
reduction in coke prices. The decrease in net sales of Carbon Materials &
Chemicals was due to a 6.0% reduction in carbon pitch volumes as a result of
the decreased demand from the domestic aluminum industry, the primary consumer
of carbon pitch. Partially offsetting this reduction was an increase of 6.9% in
PAA prices, which more than offset a 5.5% reduction in PAA volumes. The
increase in net sales of Railroad & Utility Products for 1994 was due to a 6.3%
increase in volumes coupled with a 5.6% increase in selling prices for railroad
crossties. Sales volumes for utility poles were 3.8% lower in 1994 than in
1993, but were more than offset by a 5.3% increase in utility pole prices.
GROSS PROFIT. As a percent of net sales, gross profit increased in 1994 to
14.3% from 13.9% in 1993. The decreases in gross margin for Coke Products to
11.5% from 12.8%, and for Carbon Materials & Chemicals to 19.0% from 19.8% were
more than offset by an increase in Railroad & Utility Products gross margin to
11.9% from 9.8% in the prior year. The decrease in gross margin for Coke
Products was due primarily to a 2.4% reduction in coke prices. The decrease in
gross margin for Carbon Materials & Chemicals was due primarily to an increase
in per unit manufacturing costs for carbon pitch. The increase in gross margin
for Railroad & Utility Products for 1994 was primarily a result of a $3.7
million lower LIFO inventory effect as a result of stabilizing raw material
hardwood costs during the latter half of 1994.
DEPRECIATION AND AMORTIZATION. The reduction in depreciation and amortization
for 1994 is due primarily to the expiration of a long-term coke supply contract
at the end of 1993, as well as a change in the depreciable lives of certain
fixed assets during 1994. See Note 1 of the Notes to Consolidated Financial
Statements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1994 increased to 5.4% of sales from 4.2% of sales
in 1993 due to an increase in legal expense of $2.1 million as a result of an
adverse arbitration ruling in 1994, severance charges of $1.7 million and the
payment of $1.9 million under the incentive compensation program compared to no
payment in 1993.
EQUITY IN EARNINGS OF AFFILIATES. Equity earnings increased to $5.3 million
in 1994 from $4.6 million in the prior year primarily as a result of higher
profits from Koppers Australia Pty. Limited.
INTEREST EXPENSE. Interest expense for 1994 increased by $0.4 million, with
significantly higher debt levels being partially offset by lower interest
rates.
INCOME TAXES. The Company's effective income tax rate for 1994 decreased to
28.0% from 38.3% in 1993 primarily as a result of an increase in the ratio of
non-taxable foreign equity earnings to pretax income. Income taxes on equity
earnings in foreign affiliates are limited to the amount of cash dividends
received, which resulted in a lower effective tax rate for the Company in 1994
because the non-cash foreign earnings constituted a higher proportion of pretax
income than in the prior year.
30
<PAGE>
NET INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES. Net income before extraordinary item and cumulative effect of
accounting changes in 1994 increased 23.4% over net income before extraordinary
item and cumulative effect of accounting changes in 1993 primarily as a result
of increased equity earnings and the lower effective tax rate in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for debt service, acquisitions
and capital maintenance. The Company believes that its cash flows from
operations and available borrowings under the Bank Credit Facilities (as
hereinafter defined) will be sufficient to fund its anticipated liquidity
requirements for 1996. In the event that the foregoing sources are not
sufficient to fund the Company's expenditures and service its indebtedness, the
Company would be required to raise additional funds.
As of March 31, 1996, the Company had cash and cash equivalents of $4.8
million and $17.4 million of availability under the Bank Credit Facilities
including the Revolving Credit Facility (as hereinafter defined) available for
working capital purposes and letters of credit subject to an aggregate sublimit
of $15.0 million and possible restrictions in particular periods. Letters of
credit from time to time are required by the Company, primarily to support
obligations of the Company such as payment guarantees for insurance and claims,
bid and performance bonds for export sales and general corporate guarantees. As
of March 31, 1996, $8.9 million of commitments were utilized by outstanding
standby letters of credit and there were $68.0 million in outstanding
borrowings under the Credit Agreement (as hereinafter defined) for working
capital purposes. At March 31, 1996 the Company had outstanding under the
Amended Somerville/Monessen Loan Agreement (as hereinafter defined), a loan of
$25.0 million which was incurred to finance the acquisitions of the Somerville
and Monessen Facilities. The amortization schedule for this loan requires
payments of $4.0 million, $7.0 million, $9.0 million and $5.0 million in 1996,
1997, 1998 and 1999, respectively. See "Risk Factors--Substantial
Indebtedness".
The Company also negotiated the Clairton Term Loan (as hereinafter defined)
on March 18, 1996 in the amount of $35.0 million for the Clairton acquisition,
with repayments of $17.5 million required in both 2000 and 2001. The additional
$4.0 million required for the acquisition was financed through the Revolving
Credit Facility.
Interest on the Company's term loans and working capital facilities is based
upon prevailing floating rates, while interest on the Senior Notes (as
hereinafter defined) is fixed. In addition, to limit the effect of a rise in
interest rates and to meet the requirements of a previous financing, the
Company is party to an interest rate collar agreement with respect to a $10.0
million notional amount which establishes an interest rate cap of 10% and a
floor of 8.75%. The estimated remaining cost of the collar agreement which
expires in October 1996 is $0.2 million.
The following table sets forth cash flows from operating, investing and
financing activities for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities......... $ 13,574 $ 39,249 $ 35,276 $ (3,219) $(5,428)
Net cash used in investing
activities................... (14,133) (16,016) (50,343) (13,130) (6,754)
Net cash provided by (used in)
financing activities......... (2,066) (20,447) 13,710 14,743 15,380
-------- -------- -------- -------- -------
Net increase (decrease) in
cash......................... $ (2,625) $ 2,786 $ (1,357) $ (1,606) $ 3,198
======== ======== ======== ======== =======
</TABLE>
Cash provided by (used in) operations was $(5.4) million, $35.3 million,
$39.2 million and $13.6 million for the first three months of 1996 and for
1995, 1994 and 1993, respectively. A $7.7 million net loss in the first three
months of 1996 coupled with increased working capital needs (excluding accrued
liabilities) of approximately $13 million were partially offset by an increase
of $11.4 million in accrued liabilities, with the
31
<PAGE>
increase in accrued liabilities reflecting a provision of approximately $11
million as a result of the OCF Litigation. An increase in working capital due
to higher sales was the primary use of cash in operations for the first three
months of 1995. Net cash provided by operating activities declined in 1995,
despite an increase in net income of $13.3 million, primarily due to increased
working capital requirements associated with the Monessen and Somerville
Facilities. In particular, accounts receivable increased by $5.8 million and
inventories increased by $9.7 million. These cash outflows were partially
offset by an increase in accounts payable of $11.5 million. In addition,
equity income of affiliated companies net of dividends received increased by
$2.7 million.
Operating activities provided $39.2 million and $13.6 million for 1994 and
1993, respectively. The large increase in operating cash flows during fiscal
1994 resulted primarily from an increase in net income of $6.4 million and a
reduction in net working capital requirements of $12.3 million. In 1994,
accounts receivable decreased $3.2 million and accrued payroll and
compensation costs increased $4.0 million, including $2.0 million of accrued
severance charges and $1.9 million of management incentives in excess of the
prior year. In addition, accrued liabilities increased $4.9 million, of which
approximately $4.0 million reflected accrued interest on the Senior Notes
issued in February 1994. Operating cash flows during fiscal 1993 included a
$17.6 million net cash outflow due to increased accounts receivable and
inventories.
The Company's investing activities have included both acquisition-related
and maintenance-related capital expenditures. During fiscal 1995, acquisition-
related expenditures for the Monessen and Somerville Facilities were $23.6 and
$11.3 million, respectively. There were no significant acquisition-related
capital expenditures in the first three months of 1996, or in 1994 or 1993.
Capital expenditures, excluding acquisitions, were $6.6 million, $15.2
million, $16.3 million and $14.7 million for the first three months of 1996,
and for 1995, 1994 and 1993, respectively. The Company's capital expenditures
were directed toward capital maintenance, increased operating efficiency and
environmental compliance. The Company anticipates that its capital
expenditures for 1996, excluding acquisitions, will be approximately $23.0
million, with the increase due primarily to capital expenditures required to
bring the recently acquired Monessen Facility to full operating efficiency.
For each of the last three fiscal years, the Company's average capital
expenditures and operating expenses for environmental matters including
depreciation amounted to approximately $6 million and $15 million,
respectively. The Company does not expect annual environmental operating costs
to change materially from those incurred in each of the past three years and
currently estimates that capital expenditures in connection with matters
relating to environmental control will be $4.7 million and $4.5 million for
1996 and 1997, respectively. Since environmental laws have traditionally
become increasingly more stringent, costs and expenses relating to
environmental control and compliance may increase in the future. While the
Company does not believe that the costs of compliance with existing or future
environmental laws and regulations (including regulations promulgated pursuant
to the Clean Air Act Amendments) will have a material adverse effect on its
business, financial condition or results of operations, there can be no
assurance that costs of compliance will not exceed current estimates and will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company currently owns or leases facilities at which there is
contamination. At most of these facilities, the costs of substantially all
investigative and cleanup activities are being paid for directly by the
sellers of such facilities or their predecessors pursuant to indemnity
agreements between such entities and the Company. Although the Company
believes that the sellers or their predecessors will continue to pay such
costs pursuant to these indemnity agreements, if the Company were required to
pay such costs, it could have a material adverse effect on the Company's
financial condition, results of operations, cash flow and liquidity. See "Risk
Factors--Environmental Matters" and "Business--Environmental Matters". To the
extent that such investigative and cleanup costs are being paid for by the
sellers and their predecessors, the Company does not anticipate that such
costs will have a material impact on liquidity. The Company does not believe
that costs for environmental investigation and remediation for which there are
no indemnification arrangements will materially impact liquidity, although
there can be no assurances that such costs will not increase in the future.
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The Company's financing activities have represented principally drawdowns
and repayments on its Bank Credit Facilities. In the first three months of
1996, financing activities provided $15.4 million compared to $14.7 million in
1995 and usages of $20.5 million in 1994 and $2.1 million in 1993,
respectively. Cash supplied by financing in the first three months of 1996 was
primarily the result of a net increase of $39.0 million in the Revolving
Credit Facility, partially offset by the $10.0 million repayment under the
Term Loan (as hereinafter defined), a $0.8 million quarterly dividend and a
$12.3 million repurchase of 1,050,000 shares of non-voting common stock at
$11.67 per share in equal amounts from Cornerstone-Spectrum, Inc. (formerly
Beazer, Inc.) and APT Holdings Corporation, a wholly owned subsidiary of
Mellon Bank Corporation, the parent of Mellon Bank, N.A. Cash supplied by
financing activities in 1995 was primarily the result of an increase in long-
term borrowings of $25.0 million to finance the acquisitions of the Monessen
and Somerville Facilities, partially offset by a $5.0 million repayment under
the Term Loan and a net decrease of $5.0 million to the Revolving Credit
Facility. In September 1995, APT Holdings Corporation exercised warrants to
purchase 2,338,200 shares of non-voting common stock of the Company for $2.6
million. The Company also paid $2.3 million in dividends to voting and non-
voting common and Series B preferred shareholders.
Cash used by financing activities in 1994 was primarily due to the purchase
of Common Stock for $3.8 million and repayment of outstanding debt of $16.0
million under the Revolving Credit Facility. Cash used by financing activities
in 1993 was primarily due to the repayment of outstanding long-term debt of
$18.0 million under the term loan existing at the Company's inception, offset
in large part by $16.0 million of additional borrowings under a revolving
credit facility.
The Company decreased the discount rate used to determine the projected
benefit obligation for the funded status of the pension plans from 8.25% at
December 31, 1994 to 7.25% at December 31, 1995. Due to this lower discount
rate, the Company's obligations for 1996 pension expenses are expected to
increase.
The Company is self-insured for losses and liabilities for property,
casualty and workers' compensation claims up to various stop loss coverages.
Losses are accrued based on actuarial assumptions which historically have not
differed materially from actual claims experience.
Stock Redemptions
The Company was required to purchase approximately $0.7 million, $2.2
million and $1.2 million in the first three months of 1996 and in 1995 and
1994, respectively, of Common Stock from former employees, pursuant to the
provisions of the Stockholders' Agreement (as hereinafter defined). The
amounts include $0.2, $0.5 and $0.4 million in the first three months of 1996
and in 1995 and 1994, respectively, related to the purchase of shares which
were issued as the result of the exercise of vested stock options. Under the
terms of the Stockholders' Agreement, the Company is required to repurchase
the shares of terminated employees over a period not to exceed three years.
Management estimates the purchase requirement for 1996 to be approximately
$3.6 million, which includes approximately $0.5 million related to stock
options. See Notes 5 and 6 of the Notes to Consolidated Financial Statements.
In March 1996, Cornerstone-Spectrum, Inc. exercised its option to convert
all of the Series B convertible preferred stock of the Company into 2,340,000
shares of non-voting common stock of the Company. Subsequent to the exercise,
the Company repurchased 1,050,000 shares of non-voting common stock at $11.67
per share in equal amounts from Cornerstone-Spectrum, Inc. and APT Holdings
Corporation.
Pending Litigation
On May 11, 1990, OCF filed the OCF Litigation against the Company seeking
damages allegedly resulting from the sale by Old Koppers of CTB from the mid
1970's to the mid 1980's. The OCF Litigation relates to problems experienced
with roofing systems sold by OCF which contained CTB sold by Old Koppers. OCF
identified 11 roofs it alleges were built using defective Old Koppers' CTB. On
April 3, 1996 a jury verdict was returned against the Company for a total of
$10.3 million including $0.5 million in punitive damages. The Company will
appeal this judgment. In addition to damages, OCF has sought approximately $3
million in attorney's fees, as well as prejudgment interest for an amount
estimated by the Company to be approximately $5
33
<PAGE>
million, alleging that the Company failed to engage in good faith settlement
negotiations. The Company has provided reserves of $14 million at March 31,
1996 ($11 million in the first quarter of 1996 and $3 million in prior
periods) in connection with the OCF Litigation. The Company has obtained from
the lenders under the Bank Credit Facilities (as hereinafter defined) consents
to exclude for the first two quarters of 1996 the $11 million charge to
earnings from the calculation of ratios contained in certain financial
covenants under such facilities. In addition, the Indenture (as hereinafter
defined) restricts the Company's ability to incur certain types of
indebtedness unless the ratio of cash flow to fixed charges in each of the
four quarters preceding the incurrence of such indebtedness is greater than
2.5 to 1. The Company's $11 million charge to earnings in the first quarter of
1996 will adversely affect the Company's ability to incur additional
indebtedness until the second quarter of 1997.
It is the opinion of management that the ultimate resolution of this matter,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of this matter, it is possible
that results of operations and cash flow of the Company as well as its ability
to remain in compliance with certain financial covenants contained in the Bank
Credit Facilities (as hereinafter defined) could be materially adversely
affected in a particular period and that the Company's ability to incur
additional debt could be reduced. See "Risk Factors--Legal Proceedings" and
"Business--Legal Proceedings".
On May 24, 1996, the Company was served with the CSX Complaint by CSX, one
of its principal customers (see "Risk Factors--Dependence on Major
Customers"), filed in federal district court in Florida in March 1996 in
connection with two contracts executed by CSX and Old Koppers in 1988 and
performed by the Company. The CSX Complaint, alleging breach of contract,
fraud and unjust enrichment, claims that the Company has not lived up to its
obligations under such contracts, which allegedly required the Company to
undertake certain environmental expenditures and relieve CSX of certain
environmental liabilities. See "Business--Legal Proceedings." CSX has been
sued by Beazer East for contribution for environmental cleanup at certain
facilities, including some presently owned by the Company, and the CSX
Complaint seeks to hold the Company liable, among other claims, for any costs
CSX might be required to pay Beazer East in connection with environmental
liabilities at the Company's facilities, as well as any defense costs incurred
by CSX. While Beazer East has agreed, under the Indemnity, to provide a
defense and indemnify the Company for damages resulting from the CSX
Complaint, Beazer East retains the right to seek contribution from the Company
in connection with such damages in accordance with the provisions of the
agreement entered into in connection with the Acquisition . Given the
preliminary nature of this matter, the Company is not in a position to
determine its outcome or the availability of the Indemnity to cover any
resulting damages. As a result, there can be no assurance that the resolution
of this matter will not have a material adverse effect on the Company's
business, financial condition, cash flow and results of operations. See "Risk
Factors--Environmental Matters".
SEASONALITY; EFFECTS OF WEATHER
The Company's quarterly operating results fluctuate due to a variety of
factors that are outside the Company's control, including inclement weather
conditions, which in the past have affected negatively the Company's operating
results. Operations at several of the Company's facilities have been halted
for short periods of time during the winter months. Moreover, demand for many
of the Company's products declines during periods of inclement weather. As a
result of the foregoing, the Company anticipates that it may experience
material fluctuations in quarterly operating results.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. Statement No. 121 also addresses the accounting for long-
lived assets that are expected to be disposed of. The effect of adoption was
not material.
34
<PAGE>
BUSINESS
INTRODUCTION
The Company is a leading integrated producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical,
railroad, aluminum and steel industries. The "Koppers" name has been
associated with the carbon compounds and wood treating businesses for over 70
years, and the Company has leading market positions in most of its products.
The Company operates 24 facilities in the United States and maintains indirect
ownership interests in 17 facilities overseas. The Company recorded net sales
and net income of $525.7 million and $24.4 million, respectively, for the year
ended December 31, 1995. In 1995, the Company's three divisions, Coke
Products, Carbon Materials & Chemicals and Railroad & Utility Products,
accounted for 15.2%, 37.6% and 47.2% of net sales, respectively.
Through its Coke Products division, the Company is the largest independent
merchant producer of coke and coke by-products in the United States. The Coke
Products division converts coal into coke for sale to integrated steel
producers and foundries that use coke in the production of iron and steel. The
Company's Carbon Materials & Chemicals division distills coal tar into a
variety of intermediate products, including carbon pitch, PAA and creosote,
which are basic materials necessary in the production of aluminum, polyester
resins and plasticizers, and the pressure treatment of wood. The Company's
Railroad & Utility Products division is the largest supplier of treated wood
products, such as railroad crossties and utility poles, to the United States
railroad and utility industries.
The Company's operations are substantially vertically integrated, providing
it with operating flexibility. Coal tar, a by-product of the Company's coke
production, is the primary raw material used in the distillation process of
the Carbon Materials & Chemicals division. Creosote, a major product of the
coal tar distillation process, is used as a raw material in the treatment of
wood by the Company's Railroad & Utility Products division. Other areas in
which the Company is vertically integrated include the production of PAA
through the use of a by-product of coal tar distillation and the utilization
of coke oven gas and recycled wood products to fulfill a portion of its energy
needs.
The Company believes it has achieved leading positions in each of its
markets as a result of the following strengths:
Vertical Integration--The Company's ability to utilize by-products
produced in its Coke Products and Carbon Materials & Chemicals divisions,
as well as its ability to generate much of its own energy through the
burning of wood waste and coke oven gas, provides the Company with
operating flexibility.
Continuous Investment In Facilities--Since 1988, the Company has invested
over $145 million to modernize its facilities and to meet or exceed
environmental compliance standards.
Strong Customer Relationships--The "Koppers" name has been associated
with quality and reliability since the 1920's and its reputation has
enabled the Company to count among its customers many of the premier
companies in each of its markets. The Company's predecessors have supplied
many of these companies for decades. Since its formation in 1988, the
Company has continued to supply most of these companies and many of its
facilities are strategically located to service its customers'
requirements. In order to enhance these relationships, the Company
continually has instituted programs to ensure quality and customer
satisfaction.
Annual and Multi-Year Sales Contracts--Historically, the Company has
sought to reduce its exposure to industry fluctuations and general economic
conditions by diversifying its customer base and securing commitments for a
large portion of its planned production through annual and multi-year
contracts. In each year since it was formed in 1988, the Company has been
able to secure 50% of its following year's sales through such contracts.
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<PAGE>
Strong Relationships With Multiple Suppliers--The Company's predecessors
have enjoyed long-term relationships, in some cases over 50 years, with
their major suppliers. Since its formation in 1988, the Company has
maintained most of these relationships and its ability to source high-
quality coal, coal tar and wood from multiple suppliers provides it with a
significant competitive advantage in meeting customer requirements in a
timely and economically advantageous manner.
Global Presence--Directly and through its international joint ventures,
the Company serves the North American, European, Asian and Australian
markets with carbon materials and chemical products. The Company works
closely with its joint ventures in Denmark and Australia on marketing
strategy, raw material sourcing and technology sharing. Through its
international joint ventures, the Company has completed several
acquisitions and has entered into marketing agreements enabling the Company
to expand its presence into new and emerging markets, including the
People's Republic of China and other Pacific Rim nations.
The Company's strategy for future growth and enhanced profitability includes
the use of its cash flow for strategic acquisitions, productivity and cost
reduction initiatives and the expansion of existing facilities. The Company
also intends to develop, market and sell new products and broaden its customer
base in new and existing markets. The Company is currently developing new low-
emission and high-softening-point pitches for the aluminum industry, specialty
coal tar pitches to be used to increase carbon content in electrode carbon
markets (currently utilizing petroleum pitches) and additional downstream
applications for naphthalene in the super-plasticizer and other specialty
chemical markets. In addition, in 1995, the Company initiated a strategic
review which identified opportunities to increase capacity at several of its
facilities and to expand services offered, such as plant-assembled track
sections, freight car cleaning and used tie disposal. This review also
identified several areas where logistics, manufacturing processes and
management systems can be improved.
ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to pursue strategic
acquisitions. Over the past three years, the Company has completed five
acquisitions, including the purchase of the Somerville Facility, the largest
railroad crosstie treating facility in the United States; the Monessen
Facility, one of the most modern coking facilities in the United States; and
Clairton, a low-cost coal tar processing facility. The Company believes each of
these acquisitions will provide the Company with significant financial and
strategic benefits, as they will allow the Company to further integrate and
rationalize its businesses and facilities and gain access to high-quality, low-
cost raw materials. As part of these acquisitions, the Company was also able to
secure significant long-term contracts with customers prior to closing.
The Monessen Facility, acquired in 1995, was an idled facility. After
refurbishment by the Company, the Monessen Facility was restarted in late 1995
and reached full production capacity in the second quarter of 1996. In addition
to improving the Company's strategic position in the merchant coke market, the
Company's investment in the Monessen Facility provides an advantageous energy
tax credit based on the production of coke as an alternative energy product.
The credit is available through December 31, 2002 and is expected to provide a
tax benefit to the Company of approximately $8 million in 1996 (after offset of
a previously taken energy credit) and $9 million per year thereafter,
unadjusted for inflation and assuming full production at the Monessen Facility.
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of approximately
$8 million in liabilities. The Clairton facility is a low-cost coal tar
processing facility producing carbon pitch and related distillates. As part of
the purchase agreement, the Company received a long-term coal tar supply
contract with USX, the largest North American coal tar producer. In 1995, this
business generated over $64 million of sales, excluding sales to the Company.
The Company obtained a term loan of $35 million to effect the acquisition, with
remaining funding requirements obtained from its existing working capital
revolving credit line. The Company intends to use the net proceeds from the
Offerings to reduce the aggregate indebtedness under the Bank Credit Facilities
(as hereinafter defined).
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<PAGE>
MANUFACTURING PROCESSES
The Company's operations are substantially vertically integrated and employ a
variety of processes as illustrated in the following flow diagram:
[DIAGRAM OF MANUFACTURING PROCESSES]
The following table sets forth for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1995 and 1996 the net sales of
the Company in each of its segment divisions, net of any sales among such
segments, and as a percentage of total net sales.
<TABLE>
<CAPTION>
SEGMENT SALES THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coke Products........... $ 73,608 16.0% $ 72,363 15.2% $ 80,084 15.2% $ 19,279 15.8% $ 28,218 22.3%
Carbon Materials &
Chemicals.............. 167,000 36.2 164,489 34.5 197,434 37.6 46,099 37.7 44,278 34.9
Railroad & Utility 220,611 47.8 239,596 50.3 248,212 47.2 56,823 46.5 54,205 42.8
Products................
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total................... $461,219 100.0% $476,448 100.0% $525,730 100.0% $122,201 100.0% $126,701 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
COKE PRODUCTS
The Company is the largest independent merchant producer of coke in the
United States. Coke is produced through the carbonization of metallurgical coal
in oxygen-free ovens. During the coking process, coal tar is produced as a by-
product. Coke is used as a carbon and fuel source in the manufacture of iron
and steel by integrated steel producers. The Company operates the Woodward and
Monessen Facilities, which have an aggregate annual coking capacity of over one
million tons.
Coke is consumed in three markets: steel mill blast furnaces, foundries, and
other industrial operations. There are two basic types of coke which are
produced: furnace and foundry coke. Furnace coke, produced from different coal
blends, requires shorter heating periods than foundry coke, is generally formed
in smaller pieces than foundry coke and is used in blast furnaces to make steel
by acting as a reducing agent for the iron ore.
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Foundry coke is used predominantly by automobile and pipe manufacturers in the
metal forming process. In 1995, furnace coke comprised approximately 74% of
total Coke Products sales, foundry coke 15%, other coke 8%, and by-products,
including coal tar, the remaining 3%.
The Company's Woodward Facility produces furnace and foundry coke as well as
coal tar and other related chemicals. The Woodward Facility consists of 224
ovens arranged in five batteries and currently has annual production capacity
of approximately 637,000 tons. All ovens have a capacity of approximately 11-12
tons of coal per charge. One hundred of the ovens were built in 1979, 38 in
1970, 30 in 1952 and 56 in 1949-1950. In order to meet Clean Air Act Amendments
requirements and prolong the lives of its oven batteries, the Company initiated
an ongoing oven refurbishment program in 1991, which when completed in
approximately two years, will allow the Company to operate at approximately
100% of total production capacity. Since the oven refurbishment program was
initiated, the Company has operated the Woodward Facility at 90% to 95% of
total production capacity. Upon completion of this program in 1998, the Company
expects to have rebuilt 68 of the ovens at its Woodward Facility. The Woodward
Facility is energy self-sufficient and also produces power for the adjacent
Woodward tar facility, with surplus electricity being sold to a local utility.
The Company has made capital expenditures of approximately $22 million to
modernize the Monessen Facility since its purchase in 1995. The Monessen
Facility was restarted in late 1995 and reached full production in April 1996.
The plant consists of two batteries with a total of 56 ovens and has a total
capacity of approximately 350,000 tons of coke per year. All of the ovens were
rebuilt in 1980 and 1981, which, together with the Company's recent
improvements, makes the Monessen coke battery one of the most modern coking
facilities in the United States. The Monessen Facility is self-sufficient in
all its energy needs other than electricity. The Monessen Facility qualifies
for an advantageous tax credit based on its production of coke as an
alternative energy product and its sale to an unrelated third party. The tax
credit generated per ton of coke is tied to a per-barrel of oil equivalent
determined on a BTU basis and adjusted annually for inflation. In 1995, the
approximate value of this tax credit per ton of coke was $26.00. The credit is
available through December 31, 2002 and is expected to provide a tax benefit to
the Company of approximately $8 million in 1996 (after offset of a previously
taken energy credit) and $9 million per year thereafter, unadjusted for
inflation and assuming full production at the Monessen Facility. The credit
will be used to offset other corporate income taxes.
The Company has two long-term contracts with LTV covering production at both
the Woodward and Monessen Facilities. The Woodward Facility contract is a four-
year agreement through December 31, 1997 with an LTV option to extend one
additional year, while the Monessen contract is a separate seven-year contract
through 2002 with year-to-year extensions upon mutual agreement. Both supply
contracts are for 240,000 tons per year, plus or minus 10% at LTV's option at
prices subject to periodic adjustments (see "Management Discussion and Analysis
of Financial Condition and Results of Operations--Coke Production"). In 1996,
the Company expects LTV to take approximately 48% and 70% of the Woodward and
Monessen Facilities' production capacity, respectively. The Company has
negotiated short-term agreements with other customers to sell a significant
portion of the production from both of its coke facilities for 1996.
In 1995, sales to the ten largest customers accounted for more than 90% of
Coke Products net sales. The Company's sales force for coke consists of one
manager in Pittsburgh, Pennsylvania and another manager for foundry coke sales
at the Woodward Facility. The Company competes primarily with United States
integrated steel producers, some of whom have excess coking capacity.
Integrated steel producers have a competitive advantage over the Company based
on their ability to use a significant portion of their coke production
internally. The Company also competes with imports primarily from Japan and the
People's Republic of China.
The Company purchases metallurgical coal in large quantities from a small
number of suppliers in Alabama and West Virginia in order to obtain volume
discounts. Requirements are generally filled through annual supply contracts
which are subject to price renegotiation during the term of the contract in the
event of market fluctuations.
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<PAGE>
The United States coke industry production capacity has decreased over the
last ten years due to high capital costs for coke oven maintenance and
rebuilding, high operating costs and expenditures resulting from new
environmental compliance standards. As a result of the decrease in coke
industry capacity, industry operating rates have improved significantly over
the past decade and the Company believes most domestic coke producers operated
at or near their effective capacities in 1995. In the future, the Company
anticipates additional capacity to be idled due to the costs associated with
more stringent environmental compliance standards.
In order to reduce their production costs, integrated steel producers have
continually sought alternatives to using coke in iron production, including the
use of PCI. These alternatives have reduced the amount of coke consumed per ton
of iron produced by approximately 14% over the past ten years from 0.44 tons to
0.38 tons. However, since 1986, United States coke demand has increased from
approximately 22 to 24 million tons annually as a result of a 22% increase in
the amount of iron produced by integrated steel producers over the same period.
The Company believes that any future reductions in coke demand resulting from
the use of alternative technologies will be offset by a decline in domestic
coke production capacity.
The Company's strategy is to take advantage of the relative shortage in
United States coke supply by negotiating strategic long-term contracts, subject
to certain price adjustments, while continually reinvesting in existing
facilities to prolong the lives of their ovens and to meet anticipated
environmental requirements.
CARBON MATERIALS & CHEMICALS
The Company's Carbon Materials & Chemicals business manufactures three
principal products: carbon pitch, PAA and creosote. These products, used in the
production of aluminum, steel, flexible vinyl, polyester resins and treated
wood, are produced through the distillation of coal tar, a by-product of the
transformation of coal into coke. The Company believes that, together with its
joint ventures in Australia and Denmark, it is one of the two largest producers
of carbon pitch in the world. The Company has six facilities in the United
States strategically located to provide low cost access to coal tar and to
better service its customers with a consistent supply of high quality products.
In 1995, sales of the Company's carbon pitch, PAA and creosote (to outside
customers only) accounted for approximately 38%, 37% and 6% of the Carbon
Materials & Chemicals division's net sales, respectively.
The Company's strategy is to maintain its leading market positions by
expanding capacity both internally and through acquisitions and by developing
new markets for its products. The Company believes it has a strategic advantage
over its competitors based on its ability to access coal tar from many United
States and foreign suppliers and its ability to blend coal tar with different
specifications to produce carbon pitch with the consistent quality important in
manufacturing quality anodes for the aluminum industry. The Company's six
facilities give it the ability to offer customers multiple-sourcing and
consistent supply of high quality products. Management believes that this
ability to purchase coal tar from a variety of sources and trade supplies among
its six facilities affords it a significant competitive advantage over
producers who are more dependent on few suppliers and whose production might be
more adversely affected by supply disruptions or raw materials quality
problems. In anticipation of potential shut-downs of United States coke
capacity, the Company has sought to secure coal tar supply through long-term
contracts and acquisitions. The Company also benefits from its ability to use a
carbon pitch by-product, naphthalene, as a low-cost feedstock for PAA
production and from its ability to sell a large portion of its creosote
production internally to the Railroad & Utility Products business.
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<PAGE>
The following flow diagram illustrates the manufacturing processes in the
Carbon Materials & Chemicals division:
[DIAGRAM OF MANUFACTURING PROCESSES]
Carbon pitch, the primary product produced in the distillation of coal tar,
is used as a binding agent in the production of carbon anodes and graphite
electrodes for use by primary aluminum smelters and electric arc furnace steel
producers. Carbon anodes are used in the electro-chemical process required in
aluminum smelting. Over 75% of the Company's carbon pitch is sold to the
aluminum industry under long-term contracts ranging from 3 to 7 years. Demand
for carbon pitch by the aluminum industry has fluctuated historically with
United States production of primary aluminum. There are currently no known
viable substitutes for carbon pitch in the production of carbon anodes. The
Carbon Materials & Chemicals division's two largest customers represented
approximately 20% of Carbon Materials & Chemicals net sales in 1995. The
Company's three main competitors in the production of carbon pitch are
AlliedSignal, Inc., VFT Canada, and Reilly Industries, Inc.
As part of the distillation of coal tar into carbon pitch, several by-
products are created, including creosote and chemical oils. Chemical oils
produced during coal tar distillation are further refined by the Company
primarily into naphthalene, which is a basic ingredient in the production of
PAA. The primary uses of PAA are in the production of polyester resins, paints
and coatings and plasticizers. On a worldwide basis, naphthalene and
orthoxylene, a petroleum derivative, can both be used in the manufacture of PAA
and are considered to be interchangeable. In the United States, however, the
Company is the only PAA producer utilizing naphthalene, generally a lower cost
feedstock, in its manufacturing process. The Company's four principal PAA
competitors,
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<PAGE>
Exxon Chemical Company, Aristech, BASF Corporation and Stepan Company, can use
only orthoxylene in the production of PAA.
Creosote is used as a wood preservative for railroad crossties and lumber,
utility poles and pilings. Management estimates that 72 million gallons of
creosote were used in the United States in the treating of wood products in
1995. The Carbon Materials & Chemicals division produced 25.5 million gallons
of creosote in 1995, approximately 40% of which was sold to the Railroad &
Utility Products division. Over the last 6 years the Railroad & Utility
Products division received all of its requirements of creosote from the Carbon
Materials & Chemicals division. The Company is the only competitor in this
market that is integrated in this fashion. The remainder of its creosote
materials are sold to other wood treaters or into the carbon black market as a
component in the manufacture of rubber tires. Principal competitors in the
creosote market are AlliedSignal, Inc. and Reilly Industries, Inc.
Other Carbon Materials & Chemicals products include bitumen, or roofing
pitch, used in the construction of built-up roofing systems and refined tars,
sold to manufacturers of pavement sealers for driveways and parking lots.
Coal tar is purchased from a number of outside sources as well as the
Company's Woodward and Monessen Facilities. Primary suppliers are Bethlehem
Steel Corporation, LTV, USX and Wheeling-Pittsburgh Steel Corporation. The
Woodward Facility currently provides approximately 5% of the Company's coal
tar, and the Monessen Facility provides approximately 3%. In 1995, the Company
distilled 108 million gallons of coal tar representing approximately 57% of
designed capacity.
On April 1, 1996, the Company completed the Clairton acquisition for a cash
purchase price of approximately $40 million and the assumption of approximately
$8 million in liabilities. The Clairton facility is a low-cost coal tar
processing facility producing carbon pitch and related distillates. This
acquisition was strategically significant to the Company, as it strengthens the
Company's leading market position and provides it with a large and stable
source of coal tar. As part of the purchase agreement, the Company received a
long-term coal tar supply contract with USX, the largest North American coal
tar producer. In 1995, this business generated over $64 million of sales,
excluding sales to the Company.
The Company's international joint ventures, Koppers Australia Pty. Limited
("Koppers Australia") and Tarconord A/S ("Tarconord"), based in Australia and
Denmark, respectively, are major regional producers of carbon pitch and related
products. These joint ventures are strategically important to the Company,
because they enable the Company to access global markets for its carbon pitch
and related products. See "Equity Investments".
RAILROAD & UTILITY PRODUCTS
The Company believes it is the largest supplier of high quality treated wood
crossties and poles in the world. These products are marketed almost
exclusively to the railroad and public utility markets, primarily in the United
States. Railroad products and services account for approximately two-thirds of
the division's net sales, with utility products accounting for the balance.
Railroad products include items such as crossties, switch ties and various
types of lumber used for railroad bridges and crossings. Utility products
include transmission and distribution poles for electric and telephone
utilities, and pilings used in industrial foundations, beach housing, docks and
piers. The Railroad & Utility Products division operates 15 wood treating
plants and 14 pole distribution yards located throughout the United States, and
the Company also has one used crosstie burning cogeneration plant. The
Company's plant network is strategically located near timber supplies to enable
it to access raw materials and service customers effectively. Crosstie treating
plants are located along railroad customers' track lines, and pole distribution
yards are located near the Company's utility customers in the Northeast and
Midwest.
41
<PAGE>
Railroad Products & Services
The Railroad Products & Services business supplies treated crossties and
other products and services to the United States railroad industry. The
Company has an estimated 45% share of the United States market for treated
wood products sold to the railroad industry. The Company's largest customer
base is the Class I railroad market (defined as the 10 largest railroad
systems in the United States with a total installed base of 558 million
crossties), which buys 77% of all crossties produced in the United States. The
Company is also expanding key relationships with the 500 short-line and
regional rail lines. In 1995, the Company treated approximately 6.6 million
crossties for its Class I railroad customers. The Company currently has
contracts with 9 of the 10 United States Class I railroads and, with its
predecessors, has enjoyed long standing relationships, some of more than 50
years, with this important customer base. These relationships, coupled with a
growing interest on the part of railroads to outsource non-core activities,
have enabled the Company to position itself for growth by offering new
services to railroads from treating plants at a cost lower than the railroads'
internal cost. Such new services include assembling 39-foot track sections and
affixing fastening devices at the treating plant rather than field locations;
removing debris from railroad freight cars; and disposing of discarded ties in
an environmentally safe manner in high temperature boilers. In 1995,
approximately 5.4% of Railroad Products & Services net sales were derived from
these types of services to railroads. The Company intends to capitalize on its
relationships with railroads by expanding its current service offerings and
acquiring additional facilities that fit with its strategic plan.
The Company's top 10 railroad accounts, which comprised approximately 52% of
Railroad & Utility Products net sales in 1995, are serviced through long-term
contracts ranging from one to 12 years on a requirements basis. CSX, the
Company's largest customer in 1995, represented 20% of Railroad and Utility
Products net sales and has a seven-year contract expiring at the end of 1996.
See "Risk Factors--Enviromental Matters" and "--Legal Proceedings". The
Company expects to negotiate a new contract with CSX on satisfactory business
terms and conditions. The Company's sales to the railroad industry are
coordinated through its office in Pittsburgh, Pennsylvania. The Company's
principal competitor in the railroad products market is Kerr-McGee Chemical
Corp.
The Company's strategy is to be the highest quality, largest volume supplier
of treated wood products, track maintenance and construction products and
services to the railroad industry. In 1995, the Company's acquisition of the
Somerville Facility from the Atchison, Topeka and Santa Fe Railway Company
("AT&SF") complemented this strategy by adding a new customer, increasing the
Company's production capacity by 20% and building market share. The
acquisition included a 12-year contract with the AT&SF, now a part of the
combined Burlington Northern/AT&SF organization, for a minimum of 1 million
crossties per year. The Company will continue to review selected opportunities
to expand its leading position in the treated crosstie market through
acquisition, internal expansion and new product and service offerings.
Hardwood lumber accounts for approximately 60% of a finished crosstie's
cost. The Company obtains its hardwood supply from hundreds of small sawmills
throughout the northeastern and southern areas of the United States. The wood
is taken by either truck or rail from Company-operated collection points
directly into its treating plants, where it is pressure treated with creosote,
a product of the Carbon Materials & Chemicals division. Over the last six
years, the Railroad & Utility Products division received all of its creosote
requirements from the Carbon Materials & Chemicals division, providing the
Company with a significant cost advantage over its competitors. In addition,
several railroads procure their own raw materials through lumber brokers and
ship them into the Company's plants for treating services. Pricing and supply
of raw materials have stabilized during the past few years due to decreased
demand from competing hardwood lumber markets such as flooring and pallets.
The Company believes that the threat of substitution for the wood crosstie
is low due to the higher cost of alternative materials. Concrete ties,
however, have been identified by the railroads as a feasible alternative to
crossties in limited circumstances. In 1991, the Company acquired a 50%
partnership interest in a concrete crosstie manufacturing facility in
Portsmouth, Ohio in order to take advantage of this growth opportunity. In
1994, an estimated 675,000 concrete crossties, or 6% of total tie insertions,
were installed by Class I Railroads.
42
<PAGE>
This facility produced approximately 144,000 concrete crossties in 1995, or
21% of the estimated concrete tie market. The Company believes that concrete
ties will continue to command approximately this level of market share. While
the cost of material and installation of a concrete tie is much higher than
that of a wood tie, the product performs well in high weight bearing, high
traffic areas and is attractive to the railroads for these purposes.
The Railroad & Utility Products business generates a significant portion of
its own energy from the burning of wood waste. Approximately 60% of the steam
energy required to operate the plants is derived from wood waste burning
boilers. Railroad & Utility Products operates a used crosstie burning plant in
Muncy, Pennsylvania, which uses old crossties and utility poles as fuel and
sells electricity to the local utility under a long-term fixed-price contract.
Utility & Construction Products
The Company believes it is the largest domestic producer of treated wood
pole products. With rapid consolidation in the electric and phone utility
markets, the Company's strategy is to maintain its position as the industry
leader in the supply of utility poles, offering the highest quality products
and services, while continuing to cut costs.
Utility poles are produced primarily from softwoods such as pine and fir,
which have been subject to steady price increases in recent years due
primarily to increased demand for softwood materials in the paper and
construction industries. Unlike the hardwood purchased for railroad crossties,
which originates with a large number of individual sawmills, the softwood used
in poles is purchased from large timber owners and individual landowners and
shipped to one of the Company's pole-peeling facilities. While crossties are
treated exclusively with creosote, poles are treated with a variety of
preservatives including pentachlorophenol ("Penta"), chromated copper arsenate
("CCA") and creosote.
The market for utility pole products is characterized by a large number of
smaller, highly competitive producers selling into a price-sensitive industry
with capacity rationalization partially stimulated by more stringent
government environmental regulations. The utility pole market is highly
fragmented with over 300 investor-owned electric and telephone utilities and
1,800 smaller, local utilities and Rural Electric Associations ("REAs").
Approximately 2.8 million poles are purchased annually. The demand for utility
poles has remained stable for the past several years and management believes
that industry demand will remain at the present maintenance level for the next
several years.
In 1995, pole products comprised approximately 33% of Railroad & Utility
Products net sales. The Company's sales to its ten largest pole customers
accounted for approximately 10% of Railroad & Utility Products net sales in
1995. Principal competitors in the utility products market are International
Paper Company, North Pacific Lumber and Atlantic Wood Industries Inc. There
are few barriers to entry in the utility products market, estimated by the
Company to consist of approximately sixty, mostly regional, treating plants
which typically operate small to medium size plants and serve local clients.
EQUITY INVESTMENTS
As part of its growth strategy, the Company intends to expand geographically
through its three joint ventures in Australia, Denmark and the United States.
The Company owns a 50% interest in each of the three joint ventures which
collectively generated $9.2 million dollars in equity income in 1995. The
following table summarizes key products and markets of each of the joint
ventures.
<TABLE>
<CAPTION>
JOINT VENTURE KEY PRODUCTS MARKETS
- ------------- ------------------------------------- --------------------------
<S> <C> <C>
Koppers Carbon Pitch & Distillates Australia
Australia Carbon Black New Zealand
Treated Poles & Lumber Pacific Rim countries
Wood Preservatives
Tarconord Carbon Pitch & Distillates Europe, Middle East, India
KSA Concrete Crossties & Related Products United States
</TABLE>
43
<PAGE>
Overseas Joint Ventures
The Company's overseas joint ventures, Koppers Australia and Tarconord, have
enabled the Company to expand its geographic presence and explore new market
opportunities in Europe and Asia. Taken together, these ventures help to
position the Company as not only one of the two largest carbon pitch suppliers
in the world, but also as the only such supplier operating on four continents.
Management believes that this global presence represents a significant
competitive advantage in serving multinational aluminum manufacturers, such as
Aluminum Company of America, as well as manufacturers in the United States.
The Company, Koppers Australia and Tarconord form what has informally and
collectively come to be known as the "Koppers Group" in the world-wide
business of tar distillation and the production of carbon pitch and
accompanying by-products. These companies meet regularly and cooperate
actively in the sharing of technology and operating experience, reviewing
research and development projects, raw materials sourcing and marketing
strategy. The Company believes that, together with its joint venture
affiliates, it has a 21% world market share in carbon pitch excluding the
People's Republic of China, the states of the former Soviet Union and Eastern
Europe, for which data is not available.
Koppers Australia
Koppers Australia is Australia's largest manufacturer of carbon pitch, wood
preservatives and treated timber. Koppers Australia markets these products, as
well as carbon black, in Australia, New Zealand and other Pacific Rim nations.
Operations in coal tar processing, chemically treated timber, and carbon
black together accounted for 37%, 20% and 19% of Koppers Australia's net sales
in 1995, respectively. Koppers Australia also has a 51% interest in a wood
preservative chemicals company, accounting for the remaining 24% of net sales.
Koppers Australia has operations in seven countries, enjoys sizable market
shares in each of its businesses and is well positioned to take advantage of
anticipated growth in the aluminum industries in Australia, China and
Southeast Asia.
Products and services provided by Koppers Australia's coal tar division are
similar to those provided by the Company's Carbon Materials & Chemicals
operations, with the exception that Koppers Australia does not have captive
PAA capabilities. Koppers Australia is the only coal tar distiller in
Australia, providing it with a significant competitive advantage in serving
the large Australian aluminum market. Koppers Australia has entered into a
marketing agreement with a carbon pitch producer located in the People's
Republic of China to export carbon pitch from China to world markets. The wood
preservation operations of Koppers Australia are generally pole related and
are similar to those of the Company's Railroad & Utility Products division.
Koppers Australia is the Australian pole market leader, with an estimated 40%
market share. In 1995, Koppers Australia purchased the remaining 49% of
Continental Carbon, a major Australian carbon black producer, making it a
wholly-owned entity and thus allowing Koppers Australia to take full advantage
of significant growth potential in the Asian carbon black market.
Koppers Australia also owns a 51% stake in Koppers-Hickson, a joint venture
formed in 1989 with Hickson International PLC (Leeds, England), the world's
largest supplier of wood preservatives. Koppers-Hickson has exclusive rights
to marketing, production and distribution of wood preservatives developed by
Hickson (primarily copper chrome arsenic) throughout the Australian, South
Pacific and East Asian regions.
The Company's partner in the 29-year-old Koppers Australia joint venture,
The Broken Hill Proprietary Company Limited, is the largest corporation in
Australia, with interests in metals, energy and minerals.
Tarconord
Tarconord, located in Nyborg, Denmark, produces and markets carbon pitch,
naphthalene and related products for the European and Middle Eastern markets.
Tarconord's strategy is to grow through acquisitions as opportunities arise,
expand access to secure long-term coal tar supplies, and gain additional
market share.
44
<PAGE>
Tarconord markets its primary product, carbon pitch, to aluminum producers in
Norway, the Netherlands, the states of the former Soviet Union and northern
Germany. Coal tar supplies are primarily purchased from steel producers in
Scandinavia, Poland, the states of the former Soviet Union and Germany.
Tarconord has a strategic location with respect to its largest customer
country, Norway, where liquid pitch shipments move directly by ship from the
tar distillation facility at Nyborg to Norwegian smelters located at deep water
sites.
On April 4, 1996, Tarconord made an offer to purchase 100% of the capital
stock of Bitmac, Ltd. ("Bitmac"), a United Kingdom company engaged in tar
distillation. Bitmac operates four plants in the United Kingdom and its sales
for its fiscal year ended March 31, 1996 were approximately $60 million.
Tarconord's offer is subject to approval by Tarconord and Bitmac shareholders
and the negotiation of certain terms and conditions. The Company believes that,
if completed, this acquisition would more than double Tarconord's capacity and
sales and strengthen its strategic position as a supplier to northern European
aluminum smelters.
The Company's 50% partner in this 9-year-old venture is Tarco A/S, a road
paving and industrial piping company also located in Denmark.
Domestic Joint Venture: KSA
KSA Limited Partnership ("KSA"), located in Portsmouth, Ohio, produces
concrete crossties, a complementary product to the Company's treated wood
crosstie business.
Other interests are held by Sherman International Corp. (24%), Abetong
America, Inc. (24%) and Sherman Abetong, Inc. (2%). KSA was formed to
construct, own and operate a concrete railroad crosstie manufacturing facility
located in Portsmouth, Ohio. KSA's major customer is CSX, which has a contract
with the joint venture for 1.75 million concrete ties, approximately 650,000 of
which have been supplied since the start-up of operations in 1992. KSA sells
ties to various metropolitan transit systems including MARTA (Atlanta), the
Florida Department of Transportation, Metro North Commuter Railroad (New York
and Connecticut) and the Maryland Mass Transit Authority. It has also expanded
its product offerings to include concrete turnouts, used in rail traffic
switching.
The following table presents total sales, equity in earnings and dividends
received with respect to each of the Company's joint ventures for fiscal years
ended 1993, 1994 and 1995.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
KOPPERS AUSTRALIA
Total sales (1).................................... $103,462 $109,624 $116,469
Equity in earnings................................. 2,353 3,614 4,998
Dividends received................................. -- 360 712
TARCONORD
Total sales (1).................................... $ 44,131 $ 45,778 $ 72,419
Equity in earnings................................. 976 738 3,139
Dividends received................................. 1,246 562 731
KSA
Total sales (1).................................... $ 14,290 $ 11,249 $ 14,751
Equity in earnings................................. 1,249 962 1,102
Dividends received................................. 200 500 1,500
</TABLE>
- ---------------------
(1) Sales figures are based on the fiscal years ended June 30, December 31 and
December 31, for Koppers Australia, Tarconord and KSA, respectively.
45
<PAGE>
RESEARCH AND DEVELOPMENT
As of December 31, 1995, the Company had fourteen full-time employees
engaged in research and development and technical service activities. The
Company's research efforts are directed toward further development and
utilization of products and technology surrounding carbon-based products
developed from coal tar and technical service efforts to promote further use
of creosote. The Company believes the research and technical efforts currently
expended in these areas are adequate to maintain a leadership position in the
technology related to these products. Expenditures for research and
development for fiscal 1993, 1994 and 1995 were $0.9 million for each year.
TECHNOLOGY AND LICENSING
In 1988, the Company acquired certain assets from Old Koppers including the
patents, patent applications, trademarks, copyrights, transferable licenses,
inventories, trade secrets, and proprietary processes used in the businesses
acquired. The most important trademark acquired is the name "Koppers". The
association of the name with the coke, chemical, building, and wood
preservation industries is beneficial to the Company, as it represents
longstanding, high quality products. Included in the patents that were
acquired by the Company were patents for refuse burners, pitch quality
controls, both in tar plants and aluminum plants, wood preservatives and
additives, and tar refining.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state, and local
environmental laws and regulations, including those concerning the treatment,
storage and disposal of wastes, the discharge of effluents into waterways, the
emissions of substances into the air, and various health and safety matters.
The Clean Air Act Amendments impose stringent standards on air emissions.
Under CERCLA and comparable state laws, an owner or operator of property at
which releases of hazardous substances have occurred may be liable for
investigation and remediation of any resulting contamination. In addition, the
generator of hazardous substances may be responsible for all or a portion of
any required investigation or remediation at offsite disposal locations. Under
RCRA, a facility that treats, stores or disposes of hazardous waste on-site
may be liable for corrective action costs. In addition, any facility that
holds a RCRA Part B permit (or has submitted a RCRA Part A permit application)
may have to incur costs relating to the closure of certain "hazardous" or
"solid" waste management units.
