<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998
REGISTRATION NO. 333-43153
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
KOPPERS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 2491
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
--------------------
436 SEVENTH AVENUE
PITTSBURGH, PENNSYLVANIA 15219
(412) 227-2001
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
--------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
--------------------
ROBERT K. WAGNER
CHIEF EXECUTIVE OFFICER KOPPERS INDUSTRIES, INC.
436 SEVENTH AVENUE
PITTSBURGH, PA 15219
(412) 227-2001
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
--------------------
with a copy to:
CLAYTON A. SWEENEY
DICKIE, MCCAMEY & CHILCOTE, P.C.
TWO PPG PLACE, SUITE 400
PITTSBURGH, PA 15222
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF CLASS OF TO BE PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Senior Subordinated
Notes Due 2007................ $175,000,000 100% $175,000,000 $60,375
- -------------------------------------------------------------------------------------------
Guarantees of 9 7/8% Senior
Subordinated Notes Due 2007... -- -- -- (3)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
registration fee is payable with respect to the Guarantees.
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.
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- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Koppers Industries, Inc., and each
other subsidiary that is or becomes a guarantor of the securities registered
hereby, is hereby deemed to be a registrant.
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL IRS EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
- ---- --------------- ---------------- --------------
<S> <C> <C> <C>
Koppers Industries Interna-
tional Trade Corporation...... Barbados 2491 25-1606262
Koppers Australia Pty. Ltd..... Australia 2491 Not Applicable
Koppers Industries of Delaware,
Inc........................... Delaware 2491 51-0370974
Koppers Industries B.W., Inc... Delaware 2491 25-1604704
</TABLE>
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K,
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED TO BE
INCLUDED THEREIN IN ACCORDANCE WITH PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN THE PROSPECTUS
----------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Forepart of Registration Statement;
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. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information........................ Forepart of Prospectus; Prospectus
Summary; Risk Factors, Summary
Historical and Pro Forma
Consolidated Financial Information;
Selected Historical Consolidated
Financial Information
4. Terms of the Transaction........... Prospectus Summary; The Exchange
Offer; Description of Notes; Certain
United States Federal Income Tax
Considerations for Non-United States
Holders; Risk Factors
5. Pro Forma Financial Information.... Summary Historical and Pro Forma
Consolidated Financial Information;
Unaudited Pro Forma Condensed
Consolidated Financial Statements;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
6. Material Contracts with Company
Being Acquired..................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... *
8. Interests of Named Experts and
Counsel............................ *
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................... *
10. Information with Respect to S-3
Registrants........................ *
11. Incorporation of Certain
Information by Reference........... *
12. Information with Respect to S-2 or
S-3 Registrants.................... *
13. Incorporation of Certain
Information by Reference........... *
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants........................ Prospectus Summary; Summary
Historical and Pro Forma
Consolidated Financial Information;
Selected Historical Consolidated
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN THE PROSPECTUS
---------------------------------- -------------------------------------
<C> <S> <C>
15. Information with Respect to S-3
Companies......................... *
16. Information with Respect to S-2 or
S-3 Companies..................... *
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies......................... *
18. Information if Proxies, Consents
or Authorizations are to be
Solicited......................... *
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange Offer. Management; Principal Stockholders;
Certain Relationships and
Transactions; The Exchange Offer
</TABLE>
- ------
* Item is omitted because the answer is negative or the item is inapplicable.
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 23, 1998
PROSPECTUS
KOPPERS INDUSTRIES, INC.
OFFER TO EXCHANGE ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE NOT BEEN SO
REGISTERED.
-------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED
-------------
Koppers Industries, Inc. and all of its subsidiaries (the "Company" or
"Koppers"), a Pennsylvania corporation, hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange up to $175,000,000 aggregate principal amount of its new 9 7/8% Senior
Subordinated Notes due 2007 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its outstanding 9 7/8% Senior Subordinated Notes due 2007
(the "Old Notes"), which have not been so registered. The terms of the New
Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions relating to the Old Notes. The New Notes will
evidence the same indebtedness as the Old Notes and will be issued pursuant to,
and entitled to the benefits of, the same Indenture that governs the Old Notes
(the "Indenture"). As used herein, the term "Notes" means the Old Notes and the
New Notes, treated as a single class.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998
unless extended (as, so extended, the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer. The Exchange Offer is
subject to certain other customary conditions. See "The Exchange Offer."
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after December 1, 2002. The New Notes will be, and the Old
Notes currently are, unsecured obligations of the Company ranking pari passu
with all other unsecured and subordinated indebtedness of the Company.
The holder of each Old Note accepted for exchange will receive a New Note
having a principal amount equal to that of the surrendered Old Note. The New
Notes will bear interest from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid on the Old Notes, from
December 1, 1997. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders of Old
Notes accepted for exchange will not receive any payment in respect of accrued
interest on such Old Notes. Old Notes not tendered or not accepted for exchange
will continue to accrue interest from and after the date of consummation of the
Exchange Offer.
The Old Notes were issued and sold on December 1, 1997 in a transaction
exempt from the registration requirements of the Securities Act and may not be
offered or sold in the United States unless so registered or pursuant to an
applicable exemption under the Securities Act. The New Notes are being offered
hereunder in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement (as defined). Based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than a holder that is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in a distribution of such New Notes. However, the Company has not sought a no-
action letter with respect to the Exchange Offer and there can be no assurance
that the staff of the Commission would make a similar determination with
respect to the Exchange Offer. Each holder of Old Notes, other than a broker-
dealer, must acknowledge that it is not engaged in, and does not intend to
engage or participate in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, ending on
the close of business on the 180th day following the Expiration Date (as
defined herein), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Company will promptly return
the Old Notes to the holders thereof. See "The Exchange Offer."
SEE "RISK FACTORS" WHICH BEGINS ON PAGE 16 OF THIS PROSPECTUS, FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THIS EXCHANGE OFFER.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------
THE DATE OF THIS PROSPECTUS IS JANUARY 23, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the New
Notes offered hereby, reference is made to the Registration Statement. Any
statements made in this Prospectus concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. The
Registration Statement, the exhibits forming a part thereof and such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500
West Madison Street, 14th Floor, Chicago, Illinois 60601. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains an Internet Web Site at
http://www.sec.gov that contains reports and other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST AS
PROVIDED BELOW. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated
in this Prospectus by reference, other than exhibits to such documents not
incorporated by reference therein. Requests for such copies should be directed
to Koppers Industries, Inc., 436 Seventh Avenue, Pittsburgh, Pennsylvania
15219, Attention: Randall D. Collins, Vice President and Corporate Secretary
(telephone (412) 227-2456).
---------------------
2
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain information included or incorporated by reference in this Prospectus
is forward-looking, including statements contained in the "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," and includes statements
regarding the intent, belief and current expectations of Koppers and its
directors and officers. Such forward-looking information involves important
risks and uncertainties that could materially alter results in the future from
those expressed in any forward-looking statements made by, or on behalf of,
Koppers. These risks and uncertainties include, but are not limited to, the
ability of the Company to maintain existing relationships with long-standing
customers, the ability of the Company to successfully implement productivity
improvements, cost reduction initiatives, facilities expansion and the ability
of the Company to develop, market and sell new products and to continue to
comply with environmental laws, rules and regulations. Other risks and
uncertainties include uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies,
technological developments and changes in the competitive environment in which
the Company operates. Persons reading this Prospectus are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, readers should specifically
consider the various factors which could cause actual events or results to
differ materially from those indicated by such forward-looking statements,
including those discussed in "Risk Factors."
ENFORCEABILITY OF JUDGMENTS
Koppers Australia, one of the Subsidiary Guarantors (as defined herein), is
a company limited by shares incorporated under the laws of certain States and
territories of the Commonwealth of Australia. Many of the directors and
executive officers of Koppers Australia (and certain of the experts named in
this Prospectus) are citizens or residents of jurisdictions other than the
United States. All or a substantial portion of the assets of such directors,
executive officers and experts residing outside of the United States and all
of the assets of Koppers Australia are or may be located outside of the United
States, primarily in Australia. As a result, it may not be possible to effect
service of process on such directors and executive officers, such experts or
on Koppers Australia in the United States or to enforce, collect or realize
upon, in the United States courts, judgments against such persons obtained in
United States courts and predicated upon civil liability under United States
securities laws. Koppers has been advised by their special Australian counsel,
Baker & McKenzie, that there is doubt as to the enforceability of civil
liabilities under United States securities laws in actions originating in
federal and state courts in Australia. Baker & McKenzie has also advised
Koppers, however, that subject to certain conditions, exceptions and time
limitations, Australian courts will enforce foreign (including United States)
judgments for liquidated amounts in civil matters, including (although there
is no express authority relating thereto) judgments for such amounts rendered
in civil actions under United States securities laws. Such counsel has further
advised Koppers that an Australian court may allow the enforcement of a
judgment to be effected in United States dollars if such court is satisfied
that this best expresses the relevant loss of a plaintiff, although no opinion
is expressed as to whether or not enforcement of any judgment against Koppers
Australia would be effected in any currency other than Australian dollars and,
if in Australian dollars, the date of determination of the applicable exchange
rate from United States dollars to Australian dollars. Koppers Australia has
appointed CT Corporation System as its agent for service of process in any
suit, action or proceeding with respect to, the Indenture, the Notes and the
Subsidiary Guarantees, brought under federal or state securities laws or
otherwise in any federal or state court located in the Borough of Manhattan,
The City of New York, State of New York, and have submitted to such
jurisdiction. CT Corporation System has agreed to accept such appointment
until one year from the date of issuance of the Notes and has agreed to
continue to serve in such capacity thereafter, provided that Koppers Australia
pays an annual renewal fee.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise noted herein, the information
contained in this Prospectus assumes the consummation of the Koppers Australia
Acquisition (as defined herein), which occurred on December 1, 1997 and
pursuant to which Koppers Australia Pty. Limited became a wholly-owned
subsidiary of Koppers Industries, Inc. Except where otherwise indicated,
"Koppers" means Koppers Industries, Inc. and all of its subsidiaries, and the
"Company" refers to Koppers and Koppers Australia (as defined herein). Except
where otherwise indicated, all conversions from Australian dollars to U.S.
dollars are performed using the conversion rate in effect on October 10, 1997,
which was $0.735.
THE COMPANY
GENERAL
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 a leading position in most of its markets. The Company operates 22
facilities in the United States and 14 in the South Pacific (primarily
Australia and New Zealand), and maintains indirect ownership interests in an
additional facility in the United States through its domestic joint venture KSA
(as defined herein) and in five facilities overseas through its joint venture
Tarconord A/S ("Tarconord"). On a pro forma basis the Company recorded net
sales and Adjusted EBITDA (as defined herein) of $717.6 million and $95.8
million, respectively, for the twelve months ended September 30, 1997. For the
same period, the Company's businesses, Carbon Materials & Chemicals, Railroad &
Utility Products, Coke Products and Koppers Australia Pty. Limited and its
subsidiaries ("Koppers Australia"), accounted for 34%, 35%, 14% and 17% of pro
forma net sales, respectively.
Through its Carbon Materials & Chemicals division, Koppers is the largest
coal tar processor in North America. Koppers' Carbon Materials & Chemicals
division processes 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, respectively. Koppers'
Railroad & Utility Products division is the largest supplier of treated wood
products, such as railroad crossties and utility poles, to United States
railroads and the electric and telephone utility industries. Koppers' 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.
Products and services provided by Koppers Australia are similar to those
provided by Koppers. Koppers Australia is Australia's largest manufacturer of
carbon pitch, wood preservatives and treated wood products and it markets these
products, as well as carbon black, in Australia, New Zealand and other Pacific
Rim nations. Koppers Australia is the only coal tar distiller in Australia,
providing it with a significant competitive advantage in serving the Australian
aluminum smelting industry.
BUSINESS STRATEGY
The Company's strategy includes: (i) improving productivity; (ii)
implementing additional cost reduction initiatives; (iii) developing, marketing
and selling new products; and (iv) broadening its customer base in new and
existing markets. The Company is currently developing improved pitches for the
aluminum industry, specialty coal tar pitches to be used in electrode carbon
markets and additional downstream applications for naphthalene in the super-
plasticizer and other specialty chemical markets.
4
<PAGE>
COMPETITIVE STRENGTHS
Strong Customer Relationships--The "Koppers" name has been associated with
quality and reliability since the 1920s. The Company's reputation has enabled
it to include among its customers numerous companies preeminent in their
respective markets, including Aluminum Company of America ("Alcoa"), CSX
Transportation, Inc. ("CSX"), LTV Steel Company, Inc. ("LTV") and UCAR Carbon
Company Inc. ("UCAR"). In order to enhance these relationships, the Company has
in place programs to ensure quality and customer satisfaction. In addition, the
Company's facilities are strategically located to service its customers'
requirements.
Broad Product Line--The Company sells a wide variety of products to a diverse
customer base, including steel producers, aluminum smelters, railroads,
utilities, rubber tire producers, wood treaters, producers of polyester resins,
paints, coatings and plasticizers, the roofing industry and pavement sealer
manufacturers. The Company's broad product line and customer base allow it to
reduce its exposure to any one market segment.
Long Term Sales Contracts--Historically, the Company has sought to reduce its
exposure to the cyclicality of its customers' businesses and general economic
conditions by securing commitments for a large portion of its planned
production through annual and multi-year contracts. In each of the last five
years, the Company has been able to secure over 50% of the following year's
sales through such contracts.
Global Presence--The Company, along with its joint venture in Denmark,
Tarconord, serves the North American, European, Asian and Australian markets
with carbon materials and chemical products. The Company works closely with
Tarconord on marketing strategy, raw material sourcing and technology sharing.
The Company and Tarconord have completed several acquisitions and have entered
into marketing agreements enabling the Company to expand its presence into new
and emerging markets, including the United Kingdom, Middle East, South Africa,
People's Republic of China and other Pacific Rim nations.
Diversified Supply Base--The Company believes that its ability to source
high-quality coal tar, wood and coal from multiple suppliers provides it with a
significant competitive advantage in meeting customer requirements in a timely
and economically advantageous manner. In addition, the Company believes its
ability to source coal tar globally is critical to obtaining the quality of
coal tar needed to satisfy its global customers' needs.
Vertical Integration--The Company's ability to utilize, in its manufacturing
processes, products produced in its Carbon Materials & Chemicals and Coke
Products divisions provides the Company with significant cost savings. The
Company also believes it has a significant cost advantage over its competitors
as a result of its ability to use internally generated naphthalene as a primary
feedstock in the production of PAA. All of the Company's domestic competitors
currently use orthoxylene, which is generally a higher-cost feedstock than
naphthalene, in the production of PAA. Creosote, a major by-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.
Tax Credits--The Company's coke facility located in Monessen, Pennsylvania
(the "Monessen Facility") qualifies for a tax credit based on its production of
coke as a non-conventional fuel source and the sale thereof to unrelated third
parties. The credit is available through December 31, 2002 and, based on
current production levels at the Monessen Facility, could provide up to a
maximum $10.2 million of tax credits annually, unadjusted for inflation and
assuming full production at the Monessen Facility, until the credit expires.
Use of the tax credits is limited to the availability of taxable income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." The Company may monetize all or some
portion of these tax credits.
The Company's principal executive offices are located at 436 Seventh Avenue,
Pittsburgh, Pennsylvania 15219-1800, and its telephone number is (412) 227-
2001.
5
<PAGE>
RECENT DEVELOPMENTS
SARATOGA INVESTMENT
On October 15, 1997, KAP Investments, Inc. (a wholly-owned subsidiary of
Koppers Australia) and the Management Investors (as defined herein)
(collectively, the "Offeree Stockholders") acquired from Cornerstone-Spectrum,
Inc. (an affiliate of Beazer East, Inc. and Hanson PLC) its voting and non-
voting shares of common stock of Koppers Industries, Inc. ("Common Stock"). The
Offeree Stockholders utilized $52.5 million of financing from Koppers, Saratoga
Partners III, L.P. ("Saratoga") and Saratoga Koppers Funding, Inc. ("Saratoga
Koppers"). Koppers loaned the Offeree Stockholders $17.0 million, and Saratoga
and Saratoga Koppers loaned the Offeree Stockholders $35.5 million. In exchange
for forgiveness of the loans provided by Koppers, Saratoga and Saratoga
Koppers, the Offeree Stockholders subsequently transferred 1,350,820 non-voting
shares of Common Stock to Koppers and 464,180 non-voting shares of Common Stock
and 2,117,952 voting shares of Common Stock to Saratoga and Saratoga Koppers
(the "Saratoga Investment"). On December 1, 1997, Saratoga exchanged the shares
of Common Stock it acquired in the Saratoga Investment for shares of a new
series of senior convertible preferred stock of Koppers Industries, Inc., which
entitles Saratoga to elect a majority of the Board of Directors of Koppers
Industries, Inc. (the "Board of Directors") and to exercise a majority of the
voting power over all outstanding stock of Koppers Industries, Inc. with
respect to all other matters subject to a stockholder vote. See "Management--
Stockholders' Agreement; New Stockholders' Agreement" and "Certain
Transactions."
RECAPITALIZATION
The Company sold the Old Notes on December 1, 1997 and established with Swiss
Bank Corporation, Stamford Branch and Mellon Bank, N.A. a total of $135.0
million of senior term loan facilities and a $140.0 million senior revolving
credit facility ($40.0 million and $20.0 million of which was reserved for use
in connection with a term loan and a revolving credit facility, respectively,
of Koppers Australia) (the "New Credit Facilities"). The proceeds from the New
Credit Facilities and the sale of the Old Notes have been and are being used to
complete the following transactions: (i) the acquisition of The Broken Hill
Proprietary Company Limited's ("Broken Hill's") 50% interest in Koppers
Australia; (ii) the repayment of all of the 8 1/2% Senior Notes of Koppers
Industries, Inc. due February 1, 2004 (the "8 1/2's") tendered pursuant to a
tender offer and consent solicitation which was commenced October 20, 1997 and
which expired as of 12:00 midnight, New York City time on November 28, 1997
(the "Tender Offer"); (iii) the repayment of the outstanding indebtedness of
approximately $88.1 million under the Company's term loan and revolving credit
facilities (the "Bank Debt Refinancing"); (iv) the redemption of 1,813,200
shares of non-voting Common Stock owned by APT Holdings Corporation, an
affiliate of Mellon Bank, N.A. for $22.9 million; (v) the redemption, at $17.00
per share, of up to 25% of the shares of Common Stock owned by the current
officers of Koppers and Clayton A. Sweeney (a member of the Board of Directors)
and the redemption of up to 100% of the shares of Common Stock owned by any
other Management Investor within sixty (60) days of the consummation of the
offering and the compliance with any applicable securities laws, at the
election of such individuals, in an aggregate amount not exceeding $15.0
million; (vi) the redemption of 436,508 non-voting shares of Common Stock from
Saratoga Koppers; and (vii) the payment of related fees and expenses. The New
Credit Facilities, the sale of the Old Notes and the above transactions are
collectively referred to herein as the "Recapitalization."
6
<PAGE>
THE OLD NOTES OFFERING
Series A Notes................ The Old Notes were sold by the Company on
December 1, 1997 to SBC Warburg Dillon Read
Inc. (the "Initial Purchaser") pursuant to a
Purchase Agreement dated November 20, 1997 (the
"Purchase Agreement"). The Initial Purchaser
subsequently resold the Old Notes to qualified
institutional buyers in reliance upon Rule 144A
under the Securities Act and to institutional
accredited investors in a manner exempt from
the registration requirements of the Securities
Act.
Registration Rights
Agreement..................... Pursuant to the Purchase Agreement, the Company
and the Initial Purchaser entered into a
Registration Rights Agreement dated as of
December 1, 1997 (the "Registration Rights
Agreement"), which grants the holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights, which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Notes Offered................. $175,000,000 aggregate principal amount of 9
7/8% Senior Subordinated Notes due 2007.
The Exchange Offer............ $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $175,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the New
Notes to tendering holders on or promptly after
the Expiration Date.
Based on no-action letters issued by the staff
of the Commission to third parties, the Company
believes the New Notes issued pursuant to the
Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder that is an
"affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such New Notes are acquired in
the ordinary course of such holder's business
and that such holder does not intend to
participate, and has no arrangement or
understanding with any person to participate,
in the distribution of such New Notes.
Each Participating Broker-Dealer that receives
New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of
such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivery
a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an
"underwriter" within the meeting of the
Securities Act. This
7
<PAGE>
Prospectus, as it may be amended or
supplemented from time to time, may be used by
a Participating Broker-Dealer in connection
with resale of New Notes received in exchange
for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as
a result of market-making activities or other
trading activities. The Company has agreed
that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer
for use in connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the New Notes could not rely on the position of
the staff of the Commission communicated in no-
action letters and, in the absence of an
exception therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date............... 5:00 p.m., New York City time, on February 23,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the New
Notes and the Old Notes...... Each New Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive accrued
interest thereon to, but not including, the
issuance date of the New Notes. Such interest
will be paid with the first interest payment on
the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon
issuance of the New Notes.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions."
Procedures for Tendering
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Old Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the New Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such New Notes,
8
<PAGE>
whether or not such person is the holder, that
neither the holder nor any such other person
has any arrangement or understanding with any
person to participate in the distribution of
such New Notes and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Company. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Old Notes.......... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate in the Exchange Offer but who do
not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Old Notes could be adversely
affected.
Consequences of Failure to The Old Notes that are not exchanged pursuant
Exchange...................... to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities
Act or pursuant to another exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer--Consequences of
Failure to Exchange."
Shelf Registration Statement.. If any holder of the Old Notes (other than any
such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act) is not eligible under
applicable securities laws to participate in
the Exchange Offer, and such holder has
provided information regarding such holder and
the distribution of such holder's Old Notes to
the Company for use therein, the Company has
agreed to register the Old Notes with a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause
it to be declared effective by the Commission
as promptly as practical on or after the
consummation of the Exchange Offer. The Company
has agreed to maintain the effectiveness of the
Shelf Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such
holders.
Special Procedures for Any beneficial owner whose Old Notes are
Beneficial Owners............. registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering its
Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
9
<PAGE>
transfer of registered ownership may take
considerable time. The Company will keep the
Exchange Offer open for not less than 20
business days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their
Procedures.................... Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes........
The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered on or promptly after the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent................ PNC Bank, National Association (the "Exchange
Agent").
THE NEW NOTES
General....................... The form and terms of the New Notes are the
same as the form and terms of the Old Notes
except that (i) the New Notes will have been
registered under the Securities Act and,
therefore, will not bear legends restricting
their transfer and (ii) the holders of New
Notes will not be entitled to certain rights of
holders of Old Notes under the Registration
Rights Agreement, including the provisions
providing for an increase in the interest rate
on the Old Notes in certain circumstances
relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange
Offer is consummated. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer." The
New Notes will evidence the same debt as the
Old Notes (which they replace) and will be
entitled to the benefits of the Indenture. See
"Description of Notes."
The Notes..................... $175,000,000 principal amount of 9 7/8% Senior
Subordinated Notes due 2007.
Interest Payment Dates........ June 1 and December 1 of each year, commencing
June 1, 1998.
10
<PAGE>
Maturity Date................. December 1, 2007.
Subordination................. The Notes will be general unsecured obligations
of the Company, subordinated in right of
payment to all existing and future Senior Debt
of the Company, including the New Credit
Facilities. In addition, the Notes will be
effectively subordinated to all secured
obligations to the extent of the assets
securing such obligations, including under the
New Credit Facilities. At September 30, 1997 on
a pro forma basis after giving effect to the
Saratoga Investment and the Recapitalization,
Koppers would have had $177.4 million of Senior
Debt outstanding, all of which would have been
secured. The Indenture permits Koppers to incur
additional indebtedness, including Senior Debt,
subject to certain limitations. See
"Description of Notes--Ranking" and
"Description of Notes--Covenants--Limitation on
Debt."
Subsidiary Guarantees......... The Notes are unconditionally guaranteed, on a
senior subordinated basis, by all of the
Company's existing wholly-owned direct
subsidiaries, Koppers Australia, and
substantially all of the significant wholly-
owned subsidiaries of Koppers Australia and
each subsidiary that in the future guarantees
the New Credit Facilities (collectively, the
"Subsidiary Guarantors"). The Subsidiary
Guarantees are joint and several, general
unsecured obligations of the Subsidiary
Guarantors. The Subsidiary Guarantors
guaranteed all obligations of the Company under
the New Credit Facilities, and each Subsidiary
Guarantor granted a security interest in
substantially all its assets to secure the
obligations under the New Credit Facilities.
The obligations of each Subsidiary Guarantor
under its Subsidiary Guarantee are subordinated
in right of payment to all existing and future
Guarantor Senior Debt (as defined herein) to
substantially the same extent as the Notes are
subordinated to all existing and future Senior
Debt of the Company.
Optional Redemption........... The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after December 1, 2002, at the redemption
prices set forth herein, plus accrued and
unpaid interest to the redemption date. The
Company may also redeem up to 35% of the
aggregate principal amount of Notes at its
option at any time prior to December 1, 2000,
at a redemption price equal to 109.875% of the
principal amount thereof, plus accrued and
unpaid interest to the redemption date, with
the net proceeds of one or more issuances of
Common Stock (other than Redeemable Stock (as
defined herein)); provided, however, that at
least $100 million in aggregate principal
amount of the Notes remains outstanding
following each such redemption. See
"Description of Notes--Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase all or any part of each holder's
Notes at a repurchase price equal to 101% of
the
11
<PAGE>
principal amount thereof, plus accrued and
unpaid interest to the repurchase date. There
can be no assurance that the Company will have
the financial resources necessary to purchase
the Notes upon a Change of Control or that such
repurchase will be permitted under the New
Credit Facilities. See "Description of Notes--
Covenants--Change of Control."
Certain Covenants............. The Indenture will contain certain covenants
that, among other things, will limit the
ability of the Company and its subsidiaries to
incur additional indebtedness, pay dividends or
make other distributions, make investments,
dispose of assets, issue preferred stock of
subsidiaries, create certain liens securing
indebtedness, enter into sale and leaseback
transactions, enter into certain transactions
with affiliates, or enter into certain mergers
or consolidations or sell all or substantially
all of the Company's assets. See "Description
of Notes--Covenants."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Notes, see "Risk Factors."
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following summary financial information for the three years ended
December 31, 1996, is derived from the Consolidated Financial Statements of
Koppers, which have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere herein. The following summary financial information
of Koppers for the nine-month period ended September 30, 1997 and 1996, which
is unaudited, is derived from the unaudited financial statements included
elsewhere herein. The pro forma summary financial information as of and for the
year ended December 31, 1996, which is unaudited, gives effect to the Saratoga
Investment and the Recapitalization as if they had been consummated on January
1, 1996. The pro forma summary financial information as of and for the nine-
month and the twelve-month periods ended September 30, 1997, which is
unaudited, gives effect to the Saratoga Investment and the Recapitalization as
if they had been consummated on January 1, 1997 and October 1, 1996,
respectively. Neither the summary historical financial data nor the summary pro
forma financial data are necessarily indicative of either the future results of
operations or the results of operations that would have occurred if those
events had been consummated on the indicated dates. The following summary
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
unaudited Pro Forma Condensed Consolidated Financial Statements and the
historical Consolidated Financial Statements, related notes, and other
financial information included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED NINE MONTHS TWELVE MONTHS
(DOLLARS IN THOUSANDS, YEARS ENDED DECEMBER 31, SEPTEMBER 30, ENDED ENDED
EXCEPT OPERATING STATISTICS) ------------------------------------- ------------------ SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- ------------- -------------
PRO FORMA (UNAUDITED) PRO FORMA PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $476,448 $525,730 $588,544 $722,140 $443,510 $452,260 $538,298 $717,584
Gross profit............ 52,235 67,452 70,689 104,905 52,721 53,527 71,478 98,624
Operating profit (1).... 25,709 39,848 27,631 48,509 21,271 31,968 43,240 55,634
Other income (expense)
(2)..................... 5,845 9,615 (3,036) (9,576) (3,696) 3,282 (472) (2,001)
Interest expense........ 13,620 15,060 16,636 31,500 12,462 12,387 23,625 31,500
Income before taxes and
minority interest...... 17,934 34,403 7,959 7,433 5,113 22,863 19,143 22,133
Minority interest....... 1,354 992 1,398
Net income (3).......... 11,102 24,440 14,098 5,513 5,527 22,159 13,370 19,465
BALANCE SHEET DATA
(END OF PERIOD):
Working capital......... $ 79,078 $ 80,095 $ 77,688 $ 76,086 $ 80,345 $131,125 $131,125
Total assets............ 294,193 348,955 411,180 412,188 395,923 506,588 506,588
Total debt.............. 159,000 174,000 209,884 213,420 189,772 352,392 352,392
Common Stock subject to
redemption (4)......... 15,450 23,715 23,957 24,800 22,940 10,587 10,587
Preferred and common
equity................. 36,490 54,255 54,106 46,327 68,540 (2,821) (2,821)
-------- -------- -------- -------- -------- -------- --------
Total preferred and
common equity and
Common Stock subject to
redemption............. 51,940 77,970 78,063 71,127 91,480 7,766 7,766
SELECTED FINANCIAL DATA:
EBITDA (5).............. $ 44,342 $ 60,699 $ 47,139 $ 75,639 $ 33,795 $ 53,423 $ 68,518 $ 89,437
Adjusted EBITDA (6)..... 46,800 60,699 71,136 99,636 52,839 54,837 69,932 95,804
Depreciation and
amortization (7)....... 16,680 17,532 21,793 32,184 16,298 17,908 25,460 33,487
Capital expenditures.... 16,326 15,193 21,717 28,142 16,134 12,999 18,113 25,523
Acquisitions and related
capital expenditures
(8).................... -- 34,948 39,517 104,517 39,331 -- 65,000 65,186
SELECTED RATIOS:
EBITDA/interest expense. 3.26x 4.03x 2.83x 2.40x 2.71x 4.31x 2.90x 2.84x
Adjusted EBITDA/interest
expense................ 3.44x 4.03x 4.28x 3.16x 4.24x 4.43x 2.96x 3.04x
Total debt/EBITDA....... 3.59x 2.87x 4.45x 3.94x
Total debt/Adjusted 3.40x 2.87x 2.95x 3.68x
EBITDA..................