For each of the last three fiscal years, the Company's average capital
expenditures and operating expenses for environmental matters including
depreciation amounted to approximately $6 million and $15 million,
respectively. The Company believes that environmental operating costs will not
change materially from those incurred during the past three years. The Company
currently estimates that capital expenditures in connection with matters
relating to environmental control will be approximately $4.7 million and $4.5
million for 1996 and 1997, respectively. Since environmental laws have
traditionally become increasingly more stringent, costs and expenses relating
to environmental control and compliance may increase in the future. While the
Company does not believe that compliance with existing or future environmental
laws and regulations (including future regulations promulgated pursuant to the
Clean Air Act Amendments) will have a material adverse effect on its business,
financial condition or results of operations, there can be no assurance that
costs of compliance will not exceed current estimates and will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Five of the sites owned and/or operated by the Company are listed on the
NPL. These sites are the Feather River Wood Treating Plant, Gainesville Wood
Treating Plant, Galesburg Wood Treating Plant, Florence Wood Treating Plant,
and Follansbee Tar Plant. In addition, many of the Company's sites are or have
been operated under RCRA permits and RCRA remedial and closure activities are
being conducted on several such sites. Currently, at the properties acquired
from Beazer East (which include all of the NPL sites and all but one of the
RCRA-permitted sites), substantially all investigative and cleanup activities
are being handled and paid for by
46
<PAGE>
Beazer East pursuant to the terms of the Indemnity. The Indemnity provides
that, with certain limited exceptions, Beazer East will be responsible for and
indemnify the Company against any liability, damage, loss, cost, expense and
any related fine or penalty, including liabilities for personal injury to
employees resulting from exposure to toxic or hazardous substances, arising
under any federal, state, or local environmental law in connection with any
condition or activity at the properties purchased or leased in connection with
the Acquisition from Beazer East existing on or prior to the closing of the
Acquisition (the "Closing"), provided that the claim is asserted by the
Company within 12 years after the Closing. Beazer Limited has unconditionally
guaranteed the Indemnity obligations of Beazer East pursuant to the Guarantee.
Cost and liabilities associated with investigative activities, cleanup
and/or closure at the NPL sites and RCRA-permitted facilities acquired from
Beazer East are expected to be significant. While Beazer East has retained and
accepted responsibility for cleanup and remedial activities relating to pre-
Closing contamination at such properties (including, being the signatory on
several consent agreements relating to such sites) and has paid, to date, for
all such remedial, investigative and closure costs, the government has the
right under applicable federal and state laws to seek relief directly from the
Company for any and all such pre-Closing obligations and liabilities at or on
facilities owned or operated by the Company. Although Beazer East and Beazer
Limited have performed their respective obligations since 1989, there can be
no assurances that Beazer East and Beazer Limited will continue to meet their
obligations under the Indemnity and the Guarantee, respectively. Although
Cornerstone-Spectrum, Inc., an entity under common control with the Beazer
entities, is selling all of its shares in the Company in connection with the
Offerings, the Company has no reason to believe that such sale will affect the
performance of Beazer East and Beazer Limited under the Indemnity and the
Guarantee, respectively. Since 1991, Beazer East and Beazer Limited have been
wholly-owned indirect subsidiaries of Hanson PLC. Hanson PLC has announced its
intention to reorganize by spinning-off its chemicals, tobacco and energy
subsidiaries. The Company has been informed that Beazer East and Beazer
Limited will remain wholly-owned indirect subsidiaries of Hanson PLC. However,
the Company has not received any additional information as to the impact, if
any, of this spin-off on Beazer East and Beazer Limited.
In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitment under the Indemnity and the Guarantee, the Company may be
required to pay costs covered by the Indemnity. Since the time of the
Acquisition through 1995, the Company has been informed by Beazer East that
amounts paid by Beazer East under the Indemnity have averaged approximately
$12 million per year. The requirement to pay such costs without reimbursement
would have a material adverse effect on the business, financial condition and
results of operations of the Company. Furthermore, if the Company were
required to record a contingent liability in respect of environmental matters
covered by the Indemnity on its balance sheets, the result could be that the
Company would have significant negative net worth.
In addition Beazer East has defended and is presently defending certain
toxic tort actions arising from the pre-Closing operation of assets which the
Company acquired from Beazer East. These tort actions were not assumed by the
Company under the Acquisition agreement and, in any event, are within the
scope of the Indemnity.
The Indemnity does not afford the Company indemnification against
environmental costs and liabilities relating to activities or conditions
occurring or arising after the Closing, nor does the Indemnity cover
liabilities arising in connection with post-Closing acquisitions. The Company
is aware of environmental contamination at the Somerville Facility (the only
RCRA-permitted site that was not purchased from Beazer East) and the Clairton
Facility. Pursuant to the terms of the asset purchase agreement for the
Somerville Facility, the seller has indemnified the Company for liabilities
relating to pre-closing environmental contamination. In connection with the
Clairton facility, the Company is the beneficiary of an indemnity which
Aristech, the seller, received from USX, the entity from which it purchased
the plant. In addition, Aristech has indemnified the Company for certain pre-
closing liabilities. The Company believes that the sellers (or their
predecessors) at both of these sites will handle and pay for most
investigative and cleanup activities directly. Although the Company is not
aware of any reason why such indemnification obligations will not be
performed, if the Company were required to pay costs
47
<PAGE>
associated with environmental contamination at these sites, it could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is aware of environmental contamination at
another site, the Monessen Facility, purchased by the Company after the
Closing (which site was not previously owned by Beazer East and is thus not
subject to the Indemnity). The Company has entered into a consent order and
agreement with the Commonwealth of Pennsylvania in connection with this site
pursuant to which the Company's liabilities for environmental cleanup have
been capped at $550,000.
The Company has operated the sites acquired from Beazer East for several
years and is liable for any post-Closing contamination at such properties. The
Company might be required to expend certain monies for cleanup and other
activities at one of the Company's leased facilities (previously leased by Old
Koppers). The Company believes, however, that with respect to cleanup costs,
all or a substantial portion of such contamination was present prior to the
Closing and thus, will be the responsibility of Beazer East pursuant to the
Indemnity. Based on current information, the Company does not believe that
liabilities for investigative or remedial costs associated with the matters
discussed in this paragraph nor with any other environmental matters for which
there are no indemnification arrangements will have a material adverse effect
on its business, financial condition or results of operations.
EMPLOYEES AND EMPLOYEE RELATIONS
As of April 30, 1996, the Company employed 586 salaried employees and 1,462
hourly employees. Listed below is a breakdown of employees by business
segment, including administration.
<TABLE>
<CAPTION>
NON-
DIVISION SALARIED SALARIED TOTAL
- -------- -------- -------- -----
<S> <C> <C> <C>
Coke Products........................................... 77 485 562
Carbon Materials & Chemicals............................ 126 323 449
Railroad & Utility Products............................. 216 635 851
Administration.......................................... 167 19 186
--- ----- -----
Total Employees..................................... 586 1,462 2,048
=== ===== =====
</TABLE>
Of the Company's 2,048 employees, approximately 1,300 are represented by
nine different unions and covered under 21 separate labor contracts. The
United Steelworkers of America, covering workers at six facilities, accounts
for the largest membership with more than 500 employees. Another significant
affiliation is the Oil, Chemical, and Atomic Workers Union, with approximately
300 employees at four facilities. Labor negotiations are conducted on a plant-
by-plant basis and approximately one-fourth of the outstanding contracts are
renegotiated in any one year.
Since its formation in 1988, the Company has had three work stoppages due to
strikes at its Follansbee, Somerville and Galesburg facilities. The Follansbee
strike occurred in November 1993 and the Somerville and Galesburg strikes
occurred in March 1996. In each instance, the Company was able to continue
operation of the respective facilities at approximately 85% of capacity and to
reach agreement with each of the unions on terms satisfactory to the Company.
There can be no assurance that the Company would be able to continue operating
facilities in the event of further work stoppages or union disputes in the
future. There are no additional material union contracts scheduled to expire
in 1996.
PROPERTIES
The principal fixed assets of the Company consist of its production,
treatment, and storage facilities and its transportation and plant vehicles.
Its numerous production facilities consist of the Woodward and Monessen
Facilities, six Carbon Materials & Chemicals facilities, 15 wood treating
facilities, 14 pole distribution yards, and 12 pole-peeling yards. See "Coke
Products," "Carbon Materials & Chemicals," and "Railroad & Utility Products".
As of March 31, 1996, vehicles and equipment represented approximately 40% of
the Company's total assets, as reflected in its consolidated balance sheet.
The following chart sets forth information regarding the Company's facilities:
48
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF
DIVISION/PLANT LOCATION ACREAGE PROPERTY INTEREST
- -------------- -------- ------- -----------------
<S> <C> <C> <C>
COKE PRODUCTS
Carrollton Carrollton, OH 25 Owned
Monessen Monessen, PA 45 Owned
Woodward Dolomite, AL 136 Owned
CARBON MATERIALS &
CHEMICALS
Clairton Clairton, PA 17 Owned
Follansbee Follansbee, WV 32 Owned
Houston Houston, TX 11 Leased through 7/5/97 with
an option to renew
Portland Portland, OR 6 Leased through 12/31/98
Stickney Cicero, IL 38 Owned
Woodward Dolomite, AL 23 Owned
RAILROAD & UTILITY
PRODUCTS
Denver Denver, CO 5 Owned
Feather River Oroville, CA 156 Owned
Florence Florence, SC 200 Owned
Gainesville Gainesville, FL 86 Owned
Galesburg South Galesburg, IL 125 Leased year to year
Green Spring Green Spring, WV 98 Owned
Grenada Tie Plant, MS 154 Owned
Guthrie Guthrie, KY 122 Owned
Logansport Logansport, LA 30 Owned
Montgomery Montgomery, AL 84 Owned
North Little Rock N. Little Rock, AR 148 Owned
Roanoke Valley Salem, VA 91 Owned
Somerville Somerville, TX 244 Owned
Superior Superior, WI 120 Owned
Susquehanna Montgomery, PA 109 Owned
</TABLE>
The Company's corporate headquarters is located in approximately 50,000
square feet of leased office space in the Koppers Building, Pittsburgh,
Pennsylvania. The office space is leased from Axiom Real Estate Management,
Inc. pursuant to an 11-year lease, with the initial term expiring December 31,
2003. The lease provides for an additional five-year renewal option.
LEGAL PROCEEDINGS
On May 11, 1990 OCF filed the OCF Litigation against the Company seeking
damages allegedly resulting from the sale by Old Koppers of defective CTB from
the mid-1970's to the mid-1980's. The OCF Litigation related to problems
experienced with roofing systems sold by OCF which contained CTB sold by Old
Koppers. OCF identified 11 roofs it alleged were built using defective Old
Koppers' CTB. On April 3, 1996 a jury verdict was returned against the Company
for a total of $10.3 million, including $0.5 million in punitive damages. The
Company will appeal the judgment. In addition to damages, OCF has sought
approximately $3 million in attorney's fees as well as prejudgment interest
for an amount estimated by the Company to be approximately $5 million,
alleging that the Company failed to engage in good faith settlement
negotiations. The Company has provided reserves of $14 million at March 31,
1996 ($11 million in the first quarter of 1996 and $3 million in prior
periods) in connection with the OCF Litigation. In order to comply with
certain financial covenants under the Bank Credit Facilities (as hereinafter
defined), the Company has obtained from the lenders under such facilities
consents to exclude for the first two quarters of 1996 the $11 million charge
to earnings from the calculation of ratios contained in such covenants.
49
<PAGE>
It is the opinion of management that the ultimate resolution of this matter,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of this matter, it is possible
that results of operations and cash flow of the Company as well as its ability
to remain in compliance with certain financial covenants contained in the Bank
Credit Facilities (as hereinafter defined) could be materially adversely
affected in a particular period and that the Company's ability to incur
additional debt could be reduced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Pending Litigation".
On May 24, 1996, the Company was served with the CSX Complaint by CSX, one
of its principal customers (see "Risk Factors--Dependence on Major
Customers"), filed in federal district court in Florida in March 1996 in
connection with two contracts executed by CSX and Old Koppers in 1988 and
performed by the Company. The CSX Complaint claims that the Company has not
lived up to its obligations under such contracts, which allegedly required the
Company to undertake certain environmental expenditures and relieve CSX of
certain environmental liabilities. CSX has been sued by Beazer East for
contribution for environmental cleanup at certain facilities, including some
presently owned by the Company, and the CSX Complaint, alleging breach of
contract, fraud and unjust enrichment, seeks to hold the Company liable for
any costs CSX might be required to pay Beazer East in connection with
environmental liabilities at the Company's facilities, as well as any defense
costs incurred by CSX. In addition, the CSX Complaint requests contractual
damages (including return of profits), punitive damages and injunctive and
other equitable relief. While Beazer East has agreed, under the Indemnity, to
provide a defense and indemnify the Company for damages resulting from the CSX
Complaint, Beazer East retains the right to seek contribution from the Company
in connection with such damages in accordance with the provisions of the
agreement entered into in connection with the Acquisition. Given the
preliminary nature of this matter, the Company is not in a position to
determine its outcome or the availability of the Indemnity to cover any
resulting damages. As a result, there can be no assurance that the resolution
of this matter will not have a material adverse effect on the Company's
business, financial condition, cash flow and results of operations.
The Company is involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these
other proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
50
<PAGE>
MANAGEMENT
The following table sets forth the names and ages of the executive officers
and Directors of the Company and the positions which they hold. Directors hold
their positions until the annual meeting of the stockholders at which their
term expires or until their respective successors are elected and qualified.
Executive officers hold their positions until the annual meeting of the Board
of Directors or until their respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
<S> <C> <C>
Robert K. Wagner........ 64 Chairman and Director
Donald P. Traviss....... 51 President and Chief Executive Officer and Director (non-voting)
Brian C. Beazer......... 61 Director
Clayton A. Sweeney...... 64 Director
Brooks C. Wilson........ 63 Director
N. H. Prater............ 67 Director
Donald V. Borst......... 60 Director (non-voting)
Donald E. Davis......... 39 Vice President and Chief Financial Officer
Thomas D. Loadman....... 41 Vice President and General Manager, Railroad Products & Services
William R. Donley....... 39 Vice President and General Manager, Utility & Construction Products
Lawrence F. Flaherty.... 59 Vice President, Total Quality and Technology
Walter W. Turner........ 49 Vice President and General Manager, Carbon Materials & Chemicals
Donald N. Sweet, Jr..... 49 Vice President and General Manager, Coke Products
Randall D. Collins...... 43 Vice President and Secretary
Joseph E. Boan.......... 49 Vice President, Human Resources
M. Claire Schaming...... 42 Treasurer and Assistant Secretary
</TABLE>
Mr. Wagner resigned his position as Chief Executive Officer effective March
1, 1996, retaining his responsibilities as Chairman and Director. Mr. Wagner
had been elected Chairman and Chief Executive Officer of the Company in
November 1994, having served as President and Chief Executive Officer from 1988
through 1994. He has been a Director of the Company since January 1989. He
joined Old Koppers in 1953 and after an early career in communications, moved
into the forest products business in 1968 and held sales, marketing and raw
materials posts until being appointed Vice President and Manager of the
Pressure-Treated Products unit in 1975. Mr. Wagner became Vice President and
General Manager of this division in 1978 and was named Vice President and
General Manager of the Tar and Wood Products Sector in 1986. Mr. Wagner has
also served as a Director of Integra Financial Corporation of Pittsburgh,
Pennsylvania since 1992 and as a Director of Trion, Inc. of Sanford, North
Carolina from 1978 until his resignation in April 1995. He is also a Director
of Koppers Australia and, until March 1, 1996, was a Director of Tarconord.
Mr. Traviss was elected Chief Executive Officer effective March 1, 1996. Mr.
Traviss had been named President and Chief Operating Officer and elected as a
non-voting Director of the Company on November 1, 1994. Mr. Traviss is also a
director of Koppers Australia. He had served as Vice President, Refining and
Petrochemicals at Universal Oil Products, Des Plaines, Illinois since 1992.
Prior to 1992, he was Vice President, Engineered Products Group. From 1985 to
1988, Mr. Traviss served as Vice President, Engineering Products and Processes
at Union Carbide Corporation, Danbury, Connecticut. Mr. Traviss is also a
Director of Tarconord.
Mr. Beazer has been a Director of the Company since January 1989. He joined
Beazer Limited in 1956 as a builder's apprentice and spent his early working
years on construction sites, later moving into the supervisory and management
facets of the business. Mr. Beazer was named Chief Executive Officer of Beazer
Limited in 1968 and was Chairman from 1983-1991. He is currently Chairman of
Beazer Homes USA Inc., Jade Holdings Pte. Ltd. (Singapore) and Sealmint Ltd.
(UK), and serves as a Director of Beazer (Japan) Co. Ltd. (registered in
Japan).
51
<PAGE>
Mr. Sweeney has been a Director of the Company since January 1989. Mr.
Sweeney has been a shareholder and Director of Dickie, McCamey & Chilcote, P.C.
since 1987 and in 1988 was named Managing Director and served in that position
until he resigned in September 1993. Mr. Sweeney remains a shareholder and
Director of the firm. Mr. Sweeney previously served as Executive Vice
President, Chief Administrative Officer, Vice Chairman, and a Director of
Allegheny International, Inc., as Senior Vice President and a Director of
Allegheny Ludlum Industries, and as a Director of Wilkinson Sword Group, Ltd.
U.K., Landmark Savings and Loan Association, Halbouty Energy Company and Liquid
Air Corporation. Mr. Sweeney currently serves as a Director of Schaefer
Manufacturing Inc., Schaefer Equipment, Inc., and Schaefer Marine Inc., and as
Chairman of the Boards of St. Francis Health System, St. Francis Medical
Center, and as President of DePaul Institute.
Mr. Wilson has been a Director of the Company since January 1989. Mr. Wilson
has been the Managing Director of Koppers Australia since 1970 having joined
Old Koppers in 1965 as a member of the Koppers International Far East Office
(Sydney, Australia). He is currently a Director of Pacific Power and the State
Transit Authority of New South Wales. He is also Chairman of Trustees,
Australian Trade Union Program at Harvard Foundation and a member of the
Advisory Council, Australian Graduate School of Management, University of New
South Wales.
Mr. Prater has been a Director of the Company since May 1989. Mr. Prater
retired from Mobay Corporation, where he had served as the President and Chief
Executive Officer since July 1986. He currently serves as a Director of Calgon
Carbon Corporation, Melamine Chemical Inc. and Harsco Corporation. He is a
member of the Board of Trustees of Robert Morris College, Georgia Institute of
Technology, a special trustee of the University of Pittsburgh and a Director of
the University of Pittsburgh Medical Center, Pittsburgh Presbyterian Hospital,
and is Chairman of the Board of Visitors of the University of Pittsburgh
Graduate School of Public and International Affairs.
Mr. Borst is Chairman, President and Chief Executive Officer of SCM
Chemicals, a global chemical manufacturing company headquartered in Baltimore,
Maryland. SCM Chemicals is a member of the Hanson group of companies. Mr. Borst
joined SCM Chemicals in 1984 as Vice President, United States, responsible for
the company's titanium dioxide and related businesses in the United States.
Following that company's acquisition by Hanson in 1986, he was promoted to
President with overall responsibility for SCM Chemicals' business worldwide.
Mr. Borst was appointed to his present position in January 1990.
Mr. Davis was elected Vice President and Chief Financial Officer in November
1994. Mr. Davis had been general manager of the Recovery Resources Group from
June 1992 to March 1996 and had served as Treasurer from 1988 until 1992. He
joined Old Koppers in 1978 and had held various positions in the corporate
accounting and auditing departments until being named General Manager, Finance
of the Chemical Systems Sector in 1988. Mr. Davis is a certified public
accountant.
Mr. Loadman was elected Vice President and Manager, Railroad Products &
Services in November 1994. Mr. Loadman had been transportation plants
operations manager since January 1989. He joined Old Koppers in 1979 and served
in various management assignments including plant manager and cogeneration
plant manager. Mr. Loadman is a Director of Koppers Sherman Abetong, a Director
of Koppers Timber Preservation Pty Limited, a subsidiary of Koppers Australia,
and a Director and President of Koppers Concrete Products Inc. He is also a
member of the American Wood Preservers Association and the Railway Tie
Association.
Mr. Donley was appointed General Manager of Utility & Construction Products
in September 1995 and elected Vice President in November 1995. He joined Old
Koppers in 1979, serving the Company in positions of increasing responsibility
within the Railroad & Utility Products business. Mr. Donley is a board member
of the American Wood Preservers Institute and serves on their Governmental
Affairs Committee.
Mr. Flaherty was appointed Vice President, Total Quality and Technology in
January 1995. Mr. Flaherty had been Vice President and Manager, Carbon
Materials & Chemicals since January 1989. Mr. Flaherty was Production Manager,
Tar and Chemical Operations for Old Koppers' Tar and Wood Products Sector. He
joined Old Koppers in 1955 and has served as chemist, sales representative,
plant manager, and production manager until being appointed production manager
in the Tar and Wood Products Sector in 1986.
52
<PAGE>
Mr. Turner was appointed Vice President and General Manager, Carbon Materials
& Chemicals division in early 1995. Mr. Turner had been elected Vice President
and Manager, Marketing & Development, Industrial Pitches and Related Products
in February 1992. Mr. Turner was Marketing Manager, Industrial Pitches and
Creosote Oils for Old Koppers' Tar and Wood Products Sector. Mr. Turner joined
Old Koppers in 1969 and has served in various positions in the controller's
department and as product manager, tar operations.
Mr. Sweet has been Vice President and General Manager, Coke Products since
January 1989. Mr. Sweet was Manager of Planning and Procurement, Tar and
Chemical Operations of Old Koppers' Tar and Wood Products Sector. He joined Old
Koppers in 1969 and has held management assignments in engineering, plant
operations, financial planning, and product procurement for tar operations and
sales until being named manager of planning and procurement in 1986. Mr. Sweet
is Chairman and a Director of Tarconord. He is also a Director and the former
Chairman of the American Coke and Coal Chemicals Institute.
Mr. Collins was elected Vice President and Secretary in November 1994, and
has been Secretary of the Company since January 1989. Mr. Collins was Manager
of Loss Control for Old Koppers. He joined Old Koppers in 1974 and held various
line and staff assignments including personnel, industrial relations, and plant
operations. Currently Mr. Collins serves the Company as Risk Manager, legal
services coordinator, claims manager, and more recently, environmental affairs
officer. His role as Corporate Secretary includes board of Directors and
shareholder communications. Mr. Collins is a member of the American Society of
Corporate Secretaries.
Mr. Boan has been Vice President, Human Resources since January 1989. Mr.
Boan was Manager, Labor Relations for Old Koppers. He joined Old Koppers in
1969. Prior to 1987, Mr. Boan held the position of Director, Human Resources,
for three Old Koppers subsidiaries in the Construction Materials and Services
Group. In 1987, he was named Manager, Labor Relations for Old Koppers. Mr. Boan
is a member of the Pennsylvania Bar.
Ms. Schaming was elected Treasurer in May 1992. Her previous position was
assistant treasurer and manager of cash operations. Ms. Schaming joined Old
Koppers in 1976, where she held various positions in corporate and Chemical
Systems Sector accounting, including controller for the Polyester Resins
Division. Ms. Schaming is a certified cash manager.
BOARD OF DIRECTORS; STOCKHOLDERS' AGREEMENT
The Company is a party to a Stockholders' Agreement by and among the Company,
KAP, Cornerstone-Spectrum, Inc., APT Holdings Corporation and the Management
Investors referred to therein (the "Management Investors") dated December 28,
1988, as amended on June 30, 1991, February 9, 1994 and as of August 16, 1995
(the "Stockholders' Agreement"). The Stockholders' Agreement sets forth, among
other things, certain provisions with respect to the nomination and election of
the Board of Directors and restrictions on transfer of shares of stock, and
also obligates the Company to redeem shares from Management Investors over a
period not to exceed three years from the date of termination of their
employment with the Company. Pursuant to its terms, the Stockholders' Agreement
will terminate upon the consummation of the Offerings.
The Company is governed by its Board of Directors, which is comprised of five
voting members and two non-voting members.
The current Board of the Company consists of the following members:
<TABLE>
<CAPTION>
NAME OF DIRECTOR TYPE OF NOMINEE
---------------- ---------------
<S> <C>
Brian C. Beazer Cornerstone-Spectrum, Inc. Director
Brooks C. Wilson Koppers Australia Director
Robert K. Wagner Management Director
Clayton A. Sweeney Management Director
N. H. Prater Independent Director
Donald V. Borst Non-voting Director
Donald P. Traviss Non-voting Director
</TABLE>
53
<PAGE>
The Restated Bylaws provide that the Board of Directors will consist of at
least five and no more than fifteen members. The number of Directors
constituting the entire Board of Directors may be changed by resolution of the
Board of Directors. The Board of Directors, acting by majority vote of the
Directors then in office, may fill any newly created Directorships or vacancies
on the Board of Directors. Effective as of the completion of the Offerings,
Brian C. Beazer and Donald V. Borst intend to resign as directors and the Board
of Directors intends to increase its membership, pursuant to the Restated
Bylaws, to nine members. The resulting vacancies shall be filled by the Board
of Directors. The Restated Bylaws provide for a Board of Directors divided into
three classes of Directors serving staggered three-year terms. The
classification of Directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors.
DIRECTOR COMPENSATION
The Company does not pay compensation to Directors who are also employees of
the Company. Each Director who is not an employee of the Company is paid a fee
of $21,000 per year.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation for
services in all capacities to the Company, including options and stock
appreciation rights ("SARS"), for the years ended December 31, 1995, 1994 and
1993, of those persons who were at December 31, 1995 (i) the Chief Executive
Officer and (ii) each of the other four most highly compensated executive
officers of the Company who earned more than $100,000 in salary and bonus in
1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES ALL
NAME AND ANNUAL UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION(1)
- ------------------ ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert K. Wagner 1995 $380,000 $228,000 $ 32,320 -- $4,649
Chairman 1994 344,750 98,102 27,518 -- 3,000
1993 333,000 -- 5,625 -- 3,537
Donald P. Traviss 1995 251,000 138,000 126,341(2) 45,000 3,861
President and Chief 1994 38,333 40,000 28,492 -- 1,567
Executive Officer
Donald N. Sweet, Jr. 1995 135,000 59,670 575 -- 4,255
Vice President and 1994 129,800 36,491 -- -- 2,283
General Manager, Coke 1993 124,200 -- -- -- 2,607
Products
Donald E. Davis 1995 132,860 61,446 -- 7,500 4,038
Vice President and 1994 106,590 24,305 -- -- 1,888
Chief Financial Officer 1993 93,600 -- -- -- 1,964
Lawrence F. Flaherty 1995 127,100 59,850 694 -- 4,204
Vice President, Total 1994 124,000 29,460 666 -- 1,023
Quality and Technology 1993 120,000 -- 630 -- 2,541
</TABLE>
- ---------------------
(1) All other compensation consists of regular and supplemental matches to the
Company's 401(k) plan.
(2) Includes $116,410 of reimbursement of moving expenses under Company
relocation program.
54
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS (1)
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE PRESENT
OPTIONS IN FISCAL OR BASE EXPIRATION VALUE OF
NAME GRANTED YEAR PRICE DATE OPTIONS (2)
- ---- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Donald P. Traviss......... 45,000 40.0% $10.56 2/28/05 $127,950
Donald E. Davis........... 7,500 6.7 10.56 2/28/05 21,325
</TABLE>
- ---------------------
(1) The exercise price of the options granted was the fair market value of the
voting Common Stock on the grant date. The options become exercisable in
one-third increments, on March 1, 1996, March 1, 1997 and March 1, 1998,
respectively, except that the options for Mr. Traviss have an accelerated
vesting schedule in accordance with the terms of his employment contract.
These options become exercisable in one-third increments on October 31,
1995, October 31, 1996 and October 31, 1997, respectively.
(2) Option values reflect Black-Scholes model output for options. The
assumptions used in the model were expected volatility of 0.18, risk-free
rate of return of 6.0%, dividend yield of 2.7%, and time to exercise of ten
years.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to unexercised options granted in
1995 and prior years under the Stock Option Plan. There were no options
exercised in 1995 by any of the individuals named in the Summary Compensation
Table. No SARS were granted to any of the named executive officers and none of
the named executive officers held any unexercised SARS at the end of the fiscal
year.
AGGREGATED OPTION/SARS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS SARS(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald P. Traviss........... 15,000 shs. 30,000 shs. $ 26,650 $53,300
Donald N. Sweet, Jr......... 34,200 -- 346,590 --
Donald E. Davis............. 18,900 7,500 180,453 13,325
Lawrence F. Flaherty........ 28,800 -- 293,432 --
</TABLE>
- ---------------------
(1) The value of unexercised in-the-money options is calculated by subtracting
the exercise price from $12.33, which was the market value (based on
appraisals) at December 31, 1995.
BENEFIT PLANS
PENSION PLAN. All executive officers of the Company are covered by the
Retirement Plan of Koppers Industries, Inc. and Subsidiaries for Salaried
Employees (the "Salaried Plan"). Annual normal retirement benefits are computed
at the rate of 1.2% of Terminal Salary (as defined in the Salaried Plan) not in
excess of $16,000, plus 1.6% of Terminal Salary in excess of $16,000, all
multiplied by years of Credited Service (as defined in the Salaried Plan). A
participant's Terminal Salary equals the average annual amount of compensation
(which includes basic annual salary defined as of each January 1 plus one-half
the total amount, if any, of incentive payments and bonuses plus sales
commissions paid and overtime payments, provided annual compensation does not
exceed IRS annual limits) for the 5 consecutive years in the 10 years of
Credited Service prior to retirement affording the highest such average, or
during all of the years of Credited Service, if less than
55
<PAGE>
5 years. As of January 1, 1989, Credited Service under the Salaried Plan for
each of the individuals named in the cash compensation table was zero. The
following table contains approximate retirement benefits payable under the
salaried plan, assuming retirement at age 65, payments made on the straight-
life annuity basis and no election of a co-annuitant option.
ESTIMATED ANNUAL RETIREMENT BENEFIT UNDER THE SALARIED RETIREMENT PLAN
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE AT RETIREMENT
TERMINAL --------------------------------------------------------------------------------
SALARY 5 10 15 20 25 30
- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 7,680 $15,360 $23,040 $30,720 $38,400 $46,080
125,000 9,680 19,360 29,040 38,720 48,400 58,080
150,000 11,680 23,360 35,040 46,720 58,400 70,080
or more
</TABLE>
RETIREMENT INCOME RESTORATION PLAN. In 1991, the Company implemented a
Retirement Income Restoration Plan that allows the Company to pay the
difference between the actual pension benefits earned under the terminal salary
formula of the Koppers Industries Salaried Employees Pension Plan and Terminal
Salary Limitations imposed by Section 401(a)(17) of the Internal Revenue Code.
The following table sets forth the benefits earned through the year ending
December 31, 1995 for each of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
ANNUAL
BENEFIT
PAYABLE AT
NAME RETIREMENT
---- ----------
<S> <C>
Robert K. Wagner................................................ $18,177
Donald P. Traviss............................................... 1,493
</TABLE>
SURVIVOR BENEFIT PLAN. The Company has established a plan (the "Survivor
Benefit Plan") for the purpose of providing a postretirement survivor benefit
for all officers of the Company. Under the terms of the Survivor Benefit Plan,
a benefit equal to three times the participant's annual compensation,
calculated as of the last day of the calendar month in which their retirement
date fell, will be paid to the participant's beneficiaries or their estate.
Such benefit may not exceed $750,000.
EMPLOYMENT CONTRACTS. In February 1996, the Company entered into an agreement
with Robert K. Wagner, Chairman and Director, under which in exchange for
consulting services and continuing in the position as Chairman of the Board of
Directors, the Company will pay consulting fees and Director fees totaling
$150,000 per year. The initial contract term is one year; however, the contract
will automatically renew for four additional one year periods unless either
party elects to cancel the contract. Mr. Wagner has agreed not to engage in any
business activity that competes with the Company during the term of this
consulting agreement.
In October 1994, the Company entered into an agreement with Donald P.
Traviss, President and Chief Executive Officer, which provides for an initial
base salary of $230,000, an incentive bonus of up to 60% of base salary, and a
one time bonus of $40,000 paid in common stock of the Company in lieu of 1994
incentive. Additionally, he received a grant of options to purchase 45,000
shares of common stock vesting over a three year period in accordance with the
terms of the Company's stock option plan, and an interest-free loan of $115,000
to be repaid over a five year period, the proceeds of which were used to
purchase shares of Company common stock at the market value of $10.56 per
share. The contract's original term is two years. Either party may terminate
the contract by giving twelve months notice of non-renewal prior to the
contract's termination. If no termination notice is received, the contract is
automatically extended for an additional one-year period.
56
<PAGE>
The following table sets forth the terminal salary and years of service
accrued to date for each executive officer named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
TERMINAL YEARS OF
NAME SALARY SERVICE
---- -------- --------
<S> <C> <C>
Robert K. Wagner......................................... $359,685 7
Donald P. Traviss........................................ 230,000 1
Donald N. Sweet, Jr...................................... 132,584 7
Donald E. Davis.......................................... 106,976 7
Lawrence F. Flaherty..................................... 127,752 7
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Borst, Mr. Sweeney, Mr. Wilson and Mr. Prater serve on the Human
Resources and Compensation Committee of the Board of Directors of the Company,
which establishes compensation levels for the Company's three most highly paid
executive officers.
Mr. Wagner, Chairman and a Director of the Company, is a member of the
Compensation Committee of the Board of Directors of Koppers Australia. This
Committee reviews the compensation of Mr. Wilson, a Managing Director of
Koppers Australia.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dickie, McCamey & Chilcote, P.C. of Pittsburgh, Pennsylvania, has been
retained as general counsel to the Company. Clayton A. Sweeney, a shareholder
and Director of the Company, is also a shareholder and Director of Dickie,
McCamey & Chilcote, P.C. Mr. Sweeney is one of two Representatives of the
Management Investors appointed pursuant to the Stockholders' Agreement and, as
such, was granted an irrevocable proxy for the term of the Stockholders'
Agreement to vote the shares of the Management Investors. See "Management--
Board of Directors; Stockholders' Agreement".
Pursuant to a resolution of the Board of Directors, the Company redeemed on
April 2, 1996 25% of the shares of Common Stock then held by Mr. Wagner at
$12.33 per share in exchange for his agreement not to offer, sell or otherwise
dispose of the remaining shares of Common Stock then held by him, until the
date which is 180 days after the date of this Prospectus, unless earlier agreed
to by Donaldson, Lufkin & Jenrette Securities Corporation. See "Underwriting".
On March 13, 1996, Cornerstone-Spectrum, Inc. (formerly Beazer, Inc.)
converted all of its shares of Series B Junior Convertible Preferred Stock into
shares of non-voting common stock, $.01 par value of the Company, in accordance
with Section 8(e) of the Certificate of Designation of the Series B Preferred
Stock. On March 22 and March 25, 1996, the Company redeemed 1,050,000 shares of
the non-voting common stock at $11.67 per share, 525,000 shares each from
Cornerstone-Spectrum, Inc. and APT Holdings Corporation In connection with the
Offerings by the Selling Stockholders, the Company and each of Cornerstone-
Spectrum, Inc. and APT Holdings Corporation intend to convert all remaining
non-voting common stock into Common Stock, at a conversion ratio of 1.00 shares
of non-voting common stock to 0.85 shares of Common Stock, which shares of
Common Stock will be sold in the Offerings. See "Principal and Selling
Stockholders".
In May 1995 the Company extended a loan of $115,000 to Donald P. Traviss,
President and Chief Executive Officer, to facilitate the purchase of voting
common stock of the Company. The loan, which is interest free, is payable in
monthly installments over a five-year period. The outstanding loan balance at
June 15, 1996 was approximately $87,000.
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus,
except as otherwise indicated below, by (i) each person known to the Company to
beneficially own more than five percent of the outstanding shares of Common
Stock, (ii) each Director of the Company, (iii) each officer named in the
Summary Compensation Table under the heading "Management--Summary of Cash and
Certain Other Compensation," (iv) all officers and Directors of the Company as
a group, and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING (1) OFFERING (1)
-------------------------- ----------------------
SHARES
BEING
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cornerstone-Spectrum,
Inc. (2)................ 3,660,702(3) 38.60%(3) 3,660,702 0 --
1001 Koppers Building
436 Seventh Avenue
Pittsburgh, PA 15219
KAP Investments, Inc.
(4)..................... 2,250,000 23.73% 2,250,000 19.94%
15 Blue Street
North Sydney
NSW, Australia
Robert K. Wagner (5).... 2,645,271 26.20% 348,399 3.09%
Koppers Industries,
Inc.
436 Seventh Avenue
Pittsburgh, PA 15219
Donald N. Sweet, Jr.
(6)..................... 97,740 1.03% 97,740 *
Lawrence F. Flaherty
(7)..................... 76,383 * 76,383 *
Donald P. Traviss (8)... 35,274 * 65,274 *
Donald E. Davis (9)..... 41,299 * 46,299 *
Clayton A. Sweeney (5).. 2,645,271 26.20% 138,960 1.23%
Dickie, McCamey &
Chilcote, P.C.
Two PPG Place, Suite
400
Pittsburgh, PA 15222
Brian C. Beazer (12).... 3,660,702 38.60% 3,660,702 0 --
N. H. Prater............ 25,758 * 25,758 *
Donald V. Borst......... 0 -- 0 --
Brooks C. Wilson (13)... 2,346,579 24.74% 2,346,579 20.80%
All Directors and
officers as a group
(16 persons)........... 1,132,719 11.69% 1,183,719 10.26%
OTHER SELLING
STOCKHOLDERS:
APT Holdings Corporation
(10).................... 1,541,220(11) 16.25%(11) 1,541,220 0 --
</TABLE>
- ---------------------
* 1% or less.
(1) Pursuant to the rules of the Securities and Exchange Commission (the
"Commission"), certain shares of the Company's Common Stock which a
beneficial owner set forth in this table has a right to acquire within 60
days of the date hereof pursuant to the exercise of stock options, are
deemed to be outstanding for the purpose of computing the percentage
ownership of that owner but are not deemed outstanding for the purpose of
computing percentage ownership of any other beneficial owner shown in the
table. Except as indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
the shares of Common Stock shown as beneficially owned by them.
(2) Cornerstone-Spectrum, Inc. (formerly Beazer, Inc.) is a wholly owned,
indirect subsidiary of Hanson PLC.
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(3) Includes 1,542,750 shares of Common Stock to be converted from 1,815,000
shares of non-voting common stock in connection with the Offerings pursuant
to registration rights under the Stockholders' Agreement at a conversion
ratio of 1.00 shares of non-voting common stock to 0.85 shares of Common
Stock. Prior to the exercise of such registration rights and conversion,
Cornerstone-Spectrum, Inc. beneficially owned 2,117,952 or 33.12% of the
total voting shares of Common Stock.
(4) KAP Investments, Inc. has indicated an interest in purchasing 750,000
shares of Common Stock in the Offerings. KAP Investments, Inc. is a wholly
owned subsidiary of Koppers Australia. See "Business--Carbon Materials &
Chemicals".
(5) Mr. Wagner and Mr. Sweeney, as representatives of the Management Investors
prior to consummation of the Offerings, had been granted irrevocable
proxies for the term of the Stockholders' Agreement to vote the 2,031,665
shares of Common Stock owned by the Management Investors. Upon consummation
of the Offerings, such proxies will be terminated thereby granting the
Management Investors the right to vote their own shares. Mr. Wagner
directly owns 348,399 shares and Mr. Sweeney directly owns 138,960 shares
of the 2,031,665 total. See "Certain Relationships and Related
Transactions".
(6) Includes 63,540 shares held directly and options to purchase 34,200 shares
which are fully vested.
(7) Includes 47,583 shares held directly and options to purchase 28,800 shares
which are fully vested.
(8) Includes 20,274 shares held directly and options to purchase 15,000 shares
which are fully vested prior to the Offerings. Upon consummation of the
Offerings, an additional 30,000 shares will be vested for Mr. Traviss.
(9) Includes 19,899 shares held directly and options to purchase 21,400 shares
which are fully vested prior to the Offerings. Upon consummation of the
Offerings, an additional 5,000 shares will be vested for Mr. Davis.
(10) APT Holdings Corporation is a wholly owned subsidiary of Mellon Bank
Corporation ("MBC"). Mellon Bank, N.A., which is also a wholly owned
subsidiary of MBC, provides depository, cash management, pension
administration, investment management, commercial banking, and lending
services for the Company and receives customary fees and compensation
therefor. Mellon Bank, N.A. also serves as the administrative and
collateral agent for the Company's Bank Credit Facilities (see
"Description of Certain Indebtedness"). Chemical Mellon Shareholder
Services, a joint venture affiliate of MBC, serves as the transfer agent
for the Company's Common Stock.
(11) Includes 1,541,220 shares of Common Stock to be converted from 1,813,200
shares of non-voting common stock in connection with the Offerings
pursuant to registration rights under the Stockholders' Agreement at a
conversion ratio of 1.00 shares of non-voting common stock to 0.85 shares
of Common Stock. Prior to the exercise of such registration rights and
conversion, APT Holdings Corporation did not beneficially own any voting
shares of Common Stock.
(12) Mr. Beazer, by resolution of the Board of Directors of Cornerstone-
Spectrum, Inc., has authority to vote the shares of the Company held by
Cornerstone-Spectrum, Inc. and consequently may be deemed to have voting
control of such shares. Mr. Beazer directly owns no shares.
(13) Mr. Wilson, by resolution of the Board of Directors of KAP Investments,
Inc., has authority to vote the 2,250,000 shares of the Company held by
KAP Investments, Inc. and consequently may be deemed to have voting
control of such shares. Mr. Wilson directly owns 96,579 shares of the
2,346,579 total.
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DESCRIPTION OF CAPITAL STOCK
As of June 15, 1996 an aggregate of 6,399,617 shares of Common Stock were
outstanding and held of record by 138 stockholders. As of June 15, 1996, no
shares of preferred stock were outstanding. As of the consummation of the
Offerings, the Company will restate and amend its articles of incorporation and
bylaws.
COMMON STOCK
Pursuant to the Restated Articles, the Company is authorized to issue up to
40,000,000 shares of Common Stock, $.01 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to
a vote of stockholders and have cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company
in the Offerings will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. See "--Preferred Stock".
PREFERRED STOCK
Pursuant to the terms of the Restated Articles, the Company is authorized to
issue up to 10,000,000 shares of preferred stock, $.01 par value per share. The
Board of Directors is authorized, subject to any limitations prescribed by law,
without further stockholder approval, to issue such shares of preferred stock
in one or more series. Each such series of preferred stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of the outstanding voting stock of the Company. The
existence of the authorized but undesignated preferred stock may have a
depressive effect on the market price of the Company's Common Stock. The
Company has no present plans to issue any shares of preferred stock. See "Risk
Factors--Effect of Certain Charter Provisions".
CERTAIN CORPORATE ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles and Restated Bylaws contain a number of
provisions relating to corporate governance and to the rights of shareholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (1) the authority of the Board of
Directors to issue series of preferred stock with such voting rights and other
powers as the Board of Directors may determine, as described above, and (2)
notice requirements in the Restated Bylaws relating to nominations to the Board
of Directors and to the raising of business matters at shareholder meetings.
In addition, the BCL provides that directors may, in discharging their
duties, consider the interests of a number of suppliers, customers, creditors
and the community in which it is located. Directors are not required to
consider the interests of shareholders to a greater degree than other
constituencies' interests. The BCL expressly
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provides that directors do not violate their fiduciary duties solely by relying
on "poison pills" or the anti-takeover provisions of the BCL. The Company does
not currently have a "poison pill" and does not presently plan to adopt one.
PENNSYLVANIA ANTI-TAKEOVER LAW PROVISIONS
Upon the consummation of the Offerings, and pursuant to the terms of its
Restated Articles and Bylaws, the Company will become subject to various
statutory "anti-takeover" provisions of the BCL, including Subchapters 25E, F,
G, H, I and J of the BCL. Pursuant to the Restated Articles, the Company will
elect out of Subchapters 25E, F, G, H, I and J of the BCL.
Subchapter 25E (relating to control transactions) provides that if any person
or group acquires 20% or more of the voting power of a covered corporation, the
remaining shareholders may demand from such person or group the fair value of
their shares, including a proportionate amount of any control premium.
Subchapter 25E contains a wide variety of transactional and status exemptions,
exclusions and safe harbors. While the Company has elected out of Subchapter
25E, it has adopted similar provisions in its Restated Articles based upon a
30% threshold.
Subchapter 25H (relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may acquire control
of the corporation or (ii) a person or group acquires (or publicly discloses an
offer or intent to acquire) 20% or more of the voting power of the corporation
and, in either case, sells shares within 18 months thereafter. Any profits from
sales of equity securities of the corporation by the person or group during the
18-month period belong to the corporation if the securities that were sold were
acquired during the 18-month period or within 24 months prior thereto.
Subchapter 25H contains a wide variety of transactional and status exemptions,
exclusions and safe harbors. While the Company has elected out of Subchapter
25H, it has adopted similar provisions in its Restated Articles which
specifically would exclude certain entities (such as KAP) from its provisions.
In addition, the BCL permits an amendment of the corporation's articles or
other corporate action, if approved by shareholders generally, to provide
mandatory special treatment for specified groups of nonconsenting shareholders
of the same class by providing, for example, that shares of common stock held
only by designated shareholders of record, and no other shares of common stock,
shall be cashed out at a price determined by the corporation, subject to
applicable dissenters' rights.
SPECIAL PROVISIONS OF THE RESTATED ARTICLES AND RESTATED BYLAWS
The Company's Restated Bylaws contain certain provisions permitted under the
BCL regarding liability of directors. These provisions eliminate the personal
liabilities of Directors to the Company and its stockholders for monetary
damages unless the Director has breached or failed to perform the duties of his
office under Subchapter 17B of the BCL and the breach constitutes self-dealing,
willful misconduct or recklessness. These provisions do not eliminate a
Director's duty of care and do not affect the availability of equitable
remedies such as an action to enjoin or rescind a transaction involving a
breach of fiduciary duty. The Company's Restated Bylaws further provide that
the Company shall indemnify its Directors and officers, and may indemnify any
employee and agent of the Company, to the fullest extent permitted by the BCL.
The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as Directors and
officers.
CLASSIFIED BOARD OF DIRECTORS. The Restated Bylaws provide for a Board of
Directors divided into three classes of Directors serving staggered three-year
terms. The classification of Directors has the effect of making it more
difficult for stockholders to change the composition of the Board of Directors
in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors.
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NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL. The Restated Bylaws provide
that the Board of Directors will consist of at least five and no more that
fifteen members. The number of Directors constituting the entire Board of
Directors may be changed by resolution of the Board of Directors. The Board of
Directors, acting by majority vote of the Directors then in office, may fill
any newly created Directorships or vacancies on the Board of Directors. The
provision of the Restated Bylaws authorizing the Board of Directors to fill
vacant Directorships would preclude a stockholder from removing incumbent
Directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINEES. The Restated Bylaws establish an advance notice procedure with regard
to business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders of the Company, including the nomination of candidates
for election as Directors. The procedure provides that a notice of proposed
stockholder business must be timely given in writing to the Secretary of the
Company prior to the meeting. To be timely, such notice relating to an annual
meeting must be given not later than 60 days in advance of such meeting
(provided that if such annual meeting of shareholders is held on a date other
than the third Wednesday of April, such written notice must be given within ten
days after the first public disclosure of the date of the annual meeting).
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 11,283,587 shares of
Common Stock outstanding. Of these shares, the 7,001,922 shares sold in the
Offerings will be immediately eligible for resale in the public market without
restriction under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act). An additional 323,591 shares of the
11,283,587 shares of Common Stock outstanding are held by former employees of
the Company and are subject to mandatory resale to and redemption by the
Company pursuant to the Stockholders' Agreement. Of the remaining 3,958,074
shares of Common Stock, 697,482 shares have been registered under the
Securities Act and sold by the Company to certain of its employees and
3,260,592 shares are "restricted securities", as that term is defined under
Rule 144 and, accordingly, may not be sold unless they are registered under
the Securities Act or sold pursuant to an applicable exemption from
registration, including Rule 144. Of such 3,958,074 shares of Common Stock,
3,510,696 shares will be subject to lock-up agreements with the Underwriters
and will become available for resale 180 days after the date of this
Prospectus, subject to the provisions of Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a stockholder (or
stockholders whose shares are aggregated), including an affiliate of the
Company, who has beneficially owned his or her restricted securities (as that
term is defined in Rule 144) for at least two years from the later of the date
such securities were acquired from the Company or (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any three-
month period, a number of such shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock (112,836 shares immediately
after the Offerings) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, affiliates of the Company must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of Common Stock which are not
restricted securities. Under Rule 144(k), if a period of at least three years
has elapsed between the later of the date restricted securities were acquired
from the Company and the date they were acquired from an affiliate of the
Company, a stockholder who is not an affiliate of the Company at the time of
sale and has not been an affiliate at any time during the 90 days prior to the
sale would be entitled to sell the shares immediately without compliance with
the foregoing requirements under Rule 144, other than the requirements as to
the availability of current public information about the Company.
Upon the completion of the Offerings, options to purchase 688,606 shares of
Common Stock will be outstanding, all of which will be exercisable at that
time. Within six months following consummation of the Offerings, the Company
intends to file a registration statement on Form S-8 to register shares issued
pursuant to the Option Plan. See "Management--Employee Stock Option Plan".
Prior to the Offerings there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public
market, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale".
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CERTAIN UNITED STATES TAX CONSIDERATIONS APPLICABLE
TO NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain United States federal income
and estate tax consequences of the ownership and disposition of Common Stock by
a "Non-U.S. Holder". A "Non-U.S. Holder" is a person or entity that, for United
States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership, or a non-resident fiduciary of a
foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of United States federal income and
estate taxation that may be relevant to Non-U.S. Holders in light of their
particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-United States Holder on Common Stock. The
Proposed Regulations are proposed generally to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION.
ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT A TAX ADVISOR
WITH RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF HOLDING AND
DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY UNITED STATES STATE, LOCAL OR OTHER NON-UNITED STATES TAXING
JURISDICTION.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding of United States federal
income tax at a 30% rate unless such rate is reduced by an applicable income
tax treaty. For purposes of determining whether tax is to be withheld at a 30%
rate or at a reduced rate as specified by an income tax treaty, the Company
ordinarily will presume that dividends paid to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption
is not warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding under
a treaty, a Non-U.S. Holder would be required to provide an Internal Revenue
Service Form W-8 certifying such Non-U.S. Holder's entitlement to benefits
under a treaty. The Proposed Regulations would also provide special rules to
determine whether, for purposes of determining the applicability of a tax
treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated
as paid to the entity or to those holding an interest in that entity.
Dividends that effectively are connected with a Non-U.S. Holder's conduct of
a trade or business in the United States are generally subject to United States
federal income tax at regular rates and are not generally subject to
withholding if the Non-U.S. Holder files a valid Form 4224 (or, if and when the
Proposed Regulations become effective, a Form W-8) with the payor. A non-United
States corporation receiving effectively connected dividends may also, under
certain circumstances, be subject to an additional "branch profits tax" which
is imposed, under certain circumstances, at a 30% rate (or such lower rate as
may be applicable under an income tax treaty) of the non-United States
corporation's effectively connected earnings and profits, subject to certain
adjustments.