Ratio of earnings to
fixed charges (9)...... 2.00x 2.76x 1.36x 1.20x 1.31x 2.37x 1.68x 1.59x
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING STATISTICS:
Carbon pitch sales volumes (tons)..... 241,186 253,928 364,771 267,983 283,567
Average PAA price per lb.............. $ .2952 $ .4508 $ .3069 $ .3072 $ .3285
Average orthoxylene price per lb...... $ .1929 $ .2880 $ .1646 $ .1622 $ .1892
Crosstie volumes (pieces 000s)........ 5,902 7,096 7,357 5,566 5,830
</TABLE>
- --------
(1) Operating profit for 1994 reflects $2.5 million of severance charges.
Operating profit for the nine months ended September 30, 1996 reflects $7.4
million of plant closing charges and $2.6 million of severance charges.
Operating profit for the year ended December 31, 1996 actual and pro forma
and for the twelve months ended September 30, 1997 pro forma includes an
additional $5.4 million of capacity rationalization charges. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Other expense for the year ended December 31, 1996 includes a $10.1 million
charge related to settlement of a legal judgment rendered against Koppers
in connection with litigation brought against Koppers by Owens-Corning
Fiberglas Corporation (the "OCF Settlement") and a $2.5 million legal
settlement to CSX. Other expense for the nine months ended September 30,
1996 does not include the CSX settlement. Other income includes $5.3
million, $9.2 million, $9.6 million, $6.4 million and $4.7 million of
equity earnings in affiliates for the years ended December 31, 1994, 1995
and 1996, and for the nine months ended September 30, 1996 and 1997,
respectively. Other income includes $3.0 million, $2.2 million and $3.2
million of equity earnings in affiliates for the year ended December 31,
1996 pro forma, the nine months ended September 30, 1997 pro forma and the
twelve month period ended September 30, 1997 pro forma, respectively.
(3) Net income for 1994 includes loss on early extinguishment of debt of $1.8
million.
(4) The Stockholders' Agreement (as defined herein) requires Koppers, subject
to limitations under the terms of covenants contained in its debt
instruments, to redeem stock held by Management Investors upon termination
of their employment with Koppers.
(5) "EBITDA" is as defined in the Indenture. See "Description of Notes." EBITDA
is presented not as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles), but rather to provide additional information
related to the debt servicing ability of the Company. The Company's
definition of EBITDA may not be comparable to other companies' definitions
of EBITDA. Amortization of deferred financing fees is included in the
Company's financial statements in depreciation and amortization and
amounted to $0.8 million, $0.9 million, $0.7 million, $0.5 million and $0.5
million for fiscal years 1994, 1995 and 1996 and for the nine month periods
ended September 30, 1996 and 1997, respectively. Amortization of deferred
financing fees for the year ended December 31, 1996 pro forma, the nine
months ended September 30, 1997 pro forma and the twelve month period ended
September 30, 1997 pro forma amounted to $1.5 million, $1.1 million and
$1.5 million, respectively.
(6) "Adjusted EBITDA" is defined as EBITDA plus the cash portion of non-
recurring charges. The non-recurring charges include the following: 1994--
$2.5 million of severance charges; 1996--$15.5 million of restructuring
charges and $12.6 million of litigation charges for the year ended December
31, actual and pro forma; $10.1 million of restructuring charges and $10.1
million of litigation charges for the nine months ended September 30; and
1997--$1.4 million write-off of costs related to an Initial Public Offering
(the "IPO") for the nine months ended September 30, actual and pro forma;
$5.4 million of restructuring charges, $2.5 million of litigation charges
and $1.4 million write-off of IPO costs for the twelve months ended
September 30 pro forma. Adjusted EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but rather to
provide additional information related to the debt servicing ability of the
Company.
14
<PAGE>
(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 of the
Company.
(8) Acquisitions and related capital expenditures for 1995 include
approximately $35 million related to the acquisition and modernization of
the Monessen Facility and the acquisition of a wood crosstie treating
facility in Somerville, Texas; acquisitions and related capital
expenditures for fiscal year 1996 and the nine month period ended September
30, 1996 each include approximately $40 million related to the acquisition
of a coal tar distillation facility in Clairton, Pennsylvania. Acquisitions
and related capital expenditures for all pro forma periods include $65
million related to the Koppers Australia Acquisition.
(9) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings consist of income before taxes, extraordinary items and cumulative
effects of accounting changes plus fixed charges and (ii) fixed charges
consist of interest expense incurred excluding amortization of deferred
financing costs, and 41% of rental payments under operating leases (an
amount estimated by management to be the interest portion of such rentals).
15
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating
whether to tender their Old Notes for New Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged and has significant debt service
requirements. At September 30, 1997, on a pro forma basis after giving effect
to the Saratoga Investment and the Recapitalization, the Company would have
had $352.4 million of long-term debt outstanding, $177.4 million of which
would have been secured. It is anticipated that under the New Credit
Facilities, the Company will have scheduled principal payments aggregating
$11.0 million, $16.0 million and $21.0 million for the years 1998, 1999 and
2000, respectively, increasing to a maximum of $45.0 million in 2003. For the
nine months ended September 30, 1997, on a pro forma basis, the Company's
earnings to fixed charges coverage ratio would have been 1.68 to 1.
The degree to which the Company is leveraged will have important
consequences to holders of the Notes, including: (i) the ability of the
Company to obtain additional financing, whether for working capital, capital
expenditures, or other purposes, may be impaired; (ii) a substantial portion
of the Company's cash flow from operations will be required for debt service,
thereby reducing funds available to the Company for its operations; (iii) the
Company will be substantially more leveraged than certain of its competitors,
which might place the Company at a competitive disadvantage; (iv) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (v) the Company may be more vulnerable upon a
downturn in its business; and (vi) to the extent that the Company incurs any
indebtedness at variable rates, including under the New Credit Facilities, the
Company will be vulnerable to increases in interest rates.
Based on current operations (assuming the Company does not incur any
material liabilities not presently known to the Company (including any such
environmental liabilities)), the Company expects that it will be able to meet
the debt service requirements on its indebtedness, meet its working capital
needs and fund its capital expenditures and other operating expenses out of
cash flow from operations and available borrowings under the New Credit
Facilities. However, there can be no assurance that the Company's business
will generate cash flow at levels sufficient to meet these requirements. If
the Company is unable to generate sufficient cash flow from operations to
service its debt obligations and to meet other cash requirements, it may be
required to sell assets, reduce capital expenditures, refinance all or a
portion of its existing debt (including the Notes) or obtain additional
financing. There can be no assurance that any such asset sales or refinancing
would be possible or that any additional financing would be available, if at
all, on terms acceptable to the Company. The Company's ability to meet its
debt service obligations will be dependent upon its future performance which,
in turn, will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
SUBORDINATION OF NOTES AND SUBSIDIARY GUARANTEES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Company, including all
amounts owing or guaranteed under the New Credit Facilities. The Subsidiary
Guarantees are similarly subordinated to Guarantor Senior Debt. Consequently,
in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to the Company or a Subsidiary Guarantor,
assets of the Company or such Subsidiary Guarantor will be available to pay
obligations on the Notes or Subsidiary Guarantees only after all Senior Debt
of the Company or Guarantor Senior Debt, as applicable, has been paid in full,
and there can be no assurance that there will be sufficient assets to pay
amounts due on any or all of the Notes. In addition, neither the Company nor
any Subsidiary Guarantor may pay principal, premium, interest or other amounts
on account of the Notes or any Subsidiary Guarantee in the event of a payment
default in respect
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of Designated Senior Debt (as defined herein) unless such amount has been paid
in full or the default has been cured or waived. In addition, in respect of
certain Designated Senior Debt and unless certain other conditions are
satisfied, neither the Company nor any Subsidiary Guarantor may make any
payment on account of the Notes for a designated period of time. See
"Description of Notes--Subordination." At September 30, 1997, after giving pro
forma effect to the Saratoga Investment and the Recapitalization, the Company
would have had $177.4 million of Senior Debt and/or Guarantor Senior Debt
outstanding. See "Description of Notes--Ranking."
FRAUDULENT CONVEYANCE STATUTES
The incurrence of indebtedness (such as the Notes), and the use of the
proceeds thereof in connection with the Koppers Australia Acquisition, the APT
Holdings Corporation redemption, the Saratoga Koppers redemption and the
Management Redemption Offer (as defined herein), is subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
the Company. Under these statutes, if a court were to find that obligations
(such as the Notes) were incurred with the intent of hindering, delaying or
defrauding present or future creditors, that the Company received less than a
reasonable equivalent value of fair consideration for those obligations or
that the Company contemplated insolvency with a design to prefer one or more
creditors to the exclusion, in whole or in part, of other creditors and, at
the time of incurrence of the obligations, the obligor (i) was insolvent or
rendered insolvent by reason thereof, (ii) was engaged or was about to engage
in a business or transaction for which its remaining unencumbered assets
constituted unreasonable small capital or (iii) intended to or believed that
it would incur debts beyond its ability to pay such debts as they matured or
became due, such court could void the Company's obligations under the Notes,
subordinate the Notes to other indebtedness of the Company or take other
action detrimental to the holders of the Notes. Some courts have held that an
obligor's purchase of its own capital stock does not constitute reasonably
equivalent value or fair consideration for indebtedness incurred to finance
that purchase.
To the extent that the Subsidiary Guarantee of any Subsidiary Guarantor is
avoided as a fraudulent conveyance or found unenforceable for any other
reason, holders of the Notes would cease to have any claim in respect of such
Subsidiary Guarantor. However, under U.S. law under certain circumstances,
claims may be subordinated and, in such event, the claims of the holders of
the Notes against such Subsidiary Guarantor would be subject to the prior
payment of all liabilities and preferred stock claims, if any, of such
Subsidiary Guarantor. There can be no assurance that, after providing for all
prior claims and preferred stock interests, if any, there would be sufficient
assets to satisfy the claims of the holders of the Notes relating to any
voided portion of the Subsidiary Guarantee of such Subsidiary Guarantor.
In addition, various statutes have been enacted and various principles have
been developed in Australia under common law and equitable doctrines for the
benefit of creditors. Under Australian law, a guarantee given by a company may
be set aside on a number of grounds. For example, a guarantee may be
unenforceable against a guarantor if (i) the rules permitting a liquidator to
successfully claim and void the guarantee are applicable (as described below)
or (ii) the guarantor itself did not receive a sufficient commercial benefit
in order to justify such guarantor providing the guarantee. Issues as to
unenforceability of a guarantee by reason of insufficient corporate benefit
may arise where a company in a corporate group, such as Koppers Australia,
provides a guarantee in relation to the obligations of another member of the
corporate group. The question of what constitutes a sufficient benefit is a
fact-based qualitative inquiry, to be made for each guarantor individually as
a separate legal entity, which weighs several considerations, including
circumstances pertaining to (i) the nature of the relationship between the
group companies, (ii) the nature and present value of the benefit and the
burden of the obligations that will flow to each party to the transaction and
(iii) the knowledge of the directors of each guarantor as to the decisions
made by such guarantor. Each of the Subsidiary Guarantors will represent and
warrant in the Indenture, for the benefit of the holders of the Notes, that
its obligations have been undertaken in good faith and for the purpose of or
in connection with the conduct of its business and for its commercial benefit,
which is commensurate with the obligations undertaken by it. However, such
representations and warranties may not be determinative of the matter if it
were to be considered by a court. Under Australian law, it is possible that
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in a proceeding to enforce the Subsidiary Guarantees, each Subsidiary
Guarantee will be analyzed differently and produce different results.
Under Australian law, if an order to wind up were to be made against Koppers
Australia and a liquidator appointed for Koppers Australia, such liquidator
would have the power to investigate the validity of past transactions and may
seek various court orders, including orders to avoid certain transactions
entered into prior to the winding-up of Koppers Australia and for the
repayment of money. Under Australian Corporations Law, a transaction may be
voided at the claim of a liquidator if it was entered into during various time
periods prior to the filing of an application for a winding-up of a company,
ranging from six months to ten years, depending upon the character of the
transaction. There can be no assurance that one or more of the Subsidiary
Guarantees will not be avoided and that holders of the Notes will not be left
with a claim solely against Koppers Industries, Inc.
The measure of insolvency for purposes of a fraudulent conveyance claim will
vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the
sum of its debts at that time is greater than the fair value of its assets or
if the fair salable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other factors, the Company believes
that, after giving effect to the Saratoga Investment and the Recapitalization,
the Company will be (i) neither insolvent nor rendered insolvent by the
incurrence of indebtedness in connection with the Saratoga Investment and the
Recapitalization, (ii) in possession of sufficient capital to run its business
effectively and (iii) incurring debts within its ability to pay as the same
mature or become due. There can be no assurance, however, as to whether a
court would concur with such beliefs.
RESTRICTIONS IMPOSED BY CERTAIN COVENANTS
The New Credit Facilities and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, incur liens on property or
assets, repay other indebtedness, pay dividends, enter into certain
investments or transactions, repurchase or redeem capital stock, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the Company's
ability to finance its future operations or capital needs or engage in other
business activities that may be in the interest of the Company. In addition,
the New Credit Facilities also require the Company to maintain compliance with
certain financial ratios. The ability of the Company to comply with such
ratios may be affected by events beyond the Company's control. A breach of any
of these covenants or the inability of the Company to comply with the required
financial ratios could result in a default under the New Credit Facilities. If
any such default occurs, the lenders under the New Credit Facilities could
elect to declare all borrowings outstanding under the New Credit Facilities,
together with accrued interest and other fees, to be due and payable. If the
Company were unable to repay any such borrowings when due, the lenders under
the New Credit Facilities could proceed against their collateral. If the
indebtedness under the New Credit Facilities or the Notes were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay such indebtedness in full. Any such default may have a
material adverse effect on the Company's financial condition and results of
operations. See "Description of New Credit Facilities" and "Description of
Notes."
CONTROL OF THE COMPANY
Under the Stockholders' Agreement, Saratoga has the right to elect a
majority of the Board of Directors. Consequently, Saratoga will have the
ability to control the election of the Board of Directors and the outcome of
other issues submitted to the stockholders for approval. See "Principal
Stockholders."
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CYCLICALITY OF MARKETS
The Company's products are sold primarily in mature markets which
historically have been cyclical. The principal consumers 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. There may be
cyclical periods of weak demand which could result in decreased United States'
primary aluminum production. Sales of the Company's products have historically
been affected adversely by weakness in the global demand for aluminum.
Principal products utilizing the Company's PAA include flexible vinyl used
mainly in the automobile industry. Therefore, fluctuations in domestic and
international automobile production affect the demand for PAA.
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.
DEPENDENCE ON MAJOR CUSTOMERS
For the year ended December 31, 1996, the Company's top five customers
accounted for approximately 25% of the Company's net sales. During this
period, the Company's two largest customers, CSX and LTV, accounted for
approximately 5% and 9% 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 could have a material adverse effect
on the Company's results of operations.
PRICE AND AVAILABILITY OF RAW MATERIALS
An inability of the Company to source quality raw materials in a timely
fashion and pass through price increases to its customers could have a
material adverse impact on the Company's financial condition and results of
operations. 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 United
States coking capacity. Due to potential additional reductions in United
States and Australian 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 carbon pitch, as well
as the use of petroleum substitutes to meet future carbon pitch demand; such
actions could have a material adverse effect on the Company's financial
condition and results of operations.
The availability and cost of softwood and 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.
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, could have a
material adverse effect on the Company.
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COMPETITION
The markets that the Company serves are highly competitive. Selling price is
the most significant competitive factor in the markets 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. Certain competitors of the Company have greater financial resources
and larger capitalization than the Company and, as a result, may be better
able to withstand volatile market conditions and price competition.
ENVIRONMENTAL MATTERS
Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to extensive federal, state,
local and foreign environmental laws and regulations, including those
concerning, among other things, the treatment, storage and disposal of wastes,
the investigation and remediation of contaminated soil and groundwater, the
discharge of effluents into waterways, the emissions of substances into the
air or otherwise relating to environmental protection and various health and
safety matters (collectively, "Environmental Laws"). The Clean Air Act and
Clean Water Act, each as amended, impose stringent standards on air emissions
and water discharges, respectively. Under the Resource Conservation and
Recovery Act, as amended ("RCRA"), a facility that treats, stores or disposes
of hazardous waste on-site may be liable for corrective action costs, and a
facility that holds a RCRA permit may have to incur costs relating to the
closure of certain "hazardous" or "solid" waste management units. Under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA") and similar 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 and related
natural resource damages. In addition, under CERCLA, the generator of
hazardous substances may be strictly, and jointly and severally liable for any
required investigation or remediation at third-party disposal sites and
related natural resource damages. The Environmental Laws are subject to
frequent amendment. The sanction for failure to comply with such Environmental
Laws can include significant civil penalties, criminal penalties, injunctive
relief and denial or loss of, or imposition of significant restrictions on,
environmental permits. In addition, the Company could be subject to suit by
third parties in connection with violations of or liability under
Environmental Laws.
In March 1996, Jefferson County, Alabama ("Jefferson County") issued a
notice of violation in connection with various alleged violations of air
pollution control regulations regarding emissions from coke oven batteries at
Koppers' coke facility located in Woodward, Alabama ("the Woodward Coke
Facility"). In February 1997, the United States Environmental Protection
Agency ("US-EPA") issued a notice of violation covering the same issues.
Thereafter, Koppers discovered that certain benzene abatement equipment at
this Facility had not been operational for several months. Koppers and
Jefferson County have negotiated a settlement agreement which includes both
the original Jefferson County notice of violation and the self-reported
benzene abatement violation, and requires Koppers to pay a civil penalty in
the amount of $450,000, which sum has been paid. There can be no assurance
that the settlement with Jefferson County will deter the US-EPA from pursuing
its notice of violation. Following a preliminary investigation of the Woodward
Coke Facility, Koppers also discovered that certain environmental reports and
records required under the Clean Water Act contained incomplete and inaccurate
information and that certain environmental reports and certifications were not
filed when required. Corrected reports have been submitted to Jefferson
County, the State of Alabama and the US-EPA. In June 1997, during a routine
environmental compliance audit of the Logansport Wood Treating Facility, it
was discovered that certain records and reports required under the Clean Water
Act contained incomplete and inaccurate information. Corrected reports have
been submitted to the local municipality, the State of Louisiana and the US-
EPA. Although no notice of violation has been issued in conjunction with this
issue, it is likely that such a notice will be issued and substantial
penalties sought by the regulatory authorities. On April 25, 1997, Koppers was
served with notices of violation by the Pennsylvania Department of
Environmental Protection ("Pa-DEP")
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which alleged that Koppers was in violation of a Pa-DEP plan approval for the
Monessen Facility regarding nitrogen oxide emissions and failed to conduct
timely emission testing on Monessen Facility boilers. Koppers could be subject
to significant liability in connection with each of these matters, including
injunctive relief, substantial civil and criminal penalties and the risk of
third-party lawsuits. Resolution of these and other pending compliance matters
could have a negative effect on the business, financial condition, cash flow
and results of operations of the Company.
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 $7.0 million and $16.0 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 $3.8 million and $6.9
million for 1997 and 1998, respectively. Because Environmental Laws have
historically become increasingly more stringent, costs and expenses relating
to environmental control and compliance may increase in the future. Also,
Koppers may have to incur additional capital expenditures and compliance costs
(which it is unable to estimate at this time) in connection with the
resolution of the aforementioned notices of violations. As such, there can be
no assurance that costs of compliance with existing and future Environmental
Laws will not exceed current estimates and will not have a material adverse
effect on the Company's business, financial condition, cash flow and results
of operations.
Under the terms of the asset purchase agreement between Koppers Industries,
Inc. and Koppers Company, Inc. (now known as Beazer East, Inc.) at the
formation of Koppers in 1988 (the "Asset Purchase Agreement"), Beazer East,
Inc. ("Beazer East") assumed the liability for and indemnified Koppers against
(among other things) cleanup liabilities for contamination occurring prior to
the purchase date at sites acquired from Beazer East, and third-party claims
arising from such contamination (the "Indemnity"). Beazer East's performance
of the Indemnity is unconditionally guaranteed by Beazer Limited (the "Beazer
Guarantee"). Contamination identified at sites owned and/or operated by
Koppers is being investigated and remediated under CERCLA, RCRA or state
cleanup programs. Currently, at the sites acquired from Beazer East (which
include all of the CERCLA sites and all but one of the RCRA sites),
substantially all investigation and remediation activities are being conducted
and paid for by Beazer East pursuant to the terms of the Indemnity, however,
there can be no assurance that Beazer East and Beazer Limited will continue to
meet their obligations. In the event they do not, Koppers may be required to
pay such costs which are believed to have averaged approximately $13 million
per year for the last three years. In addition, the government and other third
parties have the right under applicable Environmental Laws to seek relief
directly from Koppers for any and all such costs and liabilities. The
requirements to pay such costs and assume such liabilities without
reimbursement would have a material adverse affect on the business, financial
condition, cash flow and results of operations of the Company. Furthermore, if
Koppers 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.
The Indemnity does not afford Koppers indemnification against environmental
costs and liabilities relating to activities or conditions occurring or
arising after the closing of the acquisition of assets from Beazer East under
the Asset Purchase Agreement (the "Asset Closing"), nor is the Indemnity
applicable to liabilities arising in connection with post-closing
acquisitions. At the Clairton facility, the Somerville facility and the
Monessen Facility (each of which Koppers acquired subsequent to the
acquisition of the Beazer East sites), investigations and remediations are
being performed. All applicable indemnification obligations are being honored
at the Clairton and Somerville facilities, and Koppers believes that the
sellers (or their predecessors) at both of these facilities will continue to
conduct and finance most activities directly. Although the Company is not
aware of any reason why such environmental indemnification obligations will
not be performed, if Koppers were required to pay costs associated with these
two sites, it could have a material adverse effect on the Company's business,
financial condition, cash flow and results of operations. At the Monessen
Facility, Koppers has entered into a consent order and agreement (the
"Monessen Consent Order") with Pa-DEP pursuant to which Koppers' liabilities
for environmental cleanup have been capped at $550,000 for matters identified
pursuant to the
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Monessen Consent Order. Although an environmental indemnification was provided
to Koppers by the seller of that facility, the Company does not expect that
such obligations will be honored. If contamination at the Monessen Facility
should be discovered which is not identified pursuant to the Monessen Consent
Order or if the US-EPA should require cleanup above the $550,000 "cap"
contained therein, costs associated with such events could have a material
adverse effect on the Company's business, financial position, cash flow and
results of operations. See "Business--Environmental Matters."
ROOFING CLAIMS
From time to time, the Company is placed on notice of claims and/or suits
arising out of the commercial roofing businesses of the Company. Certain of
such claims are tendered to Beazer East pursuant to the Indemnity. Other such
claims are defended and, where appropriate, settled by the Company. Koppers
maintains a built-up roofing reserve for such claims. As of September 30,
1997, the built-up roofing reserve balance was approximately $4.6 million. The
Company also has comprehensive general liability insurance which includes a
self-insured retention, and also has excess coverage. When appropriate,
insurance carriers are notified of roofing claims. Typically, such claims fall
within the Company's self-insured retention. To the extent that any roofing
claim may exceed the Company's self-insured retention, coverage will depend
upon the specifics of the claim. Depending upon the amount of future claims,
such claims could have a material adverse effect on the Company's business,
financial condition, cash flow and results of operations.
LABOR RELATIONS
As of August 31, 1997, approximately 1,400 of the Company's 2,244 employees
were represented by seventeen different labor unions and covered under 29
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.
In the last five years, the Company has had three work stoppages due to
strikes at its Follansbee (West Virginia), Somerville (Texas) and Galesburg
(Illinois) 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 will be able to continue operating facilities in the event of further
work stoppages or union disputes in the future.
SEASONALITY; EFFECTS OF WEATHER
Koppers' quarterly operating results fluctuate due to a variety of factors
that are outside Koppers' control, including inclement weather conditions,
which in the past have affected negatively Koppers' operating results.
Operations at several of Koppers' facilities have been halted for short
periods of time during the winter months. Moreover, demand for many of
Koppers' products declines during periods of inclement weather. As a result of
the foregoing, Koppers' anticipates that it may experience material
fluctuations in quarterly results of operations. Over the last five years, the
first, second, third and fourth quarters have averaged 19%, 28%, 29% and 24%,
respectively, of annual Adjusted EBITDA.
FOREIGN OPERATIONS
The Company, both directly and through Tarconord, has operations in seven
foreign countries and sells its products in 13 foreign countries. In both
fiscal 1996 and for the nine months ended September 30, 1997, net sales from
the Company's products sold abroad accounted for approximately 20% of its
total net sales. Risks inherent in foreign operations include changes in
social, political and economic conditions. Changes in currency exchange rates
may affect the relative prices at which the Company and foreign competitors
purchase and sell their products in the same market. The Company does not
routinely hedge its exposure to foreign currency
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exchange rate changes. The Company is also exposed to risks associated with
changes in the laws and policies that govern foreign investments in countries
where it has operations as well as, to a lesser extent, changes in United
States laws and regulations relating to foreign trade and investment. While
such changes in laws, regulations and conditions to date have not had a
material adverse effect on the Company's business or financial condition,
there can be no assurance as to the future effect of any such changes.
CHANGE OF CONTROL
Upon a Change of Control, the holders of the Notes have the right to require
the Company to offer to purchase all of the outstanding Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. There can be no assurance that the Company will have sufficient
funds available or will be permitted by its other debt agreements to purchase
the Notes upon the occurrence of a Change of Control. In addition, a Change of
Control may require the Company to offer to purchase other outstanding
indebtedness and may cause a default under the New Credit Facilities. The
inability to purchase all of the tendered Notes would constitute an Event of
Default (as defined herein) under the Indenture. See "Description of Notes--
Change of Control."
LACK OF ESTABLISHED MARKET FOR THE NOTES
Prior to the Exchange Offer, there has not been any public market for the
Old Notes. The Old Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability to the extent that they are
not exchanged for the New Notes by holders who are entitled to participate in
the Exchange Offer. The holders of Old Notes (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. The New Notes
will constitute a new issue of securities with no established trading market.
The Company does not intend to list the New Notes on any securities exchange
or to seek their admission to trading in any automated quotation system. The
Initial Purchaser has advised the Company that they currently intend to make a
market in the New Notes, but they are not obligated to do so and may
discontinue such market-making at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and may be limited during the Exchange Offer and the pendency of any Shelf
Registration Statement. Accordingly, no assurance can be given that an active
public or other market will develop for the New Notes or as to the liquidity
of the trading market for the New Notes. If a trading market does not develop
or is not maintained, holders of the New Notes may experience difficulty in
reselling the New Notes or may be unable to sell them at all. If a market for
the New Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the New Notes, future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES; CONSEQUENCES OF FAILURE TO
EXCHANGE
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for New Notes should allow sufficient time
to ensure timely delivery. The Company is under no duty to give notification
of defects or irregularities with respect to the tenders of Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof and, upon consummation
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of the Exchange Offer, certain registration rights under the Registration
Rights Agreement will terminate. In addition, any holder of Old Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transactions. Each holder of the Old Notes (other than certain
specified holders) who wishes to exchange the Old Notes for New Notes in the
Exchange Offer will be required to represent in the Letter of Transmittal that
(i) it is not an affiliate of the Company, (ii) the New Notes to be received
by it are being acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the
Securities Act) of the New Notes. Each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
COMPANY HISTORY
The original predecessor to Koppers Company, Inc. was formed in 1912 by a
metallurgist named Heinrich Koppers to design and build coke ovens (Koppers
Company, Inc. and its predecessors are collectively referred to as "Old
Koppers"). Old Koppers gradually expanded into related industries including
coal, gas, chemicals, wood treating, building products, metals and road
materials. Koppers Australia was formed in 1967 as a joint venture between Old
Koppers and Broken Hill. In June 1988, BNS Acquisitions, Inc., a wholly-owned
indirect subsidiary of Beazer PLC (now known as Beazer Limited) acquired Old
Koppers with the intent of retaining the road materials business and selling
the remaining businesses. Koppers was formed in October 1988 by management,
Beazer, Inc. and Koppers Australia to facilitate the acquisition of certain
assets of Old Koppers, including an equity interest in Koppers Australia, for
a purchase price of approximately $227 million. In 1995, the Company acquired
the Somerville, Texas crosstie treating facility ($9.8 million) and the
Monessen Facility ($25.2 million including $20.2 million of refurbishment
costs). In 1996, the Company acquired the Clairton, Pennsylvania tar
distillation facility for approximately $40.0 million cash and the assumption
of certain liabilities.
TRANSACTIONS
On October 15, 1997, the Offeree Stockholders acquired from Cornerstone-
Spectrum, Inc. its voting and non-voting shares of Common Stock in exchange
for $52.5 million of financing obtained from Koppers, Saratoga and Saratoga
Koppers. Koppers loaned the Offeree Stockholders $17.0 million, and Saratoga
and Saratoga Koppers loaned the Offeree Stockholders $35.5 million. In
exchange for forgiveness of the loan provided by Koppers, Saratoga and
Saratoga Koppers, the Offeree Stockholders subsequently transferred 1,350,820
non-voting shares of Common Stock to Koppers and 464,180 non-voting shares of
Common Stock and 2,117,952 voting shares of Common Stock to Saratoga and
Saratoga Koppers in the Saratoga Investment. On December 1, 1997, Saratoga
exchanged the shares of Common Stock it acquired in the Saratoga Investment
for shares of a new series of convertible preferred stock of Koppers
Industries, Inc. which entitles Saratoga to elect a majority of the Board of
Directors and to exercise a majority of the voting power over all outstanding
stock of Koppers Industries, Inc. with respect to all other matters subject to
a stockholder vote. See "Management--Stockholders' Agreement" and "Certain
Relationships and Related Transactions."