Generally, the Company must report to the United States Internal Revenue
Service the amount of dividends paid, the name and address of the recipient,
and the amount, if any, of tax withheld. A similar report is sent to the
holder. Pursuant to tax treaties or certain other agreements, the United States
Internal Revenue Service may make its reports available to tax authorities in
the recipient's country of residence.
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Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or fails to
provide a correct taxpayer identification number and certain other
information.
GAIN ON DISPOSITION OF COMMON STOCK
Except as described below, a Non-U.S. Holder generally will not be subject
to United States federal income tax with respect to gain realized on a sale or
other disposition of Common Stock unless (i) the gain is connected with such
holder's United States trade or business; (ii) in the case of certain Non-U.S.
Holders who are non-resident alien individuals and hold the Common Stock as a
capital asset, such individuals are present in the United States for 183 or
more days in the taxable year of the disposition, (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code regarding the taxation
of United States expatriates; or (iv) the Company is or has been a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. The Company is
not, and does not anticipate becoming, a United States real property holding
corporation. However, no assurance can be given that the Company will not be a
United States real property holding corporation when a Non-U.S. Holder sells
its shares of Common Stock.
FEDERAL ESTATE TAXES
In general, an individual Non-U.S. Holder who is treated as the owner of, or
has made certain lifetime transfers of, an interest in the Common Stock will
be required to include the value thereof in his gross estatement for United
States federal estate tax purposes, and may be subject to United States
federal estate tax unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of
a disposition of Common Stock paid to or through a United States office of a
broker unless the disposing holder certifies as to its non-United States
status or otherwise establishes an exemption. Generally, United States
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through
a non-United States office of a non-United States broker. However, United
States information reporting requirements (but not backup withholding) will
apply to a payment of disposition proceeds outside the United States if (A)
the payment is made through an office outside the United States of a broker
that is either (i) a United States person, (ii) a foreign person which derives
50% or more of its gross income for certain periods from the conduct of a
trade or business in the United States or (iii) a "controlled foreign
corporation" for United States federal income tax purposes and (B) the broker
fails to maintain documentary evidence that the holder is a Non-U.S. Holder
and that certain conditions are met, or that the holder otherwise is entitled
to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-U.S. Holder would be subject to backup
withholding in the absence of certification from the holder as to non-United
States status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons 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, provided that the required information is furnished to the IRS.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
In connection with the issuance of the Senior Notes (as hereinafter defined)
in February 1994, the Company entered into a credit agreement (the "Credit
Agreement") with Mellon Bank, N.A. ("Mellon"), as agent, along with a syndicate
of other lenders to establish a revolving credit facility (the "Revolving
Credit Facility") and a four-year term loan (the "Term Loan"). On March 31,
1995 the Company entered into a standby term loan agreement (the
"Somerville/Monessen Loan Agreement") with Mellon, as agent, along with a
syndicate of other lenders to establish four-year term loans to finance the
acquisitions of the Somerville and the Monessen Facilities. On March 18, 1996,
in connection with the acquisition of the Clairton facility, the Company (i)
amended and restated the Credit Agreement (the "Amended and Restated Credit
Agreement") to provide for an increase in the borrowing limit of the Revolving
Credit Facility, prepayment of the Term Loan, amendment of certain financial
covenants and a decrease in margins (ii) amended the Somerville/Monessen Loan
Agreement (the "Amended Somerville/Monessen Loan Agreement") to amend certain
financial covenants and to decrease the margins and (iii) entered into a five-
year term loan agreement (the "Clairton Loan Agreement") with Mellon, as agent,
along with a syndicate of other lenders to establish a five-year term loan (the
"Clairton Term Loan") to finance the acquisition of the Clairton facility. The
credit facilities established under the Amended and Restated Credit Agreement,
the Amended Somerville/Monessen Loan Agreement and the Clairton Term Loan are
collectively referred to as the "Bank Credit Facilities". The Company also has
commitments from the Commonwealth of Pennsylvania to provide low interest
financing for the Monessen Facility (the "State Loans").
THE BANK CREDIT FACILITIES
The Revolving Credit Facility has a five-year term with a maximum borrowing
limit of $100 million, subject to availability as described below. Up to
$15,000,000 of the Revolving Credit Facility is available for letters of
credit. The letter of credit fee for trade letters of credit is .50% per annum
and, for standby letters of credit, it is the LIBOR-based margin for loans
under the Revolving Credit Facility, plus, in each case, a facing fee of .125%
per annum. The Company may borrow pursuant to the Revolving Credit Facility for
working capital and other general corporate purposes, subject to limitations
with respect to general corporate purpose borrowings which are not also working
capital borrowings. Borrowings pursuant to the Revolving Credit Facility are
available to the extent that borrowings do not exceed the sum of 85% of
accounts receivable and 50% of inventory as shown on the Company's balance
sheet. Availability under the Revolving Credit Facility is subject to customary
conditions precedent, including the absence of default and no material adverse
change.
The Amended Somerville/Monessen Loan Agreement has a four-year term, with an
outstanding principal value of approximately $25 million to be repaid in seven
semi-annual installments.
The Clairton Term Loan is for $35 million with a five-year term and is to be
repaid in two equal annual installments of $17.5 million in 2000 and 2001.
Borrowings pursuant to the Bank Credit Facilities bear interest at a variable
rate, selected by the Company, which will be either (i) a one, two, three or
six month reserve-adjusted LIBOR plus a margin ranging from .75% to 1.50% per
annum, or (ii) the base rate which is the higher of Mellon's prime rate or .5%
per annum over the federal funds rate plus a margin of up to .5% per annum. The
margins are subject to adjustment upward or downward based on a quarterly and
annual calculation of the debt/Required EBITDA ratio, with the first
calculation to be based on December 31, 1996 unaudited annual financial
statements. The Amended and Restated Credit Agreement provides for a commitment
fee, which ranges from .2% to .375% per annum on the unused amount of the
revolving credit commitments.
SECURITY. The Revolving Credit Facility is secured by an assignment by the
Company of its accounts receivable and inventory and the real, personal and
intangible property of the Company's Carbon Materials & Chemicals division
(except for those relating to the Clairton facility), including, without
limitation, its patents,
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trademarks and trade names. The Amended Somerville/Monessen Loan Agreement is
secured by the Company's interest in real and tangible personal property
located at the Somerville and Monessen Facilities. The Clairton Term Loan is
secured by Company's interest in the real and tangible personal property
located at the Clairton facility.
Covenants
The Bank Credit Facilities contain substantial limitations on acquisition and
investment activities and on capital expenditures; limitations on indebtedness
and guarantees; limitations on mergers and sales of assets, restrictions on
liens; restrictions on leases; restrictions on transactions with affiliates;
restrictions on changes in the nature of business; restrictions on changes to
its charter documents or to the Indemnity or the Guarantee; restrictions on
prepayment of the Senior Notes (including any repurchase pursuant to Section
3.10 of the Indenture (as hereinafter defined) unless the loans under the Bank
Credit Facilities have first been paid in full) or changes to the terms of the
Senior Notes; and restrictions on entering into other agreements that limit the
ability of the Company to grant further security in favor of, or modify any
term of, the Bank Credit Facilities, or the ability of the Company's
subsidiaries to pay distributions and other amounts to the Company.
The Bank Credit Facilities contain certain financial covenants, including: a
minimum net worth requirement ranging from $45 million for 1996 to $75 million
for years 1999 and beyond; a minimum ratio of after-tax operating cash flow to
cash interest for each specified period of 3.0 to 1; a minimum ratio of after-
tax operating cash flow to debt service of 1.75 to 1; and a maximum ratio of
debt to Required EBITDA of 4 to 1. Under the Bank Credit Facilities the Company
is permitted to pay dividends and make other purchases of, or other payments
with respect to, its stock if it would be in compliance with the financial
covenants and if there is and would be no other default under the Bank Credit
Facilities.
An event of default under the Bank Credit Facilities occurs in certain
instances, including (i) if any person other than the Management Investors and
their affiliates becomes the beneficial owner of more than 50% of the voting
stock of the Company or obtains the power to nominate or elect at least a
majority of the Board of Directors, (ii) if the Management Investors as a group
cease to own at least 10% of the voting stock of the Company, or (iii) if a
Change of Control occurs as defined in the Indenture (as hereinafter defined).
THE STATE LOANS
The Company has commitments from the Commonwealth of Pennsylvania to provide
low interest financing in an aggregate principal amount of approximately $2.5
million at a rate of 2% per annum for the purchase and construction of the
Monessen Facility. The funds will be distributed through three separate state
programs upon completion of audits of qualifying expenditures. The loans will
be secured by liens on the assets financed.
THE SENIOR NOTES
The Company issued $110 million aggregate principal amount of senior notes
(the "Senior Notes") under an indenture dated February 10, 1994 between the
Company and Integra Trust Company, National Association, as Trustee (the
"Indenture"). Interest on the Senior Notes is payable semi-annually on February
1 and August 1 of each year at a rate of 8 1/2% per annum. The Senior Notes
mature on February 1, 2004. Except as described below, the Company may not
redeem the Senior Notes prior to February 1, 1999. On or after such date, the
Company may redeem the Senior Notes, in whole or in part, at specified
redemption prices beginning at 104.25% for the year commencing February 1, 1999
and reducing to 102.125% for the year 2000 and 100% for the years 2001 and
thereafter, in each case together with accrued interest.
In addition, at any time prior to February 1, 1997, the Company may, at its
option, redeem up to $30 million aggregate principal amount of Senior Notes in
connection with an underwritten primary public offering of the common stock of
the Company resulting in net proceeds to the Company in excess of $30 million
at a redemption
67
<PAGE>
price equal to 108.50% of the principal amount redeemed, together with accrued
and unpaid interest to the date of such redemption. Only one redemption may be
made pursuant to the provisions described in this paragraph.
Upon a Change of Control, the Company may be required to repurchase all or a
portion of the then outstanding Senior Notes at a purchase price of 101% of the
principal amount thereof, plus accrued interest to the date of repurchase.
"Change of Control" means the occurrence of the following events: (x) a person
or entity or group (as the term is used in Section 13(d) (3) of the Securities
Exchange Act of 1934 (the "Exchange Act")) of persons or entities shall have
become the beneficial owner of securities of the Company representing a
majority of the combined voting power of the outstanding securities of the
Company ordinarily having the right to vote in the election of directors; and
(y) a Rating Decline occurs. A "Rating Decline" means the decrease of one or
more gradations with respect to the rating of the Senior Notes by either S&P or
Moody's if the Senior Notes are below Investment Grade and, in the event the
Senior Notes are rated by either Rating Agency as Investment Grade, a rating
below Investment Grade.
COVENANTS. The Indenture contains certain covenants which impose certain
limitations and restrictions on the activities of the Company, including but
not limited to; (i) restrictions on the amount of certain types of indebtedness
that may be incurred by the Company unless the Company's Consolidated Fixed
Charge Ratio (as defined in the Indenture) for the four full fiscal quarters
prior to the date such indebtedness is incurred, after giving effect to the
incurrence of such debt and the application of the proceeds therefrom, is
greater than 2.5 to 1; (ii) restrictions on the payment or declaration of
dividends or the purchase or redemption of Capital Stock in excess of the sum
of (A) 50% of the Consolidated Net Income (as defined in the Indenture) of the
Company accrued from January 1, 1994, (B) the net proceeds of certain issuance
of Capital Stock and other additions to capital, and (C) $10 million; (iii)
restrictions on asset disposition unless the proceeds are reinvested in the
business or used to repay unsubordinated debt; (iv) limitations on the ability
of the Company and its subsidiaries to create or permit to exist restrictions
on distributions from such subsidiary; (v) limitations on liens; and (vi)
restrictions on transactions between the Company and its subsidiaries, on the
one hand, and affiliates of the Company or holders of 5% or more of any class
of the capital stock of the Company, on the other, unless such transactions are
on terms no less favorable to the Company or any such subsidiary than could be
obtained in a comparable arm's length transaction.
68
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement), the United States Underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
and Dillon, Read & Co. Inc. are acting as representatives (the
"Representatives"), and the international managers named below (the
"International Managers" and together with the U.S. Underwriters, the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
and Dillon, Read & Co. Inc. are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders an aggregate of shares of Common Stock. The number of
shares that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<S> <C>
NUMBER OF
U.S. UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dillon, Read & Co. Inc................................................
U.S. Offering Subtotal..............................................
=========
INTERNATIONAL MANAGERS
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dillon, Read & Co. Inc................................................
International Offering Subtotal.....................................
=========
Total.............................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. If any shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares (other than shares covered by the over-allotment option described below)
must be purchased. The offering price and underwriting discounts and
commissions per share for the U.S. Offering and the International Offering will
be identical.
Prior to the Offerings, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in determining the initial
price to the public include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities market at the
time of the Offerings and the recent market prices of securities of generally
comparable companies.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act and other
applicable securities laws, or to contribute to payments the Underwriters may
be required to make in respect thereof.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such prices less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share on sales to
69
<PAGE>
any other Underwriter and certain other dealers. After the initial public
offering, the price to the public, the concession and the discount to dealers
may be changed by the Representatives.
The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,050,288 additional shares of Common Stock, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time within 30 days
after the date of this Prospectus. To the extent that the U.S. Underwriters
exercise such option, each of the U.S. Underwriters will be committed, subject
to certain conditions, to purchase a number of option shares proportionate to
such U.S. Underwriter's initial commitment as indicated in the preceding table.
Application has been made to have the Common Stock listed on the New York
Stock Exchange. The Underwriters intend to sell the shares of Common Stock to a
minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the
distribution requirements of such listing.
The Company and certain stockholders, officers and directors have agreed not
to offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose of any common stock of the Company or any securities convertible into
or exercisable or exchangeable for such common stock, except to the
Underwriters pursuant to the Underwriting Agreement, for a period of 180 days
after the date of the Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the
foregoing, during such period (i) the Company may grant stock or stock options
pursuant to the Company's existing benefit plans and (ii) the Company may issue
shares of its common stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented and agreed that, with respect
to the shares included in the U.S. Offering and with certain exceptions, (a) it
is not purchasing any Common Stock for the account of anyone other than a
United States or Canadian Person (as defined below) and (b) it has not offered
or sold, and will not offer or sell, directly or indirectly, any Common Stock
or distribute this Prospectus outside of the United States or Canada or to
anyone other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. Underwriters and International Managers, each International
Manager has represented and agreed that, with respect to the shares included in
the International Offering and with certain exceptions, (a) it is not
purchasing any Common Stock for the account of any United States or Canadian
Person and (b) it has not offered or sold, and will not offer or sell, directly
or indirectly, any Common Stock or distribute this Prospectus within the United
States or Canada or to any United States or Canadian Person. The foregoing
limitations do not apply to stabilization transactions and to certain other
transactions among the International Managers and the U.S. Underwriters. As
used herein, "United States or Canadian Person" means any individual who is a
resident of the United States or Canada or any corporation, pension, profit-
sharing or other trust or other entity organized under or governed by the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States or Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person other than a United States or Canadian Person, and "United States" means
the United States of America, its territories, its possessions and all areas
subject to its jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the International
Managers of any number of shares of Common Stock to be purchased pursuant to
the Underwriting agreement as may be mutually agreed. The per share price and
currency of settlement of any shares so sold shall be the public offering price
set forth on the cover page of this Prospectus, in United States dollars, less
an amount not greater than the per share amount of the concession to the
dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly in Canada in contravention of the securities law of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
70
<PAGE>
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any Common Stock a notice stating in substance
that, by purchasing such Common Stock, such dealer represents and agrees that
it has not offered or sold, and will not offer or sell, directly or indirectly,
any of such Common Stock in Canada or to or for the benefit of any resident of
Canada in contravention of the securities law of Canada or any province or
territory thereof and that any offer of Common Stock in Canada will be made
only pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Common
Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that (i) it has not
offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
do not constitute an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of the United Kingdom and the
Regulations with respect to anything done by it in relation to the Common Stock
in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Common Stock to any
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 of the United
Kingdom or is a person to whom such document may otherwise lawfully be issued
or passed on.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby and certain
other legal matters in connection with the Offerings will be passed upon for
the Company by Dickie, McCamey & Chilcote, P.C., Pittsburgh, Pennsylvania.
Clayton A. Sweeney, a shareholder of Dickie, McCamey & Chilcote, P.C., is a
director of the Company and owns 138,960 shares of the Common Stock of the
Company. See "Certain Relationships and Related Transactions". Certain legal
matters in connection with the Offerings will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York. With respect to
matters governed by Pennsylvania law, Davis Polk & Wardwell may rely on the
opinion of Dickie, McCamey & Chilcote, P.C.
EXPERTS
The Consolidated Financial Statements and schedules of the Company at
December 31, 1994 and 1995, and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and the registration statement
on Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement. The consolidated financial statements of Koppers
Australia at June 30, 1995 and 1994 and for the years then ended appearing in
the Registration Statement have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon appearing in the Registration
Statement. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of the coal chemical business of Aristech as of
December 31, 1994 and 1995 and for the years then ended included in this
Prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as set forth in their report appearing herein and
elsewhere in the Registration Statement, and have been included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
71
<PAGE>
ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the Commission under
the Securities Act, with respect to the shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the shares offered hereby, reference is made to the
Registration Statement which may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may also be obtained upon payment of the fees
prescribed by the Commission from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each case reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files reports and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at 7 World Trade Center, 13th Floor, New York,
New York 10048, and copies may be obtained at the prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. Following the completion of the Offerings, the Company will
also file such reports and information with the NYSE, and the reports and
information will be available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Koppers Industries, Inc.
Consolidated Financial Statements for the Years Ended December 31, 1993,
1994 and 1995
Report of Independent Auditors.......................................... F-2
Consolidated Statement of Operations for the Years Ended December 31,
1993, 1994 and 1995....................................................... F-3
Consolidated Balance Sheet at December 31, 1994 and 1995................ F-4
Consolidated Statement of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995....................................................... F-6
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1993,
1994 and 1995........................................................ F-7
Notes to Consolidated Financial Statements.............................. F-8
Condensed Consolidated Financial Statements (Unaudited) for the Three
Months Ended
March 31, 1995 and 1996
Condensed Consolidated Statement of Operations (Unaudited) for the Three
Months Ended
March 31, 1995 and 1996.............................................. F-21
Condensed Consolidated Balance Sheet (Unaudited) at March 31, 1996...... F-22
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three
Months Ended
March 31, 1995 and 1996.............................................. F-24
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-25
Coal Chemical Business of Aristech Chemical Corporation
Financial Statements for the Years Ended December 31, 1994 and 1995
Report of Independent Auditors.......................................... F-26
Statements of Income for the Years Ended December 31, 1994 and 1995..... F-27
Balance Sheets at December 31, 1994 and 1995............................ F-28
Statements of Net Cash Flows for the Years Ended December 31, 1994 and
1995................................................................. F-29
Notes to Financial Statements........................................... F-30
Financial Statements (Unaudited) for the Three Months Ended March 31,
1995 and 1996
Statements of Income (Unaudited) for the Three Months Ended March 31,
1995 and 1996............................................................. F-36
Balance Sheet at March 31, 1996 (Unaudited)............................. F-37
Statements of Net Cash Flows (Unaudited) for the Three Months Ended
March 31, 1995 and 1996................................................ F-38
Notes to Financial Statements (Unaudited)............................... F-39
Koppers Australia Pty. Limited
Consolidated Financial Statements for the Years Ended June 30, 1994 and
1995
Independent Auditor's Report............................................ F-41
Consolidated Profit and Loss Account for the Years Ended June 30, 1994
and 1995.................................................................. F-42
Consolidated Balance Sheet at June 30, 1994 and 1995.................... F-43
Consolidated Statement of Cash Flows for the Years Ended June 30, 1994
and 1995.................................................................. F-44
Profit and Loss Account for the Years Ended June 30, 1994 and 1995...... F-45
Balance Sheet at June 30, 1994 and 1995................................. F-46
Statement of Cash Flows for the Years Ended June 30, 1994 and 1995...... F-47
Notes to and Forming Part of the Financial Statements................... F-48
Consolidated Financial Statements (Unaudited) for the Six Months Ended
December 31, 1994 and 1995...........................................
Consolidated Profit and Loss Account (Unaudited) for the Six Months
Ended December 31, 1994 and 1995..................................... F-70
Consolidated Balance Sheet (Unaudited) at December 31, 1995............. F-71
Consolidated Statement of Cash Flows (Unaudited) for the Six Months
Ended December 31, 1994 and 1995..................................... F-72
Notes to Consolidated Financial Statements (Unaudited).................. F-73
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Koppers Industries, Inc.
We have audited the accompanying consolidated balance sheets of Koppers
Industries, Inc. at December 31, 1994 and 1995 and the related consolidated
statements of operations, 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Koppers Industries, Inc. at December 31, 1994 and 1995, and the
consolidated 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 the accompanying notes to the financial statements, the
Company changed its method of accounting for retiree health care and life
insurance benefits and income taxes in 1993.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 25, 1996, except for
Notes 3 and 12, as to which the date
is March 25, 1996, and
Note 1, as to which the date
is May 22, 1996
F-2
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
<S> <C> <C> <C>
Net sales......................................... $461,219 $476,448 $525,730
Operating expenses:
Cost of sales................................... 397,131 408,252 440,746
Depreciation and amortization................... 19,425 16,680 17,532
Selling, research, general and administrative... 19,559 25,807 27,604
-------- -------- --------
Total operating expenses...................... 436,115 450,739 485,882
-------- -------- --------
Operating profit.................................. 25,104 25,709 39,848
Equity in earnings of affiliates................ 4,578 5,314 9,239
Other income.................................... 468 531 376
-------- -------- --------
Total other income............................ 5,046 5,845 9,615
-------- -------- --------
Income before interest expense and provision for
income taxes...................................... 30,150 31,554 49,463
Interest expense.................................. 13,177 13,620 15,060
-------- -------- --------
Income before provision for income taxes.......... 16,973 17,934 34,403
Provision for income taxes........................ 6,508 5,017 9,963
-------- -------- --------
Income before extraordinary item and cumulative
effect of changes in accounting methods.......... 10,465 12,917 24,440
Extraordinary loss on early extinguishment of
debt, net of income taxes......................... -- (1,815) --
Cumulative effect of accounting changes:
Retiree benefits, net of income taxes........... (5,210) -- --
Income taxes.................................... (507) -- --
-------- -------- --------
Net income........................................ 4,748 11,102 24,440
Payment-in-kind dividends on preferred stock...... 7,242 944 --
-------- -------- --------
Net income (loss) applicable to common stock...... $ (2,494) $ 10,158 $ 24,440
======== ======== ========
Earnings (loss) per share of common stock:
Earnings before extraordinary item and
cumulative effect of accounting changes...... $ 0.32 $ 1.13 $ 2.36
Extraordinary item.............................. -- (0.17) --
Cumulative effect of accounting changes......... (0.57) -- --
-------- -------- --------
Earnings (loss) per share of common stock......... $ (0.25) $ 0.96 $ 2.36
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 2,975 $ 1,618
Accounts receivable less allowance for doubtful accounts
of $296 in 1994 and $342 in 1995..................... 51,809 57,583
Inventories:
Raw materials......................................... 34,389 38,584
Work in process....................................... 2,075 2,419
Finished goods........................................ 37,844 44,363
LIFO reserve.......................................... (6,857) (8,191)
-------- ---------
Total inventories................................... 67,451 77,175
Deferred tax benefit.................................... 5,404 5,896
Other................................................... 1,034 1,732
-------- ---------
Total current assets................................ 128,673 144,004
Investments:
Koppers Australia Pty. Limited.......................... 26,499 30,223
Tarconord............................................... 11,658 15,149
Koppers Sherman-Abetong................................. 4,077 3,669
-------- ---------
Total investments................................... 42,234 49,041
Fixed assets:
Land.................................................... 5,320 5,523
Buildings............................................... 9,490 9,736
Machinery and equipment................................. 184,942 233,652
-------- ---------
199,752 248,911
Less: accumulated depreciation........................ (86,048) (102,388)
-------- ---------
Net fixed assets.................................... 113,704 146,523
Other assets.............................................. 9,582 9,387
-------- ---------
Total assets........................................ $294,193 $ 348,955
======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 21,763 $ 33,237
Payroll and compensation costs........................... 9,882 8,956
Accrued liabilities...................................... 11,621 12,387
Current portion of deferred revenue...................... 1,329 329
Current portion of term loan............................. 5,000 9,000
-------- --------
Total current liabilities.............................. 49,595 63,909
Long-term debt:
Revolving credit......................................... 34,000 29,000
Senior Notes............................................. 110,000 110,000
Term loan................................................ 10,000 26,000
-------- --------
Total long-term debt................................... 154,000 165,000
Deferred income tax........................................ 8,461 12,788
Product warranty and insurance reserves.................... 13,265 14,492
Accrued postretirement benefits obligation................. 11,604 12,275
Other...................................................... 5,068 2,261
-------- --------
Total liabilities...................................... 241,993 270,725
Commitments and contingencies--See Note 10
Series B Junior Convertible Preferred Stock; 2,600 shares
designated and issued; liquidation value of $100 per
share..................................................... 260 260
Common stock value subject to redemption................... 15,450 23,715
Warrants to purchase common stock.......................... 873 --
Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 6,707,952 total shares
issued in 1994 and 1995................................... 67 67
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 0 total shares issued in
1994 and 2,338,200 in 1995................................ -- 23
Capital in excess of par value............................. 6,875 12,964
Retained earnings.......................................... 32,750 45,828
Cumulative translation adjustment.......................... (623) (384)
Treasury stock, at cost, 1,355,301 shares in 1994 and
1,433,961 shares in 1995.................................. (3,452) (4,243)
-------- --------
Total liabilities and stockholders' equity............. $294,193 $348,955
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash provided by operating activities:
Net income................................... $ 4,748 $ 11,102 $ 24,440
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 20,234 16,884 17,639
Deferred income taxes...................... 1,717 349 3,835
Equity income of affiliated companies, net
of dividends received.................... (3,132) (3,902) (6,568)
Cumulative effect of accounting changes...... 5,717 -- --
Extraordinary loss on early extinguishment of
debt....................................... -- 1,815 --
Increase in reserves......................... 986 677 955
(Increase) decrease in working capital:
Accounts receivable........................ (12,284) 3,165 (5,774)
Inventories................................ (5,295) 841 (9,724)
Accounts payable........................... 3,403 (2,323) 11,474
Payroll and compensation costs............. (2,588) 4,045 (926)
Accrued liabilities........................ 862 4,924 766
Other...................................... (794) 1,672 (841)
-------- --------- ---------
Net cash provided by operating
activities............................. 13,574 39,249 35,276
-------- --------- ---------
Cash used in investing activities:
Acquisitions and related capital
expenditures............................... -- -- (34,948)
Capital expenditures......................... (14,661) (16,326) (15,193)
Other........................................ 528 310 (202)
-------- --------- ---------
Net cash used in investing activities...... (14,133) (16,016) (50,343)
-------- --------- ---------
Cash used in financing activities:
Borrowings of revolving credit............... 112,000 110,000 150,000
Repayments of revolving credit............... (96,000) (126,000) (155,000)
Repayment of long term debt.................. (18,000) (51,750) (5,000)
Proceeds from long term debt................. -- -- 25,000
Proceeds from issuance of Senior Notes....... -- 110,000 --
Retirement of preferred stock................ -- (53,452) --
Payments of deferred financing costs......... -- (5,425) --
Net purchases of voting common stock......... (66) (3,820) (1,637)
Proceeds from exercise of warrants........... -- -- 2,667
Dividends on common stock.................... -- -- (2,320)
-------- --------- ---------
Net cash provided by (used in) financing
activities................................... (2,066) (20,447) 13,710
-------- --------- ---------
Net increase (decrease) in cash................ (2,625) 2,786 (1,357)
Cash at beginning of year...................... 2,814 189 2,975
-------- --------- ---------
Cash at end of year............................ $ 189 $ 2,975 $ 1,618
======== ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest................................... $ 13,110 $ 9,551 $ 15,135
Income taxes............................... 3,816 3,692 7,399
</TABLE>
See accompanying notes.
F-6
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON FOREIGN
STOCK VALUE VOTING CAPITAL IN CURRENCY NON-VOTING
SUBJECT TO STOCK COMMON EXCESS OF RETAINED TRANSLATION TREASURY COMMON
REDEMPTION WARRANTS STOCK PAR VALUE EARNINGS ADJUSTMENT STOCK STOCK
----------- -------- ------ ---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $ 550 $ 873 $67 $ 9,039 $ 35,814 $(3,270) $(1,314) $--
Net loss to common for
year 1993.............. -- -- -- -- (2,494) -- -- --
Foreign currency
translation............ -- -- -- -- -- (1,535) -- --
Net change in common
stock value subject to
redemption............. 250 -- -- (250) -- -- -- --
Options exercised, stock
purchased and retired,
7,353 shares........... -- -- -- -- (12) -- -- --
Treasury stock
purchases, 14,175
shares................. -- -- -- -- -- -- (54) --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1993................... 800 873 67 8,789 33,308 (4,805) (1,368) --
Net income to common for
year 1994.............. -- -- -- -- 10,158 -- -- --
Foreign currency
translation............ -- -- -- -- -- 4,182 -- --
Net change in common
stock value subject to
redemption............. 14,650 -- -- (1,767) (12,883) -- -- --
Redemption of preferred
stock.................. -- -- -- -- 3,756 -- -- --
Options exercised, stock
purchased and retired,
38,304 shares.......... -- -- -- -- (342) -- -- --
Treasury stock
purchases, 197,388
shares................. -- -- -- -- -- -- (2,084) --
Redemption of voting
common stock........... -- -- -- (147) (1,247) -- -- --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1994................... 15,450 873 67 6,875 32,750 (623) (3,452) --
Net income to common for
year 1995.............. -- -- -- -- 24,440 -- -- --
Foreign currency
translation............ -- -- -- -- -- 239 -- --
Net change in common
stock value subject to
redemption............. 8,265 -- -- -- (8,265) -- -- --
Options exercised, stock
purchased and retired,
46,749 shares.......... -- -- -- -- (435) -- -- --
Treasury stock
purchases, 161,013
shares................. -- -- -- -- -- -- (1,707) --
Treasury stock sales,
82,353 shares.......... -- -- -- -- -- -- 916 --
Warrants exercised,
2,399,850 shares....... -- (873) -- 6,158 -- -- -- 23
Common stock repurchased
and retired, 61,650
shares................. -- -- -- (69) (342) -- -- --
Dividends on common
stock, net of equity
interest............... -- -- -- -- (2,320) -- -- --
------- ----- --- ------- -------- ------- ------- ---
Balance at December 31,
1995................... $23,715 $ -- $67 $12,964 $ 45,828 $ (384) $(4,243) $23
======= ===== === ======= ======== ======= ======= ===
</TABLE>
See accompanying notes.
F-7
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES
Organization
Koppers Industries, Inc. (the "Company") is an integrated producer of carbon
compounds and treated wood products for use in a variety of industrial
applications. The Company's Coke Products division produces foundry and
furnace coke and coke by-products, including coal tars, gases, oils and
chemicals for sale to steel mill blast furnaces, foundries and other
industrial operations. The Company's Carbon Materials & Chemicals division is
a supplier of carbon pitch, which is used primarily by the aluminum industry
as a binder in the manufacture of anodes. Carbon Materials & Chemicals also
produces several by-products, including creosote, a chemical preservative used
to pressure treat wood for the railroad and utility markets; phthalic
anhydride, used in the production of plasticizers and polyester resins; and
roofing pitch, or bitumen, used in the manufacture of built-up roofing
systems. The Company's Railroad and Utility Products division treats railroad
crossties, utility poles and pilings with preservatives for various uses.
Basis of Financial Statements
The accompanying consolidated financial statements include all necessary
intercompany eliminations.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Carbon materials & chemicals and railroad & utility products inventories are
valued at the lower of cost, utilizing the last-in, first-out ("LIFO") basis,
or market. Market represents replacement cost for raw materials and net
realizable value for work in process and finished goods. Carbon materials &
chemicals and railroad & utility products inventories constituted
approximately 90% of total inventory value at December 31, 1995.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
Investments
Following is a combined financial summary of the equity investments of the
Company (all 50% owned) for their respective years ended 1993, 1994 and 1995.
The fiscal year end for Koppers Australia Pty. Limited is June 30 and,
accordingly, the equity numbers reflected in the table will not equal the
amounts shown in the financial statements.
<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................ $161,883 $166,652 $203,639
Operating profit..................................... 15,974 16,980 28,303
Net income........................................... 12,352 11,901 19,154
Equity in earnings................................... 6,176 5,951 9,577
Current assets....................................... 68,067 68,679 88,776
Total assets......................................... 170,306 152,519 171,550
Current liabilities.................................. 29,292 27,721 41,437
Net assets........................................... 79,899 94,347 106,162
Non-current liabilities.............................. 61,115 30,451 23,951
</TABLE>
F-8
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following describes activity related to the Company's significant equity
investments:
TARCONORD A/S (TARCONORD)
The Company owns a 50% equity interest in Tarconord, a Danish tar operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $ 976,000 $1,246,000
1994........................................... 738,000 562,000
1995........................................... 3,139,000 731,000
</TABLE>
KOPPERS AUSTRALIA PTY. LIMITED (KOPPERS AUSTRALIA)
The Company holds a 50% investment in Koppers Australia, a wood treating and
tar operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $2,353,000 $ --
1994........................................... 3,614,000 360,000
1995........................................... 4,998,000 712,000
</TABLE>
KSA LIMITED PARTNERSHIP (KSA)
The Company holds a 50% investment in KSA, a concrete crosstie operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1993........................................... $1,249,000 $ 200,000
1994........................................... 962,000 500,000
1995........................................... 1,102,000 1,500,000
</TABLE>
The Company is guarantor on KSA debt in the amount of $2.5 million at
December 31, 1995.
At December 31, 1995 consolidated retained earnings of the Company include
$22 million of undistributed earnings from these investments.
Depreciation and amortization
Buildings, machinery, and equipment are recorded at purchased cost and
depreciated over their estimated useful lives (3 to 20 years) using the
straight-line method.
Effective July 1, 1994 the Company extended the estimated useful lives of
certain fixed assets to conform to the Company's actual experience with fixed
asset lives. This change resulted in a reduction to depreciation expense for
1994 of approximately $1.35 million.
Amortization charges for 1993 related to the coke supply contract, which
expired on December 31, 1993, amounted to $2.2 million.
Accrued insurance
The Company is self-insured for property, casualty and workers' compensation
insurance up to various stop loss coverages. Losses are accrued based upon the
Company's estimates of the aggregate liability for claims incurred using
certain actuarial assumptions followed in the insurance industry and based on
Company experience.
Interest rate protection agreements
The Company has previously entered into interest rate protection agreements,
including an interest rate swap and collar, as a hedge against interest
exposure of its variable rate long-term debt. At December 31, 1995 the
F-9
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's only outstanding rate protection agreement is a $10 million collar
which expires in October 1996. The differences to be paid or received on these
agreements, which are all designated as hedges, are included in interest
expense as payments are made or received. Any fees associated with the
establishment of these agreements are recorded as deferred financing costs and
amortized over the terms of the agreements.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense for stock option grants.
Restatement of Capital Accounts
On May 22, 1996, the Board of Directors declared a three-for-one stock split
effective as of May 23, 1996. All share and per share amounts in the financial
statements have been adjusted to give effect to the split. The Board of
Directors also restated and amended the Company's articles of incorporation to
provide for the authorization of 40 million shares of common stock, effective
upon the consummation of a public offering for the Company's Common Stock.
Reclassification
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. Such
reclassification had no effect on net income.
Impact of Recently Issued Accounting Standards
In March 1995 the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
2.SEVERANCE CHARGES
Results for 1994 include a $2.5 million expense related to a voluntary
severance plan initiated by the Company as part of a general corporate
restructuring. The total charge reflects salaries and benefits for 55
participating employees and consists of a $1.7 million charge to general and
administrative expense, with the remaining $0.8 million included as cost of
sales. At December 31, 1995 approximately $0.1 million of the total charge
remains as an accrued liability.
3.ACQUISITIONS
In March 1995, the Company acquired a wood treating plant and certain assets
located in Somerville, Texas for $9.8 million. In April 1995, the Company
acquired a coke plant and certain assets located in Monessen, Pennsylvania for
$5 million. The Somerville plant began production in April 1995, and the
Monessen plant began production in November 1995. Both were accounted for as
purchases, and results of operations have been included since the dates of
acquisition. The pro forma effect of these acquisitions on the 1994 and 1995
results of the Company is not material.
In March 1996, the Company signed an asset purchase agreement with Aristech
Chemical Corporation to purchase a tar distillation plant and certain assets
located in Clairton, Pennsylvania for approximately $40 million in cash
subject to post-closing working capital adjustments, plus the assumption of
approximately $8 million of liabilities. In 1995, this business generated over
$64 million of net sales, excluding sales to the Company.
F-10
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4.DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Term Loans.................................................... $ 15,000 $ 35,000
Senior Notes.................................................. 110,000 110,000
Revolving Credit.............................................. 34,000 29,000
-------- --------
$159,000 $174,000
======== ========
</TABLE>
On February 10, 1994 the Company issued $110 million of 8.5% Senior Notes
maturing in 2004 and carrying a fixed rate of 8.5% per annum. Semiannual
interest payments to the Note holders are due every February 1 and August 1.
Concurrent with the issuance of the Senior Notes, the Company entered into a
new credit agreement to provide for a term loan in the principal amount of $20
million and a revolving credit facility of $75 million which includes letters
of credit subject to an aggregate sublimit of $15 million.
In March 1995 the Company entered into a standby term loan agreement to
finance the acquisitions and improvements of the Monessen coke plant and the
Somerville wood treating plant. The agreement provided for a $14 term loan for
the Monessen plant and an $11 term loan for the Somerville plant. The loan
requires repayments of $4 million in 1996, $7 million in 1997, $9 million in
1998, and $5 million in 1999.
The term loans provide for interest at variable rates. At December 31, 1995
the effective rate on the term loans was 8.1%. The average rates on the term
loans for the years ended December 31, 1994 and 1995 were 9.1% and 9.3%,
respectively.
The Company has Revolving Credit Notes which provide for revolving credit
loans up to $75 million, based upon a percentage of accounts receivable and
inventory, until February 10, 1998. Commitment fees of 0.5% per annum on the
unborrowed amounts are required. The note provides for interest at variable
rates. At December 31, 1995, the effective interest rate on the Revolving
Credit Notes was 7.8%, and the average rates during the years ended December
31, 1994 and 1995 were 6.6% and 8.5%, respectively.
Substantially all of the Company's current assets (including accounts
receivable and inventories), as well as the fixed assets of the Carbon
Materials & Chemicals division, are pledged as collateral for the term loan
and the revolving credit loan.
At December 31, 1995 the aggregate debt maturities for the next five years
are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 9,000,000
1997................................................................ 12,000,000
1998................................................................ 38,000,000
1999................................................................ 5,000,000
2000................................................................ --
</TABLE>
To limit the effect of a rise in interest rates, the Company had previously
entered into two interest rate protection agreements covering the term debt
and a portion of the revolving credit loan. The most significant of these was
an interest rate swap agreement covering $75 million of the Company's floating
rate long-term debt. This swap agreement expired on December 29, 1993. The
remaining collar agreement, which expires in October 1996, currently covers
$10 million of the debt balance and establishes an interest rate cap of 10%
and a floor of 8.75%. The total cost to the Company as a result of these
arrangements was $5.6 million, $0.6 million and $0.3 million for the years
ended December 31, 1993, 1994 and 1995, respectively.
F-11
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The prepayment of debt on February 10, 1994 resulted in an extraordinary
loss of $1.8 million on a net-of-tax basis, comprised of write-offs of $1.9
million of original issue discount and $1.5 million of deferred financing
costs, net of a reduction of $1.6 million in put warrant liability. Deferred
financing costs associated with the refinancing totaled $5.3 million and are
being amortized over the life of the related debt.
Deferred financing costs (net of accumulated amortization of $7.5 million at
December 31, 1993, $0.8 million at December 31, 1994 and $1.6 million at
December 31, 1995) were $2.7 million, $4.8 million and $4.3 million at
December 31, 1993, 1994 and 1995, respectively, and are included in other
assets.
The carrying amounts reported in the balance sheet for long and short-term
debt including the collar agreement approximate fair value.
At December 31, 1995, the Company had $9.4 million of standby letters of
credit outstanding, with terms ranging from one to two years.
5.STOCK ACTIVITY
Warrants held by lenders to purchase 2,399,850 shares of non-voting common
stock in connection with previous debt financings of the Company were
exercised during 1995 for $1.11 each. The Company repurchased and retired
61,650 of these shares for $0.4 million. The effect of the exercise of the
remaining 2,338,200 warrants resulted in a reduction to put warrant liability
of $2.6 million and a reduction in equity warrants of $0.9 million. Total
stockholders' equity was increased by $5.2 million as a result of the exercise
of warrants. There were no warrants outstanding at December 31, 1995.
On June 30, 1994 the Company repurchased 234,000 shares of common stock at
$10.56 per share in accordance with the provisions of the Stockholders'
Agreement. Of the total paid for the shares, approximately $1.39 million was
paid to Cornerstone-Spectrum, Inc. with the remainder paid to the Management
Investors. The Cornerstone-Spectrum, Inc. portion of the redemption consisted
of approximately 132,000 shares, which were retired and canceled in accordance
with the provisions of the Stockholders' Agreement.
Series B preferred shares are convertible into Non-Voting Common Stock on a
one-for-nine hundred basis. Series B Shareholders share on a pro rata basis in
any dividend paid on the Voting Common Stock.
All outstanding Series A preferred shares were redeemed in the amount of
$53.5 million in February 1994 by the Company, using a portion of the proceeds
from the Refinancing. In 1993 and 1994 prior to the redemption, the Company
accrued additional Series A dividends of $7.2 million and $0.9 million,
respectively.
In prior years the Company recorded payments to Koppers Australia Pty.
Limited (KAP) on the Series A Exchangeable Preferred Stock held by Koppers
Australia as paid-in-kind dividends. A portion of these payments represented
an additional investment by the Company in Koppers Australia, as opposed to a
dividend which would have been eliminated under equity accounting.
Accordingly, in connection with the redemption of the Series A Exchangeable
Preferred Stock in February 1994, the investment in Koppers Australia was
increased by $3.75 million, with a related increase to retained earnings. The
effect on earnings available to common stock and earnings per common share
over the period from 1988 through the redemption date in 1994 is not material
in any individual year. Treasury stock includes 1,125,000 shares held by a
subsidiary of Koppers Australia to reflect the Company's 50% equity interest
in Koppers Australia.
Stock Option Plan
The Company has authorized the issuance of options to employees to purchase
802,800 shares of Voting Common Stock. As of December 31, 1995, the Company's
Board of Directors has awarded the options authorized to certain key
executives, at various exercise prices, as follows:
F-12
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OPTION GRANTING DATE OPTIONS AWARDED EXERCISE PRICE
<S> <C> <C>
5/15/90 135,000 $1.11
9/4/90 139,500 2.00
3/22/91 133,425 2.77
1/1/92 227,250 3.59
6/29/92 55,125 3.57
3/1/95 112,500 10.56
</TABLE>
Each stock option awarded gives the executives the right to purchase an
equal amount of common stock at the listed exercise price. All awarded options
become exercisable in installments commencing one year after award date and
expire if not exercised within 10 years from the date of grant. During 1995,
46,749 options were exercised at prices ranging from $1.11 to $10.56 per
share. At December 31, 1995, approximately 93,000 options have been exercised
and an additional 594,000 options are exercisable.
6.COMMON STOCK VALUE SUBJECT TO REDEMPTION
The Company has a Stockholders' Agreement (the "Agreement") in place which
requires the Company, subject to cash payment limitations under the terms of
existing debt covenants, to redeem certain shares of common stock owned by
members of management upon a "termination event" relative to a management
employee. A termination event is defined as retirement, death, disability or
resignation. At December 31, 1994 and 1995 the maximum redemptions which could
be paid under the Agreement, subject to existing debt covenants, were $15.5
million and $23.7 million, respectively. The value of shares subject to
redemption under the terms of the Agreement is segregated from other common
stock on the face of the balance sheet. There were approximately 2,109,000 and
1,965,000 shares of common stock at December 31, 1994 and 1995, respectively,
subject to the provisions of this Agreement. The Agreement expires on December
28, 1998, or upon an initial public offering (IPO) of common stock in which
more than 35% of the post-IPO voting common stock is sold, whichever is
earlier.
The aggregate redemption amounts under the Agreement for the next four years
based on termination events which have already occurred are as follows:
<TABLE>
<S> <C>
1996............................................................... $3.2 million
1997............................................................... $1.7 million
1998............................................................... $0.6 million
1999............................................................... $0.1 million
</TABLE>
7.BENEFIT PLANS
Pension
The Company has established benefit plans for its salaried employees and is
the sponsor of single employer defined benefit plans for the hourly employees.
Benefits under the plans are based upon employees' compensation and years of
service.
F-13
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................. $36,272 $42,025
Non-vested benefits......................................... 353 2,949
------- -------
Accumulated benefit obligation.............................. 36,625 44,974
Effect of future wage increases............................. 3,004 4,548
------- -------
Projected benefit obligation................................ 39,629 49,522
Plan assets at fair value..................................... 37,148 46,306
------- -------
Plan assets less than projected benefit obligation............ (2,481) (3,216)
Unrecognized prior service costs.............................. 134 324
Unrecognized net loss......................................... 5,026 4,695
------- -------
Prepaid pension costs (net of liabilities provided)........... $ 2,679 $ 1,803
======= =======
</TABLE>
The components of pension expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year..... $ 1,809 $ 2,273 $ 2,176
Interest cost on projected benefit obligation..... 2,663 2,951 3,252
(Gain) loss on plan assets........................ (5,435) 1,347 (9,969)
Other............................................. 2,450 (4,658) 6,861
-------- -------- --------
$ 1,487 $ 1,913 $ 2,320
======== ======== ========
</TABLE>
In determining the projected benefit obligation for funded status purposes,
discount rates of 8.25% and 7.25% were used for December 31, 1994 and 1995,
respectively. In 1994 and 1995, the assumed increase in future compensation
was 4% for salaried employees and 3.5% for hourly employees. The long-term
rate of return on plan assets is assumed to be 9% annually. Plan assets
consist of common stock, fixed income securities and short-term investments.
The Company funds the plans currently based on ERISA requirements. The change
in the discount rate in 1995 increased the accumulated benefit obligation by
approximately $5 million.
Postretirement Benefits
The Company sponsors a defined postretirement benefit plan to provide
medical and life insurance benefits to employees who retire after attaining
the required years of service with the Company, including their spouses.
Medical benefits are provided through a comprehensive indemnity plan and
community-rated health maintenance organizations.
Currently, the Company pays a portion of the cost of such plans, but
reserves the right to modify cost-sharing provisions in the future. Life
insurance benefits are based primarily on the employee's compensation and are
also partially paid for by retiree contributions, which vary based upon
coverage chosen by the retiree.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," which requires the accrual of postretirement health care
and life insurance benefits during the years an employee earns vested
benefits. The Company elected to immediately recognize the cumulative effect
of the change in accounting principle of $10.1 million, which represents the
accumulated postretirement benefit obligation existing at the date of
adoption.
F-14
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In determining the accumulated postretirement benefit obligation at December
31, 1994 and 1995, the Company used discount rates of 8.25% and 7.25%,
respectively. The change in the discount rate for 1995 increased the
accumulated postretirement benefit obligation by approximately $1.6 million.
Inflation factors for the different types of medical costs were assumed to
range from 8.2% to 11.1% for 1996 and to decrease gradually to 6.7% per year
within 13 years.
The following summarizes the Company's accrued obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Active employees........................................... $ 8,387 $ 9,920
Retired employees.......................................... 1,319 1,571
------- -------
Total.................................................... 9,706 11,491
Plan assets.................................................. -- --
------- -------
Accumulated postretirement benefit obligation in excess of
plan assets.................................................. 9,706 11,491
Unrecognized prior service cost.............................. 3,395 2,979
Unrecognized net gain........................................ (1,206) (2,063)
------- -------
Accrued postretirement benefit obligation, including current
portion.................................................... $11,895 $12,407
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 449 $ 410 $ 345
Interest cost........................................ 848 747 739
Net amortization and deferrals....................... -- (192) (368)
-------- ------- -------
Net periodic postretirement benefit cost............. $ 1,297 $ 965 $ 716
======== ======= =======
</TABLE>
An increase of 1% in the assumed medical cost inflation rate as of the
beginning of the projection period would increase the accumulated
postretirement benefit obligation by 9.2% and would increase the net
postretirement benefit cost by 14.4%.
Incentive Plan
The Company has established a Management Incentive Plan based on established
target award levels for each participant if certain Company performance and
individual goals are met. The charge to operating expense for this Plan was
$0.3 million in 1993, $2.2 million in 1994, and $4.1 million in 1995. For
incentive related to 1995 operating results, participating employees may elect
to receive up to 50% of their incentive compensation in voting common stock of
the Company.
Employee Savings Plan
The Company has established an Employee Savings Plan for all eligible
salaried employees that conforms to Section 401(k) of the Internal Revenue
Code. Under the plan, participating employees can elect to contribute up to
16% of their salaries with a regular Company matching contribution equivalent
to 100% of the first 1% plus 50% of the next 2% of tax-saver contributions.
The Company's regular contributions amounted to $0.3 million in 1993, $0.4
million in 1994 and $0.6 million in 1995. The Company may also make a
supplemental contribution at the end of each Plan Year subject
F-15
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to Board approval. Supplemental contributions of $0.2 million and $1.1 million
were made in 1994 and 1995, respectively. The Company did not make a
supplemental contribution in 1993. Effective in January 1995, all regular and
supplemental matching contributions are made in voting common stock of the
Company.
8.INCOME TAXES
Components of the Company's provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................... $3,897 $3,707 $5,133
State and foreign................................. 894 961 995
-------- -------- --------
Total current tax provision..................... 4,791 4,668 6,128
Deferred
Federal........................................... 1,326 632 3,592
State............................................. 391 (283) 243
-------- -------- --------
Total deferred tax provision.................... 1,717 349 3,835
-------- -------- --------
Total provision for income taxes.................... $6,508 $5,017 $9,963
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets (including deferred items
reflected as extraordinary loss) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................... $21,564 $23,751
Other......................................................... 1,741 1,780
------- -------
Total deferred tax liabilities.............................. 23,305 25,531
Deferred tax assets:
Alternative minimum tax credits............................... 3,620 1,288
OPEB obligation............................................... 4,086 4,892
Reserves, including insurance and product warranty............ 4,622 6,999
Book/tax inventory accounting................................. 1,903 2,133
Accrued vacation pay.......................................... 1,218 1,254
Other......................................................... 4,799 2,073
------- -------
Total deferred tax assets................................... 20,248 18,639
------- -------
Net deferred tax liabilities................................ $ 3,057 $ 6,892
======= =======
</TABLE>
F-16
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes is reconciled with the federal statutory rate
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Federal....................................................... 35.0% 35.0% 35.0%
State, net of federal tax benefit............................. 4.2 3.2 2.1
Equity earnings of foreign subsidiaries....................... (6.9) (8.5) (8.3)
Foreign taxes................................................. 1.2 0.6 0.4
Prior year deferred tax rate change adjustment................ 1.7 (0.8) --
Other......................................................... 3.1 (1.5) (0.2)
---- ---- ----
38.3% 28.0% 29.0%
==== ==== ====
</TABLE>
The Company has not provided any U.S. tax on undistributed earnings of
foreign subsidiaries or joint ventures that are reinvested indefinitely.
The Company has an alternative minimum tax credit carryforward of
approximately $1.3 million. The credit has no expiration date.
9.EARNINGS PER SHARE
Earnings per share have been computed on the basis of the average number of
common shares outstanding. Earnings per share assume that all granted warrants
and options were exercised with proceeds used to repurchase shares of common
stock at average market value. Shares held by a subsidiary of Koppers
Australia are reduced to reflect the Company's 50% ownership interest.
For purposes of determining earnings per share, all Series B Junior
Convertible Preferred Stock is assumed to have been converted into non-voting
Common Stock.
Common Stock considered to be outstanding:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
<S> <C> <C> <C>
Voting Common Stock............................ 5,686,029 5,545,230 5,351,907
Non-voting Common Stock (includes conversion
of Series B Convertible Preferred Stock)...... 2,340,000 2,340,000 4,678,200
Common Stock Equivalents....................... 2,008,377 2,685,741 346,551
---------- ---------- ----------
10,034,406 10,570,971 10,376,658
========== ========== ==========
</TABLE>
Common shares outstanding have been computed assuming the exercise of
warrants and management stock options, using the treasury stock method.
F-17
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The facilities of the Company are subject to a number of federal, state and
local laws and regulations governing, among other things, the treatment,
storage and disposal of wastes, the discharge of effluent into waterways, the
emission of substances into the air and various health and safety matters.
These laws and regulations are subject to frequent amendment. The Company
expects to incur substantial costs for ongoing compliance with such laws and
regulations. In addition, it is possible that the Company may face third-party
claims for cleanup or for injuries resulting from contamination. Under the
terms of the Asset Purchase Agreement in 1988, Beazer East assumed the
liability for and indemnified the Company against cleanup liabilities for past
contamination occurring prior to the purchase date at properties acquired from
Beazer East, as well as third-party claims arising from such past
contamination. Beazer Limited unconditionally guaranteed Beazer East's
performance of the indemnity pursuant to a guarantee. However, if such
indemnification was not available for any reason, including the inability of
Beazer East and/or Beazer Limited to make such indemnification payments, the
Company may not have sufficient resources to meet such liabilities.
Beazer East has adhered to the terms of the indemnity agreement and is
actively fulfilling its obligations to conduct investigative and remedial
programs at the properties which the Company acquired from Beazer East in
accordance with the requirements of regulatory authorities. The Beazer East
indemnification is not applicable to sites acquired since the formation of the
Company, for which separate indemnifications have been negotiated where
appropriate. At the properties which the Company acquired subsequent to the
acquisition of the Beazer East properties, all remedial actions are being
performed in accordance with applicable regulations and all indemnification
obligations are being honored.
Coal Tar Spill In September 1995 a pipe burst at one of the Company's
operations, resulting in the spill of coal tar. The Company promptly notified
all regulatory agencies and commenced cleanup operations. The Company believes
this is an insurable event and is seeking insurance coverage. The Company has
provided $1.8 million in 1995 for deductibles and potentially nonrecoverable
costs.
Pending Litigation
On May 11, 1990 Owens-Corning Fiberglas Corporation ("OCF") filed a
Complaint (the "OCF Litigation") against the Company seeking damages allegedly
resulting from the sale by the predecessor to the Company ("Old Koppers") of
coal-tar bitumen ("CTB") from the early to mid 1970's to the early to mid
1980's. The Complaint relates to problems experienced with roofing systems
sold by OCF. OCF has identified 11 roofs which it alleges were built using
defective Old Koppers' CTB. While it is not possible to predict the outcome of
the litigation at this date, the total cost of replacing or repairing all the
identified roofs is estimated to be $10 million. Punitive damages were also
pleaded in the Complaint.
The trial began on February 6, 1996 and is continuing. The Company provides
for costs related to contingencies when a loss is probable and the amount is
reasonably determinable. It is the opinion of management, based on advice of
counsel, that the ultimate resolution of this contingency, to the extent not
previously provided for, will not have a material effect on the financial
condition of the Company; however, depending on the amount and timing of an
unfavorable resolution of this contingency, it is possible that the future
results of operations or cash flows could be materially affected in a
particular period.
Rents
Rent expense for 1993, 1994 and 1995 was $9.2 million, $10.3 million, and
$11.1 million, respectively. Commitments during the next five years under
operating leases approximate $11.2 million per year.
F-18
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OPERATIONS BY BUSINESS SEGMENT
The Company's operations are carried out in three business segments.
Financial information about each business segment is provided in the following
table:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
------------------------------
CARBON RAILROAD
COKE MATERIALS & UTILITY
PRODUCTS & CHEMICALS PRODUCTS CORPORATE TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Net sales.................... $73,608 $167,000 $220,611 $ -- $461,219
Operating profit............. 1,640 19,328 10,578 (6,442) 25,104
Identifiable assets.......... 44,963 86,162 112,090 39,305 282,520
Depreciation and
amortization................. 6,498 6,966 4,857 1,104 19,425
Capital expenditures......... 2,557 5,997 6,107 -- 14,661
YEAR ENDED DECEMBER 31, 1994:
Net sales.................... $72,363 $164,489 $239,596 $ -- $476,448
Operating profit............. 2,627 17,019 16,203 (10,140) 25,709
Identifiable assets.......... 45,501 90,578 105,594 52,520 294,193
Depreciation and
amortization................. 4,111 6,739 4,989 841 16,680
Capital expenditures......... 2,599 8,729 4,998 -- 16,326
YEAR ENDED DECEMBER 31, 1995:
Net sales.................... $80,084 $197,434 $248,212 $ -- $525,730
Operating profit............. 33 27,358 22,621 (10,164) 39,848
Identifiable assets.......... 70,824 98,334 121,162 58,635 348,955
Depreciation and
amortization................. 4,132 6,694 5,832 874 17,532
Capital expenditures......... 26,289 7,623 16,229 -- 50,141
</TABLE>
Intersegment sales of $11.3 million, $12.8 million and $12.1 million have
been eliminated in 1993, 1994 and 1995, respectively, from the schedule of
segment information.
12. SUBSEQUENT EVENTS
Offer to Repurchase Non-Voting Common Stock
In March 1996 Cornerstone-Spectrum, Inc. exercised its option to convert all
of the Series B Convertible Preferred Stock into 2,340,000 shares of non-
voting common stock of the Company. Subsequent to the exercise, the Company
repurchased 1,050,000 shares of non-voting common stock at $11.67 per share in
equal amounts from Cornerstone-Spectrum, Inc. and APT Holdings Corporation.
New Debt Agreement
In March 1996 the Bank Credit Agreement was amended to increase the
revolving credit facility to $100 million, which includes letters of credit
subject to an aggregate sublimit of $15 million. Proceeds from this facility
were used to repay the outstanding $10 million term loan. A new term loan was
also established in the amount of $35 million for the purchase of the tar
distillation plant and certain other assets from Aristech Chemical
Corporation, with repayments of $17.5 million due for both 2000 and 2001. The
additional $4 million required for the acquisition will be financed through
the revolving credit facility.
F-19
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
-------------- ------------- ------------- -------------
1994 1995 1994 1995 1994 1995 1994 1995
(IN MILLIONS EXCEPT, PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $108.7 $122.2 $125.8 $135.6 $127.5 $140.9 $114.4 $127.0
Operating profit........ 1.7 9.7 8.3 13.4 9.7 11.0 6.0 5.7
Income before
extraordinary item..... 0.3 5.1 3.5 8.7 4.5 6.4 4.6 4.2
Extraordinary loss on
early extinguishment of
debt, net of income
taxes.................. (1.8) -- -- -- -- -- -- --
Net income (loss)....... $ (1.5) $ 5.1 $ 3.5 $ 8.7 $ 4.5 $ 6.4 $ 4.6 $ 4.2
Earnings (loss) per
share of common
stock:
Income before
extraordinary
item................. $(0.06) $ 0.50 $ 0.33 $ 0.84 $ 0.43 $ 0.62 $ 0.44 $ 0.40
Extraordinary loss on
early extinguishment
of debt, net of
income taxes......... (0.17) -- -- -- -- -- -- --
Earnings (loss) per
share of common
stock.................. $(0.23) $ 0.50 $ 0.33 $ 0.84 $ 0.43 $ 0.62 $ 0.44 $ 0.40
</TABLE>
F-20
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1996
<S> <C> <C>
Net sales................................................. $ 122,201 $ 126,701
Operating expenses:
Cost of sales........................................... 102,767 111,255
Depreciation and amortization........................... 4,087 4,943
Selling, research, general and administrative........... 5,624 6,256
--------- ---------
Total operating expenses.............................. 112,478 122,454
--------- ---------
Operating profit.......................................... 9,723 4,247
Equity in earnings of affiliates.......................... 1,265 1,791
Other income.............................................. 15 8
Litigation judgment....................................... -- (10,946)
--------- ---------
Income (loss) before interest expense and
provision for income taxes............................... 11,003 (4,900)
Interest expense.......................................... 3,572 3,734
--------- ---------
Income (loss) before provision for income taxes........... 7,431 (8,634)
Provision for income taxes (credit)....................... 2,320 (894)
--------- ---------
Net income (loss)......................................... $ 5,111 $ (7,740)
========= =========
Earnings (loss) per share of common stock................. $ 0.50 $ (0.78)
========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
DECEMBER 31, MARCH 31,
1995* 1996
------------ ---------
ASSETS
<S> <C> <C>
Current assets:
Cash................................................. $ 1,618 $ 4,816
Accounts receivable less allowance for doubtful
accounts of $341.................................... 57,583 59,969
Inventories:
Raw materials...................................... 38,584 40,284
Work in process.................................... 2,419 2,257
Finished goods..................................... 44,363 44,140
LIFO reserve....................................... (8,191) (8,402)
--------- ---------
Total inventories................................ 77,175 78,279
Other.............................................. 7,628 8,345
--------- ---------
Total current assets............................. 144,004 151,409
Investments............................................ 49,041 51,783
Fixed assets........................................... 248,911 256,142
Less: accumulated depreciation....................... (102,388) (107,195)
--------- ---------
Net fixed assets................................... 146,523 148,947
Other assets........................................... 9,387 9,293
--------- ---------
Total assets....................................... $ 348,955 $ 361,432
========= =========
</TABLE>
- ---------------------
*Summarized from audited fiscal year 1995 balance sheet.
See accompanying notes.
F-22
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1995* 1996 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 33,237 $ 27,420
Accrued liabilities..................... 21,672 28,150
Current portion of term loans........... 9,000 4,000
-------- --------
Total current liabilities............. 63,909 59,570
Long-term debt:
Revolving credit........................ 29,000 68,000
Term loans.............................. 26,000 21,000
Senior Notes............................ 110,000 110,000
-------- --------
Total long-term debt.................. 165,000 199,000
Other long-term reserves.................. 41,816 43,377
-------- --------
Total liabilities..................... 270,725 301,947 301,947
Series B Junior Convertible Preferred
Stock, 2,600 shares designated and
issued; liquidation value of $100 per
share.................................... 260 -- --
Common stock value subject to redemption.. 23,715 15,735 3,987
Voting Common stock, $.01 par value:
10,000,000 shares authorized, 6,707,952
shares issued........................... 67 67 98
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 3,628,200
total shares issued..................... 23 36 --
Capital in excess of par value............ 12,964 11,675 13,855
Retained earnings......................... 45,828 34,782 44,355
Cumulative translation adjustment......... (384) 473 473
Treasury stock, at cost, 1,322,043 shares. (4,243) (3,283) (3,283)
-------- -------- --------
Total liabilities and stockholders'
equity............................... $348,955 $361,432 $361,432
======== ======== ========
</TABLE>
- ---------------------
* Summarized from audited fiscal year 1995 balance sheet.
See accompanying notes.
F-23
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1996
<S> <C> <C>
Cash used by operating activities........................ $ (3,219) $ (5,428)
Cash used in investing activities:
Acquisition of wood treating plant..................... (9,765) --
Capital expenditures................................... (3,022) (6,647)
Other.................................................. (343) (107)
--------- ---------
Net cash used in investing activities................ (13,130) (6,754)
Cash provided by (used in) financing activities:
Borrowings from revolving credit....................... 44,000 65,500
Repayments of revolving credit......................... (39,000) (26,500)
Repayment of long-term debt............................ -- (10,000)
Proceeds from long-term debt........................... 10,000 --
Net purchases of voting common stock................... (257) (532)
Purchase of Non-Voting Common Stock.................... -- (12,250)
Dividends on Common Stock.............................. -- (838)
--------- ---------
Net cash provided by financing activities............ 14,743 15,380
--------- ---------
Net increase (decrease) in cash.......................... (1,606) 3,198
Cash at beginning of period.............................. 2,975 1,618
--------- ---------
Cash at end of period.................................... $ 1,369 $ 4,816
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 5,774 $ 6,086
Income taxes........................................... (95) (906)
</TABLE>
See accompanying notes.
F-24
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") which is contained in this Prospectus
contains additional information on the results of operations and the
financial position of the Company. Those comments should be read in
conjunction with these notes. The Company's audited financial statements
for the years ended December 31, 1993, 1994, and 1995 include additional
information about the Company, its operations, and its financial position,
and should be read in conjunction with this quarterly financial
information.
(2) The results for the interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
(3) In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
(4) First quarter 1996 results reflect a legal judgment against the Company
for approximately $11 million related to a Complaint filed in 1990 by
Owens-Corning Fiberglas Corporation against the Company seeking damages
allegedly resulting from the sale of coal tar bitumen by the Company's
predecessor. On April 3, 1996 a jury verdict was returned against the
Company for a total of $10.3 million, including $0.5 million in punitive
damages. In addition to damages, the plaintiff has sought approximately
$3.0 million in attorney's fees as well as prejudgment interest for an
amount estimated by the Company to be approximately $5 million. The
Company has provided a total of $14.0 million at March 31, 1996 ($11.0
million in the first quarter of 1996 and $3.0 million in prior periods).
The Company has not recorded a provision for prejudgment interest pending
a legal ruling regarding this matter.
(5) In March 1996, the Company purchased 1,050,000 shares of non-voting common
stock of the Company for $11.67 per share. The effect on stockholders'
equity was to decrease retained earnings and capital in excess of par
value by $2.0 million and $10.2 million, respectively. See Note 12 of the
Notes to Consolidated Financial Statements contained in the audited
financial statements of the Company for the years ended December 31, 1993,
1994, and 1995.
(6) In April 1996, the Company purchased a tar distillation plant and certain
assets for approximately $40 million cash, plus the assumption of
approximately $8 million of liabilities. See Notes 3 and 12 of the Notes
to Consolidated Financial Statements contained in the audited financial
statements of the Company for the years ended December 31, 1993, 1994, and
1995.
(7) Common stock value subject to redemption decreased by approximately $8
million as a result of cash payment limitations under the terms of
existing debt covenants. See Note 6 of the Notes to Consolidated Financial
Statements contained in the audited financial statements of the Company
for the years ended December 31, 1993, 1994, and 1995.
(8) The Company's effective income tax rate for the three months ended March
31, 1996 decreased to 10.4% from 31.2% in the prior year period due
primarily to the effect of first quarter earnings and projected tax
credits for fiscal year 1996 from the recently acquired Monessen facility
of approximately $8.0 million.
(9) In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996 and the effect
of adoption was not material.
(10) The pro forma financial data at March 31, 1996 reflect a modification of
the mandatory redemption requirement, as a result of the termination of
the Stockholders' Agreement upon consummation of the Offerings, with
respect to certain common stock and the change in capital structure to a
single class of common stock with 40 million shares authorized and the
three-for-one stock split described in Notes 6 and 1, respectively, of
the Notes to Consolidated Financial Statements contained in the audited
financial statements of the Company for the years ended December 31,
1993, 1994 and 1995.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Aristech Chemical Corporation:
We have audited the accompanying balance sheets of the Coal Chemical
Business of Aristech Chemical Corporation as of December 31, 1994 and 1995 and
the related statements of income and net cash flows for the years then ended.
These financial statements are the responsibility of 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.
The accompanying financial statements have been prepared from the separate
records maintained by the Coal Chemical Business and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Coal Chemical Business had been operated as an unaffiliated
company. Portions of certain income and expenses represent allocations made
from corporate items applicable to Aristech Chemical Corporation as a whole.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Coal Chemical Business of Aristech
Chemical Corporation as of December 31, 1994 and 1995, and the results of its
operations and its net cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
April 16, 1996
Pittsburgh, Pennsylvania
F-26
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
<S> <C> <C>
Sales.......................................................... $69,075 $75,984
Operating costs:
Cost of sales................................................ 56,531 62,291
Selling, general and administrative expenses................. 3,412 3,355
Depreciation................................................. 1,972 1,969
------- -------
Total operating costs...................................... 61,915 67,615
------- -------
Operating income............................................... 7,160 8,369
Other income................................................... 16 14
------- -------
Income before provision for taxes on income.................... 7,176 8,383
Provision for taxes on income.................................. 2,978 3,479
------- -------
Net income..................................................... $ 4,198 $ 4,904
======= =======
</TABLE>
See accompanying notes.
F-27
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents......................................... $ 2 $ 1
Receivables (less allowance for doubtful accounts of $30 for
1994 and 1995)............................................. 8,884 10,249
Inventories.................................................. 4,678 4,754
Deferred income taxes........................................ 649 846
------- -------
Total current assets....................................... 14,213 15,850
Property, plant and equipment, net of accumulated depreciation. 28,820 28,181
------- -------
Total assets............................................... $43,033 $44,031
======= =======
<CAPTION>
LIABILITIES
<S> <C> <C>
Current liabilities:
Accounts payable and other current liabilities............... $ 8,226 $ 8,966
Payroll and benefits payable................................. 461 474
Accrued taxes ............................................... 14 16
------- -------
Total current liabilities.................................. 8,701 9,456
Deferred income taxes.......................................... 10,552 10,419
Other liabilities.............................................. 1,564 2,039
Intercompany liability......................................... 22,216 22,117
Commitments and contingencies (See Note 10).................... -- --
------- -------
Total liabilities.......................................... $43,033 $44,031
======= =======
</TABLE>
See accompanying notes.
F-28
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF NET CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,198 $ 4,904
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 1,972 1,969
Receivables............................................. (621) (1,365)
Inventories............................................. (1,208) (76)
Deferred income taxes................................... (112) (330)
Current liabilities..................................... 1,584 755
Other liabilities....................................... (24) 475
Other--net.............................................. (169) (117)
------- -------
Net cash flows provided by operations................. 5,620 6,215
Cash flows from investing activities:
Capital expenditures.................................. (265) (1,212)
------- -------
Net cash used in investing activities................. (265) (1,212)
------- -------
Net cash flow to aristech chemical corporation........ $ 5,355 $ 5,003
======= =======
</TABLE>
See accompanying notes.
F-29
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared for the purpose of
presenting the balance sheets of the Coal Chemical Business (the "Business")
of Aristech Chemical Corporation (the "Company") at December 31, 1994 and 1995
and its income and net cash flows to the Company for each of the two years in
the period ended December 31, 1995, in accordance with generally accepted
accounting principles.
During the periods covered by the statement of income, the Business was
operated as an integral part of the Company's overall operations. The
financial statements also include various allocated costs and expenses (see
Note 5) which are not necessarily indicative of the costs and expenses which
would have resulted had the Business been operated as a separate company. All
of the allocations and estimates reflected in the financial statements are
based on assumptions that management believes are reasonable.
The Company has not completed the process of evaluating the impact that will
result from adopting Statement of Financial Accounting Standards ("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 net assets and results of
operations of the Business 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.
Cash
The Business participates in the Company's cash management system and,
accordingly, does not maintain cash balances other than minimal imprest
amounts.
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. 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 statement of income. Proceeds from
the sale of other facilities depreciated on a group basis are credited to the
depreciation reserve.
Pensions
Employees of the Business are covered by Company defined benefit and defined
contribution pension plans. Benefits are based on compensation and/or years of
service for substantially all of its employees. The Company's
F-30
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS --(CONTINUED)
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 (see Note
4).
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 income tax provision has been determined on a separate return basis.
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. Significant basis differences are due to
depreciation and other liabilities (see Note 6).
Debt
The Business participates in the Company's treasury system and, accordingly,
does not record debt other than the intercompany liability.
Income Recognition
Sales and related costs of sales are included in income when goods are
shipped or services are rendered to the customer.
Intercompany Liability
The Coal Chemical Business is an unincorporated division of Aristech
Chemical Corporation. The equity of the Company in the net assets of the
Business is reflected as an intercompany liability to the Company. The Company
allocates certain income and expenses to the Business via the intercompany
liability (see Note 5).
2. LINES OF BUSINESS
The Business operates one tar distillation production facility and a light
oil storage terminal at Clairton, PA. This facility is located adjacent to the
USX Corporation's (USX) Clairton coking facility which supplies approximately
75% of its tar feedstock and light oil requirement under a seven-year
agreement.
The primary product derived from the tar distillation process is liquid and
solid pitch which is sold to aluminum manufacturers under contract basis.
Other products obtained in the tar distillation process include creosote used
in wood treating of railroad ties and utility poles and carbon black sold to
the rubber goods industry.
The light oil terminal, which stores light oil for shipment under contract
to one customer, will be transferred to USX at the end of 1996. Light oil
sales for 1994 and 1995 were $14,233,000 and $13,337,000, respectively. The
net book value of the light oil terminal was $2,261,000 and $2,144,000 at
December 31, 1994 and 1995, respectively.
In 1994 and 1995, the Business exported coal chemical products with a total
sales value of $1,884,000 and $1,722,000, respectively. Sales to the
Business's top four customers represented 19%, 13%, 13% and 10% of total 1994
sales and 17%, 16%, 12% and 11% of total 1995 sales.
F-31
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
3. INTERCOMPANY LIABILITY
Change in the intercompany liability reflect the results of operations and
cash generated by the Business. The changes in the intercompany liability were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Beginning balance....................................... $23,373 $22,216
Add: Net income......................................... 4,198 4,904
Less: Net cash flows.................................... (5,355) (5,003)
------- -------
Ending Balance.......................................... $22,216 $22,117
======= =======
</TABLE>
4. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Substantially, all of the Business employees participate in various defined
benefit or defined contribution plans sponsored by the Company. The Business
recognized pension expense of $293,000 in 1994 and $345,000 in 1995. These
amounts represent an allocation of the Company's total pension expense based
on the ratio of compensation and the number of eligible employees of the
Business to the total compensation and number of eligible employees of the
Company.
Reconciliation of the funded status of the hourly pension plan allocated to
the Business as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................. $ (798) $(1,331)
======= =======
Accumulated benefit obligation............................. $ (942) $(1,525)
======= =======
Projected benefit obligation............................... $(2,036) $(3,109)
Plan assets at fair value.................................... 1,124 1,334
------- -------
Plan assets less than projected benefit obligation........... (912) (1,775)
Unrecognized net loss........................................ 217 773
Unrecognized prior service cost.............................. 127 264
------- -------
Accrued pension cost recognized in the balance sheets........ $ (568) $ (738)
======= =======
Assumptions
- -----------
Discount rate, projected benefit obligation.................. 8.5% 7.25%
Rate of increase in compensation levels, projected benefit
obligation.................................................. 3.0 4.0
</TABLE>
Plan assets are invested primarily in 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.
F-32
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the postretirement benefit liability of the
hourly employees as allocated to the Business:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................... $ (400) $ (450)
Fully eligible active plan participants.................... (64) (117)
Other active plan participants............................. (591) (850)
------- -------
Total.................................................... (1,055) (1,417)
Unrecognized loss............................................ 341 360
Unrecognized transition obligation........................... 46 81
------- -------
Accrued postretirement benefit liability recognized in the
balance sheet............................................... $ (668) $ (976)
======= =======
</TABLE>
The discount rates used for calculating the present value of postretirement
benefit liabilities for the hourly employees were 8.75% and 7.25% as of
December 31, 1994 and 1995, respectively.
A health care cost trend rate starting at 8.0% and declining to 4% over a
six-year period to the year 2002 was assumed for 1995. A 1% 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%.
The expense recognized by the Business for other postretirement benefits was
$124,000 and $204,000 in 1994 and 1995, respectively. The expense represents
an allocation of the Company's total other postretirement expense based on the
number of eligible employees of the Business to the Company's total number of
employees.
5. ALLOCATED EXPENSES
General administrative and other expenses are allocated to the Business
using methods deemed appropriate for the nature of the expenses involved. The
methods include various allocation bases such as relative investment, number
of employees and related payroll costs, and direct effort expended. Management
of the Company believes the allocations are reasonable, but they are not
necessarily indicative of the costs that would have been incurred had the
Business been a stand-alone entity. Such amounts totaled $2,192,000 in 1994
and $2,036,000 in 1995.
6. TAX PROVISION
Provision for taxes on income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Current federal income taxes.................................. $ 2,628 $ 3,264
Current state and local income taxes.......................... 466 545
Deferred income taxes......................................... (116) (330)
------- -------
Total provision............................................. $ 2,978 $ 3,479
======= =======
</TABLE>
F-33
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
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>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Statutory rate applied to income before tax.................... $ 2,512 $ 2,934
State income taxes after federal income tax benefit.......... 466 545
------- -------
Total provision for income taxes........................... $ 2,978 $ 3,479
======= =======
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Accruals different than payments........................... $ 649 $ 846
------- -------
Gross deferred tax assets.................................. 649 846
------- -------
Deferred tax liabilities:
Property................................................... 10,458 10,168
Accrual different than payments............................ -- 119
Other...................................................... 94 132
------- -------
Gross deferred tax liabilities............................. 10,552 10,419
------- -------
Net deferred tax liabilities............................... $ 9,903 $ 9,573
======= =======
</TABLE>
7. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................. $ 2,338 $ 2,375
Finished products............................................. 2,340 2,379
------- -------
Net Inventory............................................... $ 4,678 $ 4,754
======= =======
</TABLE>
The current cost of inventories at December 31, 1994 and 1995 was $4,812,000
and $5,100,000, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Land......................................................... $ 625 $ 625
Buildings.................................................... 4,385 4,367
Machinery and equipment...................................... 31,650 32,823
------- -------
Total property, plant and equipment........................ 36,660 37,815
Less accumulated depreciation.............................. 7,840 9,634
------- -------
Net property, plant and equipment.......................... $28,820 $28,181
======= =======
</TABLE>
F-34
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense for 1994 and 1995 was $1,972,000 and $1,969,000,
respectively.
9. LEASE COMMITMENTS
The Business has operating leases, primarily for railway equipment.
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>
YEARS ENDED
DECEMBER 31, (IN THOUSANDS)
<S> <C>
1996.................................... $1,993
1997.................................... 1,369
1998.................................... 1,156
1999.................................... 894
2000.................................... 572
Later years............................. 570
------
Total minimum lease payments............ $6,554
======
</TABLE>
Operating lease rental expense for 1994 and 1995 was $1,282,000 and
$1,270,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
Contract commitments for capital expenditures for property, plant and
equipment totaled $104,000 and $333,000 at December 31, 1994 and 1995,
respectively.
USX has retained responsibility for environmental liabilities relating to
occurrences at the operating facility located in Clairton, Pennsylvania during
USX's ownership prior to December, 1986. The Company has agreed to share in
certain costs relating to this site providing the Company's share does not
exceed $500,000. Such liability has been provided for in the financial
statements.
The Business 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 evolving, and it is impossible to predict
accurately the effect these laws and regulations will have on the Business in
the future.
The Business 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 financial position or results of operations of the Business.
11. SUBSEQUENT EVENTS
Effective April 1, 1996, the Company sold the Business to Koppers
Industries, Inc. for $39 million, plus assumption of certain liabilities and
adjustments for working capital changes.
F-35
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1995 1996
<S> <C> <C>
Sales......................................................... $19,236 $19,132
Operating costs:
Cost of sales............................................... 15,852 16,093
Selling, general and administrative expenses................ 783 926
Depreciation................................................ 494 460
------- -------
Total operating costs..................................... 17,129 17,479
------- -------
Operating income.............................................. 2,107 1,653
Other income.................................................. (4) 6
------- -------
Income before provision for taxes on income................... 2,103 1,659
Provision for taxes on income................................. 872 678
------- -------
Net income.................................................... $ 1,231 $ 981
======= =======
</TABLE>
See accompanying notes.
F-36
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
BALANCE SHEETS (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents................................................. $ --
Receivables (less allowance for doubtful accounts of $30)............ 10,062
Inventories.......................................................... 4,682
Deferred income taxes................................................ 846
-------
Total current assets............................................... 15,590
Property, plant and equipment, net of accumulated depreciation......... 28,200
-------
Total assets....................................................... $43,790
=======
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities....................... $ 8,287
Payroll and benefits payable......................................... 400
Accrued taxes........................................................ 701
-------
Total current liabilities.......................................... 9,388
Deferred income taxes.................................................. 10,419
Other liabilities...................................................... 2,148
Intercompany liability................................................. 21,835
Commitments and contingencies.......................................... --
-------
Total liabilities.................................................. $43,790
=======
</TABLE>
See accompanying notes.
F-37
<PAGE>
COAL CHEMICAL BUSINESS OF
ARISTECH CHEMICAL CORPORATION
STATEMENTS OF NET CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $1,231 $ 981
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 494 460
Receivables................................................ (176) 187
Inventories................................................ 71 72
Current liabilities........................................ 1,443 (68)
Other liabilities.......................................... 57 109
------ ------
Net cash flows provided by operations.................... 3,120 1,741
Cash flows from investing activities:
Capital expenditures......................................... (221) (478)
------ ------
Net cash used in investing activities.................... (221) (478)
------ ------
Net cash flow to Aristech Chemical Corporation................. $2,899 $1,263
====== ======
</TABLE>
See accompanying notes.
F-38
<PAGE>
COAL CHEMICAL BUSINESS OF ARISTECH CHEMICAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
(1) The interim financial statements include all adjustments which, in the
opinion of management, are necessary to present fairly the financial
position and the results of operations and net cash flows for the quarter
ended March 31, 1995 and 1996. All such adjustments are of a normal,
recurring nature.
(2) The Coal Chemical Business is an unincorporated division of Aristech
Chemical Corporation. The equity of the Aristech Chemical Corporation in
the net assets of the Business is reflected as an intercompany liability
to Aristech Coal Chemical Corporation. The financial statements also
include various allocated costs and expenses (see Note 6) which are not
necessarily indicative of the costs and expenses which would have resulted
had the Business been operated as a separate company. All of the
allocations and estimates reflected in the financial statements are based
on assumptions that management believes are reasonable.
(3) Effective January 1, 1996, the Business adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed Of." Adoption of SFAS 121 had
no effect on the Business' financial position or results of operations.
(4) At March 31, 1996, inventory consisted of $2.1 million of raw materials
and $2.6 million of finished products. The current cost of these
inventories was approximately $5 million.
(5) Effective April 1, 1996, the Company sold the Business to Koppers
Industries, Inc. for $39 million, plus the assumption of certain
liabilities and adjustments for working capital changes.
(6) General administrative and other expenses are allocated to the Business
using methods deemed appropriate for the nature of the expenses involved.
The methods include various allocation bases such as relative investment,
number of employees and related payroll costs, and direct effort expended.
Management of the Company believes the allocations are reasonable, but
they are not necessarily indicative of the costs that would have been
incurred had the Business been a stand-alone entity. Such amounts totaled
$482,000 and $483,000 for the quarters ended March 31, 1995 and 1996,
respectively.
F-39
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(A.C.N. 000 566 629)
FINANCIAL STATEMENTS
YEARS ENDED 30 JUNE 1994 AND 1995
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of KOPPERS AUSTRALIA PTY LIMITED
We audited the accompanying consolidated balance sheets of Koppers Australia
Pty. Limited as of June 30, 1994 and June 30, 1995, and the related
consolidated statements of profit and loss and cash flows for the two years
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position
of Koppers Australia Pty. Limited at June 30, 1994 and 1995 and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1994 and 1995 in conformity with Australian Accounting
Standards.
/s/ Ernst & Young
Chartered Accountants
Sydney, Australia Date opinion formed: 11 October 1995
F-41
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEARS ENDED 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
NOTES A$,000 A$,000
<S> <C> <C> <C>
OPERATING REVENUE........................................ 2 158,097 157,093
======= =======
OPERATING PROFIT......................................... 2 18,947 22,718
INCOME TAX ATTRIBUTE TO OPERATING PROFIT................. 4 6,283 8,346
------- -------
OPERATING PROFIT AFTER INCOME TAX........................ 12,664 14,372
OUTSIDE EQUITY INTERESTS IN OPERATING PROFIT AFTER INCOME
TAX..................................................... 2,801 3,006
------- -------
OPERATING PROFIT AFTER INCOME TAX
Attributable to members of Koppers Australia Pty.
Limited............................................... 5 9,863 11,366
RETAINED PROFITS
At the beginning of the financial year................. 45,377 54,240
Adjustments Resulting from Adoption of New Accounting
Standard.............................................. -- 611
------- -------
TOTAL AVAILABLE FOR APPROPRIATION........................ 55,240 64,995
DIVIDENDS PAID........................................... 6 1,000 --
------- -------
RETAINED PROFITS
At the end of the financial year....................... 54,240 64,995
======= =======
</TABLE>
The profit and loss account should be read in conjunction with the accompanying
notes.
F-42
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
NOTES A$,000 A$,000
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................... 3,398 5,619
Receivables............................................ 7 21,648 23,561
Inventories............................................ 8 27,892 35,023
Other.................................................. 9 1,391 813
------- -------
TOTAL CURRENT ASSETS................................. 54,329 65,016
------- -------
NON-CURRENT ASSETS
Receivables............................................ 10 6,366 6,355
Investments............................................ 11 3,496 3,538
Property, plant and equipment.......................... 12 69,456 69,681
Intangibles............................................ 13 1,513 1,539
Other.................................................. 14 1,997 2,092
------- -------
TOTAL NON-CURRENT ASSETS............................. 82,828 83,205
------- -------
TOTAL ASSETS......................................... 137,157 148,221
------- -------
CURRENT LIABILITIES
Creditors and borrowings............................... 15 12,278 17,238
Provisions............................................. 16 7,978 10,500
------- -------
TOTAL CURRENT LIABILITIES............................ 20,256 27,738
------- -------
NON-CURRENT LIABILITIES
Creditors and borrowings............................... 17 24,638 14,500
Provisions............................................. 18 3,975 5,022
------- -------
TOTAL NON-CURRENT LIABILITIES........................ 28,613 19,522
------- -------
TOTAL LIABILITIES.................................... 48,869 47,260
------- -------
NET ASSETS............................................... 88,288 100,961
======= =======
SHAREHOLDER'S EQUITY
Share capital.......................................... 19 14,559 14,559
Reserves............................................... 20 5,080 5,889
Retained profits....................................... 54,240 64,995
------- -------
Shareholder's equity attributable to members of Koppers
Australia Pty. Limited................................ 73,879 85,443
Outside equity interest in controlled entities......... 21 14,409 15,518
------- -------
TOTAL SHAREHOLDER'S EQUITY........................... 88,288 100,961
======= =======
</TABLE>
The balance sheet should be read in conjunction with the accompanying notes.
F-43
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
NOTES A$,000 A$,000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................ 155,265 154,657
Payments to suppliers and employees................ (124,045) (122,440)
Interest received.................................. 306 269
Interest and other costs of finance paid........... (4,974) (2,668)
Income tax paid.................................... (6,392) (6,715)
-------- --------
NET CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES... 22 20,160 23,103
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from redemption of preference shares in
Koppers Industries, Inc........................... 36,838 --
Acquisition of property, plant and equipment....... (9,369) (10,516)
Proceeds from sale of property, plant and
equipment......................................... 833 737
Dividends received................................. -- 254
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES............. 28,302 (9,525)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid..................................... (2,301) (1,832)
Gross (Payment)/Receipts to/from Bank.............. (49,904) (10,111)
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES............. (52,205) (11,943)
-------- --------
NET INCREASE/(DECREASE) IN CASH HELD................. (3,743) 1,635
Add opening cash brought forward................... 5,734 1,991
-------- --------
CLOSING CASH CARRIED FORWARD......................... 22 1,991 3,626
======== ========
</TABLE>
The statement of cash flows should be read in conjunction with the accompanying
notes.
F-44
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
PROFIT AND LOSS ACCOUNT
YEARS ENDED 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
A$'000 A$'000
<S> <C> <C> <C>
OPERATING REVENUE............................................ 2 3,304 4,334
====== ======
OPERATING PROFIT............................................. 2 1,609 2,344
INCOME TAX EXPENSE ATTRIBUTABLE TO OPERATING PROFIT.......... 4 37 111
------ ------
OPERATING PROFIT AFTER INCOME TAX............................ 1,572 2,233
RETAINED PROFITS
At the beginning of the financial year..................... 9,105 9,677
Adjustment Resulting from Adoption of New Accounting
Standard.................................................. -- 203
------ ------
TOTAL AVAILABLE FOR APPROPRIATION............................ 10,677 11,707
DIVIDENDS PAID............................................... 6 1,000 --
------ ------
RETAINED PROFITS
At the end of the financial year........................... 9,677 11,707
====== ======
</TABLE>
The profit and loss account should be read in conjunction with the accompanying
notes.
F-45
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
BALANCE SHEET
AT 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
NOTES A$'000 A$'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash...................................................... -- 940
Receivables............................................... 7 458 1,563
Other..................................................... 9 4 3
------ ------
TOTAL CURRENT ASSETS.................................... 462 2,506
------ ------
NON-CURRENT ASSETS
Receivables............................................... 10 -- --
Investments............................................... 11 38,712 38,696
Property, plant and equipment............................. 12 108 133
Other..................................................... 14 60 164
------ ------
TOTAL NON-CURRENT ASSETS................................ 38,880 38,993
------ ------
TOTAL ASSETS............................................ 39,342 41,499
------ ------
CURRENT LIABILITIES
Creditors and borrowings.................................. 15 487 202
Provisions................................................ 16 242 566
------ ------
TOTAL CURRENT LIABILITIES............................... 729 768
------ ------
NON-CURRENT LIABILITIES
Provisions................................................ 18 19 107
------ ------
TOTAL NON-CURRENT LIABILITIES........................... 19 107
------ ------
TOTAL LIABILITIES....................................... 748 875
------ ------
NET ASSETS.................................................. 38,594 40,624
====== ======
SHAREHOLDERS' EQUITY
Share capital............................................. 19 14,559 14,559
Reserves.................................................. 20 14,358 14,358
Retained profits.......................................... 9,677 11,707
------ ------
TOTAL SHAREHOLDERS' EQUITY.............................. 38,594 40,624
====== ======
</TABLE>
The balance sheet should be read in conjunction with the accompanying notes.
F-46
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
STATEMENT OF CASH FLOWS
YEARS ENDED 30 JUNE 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
NOTES A$'000 A$'000
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers................................. 1,225 1,504
Dividends received...................................... 1,773 2,133
Payments to suppliers and employees..................... (1,299) (2,152)
Income tax paid......................................... -- (74)
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................. 22 1,699 1,411
------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment............ (57) (47)
Purchase of shares...................................... (991) --
Receipt from winding up controlled entity............... -- 16
------ ------
NET CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES........ (1,048) (31)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid.......................................... (1,000) --
------ ------
NET CASH FLOWS USED IN FINANCING ACTIVITIES............... (1,000) --
------ ------
NET INCREASE/(DECREASE) IN CASH HELD...................... (349) 1,380
Add opening cash brought forward........................ (91) (440)
------ ------
CLOSING CASH CARRIED FORWARD.............................. 22 (440) 940
====== ======
</TABLE>
The statement of cash flows should be read in conjunction with the
accompanying notes.
F-47
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
30 JUNE 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of accounting
The financial statements have been prepared in accordance with the
historical cost convention, except for certain assets which are at valuation.
Cost in relation to assets represents the cash amount paid or the fair value
of the asset given in exchange.
The financial statements have been made out in accordance with the
requirements of the Corporations Law which include disclosures required by
Schedule 5 and applicable accounting standards and mandatory reporting
requirements (Urgent Issues Group Consensus Views).
b) Changes in accounting policies
The accounting policies adopted are consistent with those of the previous
year except for the accounting policy with respect to certain employee
entitlements as from 1 July 1994.
In accordance with the new applicable accounting standard AASB 1028:
Accounting for Employee Entitlements, the economic entity has recognised for
the first time, liabilities and expenses in relation to vested sick leave
entitlement of employees not settled as at 30 June 1995. Expenses which were
consequential to the employment of the employees but which are not employee
entitlements, for example, payroll tax and other on- costs associated with
leave entitlements, have also been recognised as liabilities where the
entitlements, to which they relate have been recognised as liabilities and
expenses in accordance with AASB 1028. The effect of the new policy has been
to reduce retained profits at the beginning of the year by A$611,000. The
change in accounting policy has, however, had no material effect on profit for
the year ended 30 June 1995.
The above change in accounting policy has also meant that comparative
information has not been provided for certain employee entitlement
disclosures.
c) Principals of consolidation
The consolidated accounts are those of the economic entity, comprising
Koppers Australia Pty. Limited (the chief entity) and all entities which
Koppers Australia Pty. Limited controlled from time to time during the year
and at year's end.
The consolidated accounts include the information contained in the financial
statements of Koppers Australia Pty. Limited and each of its controlled
entities as from the date the chief entity obtains control until such time as
control ceases.
Where there is a loss of control of a controlled entity the consolidated
accounts include the results for the part of the reporting period during which
the chief entity had control.
The accounts of controlled entities are prepared for the same reporting
period as the chief entity, using consistent accounting policies. Adjustments
are made to bring into line any dissimilar accounting policies which may
exist.
All intercompany balances and transactions, and unrealised profits arising
from intra-economic entity transactions, have been eliminated in full.
F-48
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
d) Foreign currencies
Translation of foreign currency transactions
Transactions in foreign currencies of entities within the economic entity
are converted to local currency at the rate of exchange ruling at the date of
the transaction.
Amounts payable to and by the entities within the economic entity that are
outstanding at the balance date and are denominated in foreign currencies have
been converted to local currency using rates of exchange ruling at the end of
the financial year.
Except for certain specific hedges and hedges of foreign currency
operations, all resulting exchange differences arising on settlement or
restatement are brought to account in determining the profit or loss for the
financial year, and transaction costs, premiums and discounts on forward
currency contracts are deferred and amortized over the life of the contract.
Specific hedges
Where a purchase or sale is specifically hedged, exchange gains or losses on
the hedging transaction arising up to the date of purchase or sale and costs,
premiums and discounts relative to the hedging transaction are included with
the purchase or sale. Exchange gains and losses arising on the hedge
transaction after that date are taken to the profit and loss account.
Hedges of foreign operations
Exchange gains and losses on transactions hedging investments in foreign
operations are taken to the foreign currency translation reserve on
consolidation.
Translation of accounts of overseas operations
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Koppers Australia Pty. Limited. The
accounts of overseas operations are translated using the current rate
method and any exchange differences are taken directly to the foreign
currency translation reserve.
e) Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks, and money market investments readily convertible to cash within
two working days, net of outstanding bank overdrafts.
f) Investments
Long-term investments
Long-term investments are stated at cost. Where the cost exceeds the
recoverable amount, the investment has been written down to this recoverable
amount.
Associated Companies
The economic entity's shareholding in Koppers Industries, Inc., represents
18.8% of the ownership interest and is stated at cost. This shareholding is
accounted for in accordance with the equity method in note 11 to the financial
statements.
F-49
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
g) Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and
condition are accounted for as follows:
* Raw material--purchase cost on a first-in-first-out basis; and
* Finished goods and work-in-progress--cost of direct material and labour
and a proportion of manufacturing overheads based on operating capacity.
h) Recoverable Amount
Non-current assets are not revalued to an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets are
written down. In determining recoverable amount the expected net cash flows
have not been discounted to their present value using a market determined risk
adjusted discount rate.
i) Property, plant and equipment
Cash and valuation
Property, plant and equipment are carried at cost or at independent
valuation. Any surplus on revaluation is credited directly to the asset
revaluation reserve and excluded from the profit and loss account.
Where assets have been revalued, the potential effect on the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount. Where it is expected that a liability for capital
gains tax will arise, the expected amount is disclosed by way of note.
Any gain or loss on the disposal of revalued assets is determined as the
difference between the carrying value of the asset at the time of disposal and
the proceeds from disposal, and is included in the results of the company or
economic entity in the year of disposal.
Depreciation
Depreciation is provided on a straight line basis on all property, plant and
equipment, other than freehold land, at rates calculated to allocate the cost
or valuation, less estimated residual value at the end of the useful lives of
the assets, against revenue over those estimated useful lives.
Major depreciation periods are:
<TABLE>
<S> <C> <C>
Plant and equipment -- 5 to 15 years
Buildings on freehold land -- 20 years
Leasehold improvements -- the lease term or the estimated
useful life of the improvement,
whichever is shorter.
</TABLE>
j) Leases
Finance leases, which effectively transfer to the economic entity
substantially all of the risks and benefits incidental to ownership of the
leased item, are capitalised at the present value of the minimum lease
payments, disclosed as leased property, plant and equipment, and amortised
over the period the economic entity is expected to benefit from the use of the
leased assets.
F-50
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Operating lease payments, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased items, are included
in the determination of the operating profit in equal installments over the
lease term.
The cost of improvements to or on leasehold property is capitalised,
disclosed as leasehold improvements and amortised over the unexpired period of
the lease or the estimated useful lives of the improvements, whichever is the
shorter.
k) Intangibles
Goodwill
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or shares in a controlled entity.
Goodwill is amortised by the straight line method over the period during
which benefits are expected to be received. This is taken as being 20 years.
l) Other non-current assets
Expenditure carried forward
Significant items of carry forward expenditure having a benefit or
relationship to more than one period are written off over the periods to which
such expenditure relates.
m) Income tax
Tax-effect accounting is applied using the liability method whereby income
tax is regarded as an expense and is calculated on the accounting profit after
allowing for permanent differences. To the extent timing differences occur
between the time items are recognised in the accounts and when items are taken
into account in determining taxable income, the net related taxation benefit
or liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not carried forward
as an asset unless the benefit is virtually certain of being realised.
Where assets are revalued no provision for potential capital gains tax has
been made.
Where the earnings of overseas controlled entities are subject to taxation
under the Controlled Foreign Companies rules, this tax has been provided for
in the accounts.
The income tax expense for the year is calculated using the 33% income tax
rate, however the deferred tax balances have been adjusted for the increased
corporate tax rate of 36%. The adjustment recognises that reversal of timing
differences will occur within the 1995-96 or later income tax year, at which
time tax will be attributable at a rate of 36%. The corresponding adjustment
has been charged to income tax expense.
n) Employee Entitlements
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits
include wages and salaries, annual leave, sick leave and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, sick
leave and any other employee entitlements expected to be settled within twelve
months of the reporting date are measured at their nominal
F-51
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
amounts. All other employee entitlement liabilities are measured at the
present value of the estimated future cash outflows to be made in respect of
services provided by employees up to the reporting date. In determining the
present value of future cash outflows, the interest rates attaching to
government guaranteed securities which have terms to maturity approximating
the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect to the
following categories:
* wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
* other types of employee entitlements
are charged against profits on a net basis in their respective categories.
Some companies in the economic entity offer an employee incentive scheme to
all full time permanent employees. Benefits are payable after a qualifying
period of six years service with the companies and three years membership in
the scheme. Provision is based on the estimated amount payable to employees.
A trust scheme has been established which offers benefits to full time
permanent staff. Benefits are payable after three years membership in the
scheme. Charges have been made against profits for amounts expected to be paid
to staff on entry in the scheme. A provision for the full liability has been
made.
Employee-contributory superannuation funds exist to provide benefits for
group's employees and their dependents on retirement, disability or death. The
contributions made to these funds by entities within the economic entity are
charged against profits.
F-52
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
2. OPERATING PROFIT
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
---------------- --------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
The operating profit before income tax
includes the following items of operating
revenue:
Sales revenue................................ 153,136 155,449 -- --
Other revenue................................ 510 384 1,503 2,098
Dividends--
Related bodies corporate................... -- -- 1,801 2,217
Other Corporations......................... 3,312 254 -- --
Interest--
Other persons/Corporations................ 306 269 -- 19
------- ------- ----- -----
157,264 156,356 3,304 4,334
Proceeds on sale of non-current assets....... 833 737 -- --
------- ------- ----- -----
Operating revenue............................ 158,097 157,093 3,304 4,334
======= ======= ===== =====
The operating profit before income tax is
arrived at after charging/(crediting) the
following items:
Amortisation of expenditure carried forward.. 17 18 -- --
Amortisation of goodwill..................... 130 139 -- --
Amortisation and depreciation of property,
plant and equipment......................... 8,894 9,713 19 22
Diminution in value of inventories........... (102) 50 -- --
Bad and doubtful debts--Trade debtors
Other persons/bodies corporate............ (38) 89 -- --
Interest expense--
Other persons/Corporations................ 4,527 2,209 -- --
Finance charges--
Lease liability........................... 18 10 -- --
Rental--operating lease...................... 429 449 -- --
Loss on sale of non-current assets........... 321 18 -- --
Net foreign currency (gains)/losses.......... 153 221 3 (32)
Provisions for employee entitlements......... 2,001 2,227 163 95
Profit on sale of non-current assets......... (404) (177) -- --
Superannuation Contributions................. 448 875 2 20
3. ABNORMAL ITEMS
Included in the operating profit are the
following abnormal items:
Item charged
Write down of investment in Koppers Power
Poles (Australia) Pty. Limited.............. -- -- (209) --
Applicable income tax........................ -- -- -- --
------- ------- ----- -----
-- -- (209) --
======= ======= ===== =====
</TABLE>
F-53
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAX
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
The prima facie tax, using tax rates applicable in
the country of operation, on operating profit
differs from the income tax provided in the
accounts as follows:
Prima facie tax on operating profit............... 6,708 8,073 531 774
Tax effect of permanent differences--
Exempt Income................................... (1,831) (777) (585) (707)
Research and development........................ (91) (65) -- --
Depreciation of buildings....................... 307 242 -- --
Fringe benefits tax............................. 45 -- 3 --
Entertainment................................... 58 37 8 2
Amortisation of goodwill........................ 93 95 -- --
Writedown of investment......................... -- -- 69 --
Redemption of preference shares................. 2,661 -- -- --
Tax losses brought to account not previously
recognised..................................... (1,758) -- -- --
Other items (net)............................... 32 -- 11 56
Future income tax benefit not brought to account.. 34 58 -- --
Under/(over) provision of previous year........... 25 518 -- --
Net gain from change in income tax rate from 33%
to 36%........................................... -- 165 -- (14)
------ ----- ---- ----
Income tax expense attributable to operating
profit........................................... 6,283 8,346 37 111
====== ===== ==== ====
Income tax provided comprises:
Provision attributable to current year............ 7,237 8,308 74 215
Under/(over) provision of previous year........... 25 513 -- (1)
Tax losses brought to account not previously
recognised....................................... (1,758) -- -- --
Provision attributable to future years
Deferred income tax liability................... 693 (160) -- --
Future income tax benefit....................... 86 (315) (37) (103)
------ ----- ---- ----
6,283 8,346 37 111
====== ===== ==== ====
Future income tax benefit arising from tax losses
of a controlled entity not brought to account at
balance date as realisation of the benefit is not
regarded as virtually certain.
77 129 -- --
====== ===== ==== ====
This future income tax benefit will only be
obtained if:
a) future assessable income is derived of a
nature and of an amount sufficient to enable
the benefit to be realised;..................
b) the conditions for deductibility imposed by
tax legislation continue to be complied with;
and..........................................
c) no changes in tax legislation adversely
affect the economic entity in realising the
benefit......................................