Pursuant to a separate Offer to Purchase and Consent Solicitation dated
October 20, 1997, Koppers offered to repurchase all of its outstanding 8 1/2's
in the Tender Offer at a price per $1,000 principal amount of the 8 1/2's
equal to (i) the present value on the payment date of $1,042.50 (the amount
payable on February 1, 1999, which is the first date on which the 8 1/2's are
redeemable) determined on the basis of a yield to such date (the "Tender
24
<PAGE>
Offer Yield") equal to the sum of (x) the yield on the 5 7/8% U.S. Treasury
Note due January 31, 1999 (CUSIP: 9128272F8) (the "Reference Treasury
Security") as of 2:00 p.m., New York City time, on the second business day
immediately preceding the scheduled expiration date of the Tender Offer (the
"Price Determination Date"), plus (y) 50 basis points, minus (ii) $10.00
(collectively, the "Tender Offer Consideration"). Each tendering holder
received accrued and unpaid interest up to, but not including, the payment
date. The yield on the Reference Treasury Security as of 5:00 p.m., New York
City time, on November 13, 1997 was 5.70%. Accordingly, if such yield was
determined to be the yield on the Reference Treasury Security on the Price
Determination Date and December 1, 1997 was the payment date, the Tender Offer
Yield, the Tender Offer Consideration and the total consideration (i.e., the
Tender Offer Consideration plus the consent payment described below) per
$1,000 principal amount of the 8 1/2's would be 6.20%, $1,055.60 and
$1,065.60, respectively.
In connection with the Tender Offer, Koppers obtained consents from the
tendering holders of the 8 1/2's to certain proposed amendments to the
Indenture relating to the 8 1/2's, which eliminated substantially all of the
restrictive covenants and certain events of default contained in such
Indenture. Holders of the 8 1/2's who timely consented to such amendments also
received a consent payment equal to $10.00 per $1,000 principal amount.
The Tender Offer expired at 12:00 midnight, New York City time on November
28, 1997. The Company purchased $98,906,000 of the 8 1/2's in the Tender
Offer, and may repurchase 8 1/2's in the future in open market transactions,
privately negotiated purchases or otherwise, and a portion of the term loan
under the New Credit Facilities will remain initially undrawn but will be
available for such purpose. There can be no assurance, however, that the
Company will make any such repurchases at any time in the future.
Koppers has acquired Broken Hill's 50% interest in Koppers Australia (the
"Koppers Australia Acquisition"). Koppers owned the other 50% interest in
Koppers Australia, which operates businesses similar to Koppers and is the
largest Australian manufacturer and exporter of coal-tar derived products such
as carbon pitch for aluminum smelting; carbon black for tire production; and
naphthalene for use in the manufacture of plasticizers, resins and dye-making.
Koppers Australia, with operating revenue of $134.0 million in the fiscal year
ending June 30, 1997 (based on average month-end exchange rates), is also the
largest Australian producer of wood preservatives and treated timber. The
purchase price for the Koppers Australia acquisition was approximately $65.0
million.
The Company will utilize up to $15.0 million of the net proceeds available
under the New Credit Facilities or from the Offering to redeem shares of
Common Stock held by eligible Management Investors at a price of $17.00 per
share (the "Management Redemption Offer"). The Management Redemption Offer
will be open for a period of 60 days following consummation of the Offering
and the compliance with any applicable securities laws. In addition, the
Company's eight officers and Clayton A. Sweeney (a member of the Board of
Directors) will not be entitled to redeem more than 25% of the shares of
Common Stock held by them individually. Simultaneously with the Management
Redemption Offer, shares of Common Stock will be available for purchase by
Management Investors and certain employees of the Company at a price of $14.00
per share, but Management Investors redeeming shares pursuant to the
Management Redemption Offer will be prohibited from simultaneously purchasing
shares of Common Stock, whether in connection with the Management Redemption
Offer, upon the exercise of options, or otherwise.
As part of the Recapitalization, the Company repaid indebtedness of
approximately $88.1 million under the Company's then current term loan and
revolving credit facilities. In addition, Koppers has entered into an
agreement with APT Holdings Corporation, an affiliate of Mellon Bank, N.A., to
redeem 1,813,200 shares of the non-voting Common Stock for $22.9 million, one-
half of which was redeemed on December 1, 1997 and the remaining shares to be
redeemed in January of 1998.
Also as part of the Recapitalization, the Company redeemed 436,508 non-
voting shares of Common Stock from Saratoga Koppers and paid fees and expenses
related to the Saratoga Investment.
25
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the sale of the Old Notes, combined with net proceeds from the
New Credit Facilities, have been and are being applied to complete the
following transactions: (i) acquisition of Broken Hill's 50% interest in
Koppers Australia, which occurred on December 1, 1997; (ii) the repayment of
all of the 8 1/2's tendered pursuant to the Offer to Purchase and Consent
Solicitation dated October 20, 1997; (iii) the repayment of the outstanding
indebtedness under the Company's then current term loan and revolving credit
facilities; (iv) the redemption of 1,813,200 shares of non-voting Common Stock
owned by APT Holdings Corporation, an affiliate of Mellon Bank, N.A.; (v) the
redemption, at $17.00 per share, of up to 25% of the shares of Common Stock
owned by the current officers of Koppers and Clayton A. Sweeney and the
redemption of up to 100% of the shares of Common Stock owned by any other
Management Investor within sixty (60) days of the consummation of the Offering
and the compliance with any applicable securities laws, at the election of
such individuals, in an aggregate amount not exceeding $15.0 million; (vi) the
redemption of 436,508 non-voting shares of Common Stock from Saratoga Koppers;
and (vii) the payment of related fees and expenses. See "Transactions".
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, and (ii) on an unaudited pro forma basis to reflect the
Saratoga Investment and the Recapitalization. This table should be read in
conjunction with the Consolidated Financial Statements, including the notes
thereto, included elsewhere in this Prospectus. The Koppers Australia
financial statements were converted to U.S. dollars using the September 30,
1997 exchange rate of 0.725 United States to Australian dollars.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ACTUAL
-------------------
KOPPERS PRO FORMA COMPANY
KOPPERS AUSTRALIA ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Long-term debt, including current
maturities:
Existing and new revolving
credit facilities.............. $ 26,000 $ -- $ (26,000)(A) $ --
Existing term loans............. 53,772 10,762 (62,142)(A) 2,392
New U.S. term loan.............. -- -- 135,000(A) 135,000
New Australian term loan........ -- -- 40,000(A) 40,000
8 1/2's due 2004................ 110,000 -- (110,000)(B) --
Notes offered hereby............ -- -- 175,000(B) 175,000
-------- ------- --------- --------
Total long-term debt.......... 189,772 10,762 151,858 352,392
Stockholders' equity:
Common Stock subject to
redemption..................... 22,940 -- (12,353)(C) 10,587
Senior convertible preferred
stock, par value $.01 per
share; 2,145,624 shares
authorized and issued pro
forma, liquidation value of
$30,000........................ -- -- 21(C) 21
Common Stock, par value $.01 per
share; 10,000,000 shares
authorized; 6,707,952 shares
issued actual, 4,562,328 pro
forma.......................... 67 10,553 (10,574)(C) 46
Non-voting Common Stock, par
value $.01 per share;
10,000,000 shares authorized;
3,628,200 issued actual,
3,600,528 pro forma............ 36 -- -- 36
Additional paid-in capital...... 11,675 -- -- 11,675
Retained earnings............... 66,230 77,156 (75,129)(C) 68,257
Cumulative translation
adjustment..................... (3,589) -- 2,762 (C) (827)
Treasury stock at cost,
1,548,335 actual and
7,156,216 pro forma............ (5,879) -- (76,150)(D) (82,029)
-------- ------- --------- --------
Total preferred and common
equity and Common Stock
subject to redemption........ 91,480 87,709 (171,423) 7,766
-------- ------- --------- --------
Total capitalization.............. $281,252 $98,471 $ (19,565) $360,158
======== ======= ========= ========
</TABLE>
27
<PAGE>
NOTES TO THE CAPITALIZATION TABLE
(A) Reflects the proceeds from the New Credit Facilities consisting of $135.0
million of senior term loans and a $140.0 million revolving credit
facility ($40.0 million and $20.0 million of which will be used for credit
support in the form of letters of credit to obtain a $40.0 million term
loan and a $20.0 million revolving credit facility for Koppers Australia).
The existing term loans of $2.4 million that remain unpaid relate to
Koppers-Hickson Investments Pty. Limited, a 51% owned and consolidated
subsidiary of Koppers Australia.
(B) Reflects the refinancing of the existing 8 1/2's assuming that all of the
$110.0 million aggregate principal amount of the 8 1/2's are tendered
pursuant to the Tender Offer, including an aggregate premium of $7.2
million.
(C) Reflects (i) consolidation of Koppers Australia into the financial
statements of Koppers subsequent to acquisition of the shares held by
Broken Hill, (ii) an extraordinary charge to expense the existing
capitalized debt issuance costs and payment of a premium on the
refinancing of the existing 8 1/2's, (iii) a reclassification of $12.4
million from Common Stock subject to redemption to retained earnings to
reflect redemption of shares of Common Stock owned by Management Investors
and (iv) conversion of certain voting Common Stock into senior convertible
preferred stock held by Saratoga.
(D) Reflects (i) the redemption of voting and non-voting Common Stock from
certain investors, (ii) the transfer of certain voting and non-voting
shares of Common Stock to the Company by the Offeree Shareholders in
exchange for forgiveness of a $17.0 million loan and (iii) a consolidation
adjustment to record Koppers Australia's holdings of voting Common Stock
as treasury stock, subsequent to acquisition.
28
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The historical selected financial information is derived from the historical
Consolidated Financial Statements of Koppers as of and for the years ended
December 31, 1992 through 1996, which have been audited by Ernst & Young, LLP,
independent auditors, and of which the years ended December 31, 1994, 1995 and
1996 are included elsewhere herein. The historical selected financial
information as of and for the nine-month period ended September 30, 1997 and
1996 is derived from the unaudited financial statements included elsewhere
herein.
The following selected historical consolidated financial information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Pro Forma Consolidated Financial
Data and the Consolidated Financial Statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) -------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING
DATA:
Net sales............... $444,255 $461,219 $476,448 $525,730 $588,544 $ 443,510 $ 452,260
Gross profit............ 54,816 44,663 52,235 67,452 70,689 52,721 53,527
Operating profit (1).... 31,799 25,104 25,709 39,848 27,631 21,271 31,968
Other income (expense)
(2)..................... 4,990 5,046 5,845 9,615 (3,036) (3,696) 3,282
Interest expense........ 13,949 13,177 13,620 15,060 16,636 12,462 12,387
Income before taxes..... 22,840 16,973 17,934 34,403 7,959 5,113 22,863
Net income (3).......... 14,736 4,748 11,102 24,440 14,098 5,527 22,159
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 61,082 $ 83,856 $ 79,078 $ 80,095 $ 77,688 $ 76,086 $ 80,345
Total assets............ 271,390 282,520 294,193 348,955 411,180 412,188 395,923
Total debt (4).......... 114,652 113,461 159,000 174,000 209,884 213,420 189,772
Common Stock subject to
redemption (5).......... 550 800 15,450 23,715 23,957 24,800 22,940
Common equity........... 41,209 36,864 36,490 54,255 54,106 46,327 68,540
-------- -------- -------- -------- -------- --------- ---------
Total common equity and
Common Stock
subject to redemption.. 41,759 37,664 51,940 77,970 78,063 71,127 91,480
SELECTED FINANCIAL DATA:
EBITDA (6).............. $ 51,761 $ 46,443 $ 44,342 $ 60,699 $ 47,139 $ 33,795 $ 53,423
Adjusted EBITDA (7)..... 51,761 46,443 46,800 60,699 71,136 52,839 54,837
Depreciation and
amortization (8)........ 18,851 19,425 16,680 17,532 21,793 16,298 17,908
Capital expenditures.... 12,912 14,661 16,326 15,193 21,717 16,134 12,999
Acquisitions and related
capital
expenditures (9)....... -- -- -- 34,948 39,517 39,331 --
SELECTED RATIOS:
EBITDA/interest expense. 3.71x 3.52x 3.26x 4.03x 2.83x 2.71x 4.31x
Adjusted EBITDA/interest
expense................. 3.71x 3.52x 3.44x 4.03x 4.28x 4.24x 4.43x
Total debt/EBITDA....... 2.22x 2.44x 3.59x 2.87x 4.45x
Total debt/Adjusted
EBITDA.................. 2.22x 2.44x 3.40x 2.87x 2.95x
Ratio of earnings to
fixed charges (10)...... 2.30x 2.00x 2.00x 2.76x 1.36x 1.31x 2.37x
</TABLE>
- --------
(1) Operating profit for 1994 reflects $2.5 million of severance charges.
Operating profit for the nine months ended September 30, 1996 reflects
$7.4 million of plant closing charges and $2.6 million of severance
charges. Operating profit for the year ended December 31, 1996 includes an
additional $5.4 million of capacity rationalization charges. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Other expense for the year ended December 31, 1996 includes a $10.1
million charge related to the OCF Settlement and a $2.5 million legal
settlement to CSX. Other expense for the nine months ended September 30,
1996 does not include the CSX settlement. Other income includes $4.7
million, $4.6 million, $5.3 million, $9.2 million, $9.6 million, $6.4
million and $4.7 million of equity earnings in affiliates for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996, and for the nine
months ended September 30, 1996 and 1997, respectively.
29
<PAGE>
(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 net of tax. See Notes 7 and 8 of the Notes to Consolidated
Financial Statements of Koppers. Net income for 1994 includes
extraordinary loss on early extinguishment of debt of $1.8 million.
(4) On February 10, 1994 Koppers issued the 8 1/2's.
(5) The Stockholders' Agreement requires Koppers, subject to limitations under
the terms of covenants contained in its debt instruments, to redeem stock
held by Management Investors upon termination of their employment with
Koppers.
(6) EBITDA is as defined in the Indenture. See "Description of Notes." EBITDA
is presented not as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles), but rather to provide additional information
related to the debt servicing ability of the Company. The Company's
definition of EBITDA may not be comparable to other companies' definitions
of EBITDA. Amortization of deferred financing fees is included in Koppers'
financial statements in depreciation and amortization and amounts to $1.5
million, $1.1 million, $0.8 million, $0.9 million, $0.7 million, $0.5
million and $0.5 million for fiscal years 1992, 1993, 1994, 1995 and 1996
and for the nine months ended September 30, 1996 and 1997, respectively.
(7) Adjusted EBITDA is defined as EBITDA plus the cash portion of non-
recurring charges. The non-recurring charges include the following: 1994--
$2.5 million of severance charges; 1996--$15.5 million of restructuring
charges and $12.6 million of litigation charges for the year ended
December 31; $10.1 million of restructuring charges and $10.1 million of
litigation charges for the nine months ended September 30; and 1997--$1.4
million write-off of costs related to the IPO for the nine months ended
September 30. Adjusted EBITDA is presented not as an alternative measure
of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but rather to
provide additional information related to the debt servicing ability of
the Company.
(8) 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 of
Koppers.