</TABLE>
F-54
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
5. CONTRIBUTIONS TO PROFIT
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Contribution to group profit after tax:
Koppers Australia Pty. Limited.................. (11) 35 -- --
Koppers Coal Tar Products Pty. Ltd.............. 3,886 6,677 -- --
Koppers Shipping Pty. Ltd....................... 276 (365) -- --
Koppers Timber Preservation Pty. Ltd............ 1,114 893 -- --
Koppers Power Poles (Australia) Pty. Limited.... (238) 11 -- --
KAP Investments Inc. ........................... 1,568 634 -- --
Continental Carbon Australia Pty. Limited....... 1,348 1,145 -- --
Koppers-Hickson Investments Pty. Limited........ -- -- -- --
Koppers-Hickson Timber Protection Pty. Limited.. 731 753 -- --
Koppers-Hickson Timber Protection (NZ) Limited.. 862 1,340 -- --
Koppers-Hickson Timber Protection (PNG) Limited. 98 (106) -- --
Koppers-Hickson Timber Protection (Fiji)
Limited........................................ 81 102 -- --
Koppers-Hickson Timber Protection (Malaysia) SDN
BHD............................................ 57 251 -- --
Koppers-Hickson Timber Protection (S) Pte Ltd... 91 (4) -- --
----- ------ ----- ---
9,863 11,366 -- --
===== ====== ===== ===
6. DIVIDENDS PAID OR PROVIDED FOR
Dividends paid during the year
Franked dividends............................... 1,000 -- 1,000 --
Unfranked dividends............................. -- -- -- --
----- ------ ----- ---
1,000 -- 1,000 --
===== ====== ===== ===
</TABLE>
No dividends have been proposed (1994:ANil)
F-55
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
7. RECEIVABLES (CURRENT)
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Trade debtors................................... 20,894 21,577 -- --
Provision for doubtful debts receivable......... (346) (410) -- --
------ ------ --- -----
20,548 21,167 -- --
Amounts other than trade debts receivable
Controlled Entity............................. -- -- 455 1,068
Related body corporate........................ 8 408 -- 408
Short-term deposits............................. 814 1,531 -- --
Other........................................... 278 455 3 87
------ ------ --- -----
21,648 23,561 458 1,563
====== ====== === =====
Australian dollar equivalent of amounts
receivable in foreign currencies not
effectively hedged:
--United States dollars....................... 2,955 1,227 -- --
--United Kingdom pounds....................... 2 -- -- --
--Singapore dollars........................... 608 163 -- --
--Malaysian Ringgit........................... 1,128 -- -- --
------ ------ --- -----
4,693 1,390 -- --
====== ====== === =====
8. INVENTORIES (CURRENT)
Raw materials and work in progress.............. 13,579 16,274 -- --
Finished goods.................................. 14,752 19,142 -- --
Provision for diminution in value............... (439) (393) -- --
------ ------ --- -----
Total inventories at lower of cost and net
realisable value............................... 27,892 35,023 -- --
====== ====== === =====
9. OTHER CURRENT ASSETS
Prepayments..................................... 1,345 645 4 3
Other........................................... 46 168 -- --
------ ------ --- -----
1,391 813 4 3
====== ====== === =====
10. RECEIVABLES (NON-CURRENT)
Loans and advances
Related body corporate........................ 11 -- -- --
Other......................................... 6,355 6,355 -- --
------ ------ --- -----
6,366 6,355 -- --
====== ====== === =====
</TABLE>
F-56
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
11. INVESTMENTS (NON-CURRENT)
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Investments at costs compromise:
a) Unlisted controlled entities................. -- -- 38,662 38,646
Investments in unlisted controlled entities
are detailed in note 29
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
HELD BY GROUP
-------------
1994 1995
% %
<S> <C> <C> <C> <C> <C> <C>
b) Unlisted associated entity
Koppers Industries, Inc............ 18.8 18.8 3,446 3,488 -- --
c) Other unlisted entities
Tar Tech International A/S......... 12.5 12.5 50 50 50 50
Koppers SEUT Pty. Limited.......... 60 60 -- -- -- --
----- ----- ------ ------
3,496 3,538 50 50
----- ----- ------ ------
3,496 3,538 38,712 38,696
===== ===== ====== ======
</TABLE>
Included in unlisted shares in other entities is an investment of A$3 in
respect of 60% of the issued capital of Koppers SEUT Pty. Limited. As this
company acts solely as the trustee for the Koppers Senior Executive Unit
Trust, it is not controlled by Koppers Australia Pty. Limited and has not been
consolidated.
d) Investment in associated company
<TABLE>
<CAPTION>
% HELD BY
ECONOMIC ECONOMIC DIVIDEND
ENTITY INTEREST ENTITY REVENUE
---------------- --------- -------------
1994 1995 1994 1995 1994 1995
A$'000 A$'000 % % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
Koppers Industries, Inc.............. 3,446 3,488 18.8 18.8 3,312 254
</TABLE>
The balance date of Koppers Industries, Inc. is 31 December.
F-57
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
The equity-accounted amount of the investment in Koppers Industries, Inc. is
A$10,713,000 (1994: 5,384,000)
<TABLE>
<CAPTION>
1994 1995
A$'000 A$'000
<S> <C> <C>
Retained Profits attributable to Koppers Industries, Inc.
Balance at the beginning of the financial year................ 4,419 660
Share of operating profit and extraordinary items after income
tax expense.................................................. (447) 5,260
------ ------
3,972 5,920
Dividends received from associated company.................... (3,312) (254)
------ ------
Balance at the end of the financial year...................... 660 5,666
====== ======
Koppers Australia Pty. Limited's share of Koppers Industries,
Inc. reserves increments/(decrements), other than retained
profits, arising during the year was A$281,000 (1994:
A$(1,874,000)................................................
Koppers Australia Pty. Limited's share or reserves in Koppers
Industries, Inc. A$1,559,000 (1994: A$1,278,000).............
Carrying value of investments in Koppers Industries, Inc. .... 3,446 3,488
Add share of retained profits................................. 660 5,666
Add share of reserves......................................... 1,278 1,559
------ ------
Equity accounted amount of investment in Koppers Industries,
Inc. ........................................................ 5,384 10,713
====== ======
</TABLE>
F-58
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Comparative equity information has been recalculated to reflect consistent
determination of ownership interest of 18.8% as disclosed in 1995.
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
The economic entity's share in the retained prof-
its and reserves of Koppers Industries, Inc. is
not available for payment of dividends to share-
holders of Koppers Australia Pty. Limited until
such time as those profits and reserves are dis-
tributed by Koppers Industries, Inc..............
Principal activities of Koppers Industries, Inc.
are:
Producer of Tar Products........................
carbon pitch..................................
creosote......................................
phthalic anhydride (PAA)......................
roofing pitch/bitumen.........................
Producer of Wood Products.......................
treats railroad crossties, poles and pilings
for various uses.............................
Producer of Coke Products.......................
foundry & furnace coke and marketable by-prod-
ucts including coal tars, gases, oils and
chemicals....................................
No adjustment has been made to reflect the dissim-
ilar accounting policy adopted by the associate
company in relation to valuation of inventory. In
particular the last-in-first-out method of inven-
tory valuation has been adopted by the associ-
ate..............................................
The associate company holds a reciprocal share-
holding in Koppers Australia Pty. Limited of
42.5%. No dividend has been paid to the associate
by Koppers Australia Pty. Limited................
There are no substantial subsequent events affect-
ing Koppers Industries, Inc. profits for the en-
suing year.......................................
</TABLE>
F-59
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
12. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
--------------- -------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Freehold land:
At cost.................................. 386 388 -- --
At directors' valuation 1 July 1983...... 1,217 1,217 -- --
------- ------- -------- --------
1,603 1,605 -- --
------- ------- -------- --------
Buildings on freehold land:
At cost.................................. 4,031 5,120 -- --
At directors' valuation 1 July 1983...... 2,679 2,671 -- --
------- ------- -------- --------
6,710 7,791 -- --
------- ------- -------- --------
Provision for depreciation of buildings
on freehold land:
At cost.................................. 713 888 -- --
At directors' valuation 1 July 1983...... 994 1,276 -- --
------- ------- -------- --------
1,707 2,164 -- --
------- ------- -------- --------
Written down amount of buildings on free-
hold land:
At cost.................................. 3,318 4,232 -- --
At directors' valuation 1 July 1983...... 1,685 1,395 -- --
------- ------- -------- --------
5,003 5,627 -- --
------- ------- -------- --------
Leasehold improvements:
At cost.................................. 1,617 2,131 -- --
Provision for amortisation............... 312 420 -- --
------- ------- -------- --------
1,305 1,711 -- --
------- ------- -------- --------
Plant and equipment:
At cost.................................. 75,783 83,475 127 174
At directors' valuation 1 July 1983...... 15,074 14,779 -- --
Provision for depreciation............... 30,034 39,077 19 41
------- ------- -------- --------
60,823 59,177 108 133
------- ------- -------- --------
Plant and equipment under lease:
At cost.................................. 70 -- -- --
Provision for amortisation............... 35 -- -- --
------- ------- -------- --------
35 -- -- --
------- ------- -------- --------
Assets under construction
At cost.................................. 687 1,561 -- --
------- ------- -------- --------
Total property, plant and equipment:
At cost.................................. 82,574 92,675 127 174
At directors' valuation 1 July 1983...... 18,970 18,667 -- --
------- ------- -------- --------
101,544 111,342 127 174
Provision for depreciation and
amortisation............................ 32,088 41,661 19 41
------- ------- -------- --------
Total written down amount................ 69,456 69,681 108 133
======= ======= ======== ========
</TABLE>
F-60
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Valuations
All valuations are estimates of the amounts for which the assets could be
exchanged between a knowledgeable willing buyer and a knowledgeable willing
seller in an arm's length transaction at the valuation date. The economic
entity does not have a set policy for regular revaluation of freehold land and
buildings.
As at 30 June 1995 management have valued interests in land and buildings
which have not been revalued within the last three years as follows:--
<TABLE>
<S> <C>
Freehold land....................................................... 1,700
=====
Buildings........................................................... 5,700
=====
</TABLE>
These interests are recorded in the accounts above at cost and at directors
valuation on 1 July 1983.
13. INTANGIBLES
<TABLE>
<S> <C> <C> <C> <C>
Goodwill.................................................. 2,151 2,371 -- --
Provision for amortisation................................ 638 832 -- --
------ ------ --- ---
1,513 1,539 -- --
====== ====== === ===
</TABLE>
14. OTHER NON-CURRENT ASSETS
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Expenditure carried forward.............. 1,612 1,549 -- --
Provision for amortisation............... (52) (209) -- --
------ ------ -------- --------
1,560 1,340 -- --
Future income tax benefits............... 437 752 60 164
------ ------ -------- --------
1,997 2,092 60 164
====== ====== ======== ========
15. CREDITORS AND BORROWINGS (CURRENT)
Bank overdrafts.......................... 2,221 3,524 440 --
Trade creditors.......................... 9,218 12,804 47 202
Lease liability.......................... 63 31 -- --
Related Bodies Corporate................. -- 209 -- --
Other.................................... 776 670 -- --
------ ------ -------- --------
12,278 17,238 487 202
====== ====== ======== ========
Australian dollar equivalents of amounts
payable in foreign currencies not
effectively hedged:
--United States dollars................ 838 1,944 -- --
--United Kingdom pounds................ 375 268 -- --
--Singapore dollars.................... 1,140 27 -- --
--New Zealand dollars.................. 379 449 -- --
--Malaysian ringgit.................... 579 -- -- --
--Fijian dollars....................... 58 92 -- --
------ ------ -------- --------
3,369 2,780 -- --
====== ====== ======== ========
</TABLE>
Refer to note 25 for details of security held over borrowings.
F-61
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
16. PROVISIONS (CURRENT)
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -----------------
1995 1994 1995 1994
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Taxation...................................... 4,609 6,715 74 215
Employee entitlements......................... 3,157 3,303 168 351
Other......................................... 212 482 -- --
------ ------ -------- --------
7,978 10,500 242 566
====== ====== ======== ========
17. CREDITORS AND BORROWINGS (NON-CURRENT)
Bills of Exchange and Bank Loans.............. 24,611 14,500 -- --
Lease liability............................... 27 -- -- --
------ ------ -------- --------
24,638 14,500 -- --
====== ====== ======== ========
18. PROVISIONS (NON-CURRENT)
Employee entitlements......................... 1,198 2,405 19 107
Deferred income tax liability................. 2,777 2,617 -- --
------ ------ -------- --------
3,975 5,022 19 107
====== ====== ======== ========
19. SHARE CAPITAL
Authorised capital
6,187,500 "A' class shares of A$1 each...... 6,188 6,188 6,188 6,188
6,187,500 "B' class shares of A$1 each...... 6,188 6,188 6,188 6,188
2,183,824 "C' class shares of A$1 each...... 2,183 2,183 2,183 2,183
6,441,170 ordinary shares of A$1 each....... 5,441 5,441 5,441 5,441
------ ------ -------- --------
20,000 20,000 20,000 20,000
====== ====== ======== ========
Issued and fully paid up capital
6,187,500 "A' class shares of A$1 each...... 6,188 6,188 6,188 6,188
6,187,500 "B' class shares of A$1 each...... 6,188 6,188 6,188 6,188
2,183,824 "C' class shares of A$1 each...... 2,183 2,183 2,183 2,183
------ ------ -------- --------
14,559 14,559 14,559 14,559
====== ====== ======== ========
20. RESERVES
Reserves comprise:
Share premium account....................... 2,330 2,330 2,330 2,330
Asset revaluation........................... 1,625 1,625 12,028 12,028
Foreign currency translation................ 1,125 1,934 -- --
------ ------ -------- --------
Total reserves............................ 5,080 5,889 14,358 14,358
====== ====== ======== ========
Movement in reserve
Foreign currency translation balance at
beginning of year gain/(loss) on
translation of overseas controlled
entities................................... 6,633 5,080 14,358 14,358
(1,553) 809 -- --
------ ------ -------- --------
Balance at end of year........................ 5,080 5,889 14,358 14,358
====== ====== ======== ========
</TABLE>
F-62
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
21. OUTSIDE EQUITY INTEREST
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- --------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Analysis of outside equity in controlled
entities:
--Share capital....................... 6,860 6,860 -- --
--Retained profits.................... 7,549 8,658 -- --
------ ------ -------- ---------
14,409 15,518 -- --
====== ====== ======== =========
Reconciliation of outside equity inter-
est in controlled entities:
--Opening balance..................... 12,909 14,409 -- --
--Add share of operating profit....... 2,800 3,006 -- --
--Less adjustment for accounting
standard............................ -- (65) -- --
--Less dividends...................... (1,300) (1,832) -- --
------ ------ -------- ---------
--Closing balance..................... 14,409 15,518 -- --
====== ====== ======== =========
22. STATEMENT OF CASH FLOWS
a) Reconciliation of cash
Cash balance comprises:
--cash on hand...................... 4,212 7,150 -- 940
--bank overdraft.................... (2,221) (3,524) (440) --
------ ------ -------- ---------
Closing cash balance.................. 1,991 3,626 (440) 940
====== ====== ======== =========
b) Reconciliation of the operating
profit after tax to the net cash flows
from operations
Operating profit after tax............ 12,664 14,372 1,572 2,233
Depreciation and amortisation
--property, plant and equipment..... 8,894 9,713 19 22
--intangibles....................... 130 139 -- --
Diminution in value of inventories...... (102) 50 -- --
Provision for diminution in the value of
investments............................ -- -- 209 --
Provision for employee entitlements..... 1,333 2,227 163 95
Proceeds from the sale of non-current
assets................................. (833) (737) -- --
Book value of non-current assets sold... 750 578 -- --
Changes in assets and liabilities
Trade receivables..................... 218 (619) -- --
Inventory............................. 1,589 (7,181) -- --
Other Current Assets.................. (201) (953) (278) (1,105)
Goodwill.............................. (27) (165) -- --
Other Non-Current Assets.............. 182 998 -- --
Trade Creditors....................... (2,186) 3,586 15 155
Other Current Liabilities............. (1,985) (1,209) (11) (27)
Other Non-Current Liabilities......... (45) (27) -- --
Tax Provision......................... (756) 2,106 74 141
Deferred income tax liability......... 561 (160) -- --
Future income tax benefit............. 86 (315) (60) (104)
Prepayments........................... (112) 700 (4) 1
------ ------ -------- ---------
Net cash flow from operating activities. 20,160 23,103 1,699 1,411
====== ====== ======== =========
c) Bank overdraft facility
Refer to note 25 for details of group bank facility
</TABLE>
F-63
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
23. EXPENDITURE COMMITMENTS
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Capital expenditure commitments
Estimated capital expenditure contracted
for at balance date but not provided for
--payable not later than one year........ 61 64 -- --
===== ===== ======== ========
Lease expenditure commitments
Operating leases (non-cancelable):
--Not later than one year................ 364 387 -- --
--Later than one year and not later than
two years.............................. 181 203 -- --
--Later than two years and not later than
five years............................. 532 577 -- --
--Later than five years.................. 381 247 -- --
----- ----- -------- --------
Aggregate lease expenditure contracted for
at balance date but not provided for...... 1,458 1,414 -- --
===== ===== ======== ========
Finance leases:
--Not later than one year................ 46 31 -- --
--Later than one year and not later than
two years.............................. 27 -- -- --
--Later than two years and not later than
five years............................. -- -- -- --
--Later than five years.................. -- -- -- --
----- ----- -------- --------
Total minimum lease payments............. 73 31 -- --
Future finance charges................... -- -- -- --
----- ----- -------- --------
Lease liability.......................... 73 31 -- --
===== ===== ======== ========
Current liability........................ 46 31 -- --
Non-current liability.................... 27 -- -- --
----- ----- -------- --------
73 31 -- --
===== ===== ======== ========
24. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
EMPLOYEE ENTITLEMENTS
The aggregate employee entitlement liabil-
ity is comprised of:
Accrued wages, salaries and oncosts...... 30 53 -- --
Provisions (current)..................... 3,157 3,303 168 351
Provisions (non-current)................. 1,198 2,405 19 107
----- ----- -------- --------
4,385 5,761 187 458
===== ===== ======== ========
</TABLE>
F-64
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Superannuation Commitments
All employees are entitled to varying levels of benefits on retirement,
disability or death. The superannuation plan provides defined benefits based
on years of service and final average salary. Employees contribute to the
plans at various percentages of their wages and salaries. Up until the year
ended 30 June 1994, the economic entity did not contribute to the plan.
Commencing this year, the economic entity has contributed to the plan amounts
advised by the plan manager. These contributions are not of a systematic and
long-term nature as the plan has sufficient funds to satisfy all benefits
vested under the plan as at 30 June 1995.
Details of the superannuation fund as extracted from the fund's 1992
Actuarial Review are as follows:
<TABLE>
<CAPTION>
A$'000
---------
<S> <C>
Accrued benefits...................................................... 1,046,636
Net market value of plan assets....................................... 1,280,800
---------
Surplus of net market value of plan assets over accrued benefits...... 234,164
=========
Vested benefits....................................................... 998,700
=========
</TABLE>
Actuarial assessment of the plan was made in 1992 by William M. Mercer Pty.
Ltd.
25. CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- ------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Related bodies corporate
Bank guarantees covering security deposits,
contract performance and autopay............. 1,316 1,638 1,316 1,638
===== ===== ======== ========
</TABLE>
Koppers Australia Pty. Limited and related companies, namely Koppers Power
Poles (Australia) Pty. Limited, Koppers Coal Tar Products Pty. Ltd., Koppers
Timber Preservation Pty. Ltd. and Koppers Investments (Aust.) Pty. Limited
have collectively unrestricted access to borrowing facilities to a maximum of
A$47,850,000.
The amount of credit unused at 30 June 1995 totaled A$29,826,000.
The security held by the bank over the above facilities include registered
mortgages over certain freehold property and registered equitable mortgages
over the assets and undertakings including unpaid and uncalled capital of the
company and related companies.
In addition, a fully interlocking guarantee has been provided by the above-
mentioned related companies, to provide security over the borrowing facilities
of the company and its related companies. Under the terms of an ASC Class
Order these above mentioned companies have guaranteed any deficiency of funds
if any of the companies is wound up. No such deficiency exists. Refer to note
29.
F-65
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
26. AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Amounts received or due and receivable by
the auditors, from entities in the
economic entity or related entities
Auditing accounts
Auditors of chief entity............... 215 234 30 35
Other auditors......................... 33 32 -- --
Other services
Auditors of chief entity............... 89 102 72 20
Other auditors......................... 11 10 -- --
--- --- --- ---
348 378 102 55
=== === === ===
V</TABLE>
27. SUBSEQUENT EVENTS
There has been no significant event since balance date.
28. RELATED PARTY DISCLOSURES
a) The directors of Koppers Australia Pty. Limited during the financial year
were:
D.P. Traviss;
E.S. Bryon;
M.J. Burns;
E.A. Clendaniel;
B.K. Jensen;
P.J. Laver;
C.E. Smith;
R.K. Wagner;
T.G. Mullen;
C.R. Newell;
A. Purnell; and
B.C. Wilson
b) The following related party transactions occurred during the financial
year:
Transactions with related parties
i) Dividends received of A$253,550. (1994: A$1,792,006)
ii) Professional fees of A$408,000 (1994: nil) paid on behalf of related
party and oncharged. Refer to note 7.
c) Transactions with the Directors of Koppers Australia Pty. Limited and the
economic entity:
During 1992 Koppers Australia Pty Limited caused to be issued units in a
management incentive scheme to various executives of the group. Unit holders
are entitled, but not obliged, to exchange all or some of their units for cash
after holding units for a qualifying period of three years. The executives are
obliged to exchange all units for cash on their resignation, retirement or
dismissal from employment.
F-66
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
The growth in value of these units, and the resulting benefit to the
executives, is determined by reference to the profitability after tax of the
Koppers Australia group. Benefits from this scheme are funded by companies
within the Koppers Australia group. Three directors of Koppers Australia Pty.
Limited, namely B.C. Wilson, C.R. Newell and E.S. Bryon were issued units in
this scheme in 1992 and 1994. As at 30 June 1995, the combined value of the
units issued to the above directors is A$91,200.
There have been no other transaction concerning shares between entities in
the reporting entity and directors of the reporting entity or their director-
related entities.
All financial benefits provided by Koppers Australia Pty. Limited or its
controlled entities to related parties were provided at arms' length terms.
d) Koppers Australia Pty. Limited is the ultimate Australian holding
company.
29. INVESTMENTS (NON-CURRENT)
Investment in unlisted controlled entities comprises:
<TABLE>
<CAPTION>
BENEFICIAL
PERCENTAGE HELD INVESTMENT
BY ECONOMIC KOPPERS AUSTRALIA
ENTITY PTY. LIMITED
---------------- -----------------
COUNTY OF 1994 1995 1994 1995
NAME INCORPORATION % % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
Koppers Investments (Aust.)
Pty. Limited.............. (i) Australia 100 100 6,355 6,355
KAP (UK) Limited........... U.K. 100 100 16 --
Koppers-Hickson Investments
Pty. Limited.............. Australia 51 51 3,060 3,060
Koppers Power Poles (Aus-
tralia) Pty. Limited...... (i) Australia 100 100 955 955
Continental Carbon Austra-
lia Pty. Limited.......... Australia 51 51 1,526 1,526
KAP Investments Inc........ U.S.A. 100 100 10,846 10,846
Koppers Timber Preservation
Pty. Ltd. ................ (i) Australia 100 100 6,899 6,899
Koppers Coal Tar Products
Pty. Ltd. ................ (i) Australia 100 100 9,005 9,005
Koppers Shipping Pty.
Ltd. ..................... (i) Australia 100 100 -- --
-------- --------
38,662 38,646
======== ========
</TABLE>
(i) Pursuant to a class order dated 19 December 1991, relief has been
granted to this controlled entity of Koppers Australia Pty. Limited from the
Corporations Law requirements for preparation, audit and publication of
accounts.
As a condition of the class order, Koppers Australia Pty. Limited and the
controlled entity subject to the class order, entered into a deed of indemnity
on May 18, 1995. The effect of the deed is that Koppers Australia Pty. Limited
has guaranteed to pay any deficiency in the event of winding up of the
controlled entity. The controlled entity has also given a similar guarantee in
the event that Koppers Australia Pty. Limited is wound up. The aggregate
assets and liabilities of the companies subject to the deed, and the aggregate
result of these companies are as follows:
<TABLE>
<CAPTION>
1994 1995
A$'000 A$'000
<S> <C> <C>
Total assets.................................................... 135,256 103,426
Total liabilities............................................... 61,992 55,532
------- -------
Net assets...................................................... 73,264 47,894
======= =======
Profit after income tax......................................... 5,027 7,216
======= =======
</TABLE>
F-67
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Overseas unlisted controlled entities carrying on business in the country of
incorporation.
<TABLE>
<CAPTION>
PERCENTAGE HELD
BY CONTROLLED
ENTITIES OF
KOPPERS
AUSTRALIA PTY.
LIMITED
COUNTRY OF 1994 1995
INCORPORATION % %
<S> <C> <C> <C> <C>
Koppers-Hickson Timber Protection Pty.
Limited............................... Australia 51 51
Koppers-Hickson (PNG) Pty. Limited..... P.N.G. 51 51
Koppers-Hickson Timber Protection (NZ)
Limited............................... (ii) New Zealand 51 51
Koppers-Hickson Timber Protection
(Fiji) Limited........................ (ii) Fiji 51 51
Koppers-Hickson Timber Protection
(Malaysia) SDN BHD.................... (ii) Malaysia 51 51
Koppers-Hickson Timber Protection (S)
Pte Ltd............................... (ii) Singapore 51 51
</TABLE>
(ii) Controlled entities which are audited by other member firms of Ernst &
Young International.
30. SEGMENT INFORMATION
<TABLE>
<CAPTION>
TIMBER CARBON COAL TAR
PRESERVATION CHEMICALS BLACK PRODUCTS OTHER ELIMINATIONS CONSOLIDATION
NOTES A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Industry Segments
Operating Revenue
Sales to customers
outside the economic
entity............... 31,391 36,952 30,367 57,503 880 -- 157,093
Intersegment Sales...... 2 244 3,227 -- 14,353 4,767 (22,591) --
------- ------ ------ ------ ------ ------- -------
31,635 40,179 30,367 71,856 5,647 (22,591) 157,093
======= ====== ====== ====== ====== ======= =======
Consolidated Operating
Profit/(Loss).......... 2 904 4,152 1,983 6,312 2,654 (1,633) 14,372
======= ====== ====== ====== ====== ======= =======
Segment Assets.......... 29,721 25,695 20,584 67,349 70,373 (65,501) 148,221
======= ====== ====== ====== ====== ======= =======
(b) Geographical
Segments
<CAPTION>
NEW ZEALAND SOUTH EAST
AUSTRALIA P.N.G. & FIJI ASIA
OPERATING REVENUE A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to customers
outside the economic
entity................. 131,044 550 18,792 6,707 -- -- 157,093
Intersegment Sales...... 22,356 45 190 -- -- (22,591) --
------- ------ ------ ------ ------ ------- -------
2 153,400 595 18,982 6,707 -- (22,591) 157,093
======= ====== ====== ====== ====== ======= =======
Consolidated Operating
Profit................. 2 12,951 (207) 2,779 482 -- (1,633) 14,372
======= ====== ====== ====== ====== ======= =======
Segment Assets.......... 203,469 661 12,801 2,477 -- (71,187) 48,221
======= ====== ====== ====== ====== ======= =======
</TABLE>
The economic entity operates predominantly in four industries--timber
preservation, chemicals, carbon black and coal tar products, and in four
geographical areas--Australia, P.N.G., New Zealand and Fiji and South East
Asia. The manufacturing operations comprise the refinement and distribution of
coal tar products, the manufacture of wood preservation chemicals, the
preservation of timber products and carbon black.
F-68
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
31. REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1994 1995 1994 1995
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Amounts received or due and receivable by the
directors of the economic entity from
corporations of which they are directors or
related bodies corporate or entities
controlled by the chief entity.............. 1,695 1,612
----- -----
The directors have applied ASC Class Order
94/1529, in the disclosure of directors'
remuneration and benefits...................
Amounts received or due and receivable by the
directors of Koppers Australia Pty. Limited
from that company and related bodies
corporate................................... 853 753
=== ===
The number of directors of Koppers Australia
Pty. Limited whose remuneration (including
superannuation contributions) falls within
the following bands:
$0 --$ 9,999........................... 7 8
$100,000--$109,999........................... 1 --
$170,000--$179,999........................... 1 --
$190,000--$199,999........................... -- 2
$200,000--$209,999........................... 1 --
$350,000--$359,999........................... -- 1
$370,000--$379,999........................... 1 --
--- ---
11 11
=== ===
</TABLE>
In the opinion of the directors, remuneration paid to directors is considered
reasonable.
F-69
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
SIX MONTHS ENDED 31 DECEMBER 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
(UNAUDITED)
<S> <C> <C>
SALES.......................................................... $75,314 $82,130
GROSS PROFIT................................................... 22,471 28,288
SELLING GENERAL & ADMINISTRATIVE............................... 6,732 6,871
DEPRECIATION................................................... 4,976 5,291
------- -------
EARNINGS BEFORE INTEREST & TAXES............................... 10,763 16,126
INTEREST EXPENSE............................................... 1,162 781
EQUITY INCOME.................................................. -- 3,102
INCOME TAX..................................................... 3,445 6,658
------- -------
NET INCOME BEFORE MINORITY INTEREST............................ 6,156 11,789
MINORITY INTEREST.............................................. 1,562 1,906
------- -------
NET INCOME..................................................... $ 4,594 $ 9,883
======= =======
</TABLE>
See accompanying notes.
F-70
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
1995
(UNAUDITED)
<S> <C>
Cash................................................................ $ 2,606
Receivables......................................................... 33,427
Inventory........................................................... 36,173
Other Current Assets................................................ 2,714
Net Fixed Assets.................................................... 68,073
Investments......................................................... 2,550
Goodwill............................................................ 1,573
--------
TOTAL ASSETS...................................................... $147,116
========
Creditors........................................................... 14,262
Short Term Loans.................................................... 3,456
Other Current Liabilities........................................... 13,903
Long Term Loans..................................................... 13,500
Other Non-Current Liabilities....................................... 4,323
--------
TOTAL LIABILITIES................................................. $ 49,444
========
Share Capital....................................................... 14,559
Reserves............................................................ 4,826
Profit & Loss Appropriation......................................... 70,442
Minority Interest................................................... 7,845
--------
TOTAL SHARE CAPITAL............................................... $ 97,672
========
</TABLE>
See accompanying notes.
F-71
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
SIX MONTHS ENDED 31 DECEMBER 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
(UNAUDITED)
<S> <C> <C>
CASH FROM OPERATIONS.......................................... $14,377 $20,132
(INCREASE)/DECREASE IN WORKING CAPITAL........................ 2,624 (5,593)
CAPITAL EXPENDITURES.......................................... (3,967) (11,266)
CASH TAXES.................................................... (2,849) (3,480)
DIVIDENDS RECEIVED............................................ 788 2,248
------- -------
CASH SURPLUS.................................................. $10,973 $ 2,041
======= =======
</TABLE>
See accompanying notes.
F-72
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The audited financial statements of Koppers Australia Pty. Limited
("Koppers Australia") for the Fiscal years ended June 30, 1994 and 1995
include additional information about Koppers Australia, its operations,
and its financial position, and should be read in conjunction with these
unaudited interim financial statements.
(2) The results for the interim periods are not necessarily indicative of the
results to be expected for the full year.
(3) In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
(4) Capital expenditures for Fiscal 1995 include approximately $7 million
related to the purchase of 49% of Continental Carbon Australia Pty.
Limited, resulting in 100% ownership by Koppers Australia.
F-73
<PAGE>
Koppers Industries, Inc. is a leading producer of carbon compounds and treated
wood products for use in a variety of markets including the chemical, railroad,
aluminium and steel industries.
[Picture of Coke Facility] [Picture of Furnace Coke]
[Koppers Industries logo]
[Picture of Carbon Materials
Distillation Facility]
[Picture of Phthalic Anhydride]
[Picture of Crosstie Assembly [Picture of Treated
Operations] Utility Poles]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERINGS MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Selected Historical Financial Data........................................ 19
Pro Forma Condensed Consolidated
Financial Data........................................................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 25
Business.................................................................. 35
Management................................................................ 50
Certain Relationships and Related Transactions............................ 56
Principal and Selling Stockholders........................................ 57
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Certain U.S. Tax Considerations Applicable to
Non-U.S. Holders of Common Stock......................................... 63
Description of Certain Indebtedness....................................... 65
Underwriting.............................................................. 68
Legal Matters............................................................. 70
Experts................................................................... 70
Additional Information.................................................... 71
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,001,922 SHARES
[LOGO OF KOPPERS INDUSTRIES]
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DILLON, READ & CO. INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the Offerings
described in this Registration Statement are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $47,203
NASD filing fee..................................................... 14,198
NYSE listing fee.................................................... *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... 20,000
Transfer agent and rights agent and registrar fees and expenses..... *
Miscellaneous....................................................... *
-------
Total............................................................. *
=======
</TABLE>
- ---------------------
* To be filed by amendment.
All of the above expenses will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 and 1742 of the BCL provide that a business corporation shall
have the power to indemnify any person who was or is a party, or is threatened
to be made a party, to any proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was servicing at the
request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. In the case of an action by or in
the right of the corporation, such indemnification is limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless,
and only to the extent that, a court determines upon application that, despite
the adjudication of liability but in view of all the circumstances, such
person is fairly and reasonably entitled to indemnity for the expenses that
the court deems proper.
BCL Section 1744 provides that, unless ordered by a court, any
indemnification referred to above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding; or
(2) if such a quorum is not obtainable, or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by the shareholders.
Notwithstanding of the above, BCL Section 1743 provides that to the extent
that a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding
II-1
<PAGE>
referred to above, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
BCL Section 1745 provides that expenses (including attorney's fees) incurred
by an officer, director, employee or agent of a business corporation in
defending any proceeding may be paid by the corporation in advance of the
final deposition of the proceeding upon receipt of an undertaking to repay the
amount advanced if it is ultimately determined that the indemnitee is not
entitled to be indemnified by the corporation.
BCL Section 1746 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the foregoing provisions are not
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise, and that indemnification may be granted under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise for any action
taken or any failure to take any action whether or not the corporation would
have the power to indemnify the person under any other provision of law and
whether or not the indemnified liability arises or arose form any action by or
in the right of the corporation, provided, however, that no indemnification is
determined by a court to have constituted willful misconduct or recklessness.
BCL Section 1747 permits a Pennsylvania business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against any liability asserted against such
person and incurred by him in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to indemnify the
person against such liability under the provisions described above.
The Registrant's Articles of Incorporation and Bylaws provide for (i)
indemnification of directors, officers, employees and agents of the registrant
and its subsidiaries and (ii) the elimination of a director's liability for
monetary damages, to the maximum extent permitted by the BCL. The Registrant
also maintains directors' and officers' liability insurance covering its
director and officers with respect to liabilities, including liabilities under
the Securities Act of 1933, as amended, which they may incur in connection
with their serving as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Act:
During 1994 employees exercised options totaling 11,332 shares of Common
Stock at an aggregate exercise price of $61,652. This transaction was exempt
from registration pursuant to Rule 504 of Regulation D of the Securities Act.
During 1995 employees exercised options totaling 15,583 shares of Common
Stock at an aggregate exercise price of $61,615. This transaction was exempt
from registration pursuant to Rule 504 of Regulation D of the Securities Act.
In March 1996 Cornerstone-Spectrum, Inc. exercised its option to convert
2,600 shares of Series B Preferred Stock into 2,340,000 shares of non-voting
common stock. This transaction was exempt from registration pursuant to Rule
504 of Regulation D of the Securities Act.
During 1995 the Company issued 65,010 shares of Common Stock from treasury
to the Company's 401-K Savings Plan. During 1996 the Company has issued
111,864 shares of Common Stock from treasury to the Company's 401-K Savings
Plan. This transaction was exempt from registration pursuant to Rule 504 of
Regulation D of the Securities Act.
During 1995 the Company issued 2,661 shares of Common Stock from treasury to
certain employees participating in the Company's Dividend Reinvestment Plan.
During 1996 the Company has issued 5,946 shares of Common Stock from treasury.
This transaction was exempt from registration pursuant to Rule 504 of
Regulation D of the Securities Act.
On February 19, 1996 the Company issued 53,340 shares of Common Stock from
treasury to certain employees participating in the Company's Incentive
Reinvestment Plan. This transaction was exempt from registration pursuant to
Rule 504 of Regulation D of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
**1.1 -- Form of Underwriting Agreement.
3.1 -- Restated and Amended Articles of Incorporation of the Company.
3.2 -- Restated and Amended Bylaws of the Company.
*4.1 -- Indenture between the Company and Integra Trust Company,
National Association, as Trustee (Incorporated by reference to
respective exhibits to the Company's Form 10-K for the year
ended December 31, 1993).
**4.2 -- Specimen stock certificate representing the Common Stock.
**5.1 -- Opinion of Dickie, McCamey & Chilcote, P.C.
**8.1 -- Opinion Regarding Tax Matters.
9.1 -- Stockholders' Agreement by and among Koppers Industries, Inc.,
KAP Investments, Inc., Cornerstone-Spectrum, Inc., APT
Holdings Corporation and the Management Investors referred to
therein, as amended, the most recent amendment dated as of
August 16, 1995.
*9.2 -- Stock Subscription Agreement dated as of December 26, 1988
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
*10.1 -- Asset Purchase Agreement, dated as of December 28, 1988,
between the Company and Koppers Company, Inc. (Incorporated by
reference to respective exhibits to the Company's Prospectus
filed February 7, 1994 pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
*10.2 -- Asset Purchase Agreement Guarantee, dated as of December 28,
1988, provided by Beazer PLC (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
*10.3 -- Credit Agreement, dated as of February 10, 1994 by and between
the Company, the Banks from time to time parties thereto and
Mellon Bank, N.A., as agent (Incorporated by reference to
respective exhibits to the Company's Form 10-K for the year
ended December 31, 1993).
*10.4 -- Revolving Credit Agreement, dated as of February 10, 1994,
from the Company to the Banks and Mellon Bank, N.A.
(Incorporated by reference to respective exhibits to the
Company's Form 10-K for the year ended December 31, 1993).
*10.5 -- Term Loan Agreement, dated as of February 10, 1994, from the
Company to the Banks and Mellon Bank, N.A. (Incorporated by
reference to respective exhibits to the Company's Form 10-K
for the year ended December 31, 1993).
*10.6 -- Retirement Plan of Koppers Industries, Inc. and Subsidiaries
for Salaried Employees (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
*10.7 -- Koppers Industries, Inc. Non-contributory Long Term Disability
Plan for Salaried Employees (Incorporated by reference to
respective exhibits to the Company's Prospectus filed February
7, 1994 pursuant to Rule 424(b) of the Securities Act of 1933,
as amended, in connection with the offering of the 8 1/2%
Senior Notes due 2004).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*10.8 -- Koppers Industries, Inc. Employee Savings Plan (Incorporated
by reference to respective exhibits to the Company's
Prospectus filed February 7, 1994 pursuant to Rule 424(b) of
the Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
*10.9 -- Koppers Industries, Inc. 1989 Salaried Incentive Plan
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
*10.10 -- Koppers Industries, Inc. Survivor Benefit Plan (Incorporated
by reference to respective exhibits to the Company's
Prospectus filed February 7, 1994 pursuant to Rule 424(b) of
the Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
*10.11 -- Koppers Industries, Inc. Stock Option Plan (Incorporated by
reference to respective exhibits to the Company's Prospectus
filed February 7, 1994 pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, in connection with the
offering of the 8 1/2% Senior Notes due 2004).
*10.12 -- Treatment Agreement CSX-Koppers dated as of December 15, 1988
(Incorporated by reference to respective exhibits to the
Company's Prospectus filed February 7, 1994 pursuant to Rule
424(b) of the Securities Act of 1933, as amended, in
connection with the offering of the 8 1/2% Senior Notes due
2004).
*10.13 -- Alcoa/Koppers Solid Pitch Supply Agreement Warrick, Indiana;
Rockdale, Texas; Point Comfort, Texas and Wenatchee,
Washington dated as of July 1, 1991 (Incorporated by reference
to respective exhibits to the Company's Prospectus filed
February 7, 1994 pursuant to Rule 424(b) of the Securities Act
of 1933, as amended, in connection with the offering of the 8
1/2% Senior Notes due 2004).
*10.14 -- Bethlehem Steel Corporation Furnace Coke Sales Agreement dated
as of May 1, 1990 (Incorporated by reference to respective
exhibits to the Company's Prospectus filed February 7, 1994
pursuant to Rule 424(b) of the Securities Act of 1933, as
amended, in connection with the offering of the 8 1/2% Senior
Notes due 2004).
*10.15 -- LTV Steel Company, Inc. Coke Sales Agreement dated as of
December 10, 1993 (Incorporated by reference to respective
exhibits to the Company's Prospectus filed February 7, 1994
pursuant to Rule 424(b) of the Securities Act of 1933, as
amended, in connection with the offering of the 8 1/2% Senior
Notes due 2004).
*10.16 -- Alcoa/Koppers Solid Pitch Supply Agreement Warrick, Indiana;
Rockdale, Texas; Point Comfort, Texas; and Wenatchee,
Washington dated as of January 1, 1994 (Incorporated by
reference to respective exhibits to the Company's Form 10-K
for the year ended December 31, 1993).
*10.17 -- Koppers Industries, Inc. Voluntary Severance Plan
(Incorporated by reference to respective exhibits to the
Company's Form 10-K for the year ended December 31, 1994).
*10.18 -- Employment Contract for Donald P. Traviss dated October 17,
1994 (Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
*10.19 -- Employment Contract for Robert K. Wagner dated February 29,
1996 (Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
*10.20 -- Standby Term Loan Agreement, dated as of March 31, 1995 from
the Company to the Banks and Mellon Bank, N.A. (Incorporated
by reference to respective exhibits to the Company's 10-K for
the year ended December 31, 1995).
*10.21 -- Amendment to Standby Term Loan Agreement, dated as of March
18, 1996 from the Company to the Banks and Mellon Bank, N.A.
(Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*10.22 -- Amendment to Revolving Credit Agreement, dated as of March 18,
1996 from the Company to the Banks and Mellon Bank, N.A.
(Incorporated by reference to respective exhibits to the
Company's 10-K for the year ended December 31, 1995).
*10.23 -- Asset Purchase Agreement, dated as of March 11, 1996, between
the Company and Aristech Chemicals Corporation (Incorporated
by reference to respective exhibits to the Company's 10-K for
the year ended December 31, 1995).
*10.24 -- Term Loan Agreement, dated as of March 18, 1996 from the
Company to the Banks and Mellon Bank, N.A. (Incorporated by
reference to respective exhibits to the Company's 10-K for the
year ended December 31, 1995).
10.25 -- Restated and Amended Employee Stock Option Plan.
*11.1 -- Statement Regarding Computation of Per Share Earnings.
*15.1 -- Letters regarding unaudited interim financial information.
21.1 -- Amended List of Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Ernst & Young.
23.3 -- Consent of Deloitte & Touche LLP.
**23.4 -- Consent of Dickie, McCamey & Chilcote, P.C. (included in
Exhibit 5.1).
*24.1 -- Power of Attorney.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------------
*Previously filed.
**To be filed by amendment.
(B) FINANCIAL STATEMENTS SCHEDULES:
(i) Report of independent auditor on financial statement schedule.
(ii) Schedule II
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that
(a) (1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted for directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania on June
, 1996.
KOPPERS INDUSTRIES, INC.
By: /s/ Robert K. Wagner
----------------------------------
Robert K. Wagner
Chairman
By: /s/ Clayton A. Sweeney
----------------------------------
Clayton A. Sweeney
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Robert K. Wagner Chairman and Director June , 1996
- -----------------------------
Robert K. Wagner
* Chief Executive Officer and June , 1996
- ----------------------------- Director (Principal Executive
Donald P. Traviss Officer)
* Chief Financial Officer June , 1996
- ----------------------------- (Principal Financial Officer,
Donald E. Davis Principal Accounting Officer)
/s/ Clayton A. Sweeney Director June , 1996
- -----------------------------
Clayton A. Sweeney
* Director June , 1996
- -----------------------------
Brooks C. Wilson
* Director June , 1996
- -----------------------------
Brian C. Beazer
* Director June , 1996
- -----------------------------
N.H. Prater
* Director June , 1996
- -----------------------------
Donald V. Borst
* By power of attorney
II-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Koppers Industries, Inc.
We have audited the consolidated financial statements of Koppers Industries,
Inc. as of December 31, 1994 and 1995, and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated
January 25, 1996 (except for Notes 3 and 12, as to which the date is March 25,
1996, and Note 1, as to which the date is May 22, 1996) (included elsewhere in
this Registration Statement.) Our audits also included the financial statement
schedule listed in Item 16(b)(ii) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 25, 1996, except for
Notes 3 and 12, as to which the date
is March 25, 1996, and
Note 1, as to which the date
is May 22, 1996
1
<PAGE>
SCHEDULE II
KOPPERS INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
1993
Allowance for doubtful accounts........ $283 $118 $154 $247
==== ==== ==== ====
1994
Allowance for doubtful accounts........ $247 $150 $101 $296
==== ==== ==== ====
1995
Allowance for doubtful accounts........ $296 $241 $195 $342
==== ==== ==== ====
</TABLE>
2
<PAGE>
EXHIBIT 3.1
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
KOPPERS INDUSTRIES, INC.
(a Pennsylvania Corporation)
ARTICLE I. The name of the corporation is:
KOPPERS INDUSTRIES, INC.
ARTICLE II. The address of the registered office of the corporation in this
Commonwealth is
436 Seventh Avenue
Pittsburgh, Pennsylvania 15219
ARTICLE III. The purposes for which the corporation is incorporated under
the Pennsylvania Business Corporation Law of 1988, as amended (the "Business
Corporation Law") are to engage in, and do any lawful act concerning, any or all
lawful business for which corporations may be incorporated under said Business
Corporation Law, including but not limited to manufacturing, processing, owning,
using and dealing in personal property of every class or description, engaging
in research and development, furnishing services, and acquiring, owning, using
and disposing of real property of every nature whatsoever.
ARTICLE IV.
CAPITAL STOCK
Section 401. Authorized Shares. The aggregate number of shares of all
classes of capital stock which the corporation shall have authority to issue is
50,000,000 shares, divided into 40,000,000 shares of Common Stock, par value
$.01 each ("Common Stock"), and 10,000,000 shares of Preferred Stock par value
$.01 each ("Preferred Stock").
Section 402. Preferred Stock. The board of directors is hereby expressly
authorized, at any time or from time to time, to divide any or all of the shares
of Preferred Stock into one or more series, and in the resolution or resolutions
establishing a particular series, before issuance of any of the shares thereof,
to fix and determine the number of shares and the designation of such series, so
as to distinguish it from the shares of all other series and classes, and to fix
and determine the preferences, voting rights, qualifications, privileges,
limitations, options, conversion rights, restrictions and other special or
relative rights of the Preferred Stock or of such series thereof, to the fullest
extent now or hereafter permitted by the laws of the Commonwealth of
Pennsylvania, including, but not limited to, the variations between different
series in the following respects:
<PAGE>
(a) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares thereof then
outstanding) from time to time by the board of directors;
(b) the dividend rate(s) for such series, and the date or dates from
which dividends shall commence to accrue;
(c) the price or prices at which, and the terms and conditions on which,
the shares of such series may be made redeemable;
(d) the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of such series;
(e) the preferential amount or amounts payable upon shares of such
series in the event of the liquidation, dissolution or winding up of
the corporation;
(f) the voting rights, if any, of shares of such series;
(g) the terms and conditions, if any, upon which shares of such series
may be converted and the class or classes or series of shares of the
corporation or other securities into which such shares may be
converted;
(h) the relative seniority, parity or junior rank of such series as to
dividends or assets with respect to any other classes or series of
stock then or thereafter to be issued; and
(i) such other terms, qualifications, privileges, limitations, options,
restrictions, and special or relative rights and preferences, if
any, of shares of such series as the board of directors may, at the
time of such resolution or resolutions, lawfully fix and determine
under the laws of the Commonwealth of Pennsylvania.
Unless otherwise provided in a resolution or resolutions establishing any
particular series, the aggregate number of authorized shares of Preferred Stock
may be increased by an amendment of these restated and amended articles of
incorporation approved solely by a majority vote of the outstanding shares of
Common Stock or solely by action of the board of directors, if permitted by law
at the time.
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All shares of any one series shall be alike in every particular, except
with respect to the accrual of dividends prior to the date of issuance.
ARTICLE V.
MANAGEMENT
The following provisions shall govern the management of the business and
affairs of the corporation and the rights, powers or duties of its security
holders, directors or officers:
Section 501. Certain Shareholder Procedures. The shareholders of the
corporation shall be entitled to call a special meeting of shareholders or to
propose an amendment to the articles only to the extent, if any, expressly
provided in these restated and amended articles of incorporation or the bylaws
of the corporation.
At each annual meeting of shareholders the class of directors then being
elected shall be elected to hold office for a term of 3 years.
Section 502. Removal By Shareholders. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, any director, any class of
directors, or the entire Board of Directors may be removed from office by
shareholder vote at any time, with or without assigning any cause. Provided,
however, no individual director shall be so removed, unless the entire board or
the class of the board of which he is a member is removed if the votes of a
sufficient number of shares cast against the removal which, if voted
cumulatively in an annual election of directors, would be sufficient to elect
one or more directors to the board or the class.
Section 503. Cumulative Voting for Directors. The shareholders of the
corporation shall have the right to cumulate their votes for the election of
directors of the corporation.
Section 504. Control Transactions. Subchapter E of Chapter 25 of the
Business Corporation Law (relating to control transactions) shall not be
applicable to the corporation.
Section 505. Business Combinations. Subchapter F of Chapter 25 of the
Business Corporation Law (relating to business combinations) shall not be
applicable to the corporation.
Section 506. Control-Share Acquisitions. Subchapter G of Chapter 25 of the
Business Corporation Law (relating to control-share acquisitions) shall not be
applicable to the corporation.
Section 507. Severance Compensation. Subchapter I of Chapter 25 of the
Business Corporation Law (relating to severance compensation for employees
terminated following certain control-share acquisitions) shall not be applicable
to the corporation.
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Section 508. Labor Contracts. Subchapter J of Chapter 25 of the Business
Corporation Law (relating to Business Combination Transactions - Labor
Contracts) shall not be applicable to the corporation.
Section 509. Adoption of Bylaws.
The board of directors of the corporation shall have the full authority
conferred by law upon the shareholders of the corporation to adopt, amend or
repeal the bylaws of the corporation, except for any bylaw on a subject that is
committed expressly to the shareholders under applicable law. Any bylaw adopted
by the board of directors under this Section 509 shall be consistent with these
articles of incorporation.
Section 510. Amendment of Article V. Notwithstanding any other provisions
of law, these restated and amended articles of incorporation or the bylaws of
the corporation, the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the corporation
entitled to vote in an annual election of directors, voting together as a single
class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article V.
ARTICLE VI.
CONTROL TRANSACTIONS
Section 601. Controlling Person or Group.
(a) General rule.--For the purpose of these restated and amended
articles of incorporation, a "controlling person or group" means a person who
has, or a group of persons acting in concert that has, voting power over voting
shares of the corporation that would entitle the holders thereof to cast at
least 30% of the votes that all shareholders would be entitled to cast in an
election of directors of the corporation.