(9) Acquisitions and related capital expenditures for 1995 include
approximately $35 million related to the acquisition and modernization of
the Monessen Facility and the acquisition of a wood crosstie treating
facility in Somerville, Texas; acquisitions and related capital
expenditures for fiscal year 1996 and the nine-month period ended
September 30, 1996 each include approximately $40 million related to the
acquisition of a coal tar distillation facility in Clairton, Pennsylvania.
(10) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings consist of income before taxes, extraordinary items and
cumulative effects of accounting changes plus fixed charges and (ii)
fixed charges consist of interest expense incurred excluding amortization
of deferred financing costs, and 41% of rental payments under operating
leases (an amount estimated by management to be the interest portion of
such rentals).
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on the historical
financial statements of the Company included elsewhere in this Prospectus .
The unaudited pro forma balance sheet has been prepared to give effect to
the Saratoga Investment and Recapitalization as though they were consummated
on September 30, 1997. The unaudited pro forma statement of operations for the
year ended December 31, 1996 gives effect to the Saratoga Investment and
Recapitalization as though they were consummated on January 1, 1996. The
unaudited pro forma statement of operations for the nine months ended
September 30, 1997 gives effect to the Saratoga Investment and
Recapitalization as though they were consummated on January 1, 1997. The
unaudited pro forma statement of operations for the year ended September 30,
1997 gives effect to the Saratoga Investment and Recapitalization as though
they were consummated on October 1, 1996. The pro forma adjustments are based
upon available information and certain assumptions that the Company believes
are reasonable. The acquisition of Koppers Australia will be accounted for
using the purchase method of accounting. The allocation of the purchase price
of Koppers Australia has been determined based upon estimates of fair value
and are subject to change.
The Pro Forma Financial Statements do not purport to be indicative of the
results that would have been obtained had such transactions described above
occurred as of the assumed dates. In addition, the unaudited pro forma
condensed consolidated financial statements do not purport to project the
Company's results of operations for any future date or period. The Pro Forma
Financial Statements should be read in conjunction with the financial
statements of the Company, and the notes thereto, included elsewhere herein.
The actual Koppers Australia financial statements have been converted in the
accompanying unaudited pro forma condensed consolidated financial statements
at the following rates of U.S. dollars to Australian dollars:
<TABLE>
<S> <C>
At September 30, 1997.................................................... .725
Average rate for the year ended December 31, 1996........................ .785
Average rate for the nine month period ended September 30, 1997.......... .760
Average rate for the twelve month period ended September 30, 1997........ .767
</TABLE>
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL
------------------ ACQUISITION REDEMPTIONS COMPANY
KOPPERS OF KOPPERS AND PRO
KOPPERS AUSTRALIA AUSTRALIA REFINANCING FORMA
-------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.. $ 491 $ 6,208 $ -- $ 4,258(D) $ 10,957
Accounts receivable... 75,471 23,371 (4,606)(B) -- 94,236
Inventories........... 67,108 30,404 -- -- 97,512
Other................. 12,833 518 -- -- 13,351
-------- -------- -------- --------- --------
Total current assets. 155,903 60,501 (4,606) 4,258 216,056
Investments............. 49,624 18,155 (50,040)(A) -- 17,739
Fixed assets (net)...... 168,407 45,865 -- -- 214,272
Other assets............ 21,989 914 39,494(B) (3,876)(E) 58,521
-------- -------- -------- --------- --------
Total assets......... $395,923 $125,435 $(15,152) $ 382 $506,588
======== ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 35,809 $ 9,318 $ -- $ -- $ 45,127
Accrued liabilities... 31,507 8,297 -- -- 39,804
Current portion of
long-term debt....... 8,242 1,484 -- (9,726)(D) --
-------- -------- -------- --------- --------
Total current
liabilities......... 75,558 19,099 -- (9,726) 84,931
Long-term debt:
Existing and new
revolving credit
facilities........... 26,000 -- -- (26,000)(D) --
Existing term loan.... 45,530 9,278 -- (52,416)(D) 2,392
New U.S. term loan.... -- -- 25,000(C) 110,000(D) 135,000
New Australian term
loan................. -- -- 40,000(C) -- 40,000
8 1/2's due 2004...... 110,000 -- -- (110,000)(F) --
Notes offered hereby.. -- -- 175,000 175,000
-------- -------- -------- --------- --------
181,530 9,278 65,000 96,584 352,392
Other liabilities....... 47,355 9,349 4,795(B) -- 61,499
-------- -------- -------- --------- --------
Total liabilities.... 304,443 37,726 69,795 86,858 498,822
Common Stock subject to
redemption............. 22,940 -- -- (12,353)(G) 10,587
Senior Convertible
Preferred stock........ -- -- -- 21(H) 21
Common Stock, voting and
non-voting............. 103 10,553 (10,553)(A) (21)(H) 82
Retained earnings....... 66,230 77,156 (77,156)(A) 2,027(G) 68,257
Other stockholders'
equity................. 2,207 -- 2,762(A) (76,150)(I) (71,181)
-------- -------- -------- --------- --------
Total liabilities and
stockholders'
equity.............. $395,923 $125,435 $(15,152) $ 382 $506,588
======== ======== ======== ========= ========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(A) Consolidation accounting adjustment to record the elimination of Koppers'
investment in Koppers Australia and Koppers Australia's investment in
Koppers Industries, Inc.
(B) The acquisition of Koppers Australia will be accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price is being allocated to tangible and
identifiable intangible assets and liabilities based on preliminary
estimates of their fair values, with the excess purchase price over fair
value allocated to goodwill. Fair value has been determined based on
estimates and is subject to change. The allocation of the increase in
basis is as follows:
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Purchase price $65.0
Book value of assets acquired, net of minority interest and
investment in Koppers (30.3)
-----
Increase in basis $34.7
=====
Allocation of increase in basis:
Goodwill $37.8
Senior executive unit trust liability (4.8)
Deferred income tax benefit 1.7
-----
$34.7
=====
</TABLE>
(C) To record the debt assumed in order to finance Koppers' acquisition of
certain common shares of Koppers Australia from Broken Hill. Subsequent to
the purchase, Koppers Australia will become a wholly-owned subsidiary and
consolidated for financial reporting purposes.
(D) To reflect the proceeds from the New Credit Facilities consisting of
$135.0 million of senior term loans and a $140.0 million revolving credit
facility of which $40.0 million and $20.0 million will be used for credit
support in the form of letters of credit to obtain a $40.0 million term
loan and a $20.0 million revolving credit facility for Koppers Australia.
Excess cash available after the transactions will be used for working
capital purposes.
(E) To record the redemption of $15.8 million of voting Common Stock held by
Koppers Australia as treasury stock, subsequent to their acquisition. This
will result in net goodwill of $22.0 million from the Koppers Australia
Acquisition recorded in the consolidated financial statements.
Additionally, certain debt issuance costs of $11.9 million, including
legal fees associated with the refinancing will be capitalized. This will
result in $15.0 million of capitalized debt issuance costs.
(F) To reflect the refinancing of the existing 8 1/2's assuming that all of
the $110.0 million aggregate principal amount of the 8 1/2's are tendered
pursuant to the Tender Offer, including an aggregate premium of $7.2
million.
(G) An extraordinary charge to expense the existing $3.1 million of
capitalized debt issuance costs and payment of a $7.2 million premium on
the refinancing relating to the 8 1/2's and a reclassification of $12.4
million from Common Stock subject to redemption to retained earnings to
reflect the redemption of certain shares of Common Stock from the
Management Investors.
(H) To record the issuance of senior convertible preferred stock upon the
conversion of certain voting common stock held by Saratoga. The senior
convertible preferred stock has a liquidation preference of $30.0 million.
(I) To reflect (i) the acquisition of voting and non-voting Common Stock from
certain investors; (ii) the transfer of certain voting and non-voting
shares of Common Stock to Koppers by the Offeree Shareholders in exchange
for forgiveness of the $17.0 million loan; and (iii) the redemption of
$15.8 million of voting Common Stock held by Koppers Australia as treasury
stock, subsequent to the Koppers Australia Acquisition.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
ACTUAL
------------------- ACQUISITION REDEMPTIONS COMPANY
KOPPERS OF KOPPERS AND PRO
KOPPERS AUSTRALIA AUSTRALIA REFINANCING FORMA
-------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $588,544 $138,254 $(4,658)(A) $ -- $722,140
Operating expenses:
Cost of sales......... 496,062 93,367 (4,378)(A) -- 585,051
Depreciation and
amortization......... 21,793 8,545 1,101(B) 745(D) 32,184
Selling, general and
administrative....... 27,545 13,338 -- -- 40,883
Restructuring charges. 15,513 -- -- -- 15,513
-------- -------- ------- -------- --------
Total operating
expenses............ 560,913 115,250 (3,277) 745 673,631
-------- -------- ------- -------- --------
Operating income........ 27,631 23,004 (1,381) (745) 48,509
Equity in earnings of
affiliates........... 9,587 1,470 (8,010)(C) -- 3,047
Other expense......... 12,623 -- -- -- 12,623
Interest expense...... 16,636 979 -- 13,885(E) 31,500
-------- -------- ------- -------- --------
Income before income
taxes and minority
interest............... 7,959 23,495 (9,391) (14,630) 7,433
Income tax provision
(benefits)............. (6,139) 7,439 -- (734)(F) 566
Minority interest....... -- 1,354 -- -- 1,354
-------- -------- ------- -------- --------
Net income from
continuing operations.. $ 14,098 $ 14,702 $(9,391) $(13,896) $ 5,513
======== ======== ======= ======== ========
EBITDA (G).............. $ 75,639
========
Adjusted EBITDA (H)..... $ 99,636
========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(A) To eliminate the effect of intercompany transactions between Koppers
Australia and Koppers.
(B) To record additional amortization of goodwill recorded related to the
Koppers Australia acquisition using the straight-line method over a 20
year period.
(C) To eliminate the equity in earnings of Koppers Australia recorded by
Koppers and equity in earnings of Koppers recorded by Koppers Australia.
(D) To reflect the additional amortization of debt issuance costs over the
average lives of the related new debt, net of the prior debt issuance
costs.
(E) To record incremental interest expense associated with the
Recapitalization. The interest expense on the Notes is computed at an
interest rate of 9.875%.
(F) To adjust the provision for income taxes based upon the pro forma entries.
(G) "EBITDA" is as defined in the Indenture. See "Description of Notes."
EBITDA is presented not as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles), but rather to provide additional
information related to the debt servicing ability of the Company. The
Company's definition of EBITDA may not be comparable to other companies'
definitions of EBITDA. Amortization of deferred financing fees is included
in the Company's financial statements in depreciation and amortization and
amounted to $1.5 million for the year ended December 31, 1996 pro forma.
(H) "Adjusted EBITDA" is defined as EBITDA plus the cash portion of non-
recurring charges. The non-recurring charges include $15.5 million of
restructuring charges and $12.6 million of litigation charges for the year
ended December 31, 1996 pro forma.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
ACTUAL
------------------ ACQUISITION REDEMPTIONS COMPANY
KOPPERS OF KOPPERS AND PRO
KOPPERS AUSTRALIA AUSTRALIA REFINANCING FORMA
-------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $452,260 $87,798 $(1,760)(A) $ -- $538,298
Operating expenses
Cost of sales......... 380,825 62,084 (1,549)(A) -- 441,360
Depreciation and
amortization......... 17,908 6,167 826(B) 559(D) 25,460
Selling, general and
administrative....... 21,559 6,679 -- -- 28,238
-------- ------- ------- -------- --------
Total operating
expenses............. 420,292 74,930 (723) 559 495,058
-------- ------- ------- -------- --------
Operating income........ 31,968 12,868 (1,037) (559) 43,240
Equity in earnings of
affiliates........... 4,696 4,162 (6,631)(C) -- 2,227
Interest expense...... 12,387 360 -- 10,878(E) 23,625
Other expense......... 1,414 1,285 -- -- 2,699
-------- ------- ------- -------- --------
Income before income
taxes and minority
interest............... 22,863 15,385 (7,668) (11,437) 19,143
Income tax provision
(benefit).............. 704 4,648 -- (571)(F) 4,781
Minority interest....... -- 992 -- -- 992
-------- ------- ------- -------- --------
Net income from
continuing operations.. $ 22,159 $ 9,745 $(7,668) $(10,866) $ 13,370
======== ======= ======= ======== ========
EBITDA (G).............. $ 68,518
========
Adjusted EBITDA (H)..... $ 69,932
========
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(A) To eliminate the effect of intercompany transactions between Koppers
Australia and Koppers.
(B) To record additional amortization of goodwill relating to the Koppers
Australia acquisition using the straight-line method over a 20 year
period.
(C) To eliminate the equity in earnings of Koppers Australia recorded by
Koppers and equity in earnings of Koppers recorded by Koppers Australia.
(D) To reflect the additional amortization of debt issuance costs over the
average lives of the related new debt, net of the prior debt issuance
costs.
(E) To record incremental interest expense associated with the
Recapitalization. The interest expense on the Notes is computed at an
interest rate of 9.875%.
(F) To adjust the provision for income taxes based upon the pro forma entries.
(G) "EBITDA" is as defined in the Indenture. See "Description of Notes."
EBITDA is presented not as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles), but rather to provide additional
information related to the debt servicing ability of the Company. The
Company's definition of EBITDA may not be comparable to other companies'
definitions of EBITDA. Amortization of deferred financing fees is included
in the Company's financial statements in depreciation and amortization and
amounted to $1.1 million for the nine months ended September 30, 1997 pro
forma.
(H) "Adjusted EBITDA" is defined as EBITDA plus the cash portion of non-
recurring charges. The non-recurring charges include a $1.4 million write-
off of costs related to the IPO for the nine months ended September 30,
1997 pro forma.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE TWELVE
MONTH PERIOD ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
ACTUAL
------------------- ACQUISITION REDEMPTIONS COMPANY
KOPPERS OF KOPPERS AND PRO
KOPPERS AUSTRALIA AUSTRALIA REFINANCING FORMA
-------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $597,294 $123,580 $ (3,290)(A) $ -- $717,584
Operating expenses:
Cost of sales......... 502,396 86,156 (3,079)(A) -- 585,473
Depreciation and
amortization......... 23,403 8,238 1,101(B) 745(D) 33,487
Selling, general and
administrative....... 27,725 9,823 -- -- 37,548
Restructuring charges. 5,442 -- -- -- 5,442
-------- -------- -------- -------- --------
Total operating
expenses............. 558,966 104,217 (1,978) 745 661,950
-------- -------- -------- -------- --------
Operating income........ 38,328 19,363 (1,312) (745) 55,634
Equity in earnings of
affiliates........... 7,856 6,031 (10,698)(C) -- 3,189
Interest expense...... 16,561 564 -- 14,375(E) 31,500
Other expense......... 3,914 1,276 -- -- 5,190
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest............... 25,709 23,554 (12,010) (15,120) 22,133
Income tax provision
(benefits)............. (5,021) 7,022 -- (731)(F) 1,270
Minority interest....... -- 1,398 -- -- 1,398
-------- -------- -------- -------- --------
Net income from
continuing operations.. $ 30,730 $ 15,134 $(12,010) $(14,389) $ 19,465
======== ======== ======== ======== ========
EBITDA (G).............. $ 89,437
========
Adjusted EBITDA (H)..... $ 95,804
========
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(A) To eliminate the effect of intercompany transactions between Koppers
Australia and Koppers.