(b) Exceptions generally.--Notwithstanding subsection (a):
(1) A person or group which would otherwise be a controlling
person or group within the meaning of this Section shall not
be deemed a controlling person or group unless, subsequent to
the effective date of these restated and amended articles of
incorporation, that person or group increases the percentage
of outstanding voting shares of the corporation over which it
has voting power to in excess of the percentage of outstanding
voting shares of the corporation over which that person or
group had voting power on such later date, and to at least the
amount specified in subsection (a), as the result of forming
or enlarging a group or acquiring, by purchase, voting power
over voting shares of the corporation.
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(2) No person or group shall be deemed to be a controlling person
or group at any particular time if voting power over any of
the following voting shares is required to be counted at such
time in order to meet the 30% minimum:
(i) Shares which have been held continuously by a
natural person since January 1, 1983, and which are
held by such natural person at such time.
(ii) Shares which are held at such time by any natural
person or trust, estate, foundation or other similar
entity to the extent the shares were acquired solely by
gift, inheritance, bequest, devise or other
testamentary distribution or series of these
transactions, directly or indirectly, from a natural
person who had acquired the shares prior to January 1,
1983.
(iii) Shares which were acquired pursuant to a stock
split, stock dividend, reclassification or similar
recapitalization with respect to shares described under
this paragraph that have been held continuously since
their issuance by the corporation by the natural person
or entity that acquired them from the corporation or
that were acquired, directly or indirectly, from such
natural person or entity, solely pursuant to a
transaction or series of transactions described in
subparagraph (ii), and that are held at such time by a
natural person or entity described in subparagraph
(ii).
(iv) Control shares as defined in section 2562 of the
Business Corporation Law, as amended, (relating to
definitions) which have not yet been accorded voting
rights pursuant to section 2564(a) of the Business
Corporation Law, as amended, (relating to voting rights
of shares acquired in a control-share acquisition).
(v) Shares, the voting rights of which are attributable
to a person under Section 601(d) if:
(A) the person acquired the option or
conversion right directly from or made the
contract, arrangement or understanding or has
the relationship directly with the
corporation; and
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(B) the person does not at the particular
time own or otherwise effectively possess the
voting rights of the shares.
(vi) Shares acquired directly from the corporation or
an affiliate or associate, as defined in section 2552
of the Business Corporation Law, as amended (relating
to definitions), of the corporation by a person
engaged in business as an underwriter of securities
who acquires the shares through his participation in
good faith in a firm commitment underwriting
registered under the Securities Act of 1933.
(3) In determining whether a person or group is or would be a
controlling person or group at any particular time, there shall
be disregarded voting power arising from a contingent right of
the holders of one or more classes or series of preference
shares to elect one or more members of the board of directors
upon or during the continuation of a default in the payment of
dividends on such shares or another similar contingency.
(c) Certain record holders.--A person shall not be a controlling person
under Section 601(a) if the person holds voting power, in good faith and not for
the purpose of circumventing this subchapter, as an agent, bank, broker, nominee
or trustee for one or more beneficial owners who do not individually or, if they
are a group acting in concert, as a group have the voting power specified in
Section 601(a), or who are not deemed a controlling person or group under
Section 601(b).
(d) Existence of voting power.--For the purposes of this Article VI, a
person has voting power over a voting share if the person has or shares,
directly or indirectly, through any option, contract, arrangement,
understanding, conversion right or relationship, or by acting jointly or in
concert or otherwise, the power to vote, or to direct the voting of, the voting
share.
Section 602. Right of Shareholders to Receive Payment for Shares. Any
holder of voting shares of the corporation that becomes the subject of a control
transaction who shall object to the transaction shall be entitled to the rights
and remedies provided in this Article VI.
Section 603. Notice of Shareholders. (a) General rule.--Prompt notice that
a control transaction has occurred shall be given by the controlling person or
group to:
(1) Each shareholder of record of the corporation holding
voting shares.
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(2) To the court, accompanied by a petition to the court praying that
the fair value of the voting shares of the corporation be determined
pursuant to Section 605 (relating to valuation procedures) if the
court should receive, pursuant to Section 605, certificates from
shareholders of the corporation or an equivalent request for transfer
of uncertificated securities.
(b) Obligations of the corporation.--If the controlling person or group so
requests, the corporation shall, at the option of the corporation and at the
expense of the person or group, either furnish a list of all such shareholders
to the person or group or mail the notice to all such shareholders.
(c) Contents of notice.--The notice shall state that:
(1) All shareholders are entitled to demand that they be paid the fair
value of their shares.
(2) The minimum value the shareholder can receive under this Article
VI is the highest price paid per share by the controlling person or
group within the 90-day period ending on and including the date of the
control transaction, and stating that value.
(3) If the shareholder believes the fair value of his shares is
higher, this Article VI provides an appraisal procedure for
determining the fair value of such shares, specifying the name of the
court and its address and the caption of the petition referenced in
subsection (a)(2), and stating that the information is provided for
the possible use by the shareholder in electing to proceed with a
court-appointed appraiser under Section 605.
There shall be included in, or enclosed with, the notice a copy of this
Article VI.
(d) Optional procedure.--The controlling person or group may, at its
option, supply with the notice referenced in subsection (c) a form for the
shareholder to demand payment of the partial payment amount directly from the
controlling person or group without utilizing the court-appointed appraiser
procedure of Section 605, requiring the shareholder to state the number and
class or series, if any, of the shares owned by him, and stating where the
payment demand must be sent and the procedures to be followed.
Section 604. Shareholder Demand for Fair Value. (a) General rule.--After
the occurrence of the control transaction, any holder of voting shares of the
corporation may, prior to or within a reasonable time after the notice required
by Section 603 (relating to notice to shareholders) is given, which time period
may be specified in the notice, make written demand on the controlling person or
group for payment of the amount provided in Section 604(c) with respect to the
voting shares of the corporation held by the shareholder,
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and the controlling person or group shall be required to pay that amount to the
shareholder pursuant to the procedures specified in Section 605 (relating to
valuation procedures).
(b) Contents of demand.--The demand of the shareholder shall state the
number and class or series, if any, of the shares owned by him with respect to
which the demand is made.
(c) Measure of value.--A shareholder making written demand under this
Section 604 shall be entitled to receive cash for each of his shares in an
amount equal to the fair value of each voting share as of the date on which the
control transaction occurs, taking into account all relevant factors, including
an increment representing a proportion of any value payable for acquisition of
control of the corporation.
(d) Purchases independent of Article VI.--The provisions of this Article VI
shall not preclude a controlling person or group subject to this subchapter from
offering, whether in the notice required by Section 603 or otherwise, to
purchase voting shares of the corporation at a price other than that provided in
Section 604(c), and the provisions of this Article VI shall not preclude any
shareholder from agreeing to sell his voting shares at that or any other price
to any person.
Section 603. Valuation Procedures. (a) General rule.--If, within 45 days
(or such other time period, if any, as required by applicable law) after the
date of the notice required by Section 603 (relating to notice to shareholders),
or, if such notice was not provided prior to the date of the written demand by
the shareholder under Section 604 (relating to shareholder demand for fair
value), then within 45 days (or such other time period, if any, required by
applicable law) of the date of such written demand, the controlling person or
group and the shareholder are unable to agree on the fair value of the shares or
on a binding procedure to determine the fair value of the shares, then each
shareholder who is unable to agree on both the fair value and on such a
procedure with the controlling person or group and who so desires to obtain the
rights and remedies provided in this Article VI shall, no later than 30 days
after the expiration of the applicable 45-day or other period, surrender to the
court certificates representing any of the shares that are certificated shares,
duly endorsed for transfer to the controlling person or group, or cause any
uncertificated shares to be transferred to the court as escrow agent under
Section 605(c) with a notice stating that the certificates or uncertificated
shares are being surrendered or transferred, as the case may be, in connection
with the petition referenced in Section 603 or, if no petition has theretofore
been filed, the shareholder may file a petition within the 30-day period in the
the court praying that the fair value (as defined in this Article VI) of the
shares be determined.
(b) Effect of failure to give notice and surrender certificates.--Any
shareholder who does not so give notice and surrender any certificates or cause
uncertificated shares to be transferred within such time period shall have no
further right to receive, with respect to shares the certificates of which were
not so surrendered or the uncertificated shares which were not so transferred
under this section, payment under this Article VI from the
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controlling person or group with respect to the control transaction giving rise
to the rights of the shareholder under this Article VI.
(c) Escrow and notice.--The court shall hold the certificates surrendered
and the uncertificated shares transferred to it in escrow for, and shall
promptly, following the expiration of the time period during which the
certificates may be surrendered and the uncertificated shares transferred,
provide a notice to the controlling person or group of the number of shares so
surrendered or transferred.
(d) Partial payment for shares.--The controlling person or group shall then
make a partial payment for the shares so surrendered or transferred to the
court, within ten business days of receipt of the notice from the court, at a
per-share price equal to the partial payment amount. The court shall then make
payment as soon as practicable, but in any event within ten business days, to
the shareholders who so surrender or transfer their shares to the court of the
appropriate per-share amount received from the controlling person or group.
(e) Appointment of appraiser.--Upon receipt of any share certificate
surrendered or uncertificated share transferred under this Section 605, the
court shall, as soon as practicable but in any event within 30 days, appoint an
appraiser with experience in appraising share values of companies of like
nature to the corporation to determine the fair value of the shares.
(f) Appraisal procedure.--The appraiser so appointed by the court shall, as
soon as reasonably practicable, determine the fair value of the shares subject
to its appraisal and the appropriate market rate of interest on the amount then
owed by the controlling person or group to the holders of the shares. The
determination of any appraiser so appointed by the court shall be final and
binding on both the controlling person or group and all shareholders who so
surrendered their share certificates or transferred their shares to the court,
except that the determination of the appraiser shall be subject to review to the
extent and within the time provided or prescribed by law in the case of other
appointed judicial officers.
(g) Supplemental payment.--Any amount owed, together with interest, as
determined pursuant to the appraisal procedures of this Section 605 shall be
payable by the controlling person or group after it is so determined and upon
and concurrently with the delivery or transfer to the controlling person or
group by the court (which shall make delivery of the certificate or certificates
surrendered or the uncertificated shares transferred to it to the controlling
person or group as soon as practicable but in any event within ten business days
after the final determination of the amount owed) of the certificate or
certificates representing shares surrendered or the uncertificated shares
transferred to the court, and the court shall then make payment, as soon as
practicable but in any event within ten business days after receipt of payment
from the controlling person or group, to the shareholders who so surrendered or
transferred their shares to the court of the appropriate per-share amount
received from the controlling person or group.
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(h) Voting and dividend rights during appraisal proceedings.--Shareholders
who surrender their shares to the court pursuant to this Section 605 shall
retain the right to vote their shares and receive dividends or other
distributions thereon until the court receives payment in full for each of the
shares so surrendered or transferred of the partial payment amount (and,
thereafter, the controlling person or group shall be entitled to vote such
shares and receive dividends or other distributions thereon). The fair value (as
determined by the appraiser) of any dividends or other distributions so received
by the shareholders shall be subtracted from any amount owing to such
shareholders under this Section 605.
(i) Powers of the court.--The court may appoint such agents, including the
transfer agent of the corporation, or any other institution, to hold the share
certificates so surrendered and the shares surrendered or transferred under this
Section 605, to effect any necessary change in record ownership of the shares
after the payment by the controlling person or group to the court of the amount
specified in Section 605(h), to receive and disburse dividends or other
distributions, to provide notices to shareholders and to take such other actions
as the court determines are appropriate to effect the purposes of this Article
VI.
(j) Costs and expenses.--The costs and expenses of any appraiser or other
agents appointed by the court shall be assessed against the controlling person
or group. The costs and expenses of any other procedure to determine fair value
shall be paid as agreed to by the parties agreeing to the procedure.
(k) Jurisdiction exclusive.--The jurisdiction of the court under this
Article VI is plenary and exclusive and the controlling person or group, and all
shareholders who so surrendered or transferred their shares to the court shall
be made a party to the proceeding as in an action against their shares.
(l) Duty of corporation.--The corporation shall comply with requests for
information, which may be submitted pursuant to procedures maintaining the
confidentiality of the information, made by the court or the appraiser selected
by the court. If any of the shares of the corporation are not represented by
certificates, the transfer, escrow or retransfer of those shares contemplated by
this section shall be registered by the corporation, which shall give the
written notice required by section 1528(f) of the Business Corporation Law, as
amended, (relating to uncertificated shares) to the transferring shareholder,
the court and the controlling shareholder or group, as appropriate in the
circumstances.
(m) Payment under optional procedure.--Any amount agreed upon between the
parties or determined pursuant to the procedure agreed upon between the parties
shall be payable by the controlling person or group after it is agreed upon or
determined and upon and concurrently with the delivery of any certificate or
certificates representing such shares or the transfer of any uncertificated
shares to the controlling person or group by the shareholder.
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(n) Title to shares.--Upon full payment by the controlling person or group
of the amount owed to the shareholder or to the court, as appropriate, the
shareholder shall cease to have any interest in the shares.
Section 606. Coordination with Control Transaction. (a) General rule.--A
person or group that proposes to engage in a control transaction may comply with
the requirements of this Article VI in connection with the control transaction,
and the effectiveness of the rights afforded in this Article VI to shareholders
may be conditioned upon the consummation of the control transaction.
(b) Notice.--The person or group shall give prompt written notice of the
satisfaction of any such condition to each shareholder who has made demand as
provided in this Article VI.
Section 607. Definitions. The following words and phrases when used in this
Article 6 shall have the meanings given to them in this Section 607 unless the
context clearly indicates otherwise:
"Control Transaction" shall mean the acquisitions by a person or group of
the status of a controlling person or group.
"Controlling Person or Group" shall have the meaning set forth in Section
601.
"Fair Value" shall mean a value not less than the highest price paid per
share by the Controlling Person or Group at any time during the 90-day period
ending on and including the date of the Control Transaction plus an increment
representing any value, including, without limitation, any proportion of any
value payable for acquisition of control of the corporation, that may not be
reflected in such price.
"Partial Payment Amount" shall mean the amount per share specified in
Section 603(c)(II).
"Voting Shares" shall mean shares of a corporation entitled to vote
generally in the election of directors.
ARTICLE VII.
MISCELLANEOUS
Section 701. Headings. The headings of the various sections of these
articles of incorporation are for convenience of reference only and shall not
affect the interpretation of any of the provisions of these articles.
Section 702. Reserved Power of Amendment. Subject to Section 511 above,
these articles of incorporation may be amended in the manner at the time
prescribed by statute, and all rights conferred upon shareholders herein are
granted subject to this reservation.
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EXHIBIT 3.2
RESTATED AND AMENDED
BYLAWS
OF
KOPPERS INDUSTRIES, INC.
(a Pennsylvania Registered Corporation)
ARTICLE I
Offices and Fiscal Year
Section 1.01. Registered Office.--The registered office of the corporation
in the Commonwealth of Pennsylvania shall be at 436 Seventh Avenue,
Pittsburgh, PA 15219 until otherwise established by an amendment of the
articles of incorporation (the "articles") or by the Board of Directors and a
record of such change is filed with the Pennsylvania Department of State in the
manner provided by law.
Section 1.02. Other Offices.--The corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
Section 1.03. Fiscal Year.--The fiscal year of the corporation shall begin
on the 1st day of January in each year.
ARTICLE II
Notice--Waivers--Meetings Generally
Section 2.01. Manner of Giving Notice.
(a) General Rule.--Whenever written notice is required to be given to any
person under the provisions of the Pennsylvania Business Corporation Law of
1988 (the "Business Corporation Law") or by the articles or these bylaws, it
may be given to the person either personally or by sending a copy thereof by
first class or express mail, postage prepaid, or by courier service, charges
prepaid, or by facsimile transmission, to the address (or to the facsimile
number) of the person appearing on the books of the corporation or, in the case
of directors, supplied by the director to the corporation for the purpose of
notice. If the notice is sent by mail or courier service, it shall be deemed to
have been given to the person entitled thereto when deposited in the United
States mail or with a courier service for delivery to that person or, in the
case of facsimile transmission, when received. A notice of meeting shall
specify the place, day and hour of the meeting and any other information
required by any other provision of the Business Corporation Law, the articles
or these bylaws.
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(b) Bulk Mail.--Notice of any regular or special meeting of the
shareholders, or any other notice required by the Business Corporation Law or
by the articles or these bylaws to be given to all shareholders or to all
holders of a class or series of shares, may be given by any class of postpaid
mail if the notice is deposited in the United States mail at least 20 days
prior to the day named for the meeting or any corporate or shareholder action
specified in the notice.
(c) Adjourned Shareholder Meetings.--When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other
than by announcement at the meeting at which the adjournment is taken, unless
the board fixes a new record date for the adjourned meeting in which event
notice shall be given in accordance with Section 2.03.
Section 2.02 Notice of Meetings of Board of Directors.--Notice of a
regular meeting of the Board of Directors need not be given. Notice of every
special meeting of the Board of Directors shall be given to each director by
telephone or in writing at least five days before the time at which the meeting
is to be held. Every such notice shall state the time and place of the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board need be specified in a notice of the meeting.
Section 2.03. Notice of Meetings of Shareholders.
(a) General Rule.--Except as otherwise provided in Section 2.01(b),
written notice of every meeting of the shareholders shall be given by, or at
the direction of, the secretary or other authorized person to each shareholder
of record entitled to vote at the meeting at least (1) ten days prior to the
day named for a meeting (and, in case of a meeting called to consider a
merger, consolidation, share exchange or division, to each shareholder of
record not entitled to vote at the meeting) called to consider a fundamental
change under 15 Pa. C.S.A. Chapter 19 or (2) five days prior to the day named
for the meeting in any other case. If the secretary neglects or refuses to give
notice of a meeting, the person or persons calling the meeting may do so. In
the case of a special meeting of shareholders, the notice shall specify the
general nature of the business to be transacted.
(b) Notice of Action by Shareholders on Bylaws.--In the case of a meeting
of shareholders that has as one of its purposes action on the bylaws, written
notice shall be given to each shareholder that the purpose, or one of the
purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be affected thereby.
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Section 2.04. Waiver of Notice.
(a) Written Waiver.--Whenever any written notice is required to be given
under the provisions of the Business Corporation Law, the articles or these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of the notice. Neither the business to be
transacted at, nor the purpose of, a meeting need be specified in the waiver
of notice of the meeting.
(b) Waiver by Attendance.--Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 2.05. Modification of Proposal Contained in Notice.--Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law or
the articles or these bylaws, the meeting considering the resolution may
without further notice adopt it with such clarifying or other amendments as do
not enlarge its original purpose.
Section 2.06. Exception to Requirement of Notice. - Shareholders Without
Forwarding Addresses.--Notice or other communications need not be sent to any
shareholder with whom the corporation has been unable to communicate for more
than 24 consecutive months because communications to the shareholder are
returned unclaimed or the shareholder has otherwise failed to provide the
corporation with a current address. Whenever the shareholder provides the
corporation with a current address, the corporation shall commence sending
notices and other communications to the shareholder in the same manner as to
other shareholders.
Section 2.07. Use of Conference Telephone and Similar Equipment.--Any
director may participate in any meeting of the Board of Directors, and the
Board of Directors may provide by resolution with respect to a specific
meeting or with respect to a class of meetings that one or more persons may
participate in a meeting of the shareholders of the corporation, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this section shall constitute presence in person at the
meeting.
ARTICLE III
Shareholders
Section 3.01. Place of Meeting.--All meetings of the shareholders of the
corporation shall be held at the registered office of the corporation unless
another place is designated by the Board of Directors in the notice of a
meeting.
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Section 3.02. Annual Meeting.--The Board of Directors may fix and
designate the date and time of the annual meeting of the shareholders, but if
no such date and time is fixed and designated by the board, the meeting for any
calendar year shall be held on the third Wednesday of April in such year, if
not a legal holiday under the laws of Pennsylvania, and, if a legal holiday,
then on the next succeeding business day, not a Saturday, at 10:00 a.m. At an
annual meeting of the shareholders, only such business shall be conducted as
shall have been brought before the meeting properly. To be brought properly
before an annual meeting, business must be (i) specified in the notice of the
meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (ii) otherwise brought before the meeting by or at the direction
of the Board of Directors or (iii) brought before the meeting by a shareholder
in accordance with the procedure set forth below. For business properly to be
brought before an annual meeting by a shareholder, the shareholder must be
entitled by Pennsylvania law to present such business and must have given
written notice of such business, either by personal delivery or by United
States mail, postage prepaid, to the secretary of the corporation, not later
than 60 days in advance of such meeting; provided, however, that if such
annual meeting of shareholders is held on a date other than the third Wednesday
of April, such written notice must be given within ten days after the first
public disclosure, which may include any public filing by the corporation with
the Securities and Exchange Commission, of the date of the annual meeting. Any
such notice shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the meeting and the reasons for conducting such business
at the meeting, and in the event that such business includes a proposal to
amend the bylaws of the corporation, the language of the proposed amendment,
(b) the name and address of the shareholder proposing such business, (c) a
representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to propose such business and (d) any material interest
of any shareholder in such business. No business shall be conducted at an
annual meeting except in accordance with this paragraph, and the chairman of
any annual meeting of shareholders may refuse to permit any business to be
brought before such annual meeting without compliance with the foregoing
procedures.
Subject to the rights of the holders of any class or series of stock
having a preference over the common stock of the corporation as to dividends or
upon liquidation, nominations for the election of directors may be made by the
Board of Directors or by any shareholder entitled to vote for the election of
directors. Any shareholder entitled to vote for the election of directors may
nominate at a meeting persons for election as directors only if written notice
of such shareholder's intent to make such nomination is given, either by
personal delivery or by United States mail, postage prepaid, to the secretary
of the corporation not later than (i) with respect to an election to be held at
an annual meeting of shareholders, 60 days in advance of such meeting (provided
that if such annual meeting of shareholders is held on a date other than the
third Wednesday of April, such written notice must be given within ten days
after the first public disclosure, which may include any public filing by the
corporation with the Securities and Exchange Commission, of the date of the
annual meeting), and (ii) with respect to an election to
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be held at a special meeting of shareholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to shareholders. Each such notice shall set forth:
(a) the name and address of the shareholder who intends to make the nomination
and of each person to be nominated; (b) a representation that the shareholder
is a holder of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice as directors: (c) a description
of all arrangements or understandings between the shareholder and each proposed
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission were such
nominee to be nominated by the Board of Directors; and (e) the consent of each
proposed nominee to serve as a director of the corporation if so elected. The
chairman of any meeting of shareholders to elect directors may refuse to permit
the nomination of any person to be made without compliance with the foregoing
procedure.
Section 3.03. Special Meetings.--Special meetings of the shareholders may
be called at any time by resolution of the Board of Directors, which may fix
the date, time and place of the meeting. If the board does not fix the date,
time or place of the meeting, it shall be the duty of the secretary to do so. A
date fixed by the secretary shall not be more than 60 days after the date of
the adoption of the resolution of the board calling the special meeting.
Section 3.04. Quorum and Adjournment.
(a) General Rule.--A meeting of shareholders of the corporation duly
called shall not be organized for the transaction of business unless a quorum is
present. The presence of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast on a particular matter to
be acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of this corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a Quorum.--The shareholders present at a duly organized
meeting can continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
(c) Adjournments Generally.--Any regular or special meeting of the
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for
such period and to such place as the shareholders present and entitled to vote
shall direct.
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(d) Electing Directors at Adjourned Meeting.--Those shareholders entitled
to vote who attend a meeting called for the election of directors that has been
previously adjourned for lack of a quorum, although less than a quorum as
fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.
(e) Other Action in Absence of Quorum.--Those shareholders entitled to
vote who attend a meeting of shareholders that has been previously adjourned
for one or more periods aggregating at least 15 days because of an absence of
a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those
shareholders who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.
Section 3.05. Action by Shareholders.--Except as otherwise provided in the
Business Corporation Law or the articles or these bylaws, whenever any
corporate action is to be taken by vote of the shareholders of the
corporation, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon and, if
any shareholders are entitled to vote thereon as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled
to vote as a class.
Section 3.06. Organization.--At every meeting of the shareholders, the
chairman of the board, if there be one, or, in the case of vacancy in office or
absence of the chairman of the board, one of the following persons present in
the order stated: a person appointed by the chairman of the board to act as
chairman of the meeting, the president, the vice presidents in their order of
rank and seniority, or a person chosen by vote of the shareholders present,
shall act as chairman of the meeting. The secretary or, in the absence of the
secretary, an assistant secretary, or, in the absence of both the secretary and
assistant secretaries, a person appointed by the chairman of the meeting, shall
act as secretary of the meeting.
Section 3.07. Voting Rights of Shareholders.--Unless otherwise provided in
the articles, every shareholder of the corporation shall be entitled to one
vote for every share standing in the name of the shareholder on the books of
the corporation.
Section 3.08. Voting and Other Action by Proxy.
(a) General Rule.--
(1) Every shareholder entitled to vote at a meeting of shareholders
may authorize another person to act for the shareholder by proxy.
(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the presence of,
or vote or action by the shareholder.
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(3) Where two or more proxies of a shareholder are present, the
corporation shall, unless otherwise expressly provided in the proxy,
accept as the vote of all shares represented thereby the vote cast by a
majority of them and, if a majority of the proxies cannot agree whether
the shares represented shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among those
persons.
(b) Execution and Filing.--Every proxy shall be executed in writing by
the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the corporation. A proxy, unless coupled with
an interest, shall be revocable at will, notwithstanding any other agreement or
any provision in the proxy to the contrary, but the revocation of a proxy shall
not be effective until written notice thereof has been given to the secretary
of the corporation. An unrevoked proxy shall not be valid after three years
from the date of its execution unless a longer time is expressly provided
therein.
A proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of
the death or incapacity is given to the secretary of the corporation.
(c) Expenses.--The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or on behalf of
the Board of Directors or its nominees for election to the board, including
solicitation by professional proxy solicitors and otherwise.
Section 3.09. Voting by Fiduciaries and Pledgees.--Shares of the
corporation standing in the name of a trustee or other fiduciary and shares
held by an assignee for the benefit of creditors or by a receiver may be voted
by the trustee, fiduciary, assignee or receiver. A shareholder whose shares are
pledged shall be entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the pledgee, but
nothing in this section shall affect the validity of a proxy given to a pledgee
or nominee.
Section 3.10. Voting by Joint Holders of Shares.
(a) General Rule.--Where shares of the corporation are held jointly or as
tenants in common by two or more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be
deemed to be represented for the purpose of determining a quorum and the
corporation shall accept as the vote of all the shares the vote case by a
joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the shares held
by them shall be voted or upon the manner of voting the shares, the voting
of the
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shares shall be divided equally among the persons without prejudice to the
rights of the joint owners or the beneficial owners thereof among
themselves.
(b) Exception.--If there has been filed with the secretary of the
corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote
the shares but only in accordance therewith.
Section 3.11. Voting by Corporations.
(a) Voting by Corporate Shareholders.--Any corporation that is a
shareholder of this corporation may vote at meetings of shareholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the Board of
Directors of the other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this corporation, is appointed
its general or special proxy in which case that person shall be entitled to
vote the shares.
(b) Controlled Shares.--Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the Board of
Directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.
Section 3.12. Determination of Shareholders of Record.
(a) Fixing Record Date.--The Board of Directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall be not more than 60
days prior to the date of the meeting of shareholders. Only shareholders of
record on the date fixed shall be so entitled notwithstanding any transfer of
shares on the books of the corporation after any record date fixed as provided
in this subsection. The Board of Directors may similarly fix a record date for
the determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the board fixes a new record date for the adjourned
meeting.
(b) Determination When a Record Date is Not Fixed.--If a record date is
not fixed:
(1) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given.
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(2) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) Certification by Nominee.--The Board of Directors may adopt a
procedure whereby a shareholder of the corporation may certify in writing to
the corporation that all or a portion of the shares registered in the name of
the shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Section 3.13. Voting Lists.
(a) General Rule.--The officer or agent having charge of the transfer
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof except that, if the corporation has
5,000 or more shareholders, in lieu of the making of the list the corporation
may make the information therein available at the meeting by any other means.
(b) Effect of List.--Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.
Section 3.14. Judges of Election.
(a) Appointment.--In advance of any meeting of shareholders of the
corporation, the Board of Directors may appoint judges of election, who need
not be shareholders, to act at the meeting or any adjournment thereof. If
judges of election are not so appointed, the presiding officer of the meeting
may, and on the request of any shareholder shall, appoint judges of election at
the meeting. The number of judges shall be one or three. A person who is a
candidate for an office to be filled at the meeting shall not act as a judge.
(b) Vacancies.--In case any person appointed as a judge fails to appear
or fails or refuses to act, the vacancy may be filled by appointment made by
the Board of Directors in advance of the convening of the meeting or at the
meeting by the presiding officer thereof.
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(c) Duties.--The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect
of proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with nominations by shareholders or
the right to vote, count and tabulate all votes, determine the result and do
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
(d) Report.--On request of the presiding officer of the meeting or of any
shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
ARTICLE IV
Board of Directors
Section 4.01. Powers; Personal Liability.
(a) General Rule.--Unless otherwise provided by statute, all powers
vested by law in the corporation shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, the Board of Directors.
(b) Personal Liability of Directors.--
(1) A director shall not be personally liable, as such, for monetary
damages (including, without limitation, any judgment, amount paid in
settlement, penalty, punitive damages or expense of any nature (including,
without limitation, attorneys' fees and disbursements)) for any action
taken, or any failure to take any action, unless:
(i) the director has breached or failed to perform the duties
of his or her office under Subchapter 17B of the Business Corporation
Law or any successor provision; and
(ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
(2) The provisions of paragraph (1) shall not apply to the
responsibility or liability of a director pursuant to any criminal
statute, or the liability of a director for the payment of taxes pursuant
to local, State or Federal law.
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(c) Notation of Dissent.--A director of the corporation who is present at
a meeting of the Board of Directors, or of a committee of the board, at which
action on any corporate matter is taken on which the director is generally
competent to act, shall be presumed to have assented to the action taken unless
his or her dissent is entered in the minutes of the meeting or unless the
director files his or her written dissent to the action with the secretary of
the meeting before the adjournment thereof or transmits the dissent in writing
to the secretary of the corporation immediately after the adjournment of the
meeting. The right to dissent shall not apply to a director who voted in favor
of the action. Nothing in this section shall bar a director from asserting that
minutes of the meeting incorrectly omitted his or her dissent if, promptly upon
receipt of a copy of such minutes, the director notifies the secretary, in
writing, of the asserted omission or inaccuracy.
Section 4.02. Selection of Directors. The number, qualifications, manner
of election, time and place of meeting, compensation and powers and duties of
the directors of the corporation shall be fixed from time to time by or
pursuant to these bylaws. The shareholders shall, at each annual meeting, elect
directors, each of whom shall serve until the annual meeting of shareholders
next following his election and until his successor is elected and shall
qualify. Each election of directors by the shareholders shall be conducted by
one or three judges of election appointed by the Board of Directors in advance
of the meeting to act at that meeting and at any adjournment thereof.
Section 4.03. Number and Term of Office.
(a) Number.--The Board of Directors shall consist of such number of
directors, not less than five (5) nor more than fifteen (15), as may be
determined from time to time by resolution of the Board of Directors.
(b) Term of Office.--Each director shall hold office until the expiration
of the term for which he or she was elected and until a successor has been
elected and qualified or until his or her earlier death, seventieth (70th)
birthday, resignation or removal. A decrease in the number of directors shall
not have the effect of shortening the term of any incumbent director.
(c) Resignation.--Any director may resign at any time upon written notice
to the corporation.
The resignation shall be effective upon receipt thereof by the corporation or at
such subsequent time as shall be specified in the notice of resignation.
(d) Classified Board of Directors.--The directors shall be classified in
respect of the time for which the directors shall severally hold office as
follows:
(1) The directors shall be divided into three (3) classes, each of
which shall be as nearly equal in number as possible.
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(2) The term of office of at least one class shall expire in each
year.
(3) Except as provided in paragraph (4), the members of each class
shall be elected for a period of three years.
(4) Upon the adoption of these bylaws by the shareholders of the
corporation, the directors shall be classified into the following classes
for the initial term prescribed for each class:
Class Expiration Date of Initial Term
----- -------------------------------
Class I Date of Annual Meeting of Shareholders for 1997
Class II Date of Annual Meeting of Shareholders for 1998
Class III Date of Annual Meeting of Shareholders for 1999
Section 4.04. Vacancies.
(a) General Rule.--Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, may be filled
by a majority vote of the remaining members of the board though less than a
quorum, or by a sole remaining director, and each person so selected shall be a
director to serve until the next selection of the class for which such director
has been chosen, and until a successor has been selected and qualified or until
his or her earlier death, resignation or removal.
(b) Action by Resigned Directors.--When one or more directors resign from
the board effective at a future date, the directors then in office, including
those who have so resigned, shall have power by the applicable vote to fill the
vacancies, the vote thereon to take effect when the resignations become
effective.
Section 4.05. Removal of Directors.
(a) Removal by the Shareholders.--The shareholders may remove the entire
Board of Directors, or any class of directors, or any individual director only
as permitted in the articles.
(b) Removal by the Board.--The Board of Directors may declare vacant the
office of a director who has been judicially declared of unsound mind or who
has been convicted of an offense punishable by imprisonment for a term of more
than one year or if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the Board of Directors.
Section 4.06. Place of Meetings.--Meetings of the Board of Directors may
be held at such place within or without the Commonwealth of Pennsylvania as the
Board
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of Directors may from time to time appoint or as may be designated in the
notice of the meeting.
Section 4.07. Organization of Meetings.--At every meeting of the Board of
Directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: a person appointed by the
chairman of the board to act as chairman of the meeting, the president, the
vice presidents in their order of rank and seniority, or a person chosen by a
majority of the directors present, shall act as chairman of the meeting. The
secretary or, in the absence of the secretary, an assistant secretary, or, in
the absence of the secretary and the assistant secretaries, any person
appointed by the chairman of the meeting, shall act as secretary of the
meeting.
Section 4.08. Regular Meetings.--Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated from time
to time by resolution of the Board of Directors.
Section 4.09. Special Meetings.--Special meetings of the Board of
Directors shall be held whenever called by the chairman or by two or more of
the directors.
Section 4.10. Quorum of and Action by Directors.
(a) General Rule.--A majority of the directors in office of the
corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors.
(b) Action by Written Consent.--Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the corporation.
Section 4.11. Committees.
(a) Establishment and Powers.--The Board of Directors may, by resolution
adopted by a majority of the directors in office, establish one or more
committees to consist of one or more directors of the corporation. There shall
be a Human Resources and Compensation Committee, an Audit Committee, a Pension
Committee, a Finance Committee, and a Corporate Governance and Nominating
Committee. The Human Resources and Compensation Committee may determine to
retain an independent compensation consultant to assist it in carrying out its
duties. Each of these committees shall consist of not less than three members
of the Board of Directors. The Audit Committee must be comprised solely of
directors independent of management and free from any relationship that in the
opinion of the Board of Directors would interfere with the exercise of
independent judgment.
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With respect to each such committee, the Board of Directors shall, by one
or more resolutions adopted by a majority of the whole board, determine the
duties and responsibilities, determine the number of members, appoint the
members and the committee chair and fill each vacancy occurring in the
membership.
Any committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all of the powers and authority of the
Board of Directors except that a committee shall not have any power or
authority as to the following:
(1) The submission to shareholders of any action requiring approval
of shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the Board of Directors
(3) The adoption, amendment or repeal of these bylaws.
(4) The amendment or repeal of any resolution of the board that by
its terms is amendable or repealable only by the board.
(5) Action on matters committed by a resolution of the Board of
Directors to another committee of the board.
(b) Alternate Committee Members.--The board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.
(c) Term.--Each committee of the board shall serve at the pleasure of the
board.
(d) Committee Procedures.--The term "Board of Directors" or "board," when
used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the Board of Directors, shall
be construed to include and refer to any executive or other committee of the
board.
Section 4.12. Compensation.--The Board of Directors shall have the
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.
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ARTICLE V
Officers
Section 5.01. Officers Generally.
(a) Number, Qualifications and Designation.--The officers of the
corporation shall be a President and Chief Executive Officer, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers as may be elected
in accordance with the provisions of Section 5.03. Officers may but need not be
directors or shareholders of the corporation. The Board of Directors may elect
from among the members of the board a chairman of the board and a vice chairman
of the board.
(b) Bonding.--The corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
(c) Standard of Care.--In lieu of the standards of conduct otherwise
provided by law, officers of the corporation shall be subject to the same
standards of conduct, including standards of care and loyalty and rights of
justifiable reliance, as shall at the time be applicable to directors of the
corporation. An officer of the corporation shall not be personally liable, as
such, to the corporation or its shareholders for monetary damages (including,
without limitation, any judgment, amount paid in settlement, penalty, punitive
damages or expense of any nature (including, without limitation, attorneys'
fees and disbursements)) for any action taken, or any failure to take any
action, unless the officer has breached or failed to perform the duties of his
or her office under the articles of incorporation, these bylaws, or the
applicable provisions of law and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. The provisions of this
subsection shall not apply to the responsibility or liability of an officer
pursuant to any criminal statute or for the payment of taxes pursuant to local,
state or federal law.
Section 5.02. Election, Term of Office and Resignations.
(a) Election and Term of Office.--The officers of the corporation, except
those elected by delegated authority pursuant to Section 5.03, shall be elected
annually by the Board of Directors, and each such officer shall hold office for
a term of one year and until a successor has been selected and qualified or
until his or her earlier death, resignation or removal.
(b) Resignations.--Any officer may resign at any time upon written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as may be specified in the notice of
resignation.
Section 5.03. Subordinate Officers, Committees and Agents.--The Board of
Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one
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or more Assistant Secretaries, and one or more Assistant Treasurers, each of
whom shall hold office for such period, have such authority, and perform such
duties as are provided in these bylaws, or as the Board of Directors may from
time to time determine. The Board of Directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the
authority and duties of such subordinate officers, committees, employees or
other agents.
Section 5.04. Removal of Officers and Agents.--Any officer or agent of
the corporation may be removed by the Board of Directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 5.05. Vacancies.--A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by
the Board of Directors or by the officer or committee to which the power to
fill such office has been delegated pursuant to Section 5.03, as the case may
be, and if the office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.
Section 5.06. Authority. General Rule.--All officers of the corporation,
as between themselves and the corporation, shall have such authority and
perform such duties in the management of the corporation as may be provided by
or pursuant to resolutions or orders of the Board of Directors or, in the
absence of controlling provisions in the resolutions or orders of the Board of
Directors, as may be determined by or pursuant to these bylaws.
Section 5.07. The Chairman of the Board.--The Chairman of the Board shall
preside at all meetings of the Board of Directors at which he is present and
shall call meetings of the board and board committees when he deems them
necessary. Unless otherwise precluded from doing so by these bylaws, he may be
a member of the committees of the board. He shall act as chairman at all
meetings of the shareholders at which he is present unless he elects that the
Chief Executive Officer shall so preside. The Chairman of the Board may be
designated by the board as an officer of the corporation and may be elected by
the board as the Chief Executive Officer. The Chairman of the Board shall
perform all duties as may be assigned to him by the Board of Directors.
Section 5.08. The President and Chief Executive Officer.--The President
shall have such powers and duties as may, from time to time, be prescribed by
the Board of Directors. Unless the Board of Directors shall otherwise direct,
the President shall be the Chief Executive Officer of the corporation.
The Chief Executive Officer shall have general charge of the affairs of
the corporation, subject to the control of the Board of Directors. He may
appoint all officers and employees of the corporation for whose election no
other provision is made in these
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bylaws, and may discharge or remove any officer or employee, subject to action
thereon by the Board of Directors as required by these bylaws. He shall be the
officer through whom the board delegates authority to corporate management, and
shall be responsible to see that all orders and resolutions of the board are
carried into effect by the proper officers or other persons. He shall also
perform all duties as may be assigned to him by the Board of Directors. The
Chief Executive Officer shall sign, execute, and acknowledge, in the name of
the corporation, deeds, mortgages, bonds, contracts or other instruments,
authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors, or by
these bylaws, to some other officer or agent of the corporation.
Section 5.09. The Vice Presidents.--The Vice Presidents shall perform
such duties as may from time to time be assigned to them by the Board of
Directors or the president.
Section 5.10. The Secretary.--The Secretary or an Assistant Secretary
shall attend all meetings of the shareholders and of the Board of Directors and
all committees thereof and shall record all the votes of the shareholders and
of the directors and the minutes of the meetings of the shareholders and of the
Board of Directors and of committees of the board in a book or books to be kept
for that purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law; shall be the
custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of Secretary, and such
other duties as may from time to time be assigned by the board or the
President.
Section 5.11. The Treasurer.--The Treasurer or an Assistant Treasurer
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
corporation; shall deposit all funds in his or her custody as treasurer in such
banks or other places of deposit as the board may from time to time designate;
shall, whenever so required by the board, render an account showing all
transactions as Treasurer, and the financial condition of the corporation; and,
in general, shall discharge such other duties as may from time to time be
assigned by the board or the President.
Section 5.12. Salaries.--The salaries of the officers elected by the
Board of Directors shall be fixed from time to time by the board or by such
officer as may be designated by resolution of the board. The salaries or other
compensation of any other officers, employees and other agents shall be fixed
from time to time by the officer or committee to which the power to appoint
such officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from
receiving such salary or other compensation by reason of the fact that the
officer is also a director of the corporation.
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ARTICLE VI
Employees' Stock Purchases and Stock Option Plans
Section 6.01. Employee Stock Purchase Plan.--Shares of common stock of
the corporation may be reserved, from time to time, by the Board of Directors
for offering for sale, pursuant to one or more plans, to employees, including
assistant officers, of the corporation and to employees, including officers of
its subsidiaries, on an installment payment basis, either by deductions from
pay or by direct cash payments, or otherwise. Shares so reserved may be offered
for sale, from time to time, pursuant to such plan or plans, but may be issued
only after completion of payment therefor. Except for shares acquired pursuant
to a plan for the deferral of director fees, directors, other than employee
directors, will not be eligible to purchase shares hereunder.
The Board of Directors may determine, with respect to any plan, the class
or classes of employees eligible to participate therein, the number of shares
to be offered, the number of shares which the respective employees may elect to
purchase (which may, but need not, be fixed in proportion to their
compensation) and the price at which the shares will be offered for sale. The
price so determined by the board (i) may be a fixed price, or (ii) may be a
price determined by the average market price of the shares for a designated
period or periods, or (iii) may be a price less than such average market price
by a fixed amount or a specified percentage thereof.
Each such plan shall set forth the terms and conditions upon which an
employee may elect to purchase shares thereunder, upon which any such election
may be canceled by the employee or terminated by the corporation, and upon
which funds credited to the employee's account shall be refunded to him or
applied to the purchase of shares.
Subject to the foregoing, the Board of Directors may prescribe the terms
and conditions of each plan.
Section 6.02. Stock Option Plans.--Shares of common stock of the
corporation may also be reserved, from time to time, by the Board of Directors
for sale upon the exercise of options granted pursuant to one or more plans to
officers and other employees of the corporation and its subsidiaries, but not
including any director who is not also such an officer or employee. Any such
plan shall be administered by a committee consisting of three or more members
of the Board of Directors who are not eligible to receive options under the
plan. The members of any such committee shall be appointed by the board and
shall have plenary authority to determine the individuals to whom and the time
or times at which options shall be granted; to determine the number of shares
to be subject to each option; to determine the duration of such options; to
determine the purchase price of the common stock under any such option, which
may be less than the fair market value of the stock at the time of the granting
of the option and which, upon the exercise of any option, shall be paid in full
with respect to the shares then purchased under such option; to determine the
terms and provisions of the
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respective option agreements, which need not be identical, and which may
include such terms and provisions as shall be necessary or desirable under tax
law and to make such other determinations as shall be deemed to be necessary or
advisable for the administration of such plan. Any such plan shall contain such
other terms and conditions as the board may prescribe.
ARTICLE VII
Certificates of Stock, Transfer, Etc.
Section 7.01. Share Certificates.
(a) Form of Certificates.--Certificates for shares of the corporation
shall be in such form as approved by the Board of Directors, and shall state
that the corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to whom issued, and the number and class
of shares and the designation of the series (if any) that the certificate
represents. If the corporation is authorized to issue shares of more than one
class or series, certificates for shares of the corporation shall set forth
upon the face or back of the certificate (or shall state on the face or back of
the certificate that the corporation will furnish to any shareholder upon
request and without charge), a full or summary statement of the designations,
voting rights, preferences, limitations and special rights of the shares of
each class or series authorized to be issued so far as they have been fixed and
determined and the authority of the board to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the corporation.
(b) Share Register.--The share register or transfer books and blank share
certificates shall be kept by the Secretary or by any transfer agent or
registrar designated by the Board of Directors for that purpose.
Section 7.02. Certificates of Stock.--The shares of stock of the
corporation shall be represented by certificates of stock, signed by the
President or one of the Vice Presidents or other officer designated by the
board, countersigned by the Secretary or an Assistant Secretary and sealed
with the corporate seal of the corporation; and if such certificates of stock
are signed or countersigned by a corporate transfer agent or a corporate
registrar of this corporation, such signature of the President, Vice President
or other officer, such counter-signature of the Secretary or Assistant
Secretary, and such seal, or any of them, may be executed in facsimile,
engraved or printed.
Section 7.03. Transfer.--Transfers of shares of stock of the corporation
shall be made on the books of the corporation by the holder of record thereof
or his legal representative, acting by his attorney-in-fact duly authorized by
written power of attorney filed with the Secretary of the corporation, or with
one of its transfer agents, and on surrender for cancellation of the
certificate or certificates for such shares. Except as
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otherwise provided in these bylaws, the person in whose name shares of stock
stand on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation. The corporation may have one or more
transfer offices or agencies and registrars for the transfer and registration
of shares of stock of the corporation.
The Board of Directors may fix, in advance, a time, which shall not be
more than ninety days prior to the date of any meeting of shareholders, or the
date for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date, for the determination
of the shareholders entitled to notice of, or to vote at, any such meeting, or
entitled to receive payment of any such dividend or distribution, or to receive
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of shares; and in such case only shareholders of
record at the time so fixed as a record date shall be entitled to notice of, or
to vote at, such meeting or to vote at any adjournment thereof, or to receive
payment of such dividend or distribution, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of stock on the books of the corporation after any such record date
fixed as aforesaid.
Section 7.04. Lost, Destroyed or Mutilated Certificates.--The holder of
any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of
the certificate, upon satisfactory proof of such loss or destruction and, if
the Board of Directors shall so determine, the deposit of a bond in such form
and in such sum, and with such surety or sureties, as it may direct.
ARTICLE VIII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 8.01. Scope of Indemnification.
(a) General Rule.--The corporation shall indemnify an indemnified
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect or duty, error, misstatement or misleading
statement, negligence, gross negligence or act giving rise to strict or
products liability, except:
(1) where such indemnification is expressly prohibited by applicable
law;
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(2) until such time as the conduct of the indemnified representative
has been finally determined pursuant to Section 8.06 or otherwise:
(i) to constitute willful misconduct or recklessness within the
meaning of 15 Pa. C.S.A. (s) 1746(b) or any superseding provision of
law sufficient in the circumstances to bar indemnification against
liabilities arising from the conduct; or
(ii) to be based upon or attributable to the receipt by the
indemnified representative from the corporation of a personal benefit
to which the indemnified representative is not legally entitled; or
(3) to the extent such indemnification has been finally determined
in a final adjudication pursuant to Section 8.06 to be otherwise unlawful.
(b) Partial Payment.--If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.
(c) Presumption.--The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.
(d) Definitions.--For purposes of this article:
(1) "indemnified capacity" means any and all past, present and
future service by an indemnified representative in one or more capacities
as a director, officer, employee or agent of the corporation, or, at the
request of the corporation, as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other entity or enterprise;
(2) "indemnified representative" means any and all directors and
officers of the corporation and any other person designated as an
indemnified representative by the Board of Directors of the corporation
(which may, but need not, include any person serving at the request of the
corporation, as a director, officer, employee, agent, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise);
(3) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements); and
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(4) "proceeding" means any threatened, pending or completed action,
suit, appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether
brought by or in the right of the corporation, a class of its security
holders or otherwise.
Section 8.02. Proceedings Initiated by Indemnified Representatives.--
Notwithstanding any other provision of this article, the corporation shall not
indemnify under this article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include
counter claims or affirmative defenses) or participate in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of
or participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under Section 8.06 or
otherwise successfully prosecuting or defending the rights of an indemnified
representative granted by or pursuant to this article.
Section 8.03. Advancing Expenses.--The corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 8.01 or the initiation of or participation in which is
authorized pursuant to Section 8.02 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 8.06 that such person is not entitled
to be indemnified by the corporation pursuant to this article. The financial
ability of an indemnified representative to repay an advance shall not be a
prerequisite to the making of such advance.
Section 8.04. Securing of Indemnification Obligations.--To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board of Directors shall deem
appropriate. Absent fraud, the determination of the Board of Directors with
respect to such amounts, costs, terms and conditions shall be conclusive
against all security holders, officers and directors and shall not be subject
to voidability.
Section 8.05. Payment of Indemnification.--An indemnified representative
shall be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the secretary of the corporation.
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Section 8.06. Arbitration.
(a) General Rule.--Any dispute related to the right to indemnification,
contribution or advancement of expenses as provided under this article, except
with respect to indemnification for liabilities arising under the Securities
Act of 1933 that the corporation has undertaken to submit to a court for
adjudication, shall be decided by arbitration in Pittsburgh, Pennsylvania, in
accordance with the commercial arbitration rules then in effect of the American
Arbitration Association, before a single arbitrator selected by agreement of
the parties. In the event that the parties cannot agree upon the selection of
an arbitrator within ten (10) days after arbitration is initiated, the parties
agree that the American Arbitration Association in Pittsburgh, Pennsylvania
will select the arbitrator.
(b) Arbitration Procedures.--The arbitrator shall decide the dispute or
controversy in accordance with the following procedures:
(1) Within ten (10) days of the selection of an arbitrator, each
party shall submit to the arbitrator its written position (the "Initial
Submission") provided that neither memorandum of position shall exceed 10
--------
pages, double spaced plus such documentary evidence as the parties deem
necessary. In connection with the Initial Submission, neither of the
parties may submit (and the arbitrator may not accept) any additional
documentation (including affidavits).
(2) Within ten (10) days of the delivery of the Initial Submission,
each party may submit to the arbitrator a reply memorandum (the "Reply
Submission"), provided that neither reply memorandum shall exceed 5
pages, double spaced. In connection with the Reply Submission, neither of
the parties may submit (and the arbitrator may not accept) any additional
documentation (including affidavits).
(3) Within ten (10) days of the expiration of the period for the
delivery of the Reply Submission, the arbitrator, if he or she deems it
necessary or advisable, may call a hearing which may be by telephone
conference (the "Hearing"). At any Hearing, the arbitrator may ask
representatives and counsel for the parties questions with respect to the
issue to be decided and positions of the parties. In connection with the
Hearing, neither of the parties may offer (and the arbitrator may not
accept) any testimony or additional documentation (including affidavits).
(4) Within seven (7) days after the later to occur, if such is to
occur, of (i) the Hearing or (ii) the Reply Submission, the arbitrator
shall render his or her decision.
(5) The arbitrator shall notify promptly the parties in writing of
the decision, together with the amount of any dispute resolution costs
arising with respect thereto (the "Notice of Decision"). The Notice of
Decision need not contain an explanation of the decision or grounds
therefor.
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(6) The decision entered by the arbitrator shall be final, binding
and nonappealable and judgment may be entered thereon by any party in
accordance with applicable law in any court of competent jurisdiction,
except that the corporation shall be entitled to interpose as a defense in
any such judicial enforcement proceeding any prior final judicial
determination adverse to the indemnified representative under Section
8.01(a)(2) in a proceeding not directly involving indemnification under
this article. This arbitration provision shall be specifically
enforceable.
(c) Qualifications of Arbitrator.--The arbitrator selected as provided
herein is required to be or have been a director or executive officer of a
corporation whose shares of common stock were listed during at least one year
of such service on the New York Stock Exchange or the American Stock Exchange
or quoted on the National Association of Securities Dealers Automated
Quotations System.
(d) Burden of Proof.--The party or parties challenging the right of an
indemnified representative to the benefits of this article shall have the
burden of proof.
(e) Expenses.--The corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.
Section 8.07. Contribution.--If the indemnification provided for in this
article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the corporation shall contribute to the liabilities to
which the indemnified representative may be subject in such proportion as is
appropriate to reflect the intent of this article or otherwise.
Section 8.08. Contract Rights; Amendment or Repeal.--All rights under
this article shall be deemed a contract between the corporation and the
indemnified representative pursuant to which the corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights
or obligations then existing.
Section 8.09. Scope of Article.--The rights granted by this article shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this article shall continue as to a person
who has ceased to be an indemnified representative in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of such a person.
Section 8.10. Reliance on Provisions.--Each person who shall act as an
indemnified representative of the corporation shall be deemed to be doing so in
reliance
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upon the rights of indemnification, contribution and advancement of expenses
provided by this article.
Section 8.11. Interpretation.--The provisions of this article are
intended to constitute bylaws authorized by 15 Pa. C.S.A. (s) 1746.
ARTICLE IX
Miscellaneous
Section 9.01. Corporate Seal.--The corporation shall have a corporate
seal in the form of a circle containing the name of the corporation, the year
of incorporation and such other details as may be approved by the Board of
Directors. The affixation of the corporate seal shall not be necessary to the
valid execution, assignment or endorsement by the corporation of any instrument
or other document.
Section 9.02. Checks.--All checks, notes, bills of exchange or other
similar orders in writing shall be signed by such one or more officers or
employees of the corporation as the Board of Directors may from time to time
designate.
Section 9.03. Contracts.
(a) General Rule.--Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
shareholders, the Board of Directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf of
the corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments.--Any note, mortgage,
evidence of indebtedness, contract or other document, or any assignment or
endorsement thereof, executed or entered into between the corporation and any
other person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the President or Vice President and
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
corporation, shall be held to have been properly executed for and in behalf of
the corporation, without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.
Section 9.04. Interested Directors or Officers; Quorum.
(a) General Rule.--A contract or transaction between the corporation and
one or more of its directors or officers or between the corporation and another
corporation, partnership, joint venture, trust or other enterprise in which one
or more of its directors or officers are directors or officers or have a
financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at
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or participates in the meeting of the Board of Directors that authorizes the
contract or transaction, or solely because his, her or their votes are counted
for that purpose, if:
(1) the material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though
the disinterested directors are less than a quorum;
(2) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of those shareholders; or
(3) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of Directors
or the shareholders.
(b) Quorum.--Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board which authorizes a contract
or transaction specified in subsection (a).
Section 9.05. Deposits.--All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees of the corporation as the board shall
from time to time designate.
Section 9.06. Corporate Records.
(a) Required Records.--The corporation shall keep complete and accurate
books and records of account, minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the corporation in
the Commonwealth of Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books,
minutes or other records may be in written form or any other form capable of
being converted into written form within a reasonable time.
(b) Right of Inspection.--Every shareholder shall, upon written verified
demand stating the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any proper purpose,
the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other agent to so act on behalf of the
shareholder.
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The demand shall be directed to the corporation at its registered office in the
Commonwealth of Pennsylvania or at its principal place of business wherever
situated.
Section 9.07. Amendment of Bylaws.--These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the shareholders
at any duly organized annual or special meeting of shareholders, or (ii) with
respect to those matters that are not by statute committed expressly to the
shareholders and regardless of whether the shareholders have previously adopted
or approved the bylaw being amended or repealed, by vote of a majority of the
Board of Directors of the corporation in office at any regular or special
meeting of directors. Any change in these bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change. See Section
2.03(b) (relating to notice of action by shareholders on bylaws).
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EXHIBIT 9.1
STOCKHOLDERS' AGREEMENT
by and among
KOPPERS HOLDINGS CORPORATION,
KOPPERS INDUSTRIES, INC.,
BEAZER, INC.,
KAP INVESTMENTS, INC.
and
THE MANAGEMENT INVESTORS
Dated as of December 28, 1988
Amended for Changes Adopted by
Unanimous Consent of Shareholders
dated June 30, 1991, February 9, 1994
and August 16, 1995.
<PAGE>
STOCKHOLDERS' AGREEMENT
Table of Contents
-----------------
Page
----
1. Corporate Governance.................................................... 2
1.1. Board of Directors.............................................. 2
1.2. Officers of Holdings and the Company............................ 7
1.3. Representatives of the Management Investors..................... 7
1.4. Supermajority Vote Requirement.................................. 8
1.5. Actions by Voting Stockholders..................................14
1.6. No Recourse.....................................................15
1.7. Environmental Matters...........................................15
2. Transfers.of Shares.....................................................15
2.1. Legends; Shares Subject to this Agreement.......................15
2.2. Certain Restrictions............................................16
2.3. Transfer to Other Stockholders or to Transferees; Right
of First Offer..................................................18
2.4. Sales of Control................................................21
2.5. Form of Consideration for Shares................................23
2.6. Merger Transactions.............................................24
2.7. Transfer of Series B Shares.....................................24
3. Involuntary Transfer of Shares..........................................25
3.1. Certain Involuntary Transfers; Seller's Notice..................25
3.2. Right to Repurchase.............................................25
i
<PAGE>
3.3. Purchase Price..................................................25
4. Retirement of Shares Purchased by Holdings..............................26
5. Closing 26
5.1. Closing.........................................................26
5.2. Deliveries at Closing; Method of Payment of Purchase Price......26
6. Sale of Common Shares by Management Investors...........................27
6.1. Special Sale of Initial Management Investors' Voting Shares.....27
6.2. Cooperation of Holdings.........................................27
6.3. Special Sales of Common Shares by Representatives of the
Management Investors............................................28
7. Sales of Management Investors' Voting Shares on
Termination of Employment...............................................28
7.1. Sales Upon Termination..........................................28
7.2. Definitions.....................................................31
8. Certain Rights..........................................................32
8.1. Registration Rights.............................................32
8.2. Right of First Offer on Tar Business............................34
8.3. Rights of First Offer and Purchase on Wood Business.............35
8.4. Right of Repurchase.............................................37
8.5. Preemptive Rights...............................................38
8.6. Sale of Substantially All the Assets............................38
9. Miscellaneous...........................................................39
9.1. Endorsement of Stock Certificates...............................39
ii
<PAGE>
9.2. Term............................................................39
9.3. Injunctive Relief...............................................40
9.4. Notices.........................................................40
9.5. Administration..................................................40
9.6. Successors and Assigns..........................................40
9.7. Company Information.............................................41
9.8. Governing Law...................................................41
9.9. Headings........................................................42
9.10. Entire Agreement: Amendment.....................................42
9.11. No Waiver.......................................................42
9.12. Consent to Jurisdiction.........................................43
9.13. Inspection......................................................43
9.14. Counterparts....................................................43
Signatures..............................................................43
Guarantee of Beazer PLC
Guarantee of Koppers Australia Pty. Ltd.
Exhibit A - Holdings' Articles of Incorporation
Exhibit B - Holdings' By-Laws
iii
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
AGREEMENT dated as of December 28, 1988 by and among Koppers Holdings
Corporation, a Pennsylvania corporation ("Holdings"), Koppers Industries, Inc.,
a Pennsylvania corporation and a wholly owned subsidiary of Holdings (the
"Company"), Beazer, Inc., a Delaware corporation ("Beazer"), KAP Investments,
Inc., a Delaware corporation ("Koppers Australia"), and each individual listed
on Schedule I hereto (each such individual is referred to as a "Management
Investor" and all such individuals are sometimes referred to as the "Management
Investors"). Each of the parties hereto (other than Holdings and the Company)
and any other person who shall hereafter become a party to or agree to be bound
by the terms of this Agreement is sometimes hereinafter referred to as a
"Stockholder" and all of such parties are sometimes hereinafter referred to as
the "Stockholders." Each of the parties hereto, and any other person who shall
hereafter become a party to or agree to be bound by the terms of this Agreement,
who in any such case holds Voting Shares (as hereinafter defined) is sometimes
hereinafter referred to as a "Voting Stockholder" and all such holders of Voting
Shares are sometimes hereinafter referred to as the "Voting Stockholders." This
Agreement shall become effective (the "Effective Date") on the date of, and
simultaneously with, the closing of the transactions under the Subscription
Agreement (as hereinafter defined).
As of the Effective Date, Holdings will have an authorized capital stock
consisting of 10,000 shares of Voting Common Stock, $.01 par value (the "Voting
Shares"), 10,000 shares of Non-Voting Common Stock, $.01 par value (the "Non-
Voting Shares" and, together with the Voting Shares, the "Common Shares"), and
4,000 shares of Preferred Stock, $.01 par value (the "Preferred Shares"), of
which 750 have been designated Series A Exchangeable Preferred Stock (the
"Series A Shares") and 2,600 have been designated Series B Junior Convertible
Preferred Stock (the "Series B Shares"). The Voting Shares, the Non-Voting
Shares, the Series A Shares and the Series B Shares are sometimes collectively
referred to herein as the "Shares."
Holdings and each of the Stockholders who are parties to this Agreement
have entered into a Subscription Agreement dated as of December 26, 1988 (the
"Subscription Agreement") pursuant
<PAGE>
to which such Stockholders have subscribed for Voting Shares, Beazer and Koppers
Australia have subscribed for Series A Shares and Beazer has subscribed for
Series B Shares. As of the closing of the transactions contemplated in the
Subscription Agreement, the holdings of Beazer, Koppers Australia, and the
Management Investors as a group, will be as follows:
<TABLE>
<CAPTION>
Percentage
Stockholder Number and Class of Shares of Class
- ----------- --------------------------- ---------
<S> <C> <C>
Beazer 2,500 Voting Shares 32.9%
125 Series A Shares 50.0%
2,600 Series B Shares 100.0%
Koppers Australia 2,500 Voting Shares 32.9%
125 Series A Shares 50.0%
Management Investors 2,600 Voting Shares 34.2%
</TABLE>
The parties hereto deem it in their best interests and in the best interest
of Holdings and the Company to provide consistent and uniform management for
Holdings and the Company and to regulate certain of their rights in connection
with their interests in Holdings and, through Holdings, the Company, and desire
to enter into this Agreement in order to effectuate those purposes.
The parties hereto also desire to restrict the sale, assignment, transfer,
encumbrance or other disposition of the Shares, including issued and outstanding
Shares as well as Shares which may be issued hereafter, or which may become
issuable pursuant to the exercise of options or warrants granted hereafter, and
to provide for certain rights and obligations with respect thereto as
hereinafter provided.
Accordingly, in consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:
1. Corporate Governance.
--------------------
1.1. Board of Directors.
------------------
(a) Number of Directors. Each of Holdings and the Company shall be
-------------------
governed by a Board of Directors which, as of the Effective Date, shall consist
of five members. The membership of the Boards of Directors of Holdings and the
Company shall be identical. The number of directors may not be increased or
decreased except as provided in Holdings' Articles of Incorporation and By-Laws,
copies of which are attached hereto as Exhibits A and B, respectively.
2
<PAGE>
(b) Nomination of Directors. The following procedures shall govern
-----------------------
the nomination of directors of Holdings:
(i) Each of Beazer and Koppers Australia shall be entitled to nominate
one director (respectively, the "Beazer Director" and the "Koppers Australia
Director") so long as it and any of its Permitted Transferees (as hereinafter
defined) continue to hold in the aggregate at least 20% of the Voting Shares
from time to time outstanding.
(ii) Two directors of Holdings (the "Management Directors") shall be
nominated by the Representatives of the Management Investors (as hereinafter
defined) so long as the Management Investors as a group continue to hold in the
aggregate at least 15% of the Voting Shares from time to time outstanding, and
one director of Holdings shall be nominated by the Representatives of the
Management Investors if the Management Investors as a group hold less than 15%
of the Voting Shares from time to time outstanding.
(iii) The remaining director of Holdings (the "Independent Director")
shall be otherwise unaffiliated with the Company, and shall be nominated by the
Representatives of the Management Investors, subject to the reasonable consent
of each of Beazer and Koppers Australia (so long as Beazer or Koppers Australia,
as the case may be, and any of its Permitted Transferees continue to hold in the
aggregate at least 20% of the Voting Shares from time to time outstanding).
(c) Initial Board of Directors. The initial Board of Directors of
--------------------------
each of Holdings and the Company shall consist of the following members:
Name of Director Type of Nominee
---------------- ---------------
Brian C. Beazer Beazer Director
Brooks C. Wilson Koppers Australia Director
Robert K. Wagner Management Director
Clayton A. Sweeney Management Director
and an Independent Director to be selected in accordance with Section
1.1(b)(iii) as promptly as practicable following the Effective Date, each of
whom shall hold his office until his successor shall have been elected and
qualified.
3
<PAGE>
(d) Removal of Directors. Except as otherwise provided in this
--------------------
Section 1.1(d) or, in Section 1.1(e), each Voting Stockholder agrees not to take
any action or to cause Holdings to take any action to remove, with or without
cause, any director of Holdings or the Company. Notwithstanding the foregoing,
(i) if any director would no longer be entitled to be nominated as a
director pursuant to Section 1.1(b) because the person who originally nominated
such director would no longer be entitled to nominate directors, such director
shall immediately resign or be subject to removal by a vote of the Voting
Stockholders (and by Holdings as sole stockholder of the Company), and in such
event, except as provided in Section 1.1(g), the number of directors shall be
reduced by the number of directors resigning or removed, and
(ii) each of Beazer, Koppers Australia and the Representatives of the
Management Investors shall at all times have the right to recommend the removal,
with or without cause, of, respectively, the Beazer Director, the Koppers
Director and the Management Directors.
If a director shall fail to resign as required by clause (i) above or if the
removal of any directors is recommended as provided by clause (ii) above, then
the Voting Stockholders (and Holdings, as the sole stockholder of the Company),
shall immediately cause a special meeting of stockholders to be held, or shall
act by written consent without a meeting, for the purpose of removing such
director, and each Voting Stockholder agrees to vote all his Voting Shares, or
to execute a written consent in respect of all such Voting Shares (and Holdings
agrees to vote or execute a consent with respect to the shares of the Company
owned by it), in favor of such removal.
(e) Vacancies. At any time a vacancy is created on the Board of
---------
Directors of Holdings and the Company by the death, removal or resignation of
any one of the directors, no action shall be taken (except as provided in this
Section 1.1(e)) by the Board of Directors of Holdings and the Company until such
time as each such Board is reconstituted with the appropriate number of
directors; provided that action may be taken by such Boards of Directors so long
as (i) the Voting Stockholder entitled to fill such vacancy pursuant to Section
1.1(b) is given all notices and the right to participate in any action to the
same extent to which a director of the Company would be entitled and (ii) the
action is approved by the same
4
<PAGE>
number of directors as would be required to approve such action if all vacancies
on such Board were filled. If a vacancy is created on the Board of Directors by
reason of the death, removal (in accordance with Section 1.1(d) above) or
resignation of any one of the directors, the remaining directors shall meet
within 30 days after the date such vacancy occurs for the purpose of electing a
director to fill such vacancy in accordance with the nomination procedures set
forth in Section 1.1(b) above and pursuant to the nomination or nominations made
by Beazer, Koppers Australia or the Representatives of the Management Investors,
as the case may be. If the appropriate party fails to nominate a director to
fill any such vacancy within such 30-day period or if the remaining directors
fill such vacancy otherwise than in accordance with the nomination procedures
set forth in Section 1.1(b) above, the Voting Stockholders shall immediately
cause a special meeting of stockholders to be called, or shall act by written
consent without a meeting, for the purpose of filling such vacancy and each
Voting Stockholder agrees to vote all his Voting Shares, or to execute a written
consent in respect of all such Voting Shares, as the case may be, in favor of
removing, if necessary, any director elected to fill such vacancy otherwise than
in accordance with Section 1.1(b) and this Section 1.1(e) and filling such
vacancy in accordance with the nomination procedures in Section 1.1(b) above.
If the party entitled to nominate a director to fill any such vacancy shall fail
to nominate a director, such vacancy shall be filled by the vote of a majority
of the Voting Shares then outstanding. Any director elected to fill a vacancy
on the Board of Directors of either Holdings or the Company shall simultaneously
fill the vacancy in both Boards of Directors.
(f) Covenant to Vote. Each of the Voting Stockholders agrees to vote,
----------------
in person or by proxy, all of the Voting Shares owned by such Voting
Stockholder, at any annual or special meeting of stockholders of Holdings called
for the purpose of voting on the election of directors or by consensual action
of stockholders without a meeting with respect to the election of directors, in
favor of the election of the directors nominated in accordance with Section
1.1(b) or 1.1(e) hereof. Each Voting Stockholder shall vote the Voting Shares
owned by such Voting Stockholder and shall take all other actions necessary to
ensure that Holdings' and the Company's Articles of Incorporation and By-laws do
not at any time conflict with the provisions of this Agreement.
5
<PAGE>
(g) Transfer of Right to Nominate. In the event that Beazer or
-----------------------------
Koppers Australia transfers to any person or group (other than a Permitted
Transferee), in accordance with the provisions of this Agreement, a number of
Voting Shares constituting at least 20% of the Voting Shares then outstanding,
such person or group shall succeed to the rights of Beazer or Koppers Australia,
as the case may be, to nominate one director of Holdings and the Company, to
remove or replace such director, to consent to the Independent Director, and to
transfer such nomination and consent rights, pursuant to, and subject to all the
terms and conditions of, this Section 1.1.
(h) Notice of Meetings. Each director of Holdings and the Company
------------------
shall be given at least ten days' notice of any regular meeting of the Board of
Directors and at least fourteen days' notice of any special meeting of the Board
of Directors of Holdings or the Company; provided that notice to any director
may be waived in writing by such director either before or after the meeting.
(i) Quorum. No action shall be taken at any meeting of the Board of
------
Directors of Holdings or the Company, except for the adjournment of such
meeting, unless at least one director nominated by each of the Voting
Stockholders entitled to nominate directors pursuant to Section 1.1(b) shall be
present; provided, however, that such presence shall be deemed satisfied as to
-------- -------
any director if Holdings or the Company, as the case may be, shall have given
such director the notice required by Section 1.1(h) and shall have complied with
such requests as may be reasonably made by such director or the Voting
Stockholder that nominated such director to permit the presence of such director
at such meeting. For purposes of the foregoing, any director may be present at
any meeting in person, by means of telephone or similar communication equipment
by means of which each person participating in the meeting can hear and speak to
each other or, to the extent permitted under applicable law, by proxy or by
nominee director.
6
<PAGE>
1.2. Officers of Holdings and the Company. Each of the Voting
------------------------------------
Stockholders agrees to cause the Board of Directors of each of Holdings and the
Company to appoint the following persons as initial officers of each of Holdings
and the Company in the following positions:
Name Office
---- ------
Robert K. Wagner President and Chief
Executive Officer
Earl A. Clendaniel Executive Vice President,
Marketing and Sales
John C. Youts Vice President, Chief
Financial Officer
Lawrence F. Flaherty Vice President and Manager,
Tar Operations
Raymond S. Ohlis, Jr. Vice President and Manager,
Treated Wood Operations
Donald N. Sweet, Jr. Vice President and General
Manager, Coke and By-Product
Services
James R. Batchelder Vice President and Manager,
Environmental and Technical
Joseph E. Boan Vice President, Human Resources
Donald E. Davis Treasurer
Randall D. Collins Secretary
If any of such officers are unable to serve, or cease for any reason to be an
officer of Holdings and the Company, their successors shall be appointed by the
Board of Directors of Holdings or the Company, as the case may be.
1.3. Representatives of the Management Investors. Each of the Management
-------------------------------------------
Investors hereby appoints Robert K. Wagner and Clayton A. Sweeney as their
representatives (such persons and any successors or replacements as provided in
this Section 1.3, the "Representatives of the Management Investors") for
purposes of this Agreement and hereby grants to the Representatives of the
Management Investors, and each of them, an irrevocable proxy for the term of
this Agreement to vote (or execute consents with respect to) all the Voting
Shares owned by such Management Investor on any matter
7
<PAGE>
coming before the stockholders of Holdings. In the event of any disagreement on
any matter between the Representatives of the Management Investors, the decision
of the Representative holding the most senior office with Holdings and the
Company shall be the decision of the Representatives of the Management
Investors. Either or both of the Representatives of the Management Investors
may be (and, in the event either or both ceases to serve as a Representative of
the Management Investors, shall be) replaced by the vote of the holders of at
least three-fourths of the Voting Shares held by the Management Investors.
1.4. Supermajority Vote Requirement. Without either (A) the prior
------------------------------
affirmative vote of at least a number of voting members of the Board of
Directors of Holdings equal to (x) a majority (i.e., more than 50%) of the
-----
number of directors of Holdings as last fixed pursuant to the provisions of the
By-Laws of Holdings (a "Majority of the Directors"), plus (y) one director (the
vote required pursuant to the foregoing being sometimes referred to herein as a
"Supermajority Vote"), or (B) the prior unanimous affirmative vote of a
committee of the Board of Directors of Holdings where such committee is
established, the authority delegated and the members of the committee selected
by a Supermajority Vote (as described in clause (A) of this Section 1.4) and in
respect of which all matters to be voted upon are within the authority delegated
to such committee, Holdings shall not, and the Voting Stockholders shall use
their respective best efforts not to permit Holdings to:
(a) issue or sell any shares of, or permit any of its Subsidiaries (as
hereinafter defined) (including the Company) to issue or sell any shares of, any
class or series of capital stock of Holdings or such Subsidiary, or any
securities convertible into, or exercisable or exchangeable for, any shares of
any class or series of capital stock of Holdings or such Subsidiary, other than
(i) employee stock options or restricted stock issued pursuant to a plan
approved by a Supermajority Vote and the Voting Stockholders (an "Approved
Plan"), (ii) Shares issued upon exercise of employee stock options granted
pursuant to an Approved Plan, (iii) warrants (the "Warrants") to purchase up to
an aggregate of 4,371 Non-Voting Shares, and the Non-Voting Shares issuable upon
exercise thereof, in connection with the financing or refinancing of the
transactions contemplated by the Asset Purchase Agreement dated as of December
28, 1988 by and between the Company and Koppers Company, Inc. (the "Asset
Purchase Agreement"), (iv) Series A Shares issuable in
8
<PAGE>
payment of the dividends on the Series A Shares, (v) Non-Voting Shares issuable
upon conversion of the Series B Shares and (vi) other issuances expressly
provided for in this Agreement. As used herein, "Subsidiary" means any
corporation, partnership or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors (or other persons performing similar functions) are at the relevant
time directly or indirectly owned by Holdings;
(b) declare, set aside or pay any dividend or other distribution, or permit
any Subsidiary of Holdings to declare, set aside or pay any dividend or other
distribution, on any shares of any class or series of capital stock of Holdings
or such Subsidiary (other than pursuant to the terms of any outstanding series
of Preferred Stock and other than, in the case of any such Subsidiary, any
dividends or distributions to Holdings or a wholly owned Subsidiary thereof);
(c) purchase, redeem, retire or otherwise acquire, or set aside any assets
or deposit any funds for the purchase, redemption, retirement or other
acquisition of, any shares of any class or series of capital stock of Holdings
or any securities convertible into, or exercisable or exchangeable for, any
shares of any class or series of capital stock of Holdings, other than purchases
pursuant to Section 6 or 7 hereof;
(d) directly or indirectly, purchase or otherwise acquire, in one
transaction or a series of related transactions (other than purchases of
inventory in the ordinary course of business), any business or assets for a
purchase price (including in such purchase price the Fair Market Value (as
defined below) of any non-cash consideration) in excess of 30% of the
consolidated assets of Holdings and its Consolidated Subsidiaries (as defined
below), computed in accordance with generally accepted accounting principles,
consistently applied, and determined on the basis of the most recently available
quarterly or year-end consolidated financial statements of Holdings and its
Consolidated Subsidiaries without giving effect to such purchase or other
acquisition. The "Fair Market Value" of any business or assets means the fair
market value of such business or assets, as determined by a Supermajority Vote
of the Board of Directors of Holdings in good faith. "Consolidated Subsidiaries"
means, as of any date, any corporation, partnership or other entity the
9
<PAGE>
accounts of which would, in accordance with generally accepted accounting
principles, consistently applied, be consolidated with those of Holdings in its
consolidated financial statements as of such date;
(e) directly or indirectly, sell, lease, assign or otherwise transfer or
dispose of, in one transaction or a series of related transactions (other than
sales of inventory in the ordinary course of business), any business or assets
having a Fair Market Value (in the case of an arm's-length transaction, such
Fair Market Value to be determined by reference to the purchase price therefor)
in excess of 30% of the consolidated assets of Holdings and its Consolidated
Subsidiaries computed in accordance with generally accepted accounting
principles, consistently applied, and determined on the basis of the most
recently available quarterly or year-end consolidated financial statements of
Holdings and its Consolidated Subsidiaries without giving effect to such sale,
lease, assignment or other transfer;
(f) enter into any agreement, or adopt any resolution, or permit any
Subsidiary of Holdings to enter into any agreement or adopt any resolution, in
respect of (i) any merger of Holdings or such Subsidiary with or into any other
corporation, partnership or other entity (other than a merger between Holdings
and a wholly owned Subsidiary thereof or between two wholly owned Subsidiaries
of Holdings), (ii) any consolidation of Holdings or such Subsidiary with any
other corporation, partnership or other entity (other than with Holdings or a
wholly owned Subsidiary of Holdings), (iii) any transaction or series of related
transactions in which Holdings shall sell or otherwise transfer all or
substantially all of Holdings' business, property or assets or (iv) any
dissolution, liquidation or reorganization of Holdings; provided, however, that
-------- -------
a Supermajority Vote with respect to any transaction set forth in this Section
1.4(f) shall not be effective unless it includes the affirmative vote of each of
the Beazer Director (if any) and the Koppers Australia Director (if any);
(g) directly or indirectly, effect any reclassification of securities
(including any reverse stock split), or recapitalization of Holdings;
10
<PAGE>
(h) make, or permit any of its Subsidiaries to make, directly or
indirectly, during any fiscal year, any expenditures or commitments for fixed or
capital assets in excess of 21 million over the amount set forth in the Capital
Budget (as defined below) for such fiscal year. The "Capital Budget" for any
fiscal year shall mean a capital budget for such fiscal year prepared by the
management of Holdings and the Company and approved by a Supermajority Vote on
or prior to the first day of such fiscal year;
(i) amend, modify, alter or repeal its Articles of Incorporation or By-Laws
in any respect whatever; provided, however, that unless the provisions of
-------- -------
Article III, Section I of the By-Laws requiring unanimous action by the Board of
Directors of Holdings (except as set forth in Section 1.1(d)(i) hereof) to alter
the number of members of the Board of Directors of Holdings shall have been
amended by unanimous action of the Holdings Board of Directors, taken at a time
when no vacancies exist in the Holdings Board of Directors, the number of
members of the Board of Directors of each of Holdings and the Company (except as
set forth in Section 1.1(d)(i) hereof) may only be altered by unanimous action
of the Board of Directors of Holdings taken at a time when no vacancies exist in
the Board of Directors of Holdings;
(j) incur or assume, or permit any of its Subsidiaries to incur or assume,
any Debt not reflected on the initial balance sheet of Holdings and its
Subsidiaries at the Effective Date which is more than $5 million in aggregate
amount, other than Debt incurred pursuant to the Bank Credit Agreement (the
"Bank Credit Agreement") to be entered into by the Company with Mellon Bank,
N.A. in connection with the transactions contemplated by the Asset Purchase
Agreement (including the full amount of the commitment thereunder irrespective
of the actual amount borrowed thereunder) and including any amount of Debt
incurred in connection with the refinancing, renewal, extension, replacement or
refunding of the Debt under the Bank Credit Agreement. "Debt" of any person
means at any date, without duplication, (i) all indebtedness of such person for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), (ii) all obligations of
such person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such person in respect of letters of credit or other
11
<PAGE>
similar instruments (or reimbursement obligations with respect thereto), (iv)
all obligations of such person to pay the deferred and unpaid purchase price of
property or services, (v) all Capital Lease Obligations of such person, (vi) all
Debt of others secured by a Lien on any asset of such person, whether or not
such Debt is assumed by such person, and (vii) all Debt of others guaranteed by
such person. The amount of Debt of Holdings and its Subsidiaries at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability of any such contingent obligations
at such date. "Lien" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest). "Capital Lease Obligations" of any person means any
obligation which is required to be classified and accounted for as a capital
lease on the face of a balance sheet of such person prepared in accordance with
generally accepted accounting principles, consistently applied; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with generally accepted accounting principles, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty. "Guarantee" by any
person means any obligation, contingent or otherwise, of such person directly or
indirectly guaranteeing any Debt or other obligation of any other person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation of such other person (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term Guarantee shall not include endorsements for collection
- --------
or deposit in the ordinary course of business;
12
<PAGE>
(k) except pursuant to this Agreement, grant to any person or entity
any contractual or other right to Holdings' cooperation or assistance, or
cooperate with or assist any person or entity, in registering any shares of any
class or series of capital stock of Holdings or any securities convertible into,
or exercisable or exchangeable for, any shares of any class or series of capital
stock of Holdings pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or any other state, federal or other securities laws;
(l) decrease or increase the compensation of any of the three most highly
paid executive officers of Holdings or the Company other than increases due to
cost of living and similar adjustments;
(m) enter into, or permit any Subsidiary to enter into, any transaction
with an Affiliate (as hereinafter defined) of Holdings other than (i) the
employment by Holdings or any Subsidiary of an Affiliate as a director, officer
or other employee for commercially reasonable compensation, (ii) the repurchase
and sale or resale of Shares pursuant to Section 6 or 7 hereof, (iii) the
registration of Shares pursuant to the terms of Section 8.1 hereof, (iv) the
sale of the Wood Business (as hereinafter defined) to Beazer pursuant to Section
8.3(c) hereof or following a third-party offer to purchase the Wood Business
that the Company desires to accept, (v) the sale of shares of Koppers Australia
Pty. Ltd. pursuant to the terms of Section 8.4 hereof, (vi) the sale of the Tar
Business (as hereinafter defined) to Koppers Australia following a third-party
offer to purchase the Tar Business that the Company desires to accept, (vii)
transactions pursuant to the terms of the Asset Purchase Agreement or any
agreement constituting an exhibit thereto, the Series A Shares, the Series B
Shares, or the Placement and Option Agreement, dated as of December 28, 1988
(the "Placement Agreement"), or any agreement constituting an exhibit thereto,
and (viii) any other transaction in the ordinary course of business and on terms
no less favorable to Holdings or such Subsidiary than would be obtained in a
comparable arm's-length transaction; provided, however, that any director
-------- -------
nominated by a Stockholder who is, or whose Affiliate is, a party to a
transaction requiring a Supermajority Vote pursuant to this Section 1.4(m) shall
not be permitted to
13
<PAGE>
vote on such transaction, and the number of votes required for a Supermajority
Vote will be computed as if the Board of Directors did not include such director
or directors;
(n) purchase any policy of insurance covering the life of any executive
officer of Holdings or the Company;
(o) adopt any employee stock option plans; it being understood that the
Stockholders' have agreed to use their best efforts to adopt an Approved Plan
covering up to 5% of the Common Shares (in the form of Voting Shares) of
Holdings on a fully diluted basis;
(p) extend the term of this Agreement;
(q) remove or replace the President and Chief Executive Officer of Holdings
and the Company; or
(r) amend or modify on behalf of Holdings or the Company the terms,
provisions or conditions of this Agreement.
1.5. Actions by Voting Stockholders. The Voting Stockholders will use
------------------------------
their respective best efforts not to permit Holdings or the Company to take any
of the following corporate actions without (x) if required pursuant to Section
1.4, a Supermajority Vote of the Board of Directors, and (y) the affirmative
vote of the holders of at least 66-2/3% of the then outstanding voting power of
the Voting Shares:
(a) (i) any merger of Holdings or a Subsidiary of Holdings with or into any
other corporation, partnership or other entity (other than with or into Holdings
or wholly owned Subsidiary of Holdings), (ii) any consolidation of Holdings or a
Subsidiary of Holdings with any other corporation, partnership or other entity
(other than with or into Holdings or a wholly owned Subsidiary of Holdings),
(iii) any transaction or series of related transactions in which Holdings shall
sell, lease or otherwise transfer all or substantially all of Holdings'
business, properties or assets or (iv) any dissolution, liquidation or
reorganization of Holdings;
(b) the amendment of Holdings' Articles of Incorporation; or
(c) the approval of an employee stock option or restricted stock plan as
contemplated by Section 1.4(a).
14
<PAGE>
1.6. No Recourse. The requirement of a Supermajority Vote as
-----------
set forth in Sections 1.4 and 1.5 hereof shall inure solely to the benefit of,
and be enforceable solely by, the Voting Stockholders. No other person shall
have any claim against Holdings, its Subsidiaries or any Voting Stockholder for
taking action that fails to comply with such Supermajority Vote requirement but
that is otherwise in accordance with law and any agreements or other instruments
by which they are bound.
1.7. Environmental Matters. Notwithstanding anything to the contrary
---------------------
contained in this Agreement, neither Beazer nor any Affiliate of Beazer shall be
entitled to vote any Shares directly or indirectly held by it in any vote of
stockholders of Holdings, and no director nominated or elected by Beazer or any
Affiliate of Beazer shall be entitled to vote as a director of Holdings or the
Company, in each case on any matter coming before the stockholders or directors
in connection with or arising out of Article VII of the Asset Purchase Agreement
(including the Guarantee of Beazer PLC in connection therewith) or enforcement
of Paragraph 2 of the Placement Agreement (including the guarantee of Beazer PLC
in connection therewith).
2. Transfers of Shares.
-------------------
2.1. Legends; Shares Subject to this Agreement. Unless otherwise
-----------------------------------------
expressly provided herein, no Stockholder shall sell, assign, pledge, encumber
or otherwise transfer any Shares to any person (regardless of the manner in
which such Stockholder initially acquired such Shares) nor shall Holdings issue,
sell or otherwise transfer any Shares to any person (all persons acquiring
Shares from a Stockholder or from Holdings, regardless of the method of
transfer, shall be referred to collectively as "Transferees" and individually as
a "Transferee") unless (i) such Shares bear legends as provided in Section 9.1
and (ii) such Transferee shall have executed and delivered to Holdings, as a
condition precedent to any acquisition of such Shares, an instrument in form and
substance reasonably satisfactory to Holdings confirming that such Transferee
agrees to become a party to this Agreement and takes such Shares subject to all
the terms and conditions of this Agreement; provided that the provisions of this
--------
Section 2.1 shall not apply in respect of a sale of Shares (other than a sale of
Shares pursuant to Section 6 hereof) included in a registered public offering
under the Securities Act and the rules and regulations
15
<PAGE>
promulgated thereunder. Holdings shall not transfer upon its books any Shares
to any person except in accordance with this Agreement.
2.2. Certain Restrictions. (a) Notwithstanding anything to the contrary
--------------------
set forth herein, no Stockholder or Transferee shall directly or indirectly
sell, assign, pledge, encumber, hypothecate or otherwise transfer any Shares,
unless any such sale, assignment, pledge, encumbrance, hypothecation or other
transfer shall have been effected in accordance with the terms of this
Agreement.
(b) Except as permitted pursuant to Sections 2.2(e) and (f), 2.6, 2.7,
6 and 7, no Stockholder or Transferee shall directly or indirectly sell, assign,
pledge, encumber, hypothecate or otherwise transfer any Common Shares (or Series
B Shares) prior to the third anniversary of the Effective Date, except pursuant
to a registered public offering under the Securities Act; provided, however,
-------- -------
that so long as any such transfer is otherwise in accordance with this
Agreement, (i) each of Beazer and Koppers Australia may transfer Common Shares
or Series B Shares prior to the third anniversary of the Effective Date if,
after giving effect thereto, Beazer and its Permitted Transferees or Koppers
Australia and its Permitted Transferees, as the case may be, beneficially own at
least 20% of the Common Shares (including Common Shares issuable upon conversion
of the Series B Shares but not including Common Shares issuable upon exercise of
the Warrants) then outstanding, which ownership shall include at least 20% of
the Voting Shares then outstanding, (ii) any Management Investor may transfer
Common Shares prior to the third anniversary of the Effective Date if such
transfer is to another employee of Holdings or any Subsidiary who concurrently
therewith is or becomes a party to this Agreement as a Management Investor and
(iii) a Stockholder may transfer Non-Voting Shares acquired upon exercise of
Warrants prior to the third anniversary of the Effective Date.
(c) No Stockholder shall sell, assign, pledge, encumber, hypothecate
or otherwise transfer any Shares at any time if such action would constitute a
violation of any federal or state securities or blue sky laws or a breach of the
conditions to any exemption from registration of Shares under any such laws or a
breach of any undertaking or agreement of such Stockholder entered into pursuant
to such laws or in connection with obtaining an exemption thereunder. Each
Stockholder agrees that any Shares to be
16
<PAGE>
purchased by such Stockholder shall bear appropriate legends restricting the
sale or other transfer of such stock in accordance with applicable federal and
state securities or blue sky laws.
(d) Except for the proxies granted by the Management Investors to the
Representatives of the Management Investors pursuant to this Agreement, no
Stockholder shall grant any proxy or enter into or agree to be bound by any
voting trust with respect to any Shares nor shall any Stockholder enter into any
stockholder agreements or arrangements of any kind with any person with respect
to any Shares inconsistent with the provisions of this Agreement (whether or not
such agreements and arrangements are with other Stockholders or holders of
Shares who are not parties to this Agreement), including agreements or
arrangements with respect to the acquisition, disposition or voting (if
applicable) of any Shares, nor shall any Stockholder act, for any reason, as a
member of a group or in concert with any other persons in connection with the
acquisition, disposition or voting (if applicable) of any Shares in any manner
which is inconsistent with the provisions of this Agreement. Actions taken by
the Board of Directors or any Stockholder in connection with the possible
acquisition of Holdings as contemplated by this Agreement shall not be deemed
prohibited hereunder.
(e) None of the restrictions contained in this Agreement with respect
to transfers of Shares (other than those set forth in Sections 2.1, 2.2(a),
2.2(c) and 2.4) shall apply, with respect to a corporate or partnership
Stockholder, to transfers of Shares to any affiliate (as such term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) thereof (an "Affiliate"). Any such Affiliate Transferee shall be
considered a "Permitted Transferee" for purposes of this Agreement. Such
Affiliate Transferee shall agree that it will not cease to be an Affiliate of
such transferor Stockholder unless, prior to ceasing to be such an Affiliate,
such Affiliate Transferee transfers to such Stockholder or an Affiliate thereof
all the Shares owned by it.
(f) A Stockholder shall be entitled to pledge such Stockholder's
Shares to an Affiliate of such Stockholder or to a commercial bank, savings and
loan institution or any other lending institution as security for any
indebtedness of such Stockholder or Holdings to such lender; provided that,
--------
prior to any such pledge, the pledgee shall deliver to Holdings its written
agreement, in form and substance
17
<PAGE>
satisfactory to Holdings, that such pledgee shall agree to be bound by all the
terms of this Agreement with respect to the Shares so pledged.
(g) The provisions of Section 2.3 of this Agreement shall not apply to
transfers of Shares by any Transferee unaffiliated with any Stockholder, which
Shares were acquired pursuant to the terms of this Agreement from a Stockholder
or from a subsequent Transferee of such Stockholder; provided that any such
--------
Transferee (if such Transferee is or is required to become a party to this
Agreement) agrees to take such Shares, and any transfer of such Shares by such
Transferee shall be, subject to all the other provisions of this Agreement.
(h) The provisions of Section 2.3 of this Agreement shall not apply to
transfers of Shares by a Management Investor to any employee of the Company;
provided that any such purchaser of Shares agrees to take such Shares subject to
- --------
all of the other provisions of this Agreement.
(i) Joint Ownership With Spouse. The provisions of Sections 2.1 and
---------------------------
2.3 of this Agreement shall not apply to any transfer of Shares by a Management
Investor to the Management Investor and his/her spouse jointly; provided, that
--------
the spouse acquiring an interest in the Shares shall agree to be bound by the
provisions of this Agreement.
2.3. Transfer to Other Stockholders or to Transferees; Right of First
----------------------------------------------------------------
Offer. (a) Except as provided in Sections 2.2(e), (f), (g), (h) and (i), 6 and
- -----
7, any Stockholder (the "Selling Stockholder") who desires to sell or otherwise
transfer any Common Shares (or Series B Shares), other than pursuant to a
registered public offering under the Securities Act, shall first give written
notice (a "Seller's Notice") to Holdings, and then, as set forth in Section
2.3(c), to the Representatives of the Management Investors in their individual
capacities and to all other Stockholders (other than the Management Investors
and other than Stockholders who, by virtue of Section 2.2(g) hereof, are not
subject to the provisions of this Section 2.3) holding Common Shares (or Series
B Shares) (collectively, the "Offeree Stockholders"), stating the Selling
Stockholder's desire to make such transfer, the number of Common Shares (and
Series B Shares) to be transferred (the "Offered Shares"), and the cash price
which the Selling Stockholder proposes to be paid for the Offered Shares and any
other terms proposed for the sale of such Offered Shares (the "First Offer
Price").
18
<PAGE>
(b) Upon receipt of the Seller's Notice (the "First Offer"), Holdings
shall have the irrevocable and exclusive option to buy (or cause the Company to
buy) up to all of the Offered Shares at the First Offer Price; provided that
--------
Holdings shall not have the right to purchase (or cause the Company to purchase)
any of the Offered Shares unless either: (i) Holdings and the Company purchase
all such Offered Shares; (ii) if Holdings elects to purchase (or cause the
Company to purchase) less than all the Offered Shares, the Offeree Stockholders
elect to purchase all the remaining Offered Shares pursuant to this Section 2.3;
or (iii) the Selling Stockholder consents to the purchase of less than all the
Offered Shares. Holdings' option under this paragraph 2.3(b) shall be
exercisable by a written notice to the Selling Stockholder, with copies to all
Offeree Stockholders, given within 15 days from the date of the Seller's Notice.
(c) If Holdings does not exercise its option to purchase (or cause the
Company to purchase) the Offered Shares or if Holdings elects to purchase (or
cause the Company to purchase) less than all the Offered Shares, then the
Selling Stockholder shall give Seller's Notice to each of the Offeree
Stockholders. The Offeree Stockholders shall then have the irrevocable and
exclusive option, subject to Section 2.4, to purchase the Offered Shares not
purchased by Holdings or the Company, in proportion to the number of Common
Shares held (and the number of Common Shares issuable upon conversion of any
Series B Shares held) by each Offeree Stockholder (or, in the case of the
Representatives of the Management Investors, by the Management Investors as a
group) electing to purchase Offered Shares; provided that, if any Offeree
Stockholder electing to purchase Offered Shares subscribes for fewer Offered
Shares than he or it is entitled to, the other Offeree Stockholders may elect to
purchase the Offered Shares to which such first Offeree Stockholder was entitled
but elected not to purchase, in proportion to the number of Common Shares owned
(and the number of Common Shares issuable upon conversion of any Series B Shares
held) by each such Offeree Stockholder (or, in the case of the Representatives
of the Management Investors, by the Management Investors as a group) so electing
to purchase such additional Offered Shares. Unless the Selling Stockholder
shall have consented to the purchase of less than all the Offered Shares, no
Offeree Stockholder may purchase any Offered Shares unless all Offered Shares
are to be purchased. The option of each of the Offeree Stockholders
participating in the purchase
19
<PAGE>
under this Section 2.3(c) shall be exercisable by written notice to the Selling
Stockholder, with copies to Holdings and each other Offeree Stockholder (or, in
the case of notice to the Management Investors, to the Representatives of the
Management Investors), given within 10 days from the date of the applicable
Seller's Notice.
(d) If each applicable Seller's Notice shall be duly given, and if
Holdings and all the Offeree Stockholders shall not exercise their options to
purchase the Offered Shares at the First Offer Price or do not purchase all
Offered Shares, then the Selling Stockholder shall be free, for a period of 90
days from the earlier of (i) the 10th day following the date of the last
Seller's Notice or (ii) the date the Selling Stockholder shall have received
written notice from Holdings and the Offeree Stockholders stating their
intention not to exercise the options granted under Sections 2.3(b) and (c), to
sell the Offered Shares to any third party Transferee at a price (and terms)
equal to or greater than the First Offer Price; provided that the Transferee
--------
complies with the provisions of Section 2.1 of this Agreement (including such
Transferee's agreement to become a party to and be bound by the terms of this
Agreement).
(e) If the proposed purchase price and terms of a Transferee for the
Offered Shares are less favorable than the First Offer Price, the Selling
Stockholder shall not sell or otherwise transfer any of the Offered Shares
unless the Selling Stockholder shall first reoffer the Offered Shares at such
lesser price and terms to Holdings and each of the Offeree Stockholders by
giving written notice (the "Reoffer Notice") thereto, stating the Selling
Stockholder's intention to make such transfer at such lower price (the "Reoffer
Price"). Holdings and each of the other Offeree Stockholders shall then have
the irrevocable and exclusive option for a period of 10 days following the
Reoffer Notice to purchase (or in the case of Holdings, to cause the Company to
purchase) up to all of the Offered Shares at the Reoffer Price, exercisable in
the same order of priority, proportions and manner as provided in Sections
2.3(b) and (c). If Holdings and the Offeree Stockholders do not then purchase
all the Offered Shares, such Offered Shares may be sold by the Selling
Stockholder within 30 days following the earlier of (i) the 10th day from the
date of the last Reoffer Notice or (ii) the date on which the Selling
Stockholder shall have received written notice from Holdings and the Offeree
Stockholders stating their intention not to exercise the option granted in this
Section 2.3(e), at a price equal to or greater than the Reoffer Price; provided
--------
that the
20
<PAGE>
Transferee complies with the provisions of Section 2.1 of this Agreement
(including such Transferee's agreement to become a party to and be bound by the
terms of this Agreement).
(f) If Holdings and the Offeree Stockholders do not exercise their
option to purchase the Offered Shares at the First Offer Price or at the Reoffer
Price, and the Selling Stockholder shall not have sold the Offered Shares to any
Transferee for any reason before the expiration of the 30-day period described
in paragraph 2.3(e) in the event of a Reoffer or, if no Reoffer Notice is given,
the 90-day period described in paragraph 2.3(d), then the Selling Stockholder
shall not sell any Common Shares or Series B Shares for a period of one month
from the last day of such 30- or 90-day period, as the case may be, and all the
provisions of this Section 2.3 shall again apply to any subsequent sale.
2.4. Sales of Control. (a) If any Person (as defined in Section 8.3
----------------
hereof) (including, for such purposes, the Management Investors as a group, and
including, as part of such Person, Transferees pursuant to Sections 2.2(e) and
(f)) would become (taking into account Shares already beneficially owned) the
beneficial owner, directly or indirectly, of more than 50% of the outstanding
Voting Shares (such Person being referred to herein as a "Control Person") as
the result of a sale or other transfer of Shares by any Stockholder or
Stockholders or by Holdings (based on one or more pending transfers or offers to
purchase or to sell Shares, whether or not the transfers will close or the
offers will expire concurrently), including a sale or transfer of Shares to
Holdings or the Company which would result in any person or group of persons
becoming a Control Person after such sale or transfer, no Shares shall be sold
or otherwise transferred, notwithstanding compliance by the Selling Stockholder
or Stockholders with the other provisions of this Agreement and notwithstanding
the fact that a particular sale or transfer may not be the sale or transfer that
would make a person or group of persons a Control Person, unless the Control
Person shall offer, in writing to each Stockholder, (i) to purchase all Common
Shares and Series B Shares from all Stockholders who desire to sell, at the same
price per Common Share (or Common Share equivalent) as such Control Person has
offered to purchase Common Shares (or Common Share equivalents) to be sold by
the Selling Stockholder or Stockholders or at the same price per Common Share
(or Common Share equivalent) as such proposed sale or transfer of Common Shares
(or Common Share equivalents) to Holdings or the Company (the "Offering Price"),
(ii) to purchase all Series A Shares (and
21
<PAGE>
any debentures (the "Exchange Debentures") for which such Series A Shares may
have been exchanged) from all Stockholders who desire to sell, at liquidation
preference (or principal amount) plus any accrued but unpaid dividends (or
interest) thereon and (iii) to purchase all outstanding Warrants at a price per
Warrant (the "Warrant Price") equal to (A) the excess, if any, of the Offering
Price over the per Common Share exercise price of the Warrants multiplied by (B)
the number of Common Shares for which a Warrant is then exercisable; provided
--------
that two or more Stockholders owning in the aggregate more than 50% of the
outstanding Voting Shares shall not be deemed to be a Control Person for the
purposes of this Section 2.4 solely because such Stockholders are parties to
this Agreement or take actions as required by this Agreement.
(b) The Selling Stockholder or Stockholders or Holdings, as the case
may be, shall promptly notify the Control Person that the proposed purchase or
transfer will be subject to the provisions of this Section 2.4. Within 30 days
thereafter, the Control Person shall give written notice to each Stockholder of
its abandonment of the proposed purchase or transfer, or its offer to purchase
all the Common Shares, Series B Shares, Series A Shares (or Exchange Debentures)
and Warrants each Stockholder desires to sell, such offer being referred to
herein as the "Control Offer." Each Stockholder shall have 60 days from the
receipt of such Control Offer in which to accept such Control Offer. No
Stockholder shall sell any Shares to a Control Person or to Holdings or the
Company and Holdings or the Company shall not sell any Shares to a Control
Person or purchase any Shares from any person or group of persons if such sale
or purchase would result in any Person becoming a Control Person (based on one
or more pending transfers or offers to purchase or to sell Shares, whether or
not the transfers will close or the offers expire concurrently), except in
response to an offer made in compliance with this Section 2.4.
(c) If, during the 60-day period specified in the second sentence of
paragraph 2.4(b) above, Holdings or the Company or any Stockholder shall receive
any offer from any person or group of persons other than the Control Person, or
from the Control Person, to purchase all of the Shares held by Stockholders
desiring to sell Shares at a price greater than the Offering Price offered to
all Stockholders by the Control Person pursuant to its initial (or any
subsequent) Control Offer or by any offeror other than the Control Person which
makes an offer subsequent to that of the Control Person, such offer shall be
22
<PAGE>
transmitted to all Stockholders and, to be valid hereunder, must state that it
is open until the 60th day from the date of the Control Offer (or if there are
less than five business days remaining in such period, for five business days).
Unless all the Stockholders desiring to sell their Common Shares, Series B
Shares, Series A Shares (or Exchange Debentures) and Warrants otherwise agree,
no Common Shares, Series B Shares, Series A Shares (or Exchange Debentures) or
Warrants may be sold or otherwise transferred to any offeror (or purchased by
Holdings if such purchase would result in any Person becoming a Control Person)
at a price lower than the highest price offered by an offeror (including the
Control Person) (or, in the case of Warrants, the Warrant Price, or in the case
of Series A Shares (or Exchange Debentures), the liquidation Preference (or
principal amount) plus any accrued but unpaid dividends (or interest) thereon);
and no Common Shares, Series B Shares, Series A Shares (or Exchange Debentures)
or Warrants may be sold or otherwise transferred to any such offeror (or
purchased by Holdings or the Company if such purchase would result in any Person
becoming a Control Person) unless all Common Shares, Series B Shares, Series A
Shares (or Exchange Debentures) and Warrants desired to be sold are accepted in
writing for purchase.