(B) To record additional amortization of goodwill relating to the Koppers
Australia acquisition using a straight-line method over a 20 year period.
(C) To eliminate the equity in earnings of Koppers Australia recorded by
Koppers and equity in earnings of Koppers recorded by Koppers Australia.
(D) To reflect the additional amortization of debt issuance costs over the
average lives of the related new debt, net of the prior debt issuance
costs.
(E) To record incremental interest expense associated with the
Recapitalization. The interest expense on the Notes is computed at an
interest rate of 9.875%.
(F) To adjust the provision for income taxes based upon the pro forma entries.
(G) "EBITDA" is as defined in the Indenture. See "Description of Notes."
EBITDA is presented not as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles), but rather to provide additional
information related to the debt servicing ability of the Company. The
Company's definition of EBITDA may not be comparable to other companies'
definitions of EBITDA. Amortization of deferred financing fees is included
in the Company's financial statements in depreciation and amortization and
amounted to $1.5 million for the twelve months ended September 30, 1997
pro forma.
(H) "Adjusted EBITDA" is defined as EBITDA plus the cash portion of non-
recurring charges. The non-recurring charges include $5.4 million of
restructuring charges, $2.5 million of litigation charges and a $1.4
million write-off of IPO costs for the twelve months ended September 30,
1997 pro forma.
36
<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 four businesses: Carbon Materials & Chemicals,
Railroad & Utility Products, Coke Products and Koppers Australia. The pro
forma numbers include Koppers Australia as a wholly-owned subsidiary of
Koppers.
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>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ ----------------------------------------
PRO FORMA
------------------
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES (IN
THOUSANDS):
Carbon Materials &
Chemicals........... $164,489 $197,434 $239,298 $178,609 $185,766 $178,609 $185,766
Railroad & Utility
Products............ 239,596 248,212 239,913 184,290 193,807 184,290 193,807
Coke Products........ 72,363 80,084 109,333 80,611 72,687 80,611 72,687
Koppers Australia.... -- -- -- -- -- 99,372 86,038
-------- -------- -------- -------- -------- -------- --------
Total.............. $476,448 $525,730 $588,544 $443,510 $452,260 $542,882 $538,298
======== ======== ======== ======== ======== ======== ========
SEGMENT SALES AS PERCENTAGE OF
TOTAL:
Carbon Materials &
Chemicals........... 34.5% 37.6% 40.7% 40.3% 41.0% 32.9% 34.5%
Railroad & Utility
Products............ 50.3% 47.2% 40.8% 41.5% 42.9% 33.9% 36.0%
Coke Products........ 15.2% 15.2% 18.5% 18.2% 16.1% 14.9% 13.5%
Koppers Australia.... -- -- -- -- -- 18.3% 16.0%
-------- -------- -------- -------- -------- -------- --------
Total.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
GROSS MARGIN BY SEGMENT
(AFTER DEPRECIATION):
Carbon Materials &
Chemicals........... 14.9% 18.0% 17.0% 16.2% 18.1% 18.1%
Railroad & Utility
Products............ 9.8% 12.4% 10.9% 10.9% 11.7% 11.7%
Coke Products........ 5.9% 2.5% 4.6% 5.3% (2.6%) (2.6%)
Koppers Australia.... -- -- -- -- -- 22.3%
-------- -------- -------- -------- -------- -------- --------
Total.............. 10.8% 12.8% 12.0% 11.9% 11.8% 13.3%
OPERATING MARGIN BY
SEGMENT:
Carbon Materials &
Chemicals........... 10.3% 13.9% 10.3% 8.6% 14.8% 14.8%
Railroad & Utility
Products............ 6.8% 9.1% 7.0% 6.9% 8.9% 8.9%
Coke Products........ 3.6% 0.0% (3.2%) 2.2% (5.3%) (5.3%)
Koppers Australia.... -- -- -- -- -- 14.6%
Corporate Unallocated
Overhead............ (2.1%) (1.9%) (1.7%) (1.9%) (2.0%) (1.9%)
-------- -------- -------- -------- -------- -------- --------
Total.............. 5.4% 7.6% 4.7% 4.8% 7.1% 8.0%
</TABLE>
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996.
NET SALES. Net sales for the nine months ended September 30, 1997 were 2.0%
higher than the same period in 1996. Net sales for Carbon Materials &
Chemicals increased by 4.0% due primarily to sales from the Clairton,
Pennsylvania facility acquired in April, 1996 coupled with increases in
volumes and prices for PAA of 17.6% and 6.9%, respectively. The increase in
net sales of 5.2% for Railroad & Utility Products was due to higher railroad
crosstie revenues, which more than offset a 2.9% reduction in sales volumes
for utility poles. Net sales for Coke Products decreased by 9.8% due to lower
production and shipments primarily as the result of capacity rationalization
at the Woodward, Alabama coke facility ("Woodward Coke Facility").
37
<PAGE>
GROSS PROFIT AFTER DEPRECIATION. As a percent of net sales, gross profit
after depreciation decreased to 11.8% for the nine months ended September 30,
1997 from 11.9% for the same period last year. Gross margin for Carbon
Materials & Chemicals increased to 18.1% from 16.2% in the prior year
primarily as the result of increases in volumes and pricing of PAA in 1997 as
noted above. Gross margin for Railroad & Utility Products increased to 11.7%
from 10.9% in the prior year primarily as the result of higher revenues for
railroad crossties. Gross margin for Coke Products decreased to (2.6%) from
5.3% due to higher unit costs incurred as the result of reduced production at
the Woodward Coke Facility, coupled with costs associated with unusual returns
and credits issued to customers.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
for the nine months ended September 30, 1997 as compared to the prior year was
due primarily to the acquisition of the Clairton tar distillation facility in
April 1996 and the Company's ongoing capital expenditures program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the nine months ended September 30, 1997 amounted
to 4.8% of net sales, which was consistent with the prior year period, as
lower expenses for legal and consulting services were offset by increases in
employee benefits in 1997.
EQUITY IN EARNINGS OF AFFILIATES. Equity earnings for the nine months ended
September 30, 1997 were $1.7 million lower than the prior year period
primarily as a result of lower earnings from Koppers Australia. The lower
earnings were due to higher maintenance and repair expenses and a stronger
U.S. currency rate in 1997.
OTHER EXPENSE. Other expense for the nine months ended September 30, 1997
consisted of the write-off of $1.4 million of deferred expenses related to the
IPO which was withdrawn in the second quarter. Other expense for the prior-
year period consisted of a litigation charge related to the OCF Settlement.
See Note 11 of the Notes to Consolidated Financial Statements of Koppers.
INCOME TAXES. The effective income tax rate for the nine months ended
September 30, 1997 was 3.1% as compared to (8.1%) in the prior-year period due
to lower income in 1996 as the result of the OCF Settlement and restructuring
charges coupled with the utilization of energy tax credits from the Monessen
Facility. The credit is based on its production of coke as a non-conventional
fuel source and the sale thereof to unrelated third parties. The credit is
available through December 31, 2002 and, based on current production levels at
the Monessen Facility, could provide up to a maximum $10.2 million of tax
credits annually, unadjusted for inflation and assuming full production at the
Monessen Facility, until the credit expires. Use of the tax credits is limited
to the availability of taxable income.
NET INCOME. Net income for the nine months ended September 30, 1997 as
compared to the prior year increased by $16.6 million due primarily to
litigation and restructuring charges taken in 1996.
Comparison of Results of Operations for the Years Ended December 31, 1996 and
1995.
NET SALES. Net sales for the year ended December 31, 1996 were 11.9% higher
than the same period in 1995, due primarily to the effect of acquisitions in
the Carbon Materials & Chemicals and Coke Products businesses. Net sales for
Carbon Materials & Chemicals increased by 21.2% due primarily to sales of
approximately $44 million from the Clairton facility acquired April 1, 1996.
The effect of the acquisition was offset to some extent by a net reduction in
PAA sales due to a 31.9% reduction in average PAA prices. Net sales for
Railroad & Utility Products decreased by 3.3% due to a 12.2% reduction in
sales volumes for utility poles as a result of public utility deregulation and
its impact on maintenance programs and due to disruptions in shipments as a
result of severe weather conditions in the first quarter of 1996. Net sales
for Coke Products increased by 36.5% due primarily to sales of approximately
$44 million from the Monessen Facility in its first full year of operation.
This increase was offset to some extent by a 10.6% reduction in sales at the
Woodward Coke Facility resulting primarily from suspensions of shipments to
U.S. Steel Group, a unit of USX Corporation, (due to an explosion at one of
their blast furnaces) and McLouth Steel Products Corp. (due to its filing of a
bankruptcy
38
<PAGE>
petition and its cessation of business) in 1996, as well as reduced production
in the first quarter of 1996 as a result of severe weather conditions.
GROSS PROFIT AFTER DEPRECIATION. As a percent of net sales, gross profit
after depreciation decreased to 12.0% for the year ended December 31, 1996
from 12.8% for the prior year. Gross margin decreased to 17.0% from 18.0% for
Carbon Materials & Chemicals and to 10.9% from 12.4% for Railroad & Utility
Products, while gross margin for Coke Products increased to 4.6% from 2.5%.
The decrease for Carbon Materials & Chemicals was due to a 31.9% reduction in
PAA prices, which more than offset the positive margin effect of the Clairton
acquisition. The decrease in gross profit for Railroad & Utility Products was
due to higher unit costs for utility poles as a result of a 12.2% decline in
sales volumes and $0.6 million of costs associated with labor disruptions and
increased operating expenses as a result of severe winter weather in the first
quarter of 1996. The increase for Coke Products was due primarily to higher
coke prices of 2.8% coupled with higher volumes of 33.2%, as an increase in
volumes due to a full twelve months of operations at the Monessen Facility was
partially offset by volume reductions at the Woodward Coke Facility.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
for 1996 as compared to the prior year was due primarily to the acquisition of
the Clairton tar distillation facility in April 1996, and the Monessen
Facility which started production in November 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1996 decreased to 4.7% of net sales from 5.3% of
net sales in the prior year, primarily due to a reduction in management
incentive accruals.
RESTRUCTURING CHARGES. Restructuring charges were comprised of plant closing
charges of $7.4 million, capacity rationalization charges of $5.4 million and
severance charges of $2.6 million. Plant closing charges included $6.5 million
for the Houston carbon materials facility and $0.9 million for the Carrollton,
Ohio refractory materials facility. The plant closing charges consisted
primarily of write-downs of property and equipment, environmental remediation
and severance costs. Capacity rationalization charges of $5.4 million at the
Woodward Coke Facility primarily include property and equipment write-downs.
Severance charges totaling $2.6 million were incurred as a result of workforce
reductions of approximately 90 salaried employees at various field locations
and at corporate headquarters.
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates increased
to $9.6 million for 1996 from $9.2 million in the prior year as higher
earnings from Koppers Australia and KSA (as defined herein) were partially
offset by lower earnings from Tarconord as a result of weaker European market
conditions.
LITIGATION CHARGES. Litigation charges for 1996 consisted of a $10.1 million
charge related to the OCF Settlement and a $2.5 million legal settlement
payment to CSX.
INTEREST EXPENSE. Interest expense increased $1.6 million for 1996 compared
to the prior year primarily as a result of the additional $40.0 million in
indebtedness to finance the acquisition of the Clairton facility.
INCOME TAXES. The effective income tax rate for 1996 was a benefit of
(77.1)% as compared to an effective rate of 29.0% in the prior year as a
result of lower pretax earnings in 1996 coupled with the utilization of a 1996
energy tax credit for the Monessen Facility.
NET INCOME. Net income for 1996 as compared to the prior year decreased by
$10.3 million primarily as a result of $15.5 million of restructuring charges
and $12.6 million of litigation charges. These charges were offset in part by
lower tax expense of $16.1 million in 1996 as compared to the prior year.
Earnings from the recently acquired Monessen Facility and the Clairton
facility were offset by lower PAA prices and the suspension of coke shipments
to U.S. Steel Group and McLouth Steel Products Corp. for the reasons
indicated.
39
<PAGE>
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 Carbon Materials &
Chemicals increased by 20.0%, net sales of Railroad & Utility Products
increased by 3.6%, and net sales of Coke Products increased by 10.7%. The
increase in net sales of Carbon Materials & Chemicals for 1995 primarily
reflected 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
reflected 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. 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.
GROSS PROFIT AFTER DEPRECIATION. As a percent of net sales, gross profit
after depreciation increased to 12.8% in 1995 from 10.8% in 1994. The increase
in Carbon Materials & Chemicals gross margin to 18.0% from 14.9%, coupled with
an increase in Railroad & Utility Products gross margin to 12.4% from 9.8%,
more than offset a decrease in gross margin for Coke Products to 2.5% from
5.9% as compared to the prior year. 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.
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 9.4% of net sales, reflecting a 6.4% price increase for coke.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization
in 1995 compared to the prior year was 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 increased to 5.3% of sales from 5.1% of sales
in 1994, primarily due to increased management incentive accruals in 1995.
RESTRUCTURING CHARGES. Restructuring charges for 1994 included $2.5 million
related to a voluntary severance plan initiated as part of a general corporate
restructuring. The total charge reflected salaries and benefits for 55
participating employees.
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.
INCOME TAXES. The 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 was 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. Net income for 1995 increased 140.6% compared to net income from
the prior year, due in part to a $1.8 million extraordinary charge for early
extinguishment of debt in 1994, and also as a result of a higher level of
business activity and generally favorable market conditions in 1995 as
detailed in the discussions of sales and gross profit for the businesses.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for debt service and capital
maintenance. The Company believes that its cash flows from operations and
available borrowings under its bank credit facilities will be sufficient to
fund its anticipated liquidity requirements for the next twelve months. 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 September 30, 1997 on a pro forma basis after giving effect to the
Saratoga Investment and the Recapitalization, the Company would have had $80.0
million of revolving credit availability under the New Credit Facilities for
working capital purposes, subject to restrictions imposed under the Indenture
related to the Notes offered hereby. As of September 30, 1997, $8.5 million of
commitments were utilized by outstanding standby letters of credit.
Cash provided by operating activities totaled $35.6 million for the nine
months ended September 30, 1997, compared to $31.7 million for the same period
last year, as higher earnings and lower working capital requirements in 1997
(excluding legal settlement reserves) were offset to some extent by cash
expenses in 1997 related to 1996 restructuring charges.
Capital expenditures for Koppers were $13.0 million for the nine months
ended September 30, 1997 versus $16.1 million (excluding acquisitions) for the
same period last year, with the decrease in 1997 due primarily to significant
1996 capital improvements at the Stickney PAA plant and the Monessen Facility.
In April 1996, Koppers purchased the coal chemical business of Aristech
Chemical Corporation ("Aristech") located in Clairton, Pennsylvania for
approximately $40.0 million cash and the assumption of certain liabilities.
See Note 3 of the Notes to Consolidated Financial Statements of Koppers.