(d) If any offer hereunder is made less than five business days prior
to the end of the 60th day after the date of the Control Offer, such period
shall be deemed extended until the expiration of five business days from the
date such offer is made. If, after the expiration of all offers made under this
Section 2.4 in response to a Control Offer, no sale or transfer has occurred as
a result of which any Person has become a Control Person, then, if any
subsequent sale or transfer is proposed and such sale or transfer would result
in any Person becoming a Control Person (based on one or more pending transfers
or offers to sell Voting Shares, whether or not the transfers will close or the
offers expire concurrently), the provisions of this Section 2.4 shall again
apply.
2.5. Form of Consideration for Shares. No offer to purchase Shares under
--------------------------------
any section of this Section 2 shall be deemed to be valid unless (i) the
purchase price for such Shares is payable in cash, marketable securities that
can be readily valued by reference to quoted trading prices or installment
notes, (ii) all Stockholders entitled to sell any Shares pursuant to such offer
are offered the same form of consideration for their Shares and (iii) if
marketable securities or installment notes comprise all or part of
23
<PAGE>
the consideration for such purchase, the offeror offers all Stockholders
entitled to sell any Shares pursuant to such offer cash as an alternative to
such marketable securities or installment notes. In determining whether
consideration offered under any section of this Agreement is greater than, less
than or equal to a First Offer Price, Reoffer Price or the price offered
pursuant to a Control Offer, only the per Share value of the cash consideration
or the marketable securities offered shall be considered.
2.6. Merger Transactions. Notwithstanding anything contained herein to
-------------------
the contrary, Holdings may enter into any agreement to consolidate with or merge
with or into any other corporation, or enter into any other extraordinary
transaction involving the transfer of the Shares, if such agreement is approved
by both a Supermajority Vote of the Board of Directors of Holdings (subject to
the proviso set forth in Section 1.4(f) hereof) and the vote of the holders of
at least 66-2/3% of the outstanding Voting Shares and such agreement calls for
equal treatment of all Common Shares and Series B Shares (based on the number of
Common Shares into which the Series B Shares are convertible) and the redemption
of Series A Shares (or Exchange Debentures) (except that such redemption of
Series A Shares or Exchange Debentures shall not be required in the case of any
such transaction, such as a merger to effect a reincorporation or holding
company, in which the economic interest of the holders of Common Shares and
Series B Shares remains substantially unchanged) and, in such event, Sections
2.3, 2.4 and 2.5 of this Agreement shall not be applicable and all Common Shares
and Series B Shares (and Series A Shares or Exchange Debentures) may be
transferred for such consideration (or in the case of Series A Shares or
Exchange Debentures, at liquidation preference (or principal Amount) plus any
accrued but unpaid dividends (or interest) thereon) as approved by such vote of
the Board of Directors and the Voting Stockholders.
2.7. Transfer of Series B Shares. Notwithstanding anything contained
---------------------------
herein to the contrary, Beazer may transfer Series B Shares to Goldman, Sachs &
Co. or its designee pursuant to the terms and conditions of the Placement
Agreement.
24
<PAGE>
3. Involuntary Transfer of Shares.
------------------------------
3.1. Certain Involuntary Transfers; Seller's Notice. If a Stockholder
----------------------------------------------
shall involuntarily transfer directly or indirectly any or all of his Shares
such Stockholder shall give written notice within 30 days of such involuntary
transfer to Holdings and the other Stockholders, with a copy to the Transferee,
stating the fact that the involuntary transfer occurred, the reason therefor,
the date of the transfer, the name and address of the Transferee and the number
of Shares acquired by the Transferee.
3.2. Right to Repurchase. For a period of 60 days from the date of
-------------------
receipt of the Seller's Notice or, failing receipt of such notice, 60 days from
the date Holdings sends written notice to the Transferee that the transfer is
deemed to be an involuntary transfer subject to repurchase under this Agreement,
Holdings and each of the Offeree Stockholders shall have the irrevocable and
exclusive option to buy all of the Offered Shares, exercisable in the same order
of priority, proportion and manner as provided in Sections 2.3(a), (b) and (c),
and the provisions of Sections 2.3(a), (b) and (c) shall be followed in their
entirety except that the purchase price shall be as provided in Section 3.3.
3.3. Purchase Price. (a) The purchase price for Shares purchased
--------------
pursuant to Section 3.2 shall be equal to the lesser of (i) the price which the
involuntary Transferee paid for the Offered Shares, (ii) Investment Price and
(iii) in the case of Common Shares (or Common Share equivalents), Adjusted Book
Value (as such term is hereinafter defined). Adjusted Book Value shall be
determined by Holdings using accounting principles then in effect and as applied
by Holdings and shall be accompanied by a letter from Holdings' independent
accountants stating that the calculations made by Holdings have been made in
accordance with the applicable provisions of this Agreement.
(b) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Investment Price" shall mean the price per Share
that such Stockholder paid for the Shares owned by him or it; and
(ii) "Adjusted Book Value" shall mean the book Value per share
of Common Shares, calculated by dividing (A) the sum of (x) common stockholders'
equity (except that retained earnings may be adjusted at the sole discretion of
the Board of Directors to reduce or eliminate the effect
25
<PAGE>
of unusual, non-recurring and/or extraordinary items regardless of whether such
items are so characterized by generally accepted accounting principles)
reflected in Holdings' most recent quarterly or year-end consolidated financial
statements, plus (y) the total proceeds to be realized by Holdings upon the
exercise of all outstanding dilutive stock options by (B) Common Shares
outstanding plus total outstanding dilutive stock options. For purposes of this
calculation, stock options shall be considered dilutive if the exercise price
per share is less than per share Adjusted Book Value calculated without regard
to outstanding stock options.
4. Retirement of Shares Purchased by Holdings.
------------------------------------------
Any Shares purchased by the Company from a Stockholder or such
Stockholder's personal representative, estate or heirs or Permitted Transferees
pursuant to this Agreement shall be retired and canceled; provided, however,
------------------
that any Voting Shares purchased by Holdings or the Company from a Management
Investor may be resold to other employees or Directors of Holdings or its
Subsidiaries who concurrently therewith are or become a party to this Agreement
as Management Investors.
5. Closing.
-------
5.1. Closing. Any Selling Stockholder and the parties hereto who are
-------
purchasing any of the Offered Shares pursuant to the foregoing provisions of
this Agreement shall mutually determine a closing date (the "Closing Date")
which shall not be more than five business days, subject to any applicable
regulatory waiting periods, after the date upon which a purchaser shall have the
right to purchase Shares in accordance with this Agreement.
5.2. Deliveries at Closing; Method of Payment of Purchase Price. On the
----------------------------------------------------------
Closing Date, any Selling Stockholder shall deliver certificates with
appropriate transfer tax stamps affixed and with stock powers endorsed in blank,
representing the Shares to be purchased by the persons exercising their options
hereunder, each of whom shall deliver to such Selling Stockholder, by means of
certified check payable in New York Clearing House funds, his or its portion of
the purchase price which is payable in cash and his or its portion of the other
consideration, if any, to be paid in exchange for such Shares. In
26
<PAGE>
addition, if the person selling Shares is the personal representative of a
deceased Stockholder, the personal representative shall also deliver to the
purchaser or purchasers (i) copies of letters testamentary or letters of
administration evidencing his appointment and qualification, (ii) a certificate
issued by the Internal Revenue Service pursuant to Section 6325 of the Internal
Revenue Code of 1986, as amended (the "Code"), discharging the Shares being sold
from liens imposed by the Code and (iii) an estate tax waiver issued by the
state of the decedent's domicile.
6. Sale of Common Shares by Management Investors.
---------------------------------------------
6.1. Special Sale of Initial Management Investors' Voting Shares.
-----------------------------------------------------------
Notwithstanding anything to the contrary contained herein, on one occasion, no
earlier than the 90th day after the Effective Date and no later than the first
anniversary of the Effective Date, the initial Management Investors shall be
entitled to sell or otherwise distribute all or any portion of the Voting Shares
owned by them, at a price no greater than such Management Investors' Investment
Price, to any person or persons who are at time of such sale or distribution
employees of Holdings or its Subsidiaries (or to Holdings contemporaneously with
the sale or resale by Holdings of an equal number of Voting Shares at the same
price to any such person or persons), in such amounts and on such Terms (subject
to this Section 6.1) as may be determined by the Representatives of the
Management Investors. Any purchaser of Voting Shares pursuant to this Section
6.1 shall, as a condition of such purchase, (i) execute and deliver to Holdings
a counterpart of this Agreement and (ii) be considered a Management Investor and
agree to be bound by all the provisions of this Agreement, including the
appointment and grant of proxy pursuant to Section 1.3 hereof, as such
provisions apply to the Management Investors.
6.2. Cooperation of Holdings. Holdings agrees, and the Voting
-----------------------
Stockholders agree to cause Holdings, to cooperate with the Management
Investors, at Holdings' expense, in effecting the sale or other distribution of
Voting Shares contemplated by Section 6.1, including, (a) if requested by the
Representatives of the Management Investors, repurchasing such Voting Shares
concurrently with the sale or resale of an equal number of Voting Shares at the
same price pursuant to Section 6.1 and (b) if such
27
<PAGE>
sale or distribution cannot otherwise be accomplished, using its best efforts to
effect the registration of such Voting Shares under the Securities Act.
6.3. Special Sales of Common Shares by Representatives of the Management
-------------------------------------------------------------------
Investors. Within 120 days of any purchase of Common Shares by either
- ---------
Representative of the Management Investors pursuant to Section 2.3 hereof, such
Representative of the Management Investors shall be entitled to sell all or any
portion of the Common Shares so purchased pursuant to Section 2.3 hereof, at a
price no greater than the price at which such Representative of the Management
Investors purchased such Common Shares, to Holdings contemporaneously with the
sale or resale by Holdings of an equal number of Common Shares at the same price
to any person or persons who at the time of such sale are employees of Holdings
or its Subsidiaries, in such amounts and on such terms (subject to this Section
6.3) as may be determined by the Representatives of the Management Investors.
Any purchaser of Common Shares pursuant to this Section 6.3 shall, as a
condition of such purchase, (i) execute and deliver to Holdings a counterpart of
this Agreement and (ii) be considered a Management Investor and agree to be
bound by all the provisions of this Agreement, including the appointment and
grant of proxy (if applicable) pursuant to Section 1.3 hereof, as such
provisions apply to the Management Investors.
7. Sales of Management Investors' Voting
Shares on Termination of Employment.
------------------------------------
7.1. Sales Upon Termination. (a) Upon a Management Investor's ceasing
----------------------
for any reason (a "Termination Event") to be employed by Holdings or any of its
Subsidiaries (whether due to such Management Investor's death, disability,
termination for cause, involuntary termination, voluntary resignation or
retirement, as such terms are hereinafter defined) (a "Terminated Investor"),
subject to the provisions of Sections 7.1(b) through (d) hereof, Holdings, in
its sole discretion, may purchase (or cause the Company to purchase), and such
Terminated Investor shall sell to Holdings on one occasion all of the Voting
Shares owned by such Terminated Investor, including any Voting Shares owned
jointly by a Terminated Investor with his/her spouse pursuant to Section 2.2(i)
hereof (the "Termination Shares"), at a price per Termination Share equal to the
Termination Price.
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<PAGE>
If Holdings does not elect to purchase all of the Termination Shares of any
given Terminated Investor upon the occurrence of a Termination Event, Holdings
shall purchase and each such Terminated Investor, subject to the provisions of
Section 7.1(b) through (d) hereof, shall sell to Holdings the Termination Shares
owned by such Terminated Investor on the following terms. Twenty-five percent
(25%) of the Termination Shares shall be tendered upon termination as provided
in this Section 7.1, and the remaining Termination Shares shall be tendered in
three (3) equal annual tenders on the anniversary date of the Termination Event.
The price per Termination Share for each installment shall be determined in
accordance with one of the following alternative redemption options, to be
chosen by the Terminated Investor with the approval of the Company:
either
(i) The price per Termination Share for each installment shall be equal to
the Termination Price that would be effective if the Terminated Investor had
terminated employment on the anniversary date;
or
(ii) The price per Termination Share for each tender shall be equal to the
Terminated Price in effect on the date of the Termination Event.
As used in this Agreement, the term "Termination Price" shall mean the Fair
Market Value (as hereinafter defined) of the Termination Shares on the date of
the Termination Event.
The closing of the purchase of the Terminated Shares (the "Termination
Closing") pursuant to this Section 7.1(a) shall take place at the principal
offices of the Company on the date chosen by Holdings or the Company which date
shall not, except as otherwise provided in this Section 7, be more than sixty
days after the occurrence of the Termination Event. At the Termination Closing,
Holdings or the Company shall deliver to the Terminated Investor against
delivery of Duly Endorsed (as hereinafter defined) certificates representing
such Termination Shares, free and clear of all Encumbrances (as hereinafter
defined), a certified check or checks in the amount of the Termination Price and
share certificates as required.
(b) Notwithstanding anything to the contrary contained in this Section
7.1, Holdings shall not be obligated to acquire any Termination Shares in
exchange for a payment pursuant to Section 7.1(a) to the extent that, despite
its ability to deliver all or any portion of the Termination Price in
29
<PAGE>
a Note, the acquisition thereof would (i) violate any law, statute, order, writ,
injunction, decree, rule, regulation, policy or guideline promulgated, or
judgment entered, by any federal, state, local or foreign court or governmental
authority applicable to Holdings or any of its Subsidiaries, provided, that
Holdings shall use all legally permissible methods in the reduction of capital
and, if the Board of Directors determines that Holdings' assets (or a portion
thereof) may be revalued without receipt of an appraisal, in the revaluation of
assets in obtaining a legal source of funds, or (ii) constitute or cause a
breach or default (immediately or with notice or lapse of time or both) of any
agreement or instrument to which Holdings or any of its Subsidiaries is a party
or by which Holdings or any of its Subsidiaries or any of their respective
assets is bound.
(c) To the extent that the provisions of Section 7.1(b) limit but do
not preclude Holdings and the Company from acquiring any Termination Shares in
exchange for a payment, Holdings or the Company shall purchase such Termination
Shares on the date specified in Section 7.1(a) to the extent permitted pro rata
from each Terminated Investor as to whom or which a Termination Closing has not
occurred, on the basis of the number of Termination Shares owned by each
Terminated Investor.
(d) Contemporaneously with any Termination Closing, Holdings may sell
or resell a number of Voting Shares equal to or less than the number of
Termination Shares to be acquired at such Termination Closing, at a price no
less than the Termination Price for such Termination Shares, to employees of
Holdings or its Subsidiaries who are or concurrently therewith become parties to
this Agreement as Management Investors, and may use the proceeds from any such
sale or resale of Voting Shares to acquire such Termination Shares.
(e) After all purchases of Termination Shares pursuant to paragraphs
(a), (b) and (c) of this Section 7.1, any remaining Termination Shares shall be
offered to the Offeree Stockholders at the price determined pursuant to Section
7.1(a), in the same proportions and manner as provided in Sections 2.3(b) and
(c).
(f) Holdings or the Company shall purchase any Termination Shares not
acquired by it or the Offeree Stockholders pursuant to Sections 7.1(a), (b), (c)
and (e) hereof on the date chosen by Holdings (not later than the fifteenth
business day) after such date as Holdings learns that it is no longer
30
<PAGE>
restricted under Section 7.1(b) hereof from acquiring all such Termination
Shares. The price to be paid to acquire such Termination Shares shall be the
amount that would have been paid pursuant to Section 7.1(a) hereof if such
acquisition had not been delayed.
7.2. Definitions. As used in this Section 7, the following terms shall
-----------
have the meanings ascribed to them below:
(a) The term "Cause" used in connection with a termination of
employment of a Management Investor shall mean (A) the willful and continued
failure by such Management Investor to perform substantially his or her duties
to Holdings or any of its Subsidiaries (other than any such failure resulting
from his or her Disability) within a reasonable period of time after a written
demand for substantial performance is delivered to such Management Investor by
the Board of Directors of Holdings, which demand specifically identifies the
manner in which the Board of Directors believes that such Management Investor
has not substantially performed his or her duties, (B) the willful misconduct by
such Management Investor in, the performance of his or her duties to Holdings or
any of its Subsidiaries (including, without limitation, the conviction by a
court of competent jurisdiction of the Management Investor of any offense,
regardless of classification, related to the Management Investor's duties and
responsibilities to Holdings or any of its Subsidiaries), (C) the negligent
performance, by such Management Investor of his or her duties to Holdings or any
of its Subsidiaries if such performance is determined by the Board to have had
or to be reasonably likely to have a material adverse effect on the business,
assets, prospects or financial condition of Holdings or the Subsidiary employing
the Management Investor, or (D) the conviction of such Management Investor by a
court of competent jurisdiction of a felony.
(b) The term "Disability," with respect to a Management Investor,
shall mean the inability of such Management Investor to perform substantially
his or her duties and responsibilities to Holdings or any of its Subsidiaries by
reason of a physical or mental disability or infirmity (i) for a continuous
period of six months or (ii) at such earlier time as such Management Investor
submits medical evidence satisfactory to Holdings that such Management Investor
has a physical or mental disability or infirmity that will likely prevent such
Management Investor from substantially performing his or her duties and
responsibilities for six months or longer. The date of such Disability shall be
on the last day of such
31
<PAGE>
six-month period or the day on which such Management Investor submits such
evidence, as the case may be.
(c) The term "Duly Endorsed" shall mean duly endorsed in blank by the
person or persons in whose name a stock certificate is registered or accompanied
by a duly executed stock or security assignment separate from the certificate
with the signature(s) thereon guaranteed by a commercial bank or trust company
or a member of a national securities exchange or the National Association of
Securities Dealers, Inc.
(d) "Encumbrances" shall mean any and all liens, claims, charges,
security interests, options or other legal or equitable encumbrances.
(e) The term "Fair Market Value" shall mean the fair market value of
the Voting Shares as determined in good faith by the Board of Directors of
Holdings.
(f) The term "Involuntary Termination" shall mean termination of a
Management Investor's employment with Holdings or its Subsidiaries by Holdings
or such Subsidiary, which termination is not for Cause or the result of
Retirement, death or Disability.
(g) The term "Retirement" shall mean with respect to any Management
Investor such Management Investor's termination of employment at or after (i)
attainment of age 65 if the Management Investor has been continuously employed
by Holdings or any of its Subsidiaries for at least one year or (ii) attainment
of age 60 if the Management Investor has been continuously employed by Holdings
or any of its Subsidiaries for at least three years.
(h) The term "Voluntary Resignation" shall mean the termination of a
Management Investor's employment with Holdings or its Subsidiaries by such
Management Investor, other than for Retirement, death or Disability.
8. Certain Rights.
--------------
8.1. Registration Rights. (a) If at any time or from time to time,
-------------------
Holdings shall determine to register any of its Common Shares or Series B
Shares, either for its own account or the account of a securityholder or
holders, other than a registration pursuant to Section 6 or any other
registration which
32
<PAGE>
does not include substantially the same information as would be required to be
included in the registration statement covering the sale of Stockholders' Common
Shares, Holdings will:
(i) promptly give to each Stockholder written notice thereof (which shall
include a list of the states and other jurisdictions in which Holdings intends
to Attempt to qualify such securities under applicable securities laws);
(ii) use its best efforts to include in such registration (and any related
qualification in such states and other jurisdictions), and in any underwriting
involved therein, all the Common Shares (or Series B Shares) or Series A Shares
specified in any written request therefor by a Stockholder received by Holdings
within fifteen (15) days after such written notice is given; and
(iii) in the case of a Stockholder holding Non-Voting Shares or Series B
Shares, at the request of such Stockholder, exchange such Non-Voting Shares or
Series B Shares for Voting Shares to the extent such Shares are to be included
in such registration.
(b) If the registration of which Holdings gives notice is for a
registered public offering involving an underwriting, Holdings shall so advise
each Stockholder as a part of the written notice given pursuant to paragraph (i)
of Section 8.1(a). In such event the right of each Stockholder to registration
pursuant to this Section 8.1 shall be conditioned upon such Stockholder's
participation in such underwriting and the inclusion of such Stockholder's
Shares in the underwriting to the extent provided herein. Each Stockholder
desiring to participate in the underwriting (together with Holdings and any
other securityholders distributing their securities through such underwriting)
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by Holdings.
Notwithstanding any other provision of this Section 8.1, if the
underwriter reasonably determines that marketing factors require a limitation of
the number of securities to be underwritten, the underwriter may limit the
number of Common Shares, Series B Shares and any other securities of Holdings
entitled to registration in any registration and underwriting pursuant to
agreements with Holdings. In such event, Holdings shall so advise each
Stockholder and all securityholders owning securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Common Shares,
33
<PAGE>
Series B Shares, and such other securities that may be included in the
registration and underwriting shall be allocated among all Stockholders and
other securityholders in proportion, as nearly as practicable, to the respective
amounts of Common Shares, Series B Shares (based on the number of Common Shares
into which the Series B Shares are convertible) and such other securities
entitled to such registration held by such Stockholders and other
securityholders at the time of filing the registration statement.
No Common Shares, Series B Shares or other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Stockholder disapproves of the terms of
the underwriting, it or he may elect to withdraw therefrom by written notice to
Holdings and the underwriter or underwriters. The Shares so withdrawn shall
also be withdrawn from registration.
(c) Holdings or the Company shall pay all expenses of any registration
pursuant to this Section 8.1; provided that any Stockholder selling Shares
pursuant to such registration will pay any underwriting discount or similar
commission with respect to the Shares sold by such Stockholder. In connection
with any registration pursuant to this Section 8.1, Holdings or the Company will
indemnify and hold harmless each Stockholder participating therein against any
and all losses, claims, damages or liabilities to which such Stockholder shall
become subject, under the Securities Act or otherwise, that arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus thereunder or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based on any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
there in not misleading; provided that Holdings and the Company will not be
--------
liable in any such case, and such Stockholder shall indemnify and hold harmless
Holdings and the Company, to the extent of any loss, claim, damage or liability
that arises out of or is based upon any untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to Holdings
by such Stockholder specifically for use therein.
8.2. Right of First Offer on Tar Business. (a) In the event Holdings
------------------------------------
desires to sell or otherwise transfer the assets or business comprising the Tar
Products sector of Koppers Company, Inc.
34
<PAGE>
(the "Tar Business"), which the Company is purchasing pursuant to the Asset
Purchase Agreement, other than as part of a sale of Holdings or the Company or
substantially all the assets of Holdings or the Company or by means of a sale of
Shares, Holdings shall give written notice (the "Tar Notice") to each of the
Stockholders stating the price at and terms on which Holdings proposes to offer
the Tar Business (the "Tar First Offer Price"). Upon receipt of the Tar Notice,
Koppers Australia (but not any other Stockholder) shall have the irrevocable and
exclusive option, for a period of 60 days, to enter into a definitive agreement
for the purchase of the Tar Business at a price and on terms no less favorable
than the Tar First Offer Price; provided that Koppers Australia will notify
Holdings within 15 days after receipt of the Tar Notice of its good faith
intention to exercise its option to purchase the Tar Business. If Koppers
Australia does not exercise its option to purchase the Tar Business, Holdings
shall be free to sell the Tar Business, at a price and on terms no less
favorable than the Tar First Offer Price, for a period of 90 days after the
earlier of (i) the 60th day following the date of the Tar Notice and (ii)
Holdings' receipt of written notice from Koppers Australia that it does not
intend to purchase the Tar Business.
(b) If the proposed terms of the sale of the Tar Business are less
favorable than the Tar First Offer Price, Holdings shall not sell or otherwise
transfer the Tar Business unless Holdings shall first reoffer the Tar Business
on such less favorable terms to Koppers Australia by giving written notice (the
"Tar Reoffer Notice") thereto, stating Holdings' intention to make such transfer
on such less favorable terms (the "Tar Reoffer Price"). Koppers Australia shall
then have the irrevocable and exclusive option, for a period of 60 days, to
enter into a definitive agreement to purchase the Tar Business at the Tar
Reoffer Price; provided that Koppers Australia will notify Holdings within 15
days after the Tar Reoffer Notice of its good faith intention to exercise its
option to purchase the Tar Business. If Koppers Australia does not then
purchase the Tar Business, Holdings may sell the Tar Business within 90 days
after the earlier of (i) the 60th day following the date of receipt by Koppers
Australia of the Tar Reoffer Notice and (ii) Holdings' receipt of written notice
that Koppers Australia does not intend to purchase the Tar Business.
8.3. Rights of First Offer and Purchase on Wood Business. (a) In the
---------------------------------------------------
event Holdings desires to sell or otherwise transfer the assets or business
comprising the Wood Products sector of Koppers Company, Inc. (the "Wood
Business"), which the Company is purchasing pursuant to the Asset Purchase
35
<PAGE>
Agreement, other than as part of a sale of Holdings or the Company or
substantially all the assets of Holdings or the Company or by means of a sale of
Shares, Holdings shall give written notice (the "Wood Notice") to each of the
Stockholders stating the price at and terms on which Holdings proposes to offer
the Wood Business (the "Wood First Offer Price"). Upon receipt of the Wood
Notice, Beazer (but not any other Stockholder) shall have the irrevocable and
exclusive option, for a period of 60 days, to enter into a definitive agreement
for the purchase of the Wood Business at a price and on terms no less favorable
than the Wood First Offer Price; provided that Beazer will notify Holdings
--------
within 15 days after receipt of the Wood Notice of its good faith intention to
exercise its option to purchase the Wood Business. If Beazer does Not exercise
its option to purchase the Wood Business, Holdings shall be free to sell the
Wood Business, at a price and on terms no less favorable than the Wood First
Offer Price, for a period of 90 days after the earlier of (i) the 60th day
following the date of the Wood Notice and (ii) Holdings' receipt of written
notice from Beazer that it does not intend to purchase the Wood Business.
(b) If the proposed terms of the sale of the Wood Business are less
favorable than the Wood First Offer Price, Holdings shall not sell or otherwise
transfer the Wood Business unless Holdings shall first reoffer the Wood Business
on such less favorable terms to Beazer by giving written notice (the "Wood
Reoffer Notice") thereto, stating Holdings' intention to make such transfer on
such less favorable terms (the "Wood Reoffer Price"). Beazer shall then have the
irrevocable and exclusive option, for a period of 60 days, to enter into a
definitive agreement to purchase the Wood Business at the Wood Reoffer Price;
provided that Beazer will notify Holdings within 15 days after the Wood Reoffer
- --------
Notice of its good faith intention to exercise its option to purchase the Wood
Business. If Beazer does not then purchase the Wood Business, Holdings may sell
the Wood Business within 90 days after the earlier of (i) the 60th day following
the date of receipt by Beazer of the Wood Reoffer Notice and (ii) Holdings'
receipt of written notice that Beazer does not intend to purchase the Wood
Business.
(c) In the event that any Person (other than Beazer, Koppers Australia
or the Management Investors or any of their respective Affiliates) (i) becomes
the beneficial owner of more than 50% of the Voting Stock then outstanding or
(ii) obtains the power to nominate or elect, by agreement or otherwise, at least
a majority of the Board of Directors of Holdings, then Beazer shall have the
right (the
36
<PAGE>
"Purchase Right") to purchase (or cause its designee to purchase) the Wood
Business (to the extent then owned by Holdings or any of its Subsidiaries) at a
price and on terms and conditions to be mutually agreed by Holdings (or the
Company) and Beazer. Beazer may exercise the Purchase Right by written notice
(the "Purchase Notice") to Holdings and the Company within 30 days after receipt
of written notice from Holdings of the occurrence of the events set forth in
clause (i) or (ii) above. If the parties are unable to agree to the price, terms
or conditions of such purchase and sale, any unresolved issues shall be
submitted for resolution to a panel of three arbitrators in accordance with the
rules of the American Arbitration Association. If prior to the closing of the
purchase pursuant to the exercise of the Purchase Right, the holder of a
mortgage, security interest or other lien with respect to a substantial portion
of the Wood Business or the capital stock of the Company (in either case as
security for indebtedness of the Company or Holdings) shall have commenced the
exercise of a remedy to foreclose on, sell or otherwise dispose of any such
collateral as a result of an event of default under such indebtedness, or the
related security documents ("foreclosure"), then (i) the Purchase Right shall be
suspended pending the completion (or abandonment) of such foreclosure and (ii)
the Purchase Right shall be terminated with respect to any portion of the Wood
Business which is sold or otherwise disposed of in such foreclosure.
For purposes of this paragraph (c) and Sections 2.4 and 8.4 hereof,
"Person" shall mean an individual, partnership, Corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or government or any agency or political subdivision
thereof.
8.4. Right of Repurchase. In the event that any Person (other than
-------------------
Beazer, Koppers Australia or the Management Investors, or any of their
respective Affiliates) (a) becomes the beneficial owner of more than 50% of the
Voting Stock then outstanding or (b) obtains the power to nominate or elect, by
agreement or otherwise, at least a majority of the Board of Directors of
Holdings, then Koppers Australia shall have the right (the "Repurchase Right")
to purchase (or cause its designee to purchase) all (but not less than all) the
shares of capital stock of Koppers Australia Pty. Ltd. (the "KAPL Shares") then
owned by Holdings or any of its Subsidiaries. Koppers Australia may exercise
the Repurchase Right by written notice (the "Repurchase Notice") to Holdings and
the Company within 30 days after receipt of written
37
<PAGE>
notice from Holdings of the occurrence of the events set forth in clause (a) or
(b) above. In the event Koppers Australia exercises the Repurchase Right, the
closing of the purchase and sale of the KAPL Shares shall take place at the
offices of Holdings (or such other place as may be mutually agreed) within 30
days following delivery of the Repurchase Notice. At the closing of such
purchase and sale, Holdings (or its Subsidiary or Subsidiaries) shall deliver to
Koppers Australia (or its designee) a certificate or certificates representing
the KAPL Shares, in proper form for transfer, and Koppers Australia (or its
designee) shall deliver to Holdings (or its Subsidiary or Subsidiaries)
immediately available funds in payment of the purchase price for the KAPL
Shares. The purchase price for the KAPL Shares shall be set by mutual agreement
between Holdings and Koppers Australia or, if the parties are unable to reach
agreement, by an independent appraisal firm mutually selected by Holdings and
Koppers Australia.
8.5. Preemptive Rights. In the event that Holdings offers to sell
-----------------
additional Common Shares, each Stockholder subject to Section 2.3 hereof shall
have the right to subscribe for such additional Common Shares (for a period of
30 days following written notice of such offer), at the offered price (or its
Equivalent Fair Market Value in cash), in proportion to the number of Common
Shares owned by such Stockholder divided by the total number of Common Shares
owned by Stockholders having the right so to subscribe pursuant to this Section
8.5. Unless Holdings is offering to sell only Non-Voting Shares, the right to
subscribe pursuant to this Section 8.5 shall extend to Voting Shares to the
extent the Common Shares owned by a Stockholder giving rise to the right to
subscribe are Voting Shares, and shall extend to Non-Voting Shares to the extent
the Common Shares owned by a Stockholder giving rise to the right to subscribe
are Non-Voting Shares.
This Section 8.5 shall not apply to issuances or sales of Common
Shares pursuant to (a) a registered public offering under the Securities Act,
(b) the Warrants, (c) employee stock options and (d) sales of Common Shares to
employees of Holdings or any of its Subsidiaries to the extent of Common Shares
that have been repurchased from Management Investors pursuant to Section 6 or 7
hereof.
8.6. Sale of Substantially All the Assets. In the event that Holdings
------------------------------------
sells or otherwise disposes of all or substantially all its assets, Holdings
shall not distribute the proceeds of such sale or disposition unless,
concurrently therewith, Holdings redeems or repurchases the outstanding Series A
Shares (or
38
<PAGE>
Exchange Debentures) at their liquidation preference (or principal amount), plus
any accrued but unpaid dividends (or interest) thereon.
9. Miscellaneous.
-------------
9.1. Endorsement of Stock Certificates. A copy of this Agreement shall
---------------------------------
be filed with the Secretary of Holdings and kept with the records of Holdings.
Each of the Stockholders hereby agrees that each outstanding certificate
representing Shares subject to this Agreement (other than those Shares which
shall have been registered under the Securities Act, in which case such Shares
shall, if required by Section 9.6(b), bear only the endorsement set forth in
paragraph (b) below) shall bear endorsements reading substantially as follows:
(a) The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be transferred, sold or
otherwise disposed of except pursuant to an effective registration
statement or pursuant to an exemption from registration, under the Act.
(b) The shares represented by this certificate are subject to restrictions on
transfer, certain voting restrictions, certain rights of the Corporation
and the Stockholders of the Corporation to repurchase such shares and
certain rights of the registered holder to sell such shares to the
Corporation on the terms and conditions set forth in a Stockholders'
Agreement dated as of December 28, 1988, a copy of which may be obtained
from the Corporation or from the holder of this certificate. No transfer of
such shares will be made on the books of the Corporation unless accompanied
by evidence of compliance with the terms of such Agreement.
Such certificate shall bear any additional endorsement which may be required for
compliance with state securities or blue sky laws or as may be required under
the Subscription Agreement.
9.2. Term. This Agreement shall terminate on the date of the first to
-----
occur of any of the following events: (i) the closing of the sale to any person
or group of persons who are not, and who do not become, at the time of sale,
parties to this Agreement of at least 35% of the outstanding Voting Shares
(after giving effect to such sale) pursuant to an offering (other than pursuant
to Section 6 hereof) registered under the Securities Act, (ii) the closing of
the sale of Shares to any person or group of persons as a result of which
persons who are not then parties to this Agreement own 35% or more of the
outstanding Voting Shares, (iii) the provisions of Section 1.1 hereof do not
grant persons who are then parties to this
39
<PAGE>
Agreement the right to nominate an aggregate of at least three directors of
Holdings, or (iv) 10 years from the date of this Agreement.
9.3. Injunctive Relief. It is hereby agreed and acknowledged that it
-----------------
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person shall,
therefore, be entitled to injunctive relief, including specific performance, to
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
9.4. Notices. All notices, statements, instructions or other documents
-------
required to be given hereunder, shall be in writing and shall be given either
personally, by facsimile transmission or by mailing the same in a sealed
envelope, first-class mail, postage prepaid and either certified or registered,
return receipt requested, addressed to Holdings at its principal offices and to
the other parties at their addresses reflected in the stock records of Holdings.
Each Stockholder, by written notice given to Holdings in accordance with this
Section 9.4 may change the address to which notices, statements, instructions or
other documents are to be sent to such Stockholder. All notices, statements,
instructions and other documents hereunder that are mailed shall be deemed to
have been given on the date of mailing. Whenever pursuant to this Agreement any
notice is required to be given by any Stockholder to any other Stockholder or
Stockholders, such Stockholder may request from Holdings a list of addresses of
all Stockholders of Holdings, which list shall be promptly furnished to such
Stockholder.
9.5. Administration. In the event of any First Offer, Reoffer, or
--------------
Control Offer, or the occurrence of any event which entitles any Stockholder to
exercise any put or call granted herein, Holdings shall administer and
coordinate the exercise of such put or call, including the determination, where
applicable, of each participating Stockholder's proportionate share.
9.6. Successors and Assigns. (a) This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties, and their respective successors
and assigns. Except as provided in Section 9.6(b), if any Transferee of any
Stockholder shall acquire any Voting Shares in any manner, whether by
40
<PAGE>
operation of law or otherwise, such Voting Shares shall be held subject to all
of the terms of this Agreement, and by taking and holding such Voting Shares
such person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement.
(b) Except for Shares sold or distributed pursuant to Section 6,
Shares which have been distributed in a registered public offering shall no
longer be subject to this Agreement; provided that if any such Shares are
--------
directly or indirectly acquired for any reason by any person who is a
Stockholder then such Shares, irrespective of the fact that they were not
legended or subject to this Agreement, shall be deemed subject to this Agreement
and shall not be transferred on the books of Holdings until such Shares have
been appropriately legended.
9.7. Company Information. Holdings agrees to deliver to each
-------------------
Stockholder, so long as such Stockholder owns any Shares:
(a) Within 60 days after the end of each quarterly period (except the
last) in each fiscal year of Holdings, a consolidated balance sheet of Holdings
and its consolidated Subsidiaries as of the end of such quarter, and
consolidated statements of income, changes in stockholders' equity and changes
in financial position of Holdings and its consolidated Subsidiaries for such
quarter and the portion of the fiscal year ending with such quarter, setting
forth in each case in comparative form the figures for the corresponding periods
a year earlier;
(b) Within 120 days after the end of each fiscal year of Holdings, a
consolidated balance sheet of Holdings and its consolidated Subsidiaries as of
the end of such fiscal year, and consolidated statements of income, changes in
stockholders' equity and changes in financial position of Holdings and its
consolidated Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year; and
(c) With reasonable promptness, such other data and information as
from time to time may be reasonably requested.
9.8. Governing Law. Regardless of the place of execution, this Agreement
-------------
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania applicable to agreements made and to be wholly
performed in such Commonwealth.
41
<PAGE>
9.9. Headings. All headings are inserted herein for
--------
convenience only and do not form a part of this Agreement.
9.10. Entire Agreement: Amendment. This Agreement contains the
---------------------------
entire agreement among the parties hereto with respect to the transactions
contemplated herein, supersedes all prior written agreements and negotiations
and oral understandings, if any, and may not be amended, supplemented or
discharged except by an instrument in writing signed by Holdings, the Company,
the Representatives of the Management Investors (so long as the Management
Investors as a group then own at least 5% of the outstanding Common Shares), any
holder of Warrants exercisable for (or Common Shares issued upon exercise of
Warrants that constitute) at least 5% of the outstanding Common Shares, on a
fully diluted basis, as of the Effective Date, and any Stockholder or Transferee
holding at least 5% of the outstanding Common Shares (or Series B Shares
convertible into or exercisable for at least 5% of the outstanding Common
Shares). In the event of the amendment or modification of this Agreement in
accordance with its terms, the Voting Stockholders shall cause the Board of
Directors of Holdings to meet within 30 days following such amendment,
modification or termination or as soon thereafter as is practicable for the
purpose of amending the Articles of Incorporation and By-Laws of Holdings, as
may be required as a result of such amendment or modification, and proposing
such amendments to the stockholders of Holdings entitled to vote thereon, and
such action shall be the first action to be taken at such meeting. In the event
that any Stockholder, Holdings or the Company shall be required, as a result of
the enactment, amendment or modification, subsequent to the date hereof, of any
applicable law or regulation, or by the order of any governmental authority, to
take any action which is inconsistent with or which would constitute a violation
or breach of any terms of this Agreement, then the Stockholders, Holdings and
the Company shall use their best efforts to negotiate an appropriate amendment
or modification of, or waiver of compliance with, such terms.
9.11. No Waiver. No failure to exercise and no delay in
---------
exercising any right, power or privilege of a party hereunder shall operate as a
waiver nor a consent to the modification of the terms hereof unless given by
that party in writing.
42
<PAGE>
9.12. Consent to Jurisdiction. Each of the parties hereby
-----------------------
submits to the exclusive jurisdiction of the courts of the Commonwealth of
Pennsylvania and the Federal courts of the United States of America located in
such state solely in respect of the interpretation and enforcement of the
provisions of this Agreement, and hereby waives, and agrees not to assert, as a
defense in any action, suit or proceeding of the interpretation or enforcement
of this Agreement, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that its
property is exempt or immune from execution, that the suit, action or proceeding
is brought in an inconvenient forum, or that the venue of the suit, action or
proceeding is improper. Each of the parties agrees that service of process in
any such action, suit or proceeding shall be deemed in every respect effective
service of process upon it if given in the manner set forth in Section 9.4
hereof.
9.13. Inspection. So long as this Agreement shall be in
----------
effect, this Agreement shall be made available for inspection by any stockholder
of Holdings at the principal offices of Holdings.
9.14. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first written above.
KOPPERS HOLDINGS CORPORATION
By
---------------------------------------
KOPPERS INDUSTRIES, INC.
By
---------------------------------------
43
<PAGE>
BEAZER, INC.
By
---------------------------------------
KAP INVESTMENTS, INC.
By
---------------------------------------
44
<PAGE>
EXHIBIT 10.25
KOPPERS INDUSTRIES, INC.
RESTATED AND AMENDED
STOCK OPTION PLAN
-------------------------
February 21, 1996
<PAGE>
KOPPERS INDUSTRIES, INC.
RESTATED AND AMENDED
STOCK OPTION PLAN
1. Purpose
The purpose of the Koppers Industries, Inc. Stock Option Plan (hereafter
referred to as the "Plan") is to advance the interests of Koppers Industries,
Inc. (hereafter referred to as the "Company") by achieving a greater commonality
of interest between shareholders and key employees, by enhancing the Company's
ability to retain and attract highly qualified key employees and by providing an
additional incentive to such key employees to achieve the Company's long-term
business plans and objectives. This purpose will be achieved through the
granting under the Plan of (a) incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986 as amended, and (b) non
qualified stock options (all options other than incentive stock options).
Incentive and non qualified stock options shall hereinafter be referred to as
"Options".
2. Administration
The Plan shall be administered by the Human Resources and Compensation
Committee (hereinafter referred to as the "Committee") and when necessary by the
Board of Directors of Koppers Industries, Inc. (the "Board of Directors").
The Committee shall have full and final authority with respect to the Plan
to (i) interpret all provisions of the Plan consistent with the law; (ii)
designate the key employees to receive grants of Options; ; (iii) determine the
frequency of Option grants; (iv) determine the number and type of Options to be
granted to each key employee; (v) specify the number of shares subject to each
Option; (vi) prescribe the form and terms of instruments evidencing any Options
granted under this plan; (vii) determine the timing of option exercise; (viii)
make specific awards when appropriate; (ix) adopt, amend and rescind general and
specific rules and regulations for the Plan's administration; and (x) make all
other determinations necessary or advisable for the administration of this Plan.
No member of the Committee or the Board of Directors shall be liable for
any action taken or determination made in good faith. The members of the
Committee and Board of Directors shall be indemnified by the Company for any
acts or omissions in connection with the Plan to the full extent permitted by
Pennsylvania and Federal regulatory statutes.
3. Shares Available for Options
Subject to the adjustments provided in the Section 7 of the Plan, the
aggregate number of shares of the voting common stock of the Company for which
Options may be granted under
1
<PAGE>
the Plan shall be equal to five percent (5%) of the then outstanding shares of
common stock at the time of such grant. In the event that an Option granted
under the Plan to any individual expires or is terminated unexercised as to any
shares covered thereby, such shares shall thereafter be available for the
granting of Options to such individuals or other individuals under the Plan.
Options granted under the Plan will be fulfilled, upon exercise, with
authorized and unissued shares of the voting common stock of the Company.
4. Eligibility
Present and future officers and key employees of the Company who are
regularly employed on a salary basis shall be eligible to participate in the
Plan.
5. Option Price
The Committee shall establish the option price at the time any Option is
granted in such amount as the Committee shall determine. The Committee shall
have the right to grant Options at an option price at or below the fair market
value of the voting common stock of the Company. The option price will be
subject to adjustment in accordance with the provisions of Section 7 of the
Plan.
6. Option Provisions
The terms and conditions of the Options as determined form time to time by
the Committee shall be evidenced by stock option agreements in such form as the
Committee shall approve, provided, however, that all options granted under the
Plan shall be subject to the following:
(a) The price per share with respect to each option shall be payable at the
time the Option is exercised. Such price shall be payable in cash, or at the
discretion of the Committee, by delivering to the Company other shares of common
stock of the Company owned by the optionee. Shares delivered to the Company in
payment of the option price shall be valued at the fair value of the common
stock of the Company as of the most recent validation date. Fair value shall be
determined in accordance with the valuation method specified by the Board of
Directors.
(b) The right to purchase shares shall be cumulative so that when the right to
purchase any shares has accrued such shares or any part thereof may be purchased
at any time thereafter until the expiration or termination of the Option.
(c) The term of the Option shall not extend beyond ten (10) years from the date
of grant of the Option.
2
<PAGE>
(d) Each option shall not be transferable by the Optionee except by will or the
laws of descent and distribution of the state of his or her domicile at the time
of his or her death. During the lifetime of the Optionee, any Option shall be
exercisable only by such Optionee.
(e) In the event of the death of the Optionee, his or her personal
representatives shall have the right, within one year after the date of death
(but not after the expiration date of the Option), to exercise his or her Option
with respect to all or any part of the shares of stock as to which the deceased
Optionee had not exercised his or her Option at the time of his or her death.
(f) If the employment of an Optionee is terminated because of permanent and
total disability, as defined under Section 22(e)(3) of the U.S. Internal Revenue
Code of 1986, as amended, he or she will have the right, within 90 days after
the date of such termination (but in no event after the expiration date of the
Option), to exercise his or her Option with respect to all or any part of the
shares of stock as to which he or she had not exercised his Option at the time
of such termination.
(g) If an Optionee retires in accordance with the provisions of any retirement
plan of the Company or is involuntarily terminated without cause, he or she
shall have the right, within three years after the date or his or her retirement
or termination (but in no event after the expiration date of the Option) to
exercise his or her Option with respect to all or any part of the shares of
stock as to which he or she had not exercised his or her option at the time of
retirement or termination.
(h) If the employment of an Optionee is terminated for any reason other than
death, permanent and total disability, involuntary termination without cause or
retirement, he or she shall have the right, within 30 days after the date of
such termination (but in no event after the expiration date of the Option), to
exercise his or her option with respect to all or any part of the shares of
stock as to which he or she had not exercised his option at the time of such
termination, except that if the Optionee's employment was terminated by the
Company for cause, as determined by the Committee, or if the Optionee
voluntarily terminates his or her employment without the consent of the Company
(of which fact the Committee shall be the sole judge), then the Optionee
forfeits his or her rights under the Option except as to shares of stock already
purchased.
7. Adjustment of Shares
In the event there is any change in the common stock of the Company by
reason of any reorganization, recapitalization, stock split, stock dividend or
otherwise, the number or kind of shares available for options under the Plan and
the number or kind of shares subject to any Option and the per share option
price thereof shall be appropriately adjusted by the Committee.
8. Change in Control
In the event the Committee requires participants to hold options for a
specified period of time prior to exercise and the Company experiences a change
of control, all Optionees shall have
3
<PAGE>
the right to exercise his or her Option with respect to all or any part of the
shares of stock as to which each Optionee had not yet exercised his Option
immediately prior to such event. For purposes of the Plan, a change in control
in ownership is defined as a change in ownership of over 30% of the outstanding
shares of voting common stock of the Company, liquidation or dissolution of the
Company sale of substantially all of the Company, or a merger, consolidation or
combination in which the Company is not a survivor.
9. Amendment of Plan
The Committee shall have the right to amend, suspend, or terminate the Plan
at any time. No amendment, suspension or termination of the Plan shall alter or
impair any Options previously granted under the Plan, without the consent of the
holder thereof.
10. Compliance with Law
No Option shall be exercisable and no shares will be delivered under this
Plan except in compliance with all applicable Federal and State laws and
regulations
No Option shall be exercisable and no shares will be delivered under this
Plan until the Company has obtained consent or approval from Federal or State
regulatory bodies, having jurisdiction over such matters as the Committee may
deem advisable.
11. No Right to Employment
This Plan shall not be construed to give any employee of the Company any
right to be awarded any options other than at the sole discretion of the
Committee; to limit in any way the right of the Company to terminate the
employment of any employee at any time; or to be evidence of any agreement or
understanding, express or implied that the Company will employ any employee in
any particular position or at any particular rate of renumeration or for any
particular period of time.
12. Effective Date and Term of Plan
The effective date of the Plan shall be the date of the adoption by the
Board of Directors of the Company. The Plan shall remain in effect until
December 31, 2005 or until terminated by the Board of Directors, whichever date
----
occurs first.
4
<PAGE>
EXHIBIT 21.1
AMENDED LIST OF
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME JURISDICTION OF
INCORPORATION/ORGANIZATION
- --------------------------------------------------------------------------------
<C> <S> <C>
*1. KHC Assurance, Inc. Vermont corporation; Wholly-owned subsidiary
- --------------------------------------------------------------------------------
*2. Koppers Concrete Products, Delaware corporation; Wholly-owned subsidiary
Inc.
- --------------------------------------------------------------------------------
*3. Concrete Partners, Inc. Delaware corporation; Wholly-owned subsidiary
- --------------------------------------------------------------------------------
*4. KSA Limited Partnership Ohio Limited Partnership; 49% Interest owned
by Concrete Partners, Inc. and 1% Interest
owned by Koppers Concrete Products, Inc.
- --------------------------------------------------------------------------------
*5. Tarconord A/S Organized pursuant to the laws of Denmark;
50% Equity Interest.
- --------------------------------------------------------------------------------
*6. World-Wide Ventures Delaware corporation; Wholly-owned subsidiary
Corporation
- --------------------------------------------------------------------------------
*7. Koppers Foreign Investment Organized pursuant to the laws of the Cayman
Corporation Islands; Wholly-owned subsidiary of
World-Wide Ventures Corporation
- --------------------------------------------------------------------------------
*8. Koppers Australia PTY, Ltd. Organized pursuant to the laws of New South
Wales, Australia; 50% Interest.
- --------------------------------------------------------------------------------
*9. KAP Investments, Inc. Delaware corporation; Wholly-owned
subsidiary of Koppers Australia PTY, Ltd.
- --------------------------------------------------------------------------------
*10. Koppers Industries Organized pursuant to the laws of Barbados;
International Wholly-owned subsidiary
Trade Corporation
- --------------------------------------------------------------------------------
*11. Koppers Industries B.W., Delaware Corporation; Wholly-owned subsidiary
Inc.
- --------------------------------------------------------------------------------
*12. Koppers Refractory Delaware Corporation; Wholly-owned subsidiary
Materials, Inc.
- --------------------------------------------------------------------------------
*13. Koppers Industries of Delaware Corporation; Wholly-owned subsidiary
Delaware, Inc.
- --------------------------------------------------------------------------------
</TABLE>
* Each subsidiary transacts business only under its legal name.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Selected
Historical Financial Data" and "Experts" and to the use of our reports dated
January 25, 1996 (except for Notes 3 and 12 of the consolidated financial
statements, as to which the date is March 25, 1996 and Note 1 of the
consolidated financial statements, as to which the date is May 22, 1996) in the
Registration Statement (Form S-1) and the related Prospectus of Koppers
Industries, Inc. for the registration of its common stock
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 17, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 11, 1995 with respect to the financial
statements of Koppers Australia Pty. Limited in the Registration Statement
(Form S-1) and the related Prospectus of Koppers Industries, Inc. for the
registration of its common stock.
/s/ Ernst & Young
Sydney, Australia
June 17, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-3313 of Koppers Industries, Inc. on Form S-1 of our report dated April 16,
1996 (which expresses an unqualified opinion and includes an explanatory
paragraph stating that the financial statements have been prepared from
separate records maintained by the Coal Chemical Business and may not
necessarily be indicative of the conditions that would have existed or the
results of operations if the Coal Chemical Business had been operated as an
unaffiliated company, and that certain income and expenses represent
allocations made from corporate items applicable to Aristech Chemical
Corporation as a whole), on the financial statements of the Coal Chemical
Business of Aristech Chemical Corporation as of December 31, 1995 and 1994 and
for each of the two years in the period ended December 31, 1995 and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 18, 1996