For the years ended December 31, 1997 and 1998 the Company anticipates
capital expenditures of $26.8 million and $26.3 million, respectively. These
amounts include environmental capital expenditures of $3.8 million and $6.9
million for 1997 and 1998, respectively, with the remaining portions for
capital maintenance and improvements.
Financing activities utilized $24.2 million in cash for the nine months
ended September 30, 1997 compared to providing $21.9 million for the same
period last year. Cash used in 1997 included approximately $20.1 million of
debt repayment; cash supplied by financing activities in 1996 was largely the
result of the $35.0 million term loan for the Clairton acquisition coupled
with a net increase of $15.5 million in the revolving credit facility, used in
part to provide for a $12.0 million term loan repayment and a $12.3 million
purchase of non-voting Common Stock of the Company. See Note 5 of the Notes to
Consolidated Financial Statements of Koppers.
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the sale of the Old Notes, combined with net proceeds from the
New Credit Facilities, have been and are being applied to complete the
following transactions: (i) the acquisition of Broken Hill's 50% interest in
Koppers Australia, which occurred on December 1, 1997; (ii) the repayment of
all of the 8 1/2's tendered pursuant to the Offer to Purchase and Consent
Solicitation dated October 20, 1997; (iii) the repayment of the outstanding
indebtedness under the Company's then current term loan and revolving credit
facilities; (iv) the redemption of 1,813,200 shares of non-voting Common Stock
owned by APT Holdings Corporation, an affiliate of Mellon Bank, N.A.; (v) the
redemption, at $17.00 per share, of up to 25% of the shares of Common Stock
owned by the current officers of Koppers and Clayton A. Sweeney and the
redemption of up to 100% of the shares of Common Stock owned by any other
Management Investor within sixty (60) days of the consummation of the offering
and the compliance with any applicable securities laws, at the election of
such individuals, in an aggregate amount not exceeding $15.0 million; (vi) the
redemption of 436,508 non-voting shares of Common Stock from Saratoga Koppers;
and (vii) the payment of related fees and expenses.
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Restructuring Charges. Restructuring charges for 1996 consisted of $11.4
million and $4.1 million of cash and non-cash charges, respectively. At
September 30, 1997, $6.8 million of the total cash charges had been expended.
Seasonality; Effects of Weather. The Company's quarterly operating results
fluctuate due to a variety of factors that are outside Koppers' control,
including inclement weather conditions, which in the past have affected
operating results. Operations at several of Koppers' facilities have been
halted for short periods of time during the winter months. Moreover, demand
for many of Koppers' 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 February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of earnings per share for the nine months ended September
30, 1997 and September 30, 1996 is not expected to be material.
Additionally, the following statements have been issued during 1997 and are
effective for fiscal years beginning after December 15, 1997:
Statement No. 129, "Disclosure of Information about Capital Structure",
requires additional disclosures about an entity's capital structure.
Statement No. 130, "Reporting Comprehensive Income", requires enterprises to
classify items of comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital.
Statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information" changes the way companies report segment information in annual
reports and in interim financial statements.
The Company does not expect the effect of adoption of Statements No. 129,
130 or 131 to be material.
ENVIRONMENTAL MATTERS
Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to extensive Environmental
Laws. The Clean Air Act and Clean Water Act, each as amended, impose stringent
standards on air emissions and water discharges, respectively. Under RCRA, a
facility that treats, stores or disposes of hazardous waste on-site may be
liable for corrective action costs, and a facility that holds a RCRA permit
may have to incur costs relating to the closure of certain "hazardous" or
"solid" waste management units. Under CERCLA and similar 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 and related natural resource damages. In addition, under CERCLA,
the generator of hazardous substances may be strictly, and jointly and
severally liable for any required investigation or remediation at third-party
disposal sites and related natural resource damages. The Environmental Laws
are subject to frequent amendment. The sanction for failure to comply with
such Environmental Laws can include significant civil penalties, criminal
penalties, injunctive relief and denial or loss of, or imposition of
significant restrictions on, environmental permits. In addition, the Company
could be subject to suit by third parties in connection with violations of or
liability under Environmental Laws.
In March 1996, Jefferson County issued a notice of violation in connection
with various alleged violations of air pollution control regulations regarding
emissions from coke oven batteries at the Woodward Coke Facility. In February
1997, the US-EPA issued a notice of violation covering the same issues.
Thereafter, Koppers
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discovered that certain benzene abatement equipment at this facility had not
been operational for several months. Koppers and Jefferson County have
negotiated a settlement agreement which includes both the original Jefferson
County notice of violation and the self-reported benzene abatement violation,
and requires Koppers to pay a civil penalty in the amount of $450,000, which
sum has been paid. There can be no assurance that the settlement with
Jefferson County will deter the US-EPA from pursuing its notice of violation.
Following a preliminary investigation of the Woodward Coke Facility, Koppers
also discovered that certain environmental reports and records required under
the Clean Water Act contained incomplete and inaccurate information and that
certain environmental reports and certifications were not filed when required.
Corrected reports have been submitted to Jefferson County, the State of
Alabama and the US-EPA. In June 1997, during a routine environmental
compliance audit of the Logansport Wood Treating Facility, it was discovered
that certain records and reports required under the Clean Water Act contained
incomplete and inaccurate information. Corrected reports have been submitted
to the local municipality, the State of Louisiana and the US-EPA. Although no
notice of violation has been issued in conjunction with this issue, it is
likely that such a notice will be issued and substantial penalties sought by
the regulatory authorities. On April 25, 1997, Koppers was served with notices
of violation by Pa-DEP which alleged that Koppers was in violation of a Pa-DEP
plan approval for the Monessen Facility regarding nitrogen oxide emissions and
failed to conduct timely emission-monitoring testing on Monessen Facility
boilers. Koppers could be subject to significant liability in connection with
each of these matters, including injunctive relief, substantial civil and
criminal penalties and the risk of third-party lawsuits. Resolution of these
and other pending compliance matters could have a material adverse effect on
the business, financial condition, cash flow and results of operations of the
Company.
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 $7.0 million and $16.0 million,
respectively. The Company believes that environmental operating costs as a
percentage of total 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 $3.8 million and $6.9 million for 1997 and 1998,
respectively. Because Environmental Laws have historically become
increasingly more stringent, costs and expenses relating to environmental
control and compliance may increase in the future. Also, Koppers may have to
incur additional capital expenditures and compliance costs (which it is unable
to estimate at this time) in connection with the resolution of the
aforementioned notices of violations. As such, there can be no assurance that
costs of compliance with existing and future Environmental Laws will not
exceed current estimates and will not have a material adverse effect on the
Company's business, financial condition, cash flow and results of operations.
Under the terms of the Asset Purchase Agreement between Koppers Industries,
Inc. and Old Koppers (now known as Beazer East, Inc.) at the formation of the
Company in 1988, Beazer East assumed the liability for and indemnified Koppers
against (among other things) cleanup liabilities for contamination occurring
prior to the purchase date at sites acquired from Beazer East, and third-party
claims arising from such contamination in the Indemnity. Beazer East's
performance of the Indemnity is unconditionally guaranteed by Beazer Limited
under the Beazer Guarantee. Contamination identified at sites owned and/or
operated by Koppers is being investigated and remediated under CERCLA, RCRA or
state cleanup programs. Currently, at the sites acquired from Beazer East
(which include all of the CERCLA sites and all but one of the RCRA sites),
substantially all investigation and remediation activities are being conducted
and paid for by Beazer East pursuant to the terms of the Indemnity; however,
there can be no assurance that Beazer East and Beazer Limited will continue to
meet their obligations. In the event they do not, Koppers may be required to
pay such costs which are believed to have averaged approximately $13.0 million
per year for the last three years. In addition, the government and other third
parties have the right under applicable Environmental Laws to seek relief
directly from Koppers for any and all such costs and liabilities. The
requirements to pay such costs and assume such liabilities without
reimbursement would have a material adverse affect on the business, financial
condition, cash flow and results of operations of the Company. Furthermore, if
Koppers 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.
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The Indemnity does not afford Koppers indemnification against environmental
costs and liabilities relating to activities or conditions occurring or
arising after the Closing of the acquisition of assets from Beazer East under
the Asset Purchase Agreement, nor is the Indemnity applicable to liabilities
arising in connection with post-closing acquisitions. At the Clairton
facility, the Somerville facility and the Monessen Facility (each of which
Koppers acquired subsequent to the acquisition of the Beazer East sites),
investigations and remediations are being performed. All applicable
indemnification obligations are being honored at the Clairton and Somerville
facilities and Koppers believes that the sellers (or their predecessors) at
both of these facilities will continue to conduct and finance most activities
directly. Although the Company is not aware of any reason why such
environmental indemnification obligations will not be performed, if Koppers
were required to pay costs associated with these two sites, it could have a
material adverse effect on the Company's business, financial condition, cash
flow and results of operations. At the Monessen Facility, Koppers has entered
into the Monessen Consent Order with Pa-DEP pursuant to which the Koppers'
liabilities for environmental cleanup have been capped at $550,000 for matters
identified pursuant to the Monessen Consent Order. Although an environmental
indemnification was provided to Koppers by the seller of that facility, the
Company does not expect that such obligations will be honored. If
contamination at the Monessen Facility should be discovered which is not
identified pursuant to the Monessen Consent Order or if the US-EPA should
require cleanup above the $550,000 "cap" contained therein, costs associated
with such events could have a material adverse effect on the Company's
business, financial position, cash flow and results of operations. See
"Business--Environmental Matters."
OTHER MATTERS
As a result of an internal investigation, the Company discovered in March
1997 that certain reports relating to the moisture of coke contained
incomplete and inaccurate information. Because of these discrepancies, certain
customers who purchased the coke were overbilled. Upon discovery of the
overbilling, refunds were made available to all the affected customers.
For a fee, the Company treats waste water produced by Beazer East during
Beazer East's remediation of certain of the Company's facilities. Beazer East
performs these remediation activities pursuant to the Indemnity. During the
summer of 1997, Beazer East challenged the amounts of the charges for waste
water treatment services at the Florence and Follansbee facilities. Beazer
East alleged they had been overcharged by approximately $2.2 million at
Florence and by approximately $3.1 million at Follansbee. The Company has
contested these allegations and believes that if an overcharge occurred, the
amount of the overcharge is less than Beazer East has alleged.
Due to the advanced ages of the coke oven batteries, ongoing environmental
compliance issues and significant capital expenditure requirements, all of
which have combined to reduce productive capacity and increase per unit costs,
the Company's Board of Directors has authorized the Company to close the
Woodward Coke Facility in early 1998. This will result in a charge to earnings
in the fourth quarter of 1997 of approximately $38.5 million, $9.4 million of
which will be cash charges primarily for dismantling and severance costs.
Sales and gross profit (loss) at the Woodward Coke Facility for the twelve
months ended September 30, 1997 amounted to $58.1 million and ($6.1) million,
respectively. Capital expenditures and depreciation for the twelve months
ended September 30, 1997 amounted to $3.4 million and $4.4 million,
respectively.
The Feather River, California Utility & Construction Products facility
("Feather River") includes both a wood treating and now-dormant wood-fired
cogeneration facility. The Company has found it difficult to compete in the
California utility pole market due to Feather River's limited treatment
capabilities, a shrinking product demand and the high cost of raw materials.
The Company has recently been notified that a targeted customer for Feather
River will not take product in 1998, which will impact the forward-looking
profitability of this facility. The Company is currently conducting an
analysis to determine the feasibility of continuing to operate this facility;
this analysis is expected to be completed by the end of 1997. The current
carrying value of assets at this
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facility is approximately $4.3 million. The Feather River cogeneration
facility has been dormant for three years while the Company explored potential
opportunities for developing a treated wood burning and disposal facility. The
Company has been unable to locate a customer for this process, and expects to
make a decision regarding the future of the facility by the end of 1997. In
the event that a decision is made to close the cogeneration facility, this
could result in a charge to earnings in the fourth quarter of approximately
$1.9 million, which includes a $1.6 million early contract termination fee
with the local utility.
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BUSINESS
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 a leading position in most of its markets. The
Company operates 22 facilities in the United States and 14 in the South
Pacific (primarily in Australia and New Zealand), and maintains indirect
ownership interests in an additional facility in the United States through its
domestic joint venture KSA (as defined herein) and in five facilities overseas
through Tarconord. The Company recorded net sales and Adjusted EBITDA of
$717.6 million and $95.8 million, respectively, for the twelve months ended
September 30, 1997. For the same periods, the Company's businesses, Carbon
Materials & Chemicals, Railroad & Utility Products, Coke Products and Koppers
Australia, accounted for 34%, 35%, 14% and 17% of pro forma net sales,
respectively.
Through its Carbon Materials & Chemicals division, Koppers is the largest
coal tar processor in North America. Koppers' Carbon Materials & Chemicals
division processes 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, respectively. Koppers' Railroad & Utility Products division
is the largest supplier of treated wood products, such as railroad crossties
and utility poles, to United States railroads and the electric and telephone
utility industries. Koppers' 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.
Products and services provided by Koppers Australia are similar to those
provided by Koppers. Koppers Australia is Australia's largest manufacturer of
carbon pitch, wood preservatives and treated wood products and it markets
these products, as well as carbon black, in Australia, New Zealand and other
Pacific Rim nations. Koppers Australia is the only coal tar distiller in
Australia, providing it with a significant competitive advantage in serving
the Australian aluminum smelting industry.
BUSINESS STRATEGY
The Company's strategy includes: (i) improving productivity; (ii)
implementing additional cost reduction initiatives; (iii) developing,
marketing and selling new products; and (iv) broadening its customer base in
new and existing markets.
In the Carbon Material & Chemicals division, the Company is currently
developing improved pitches for the aluminum industry, specialty coal tar
pitches to be used in electrode carbon markets and additional downstream
applications for naphthalene in the super-plasticizer and other specialty
chemical markets. The Company's strategy in the railroad industry is to be the
largest volume supplier of high quality treated wood products, track
maintenance and construction products and services. The Company will continue
to review opportunities to increase capacity at several of its treating
facilities and to expand services offered to railroad customers, such as
plant-assembled track sections, freight car cleaning and used tie disposal. In
Australia, New Zealand and the Far East, the Company intends to expand its
access to coal tar feedstocks and soft pitches with a focus on China and other
emerging markets.
COMPETITIVE STRENGTHS
Strong Customer Relationships--The Company's reputation has enabled it to
include among its customers numerous companies preeminent in their respective
markets, including Alcoa, CSX, LTV and UCAR. In order to enhance these
relationships, the Company has in place programs to ensure quality and
customer satisfaction. In addition, the Company's facilities are strategically
located to service its customers' requirements.
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Broad Product Line--The Company sells a wide variety of products to a
diverse customer base, including steel producers, aluminum smelters,
railroads, utilities, rubber tire producers, wood treaters, producers of
polyester resins, paints, coatings and plasticizers, the roofing industry and
pavement sealer manufacturers. The Company's broad product line and customer
base allow it to reduce its exposure to any one market segment.
Long-Term Sales Contracts--Historically, the Company has sought to reduce
its exposure to the cyclicality of its customers' businesses and general
economic conditions by securing commitments for a large portion of its planned
production through annual and multi-year contracts. In each of the last five
years, the Company has been able to secure over 50% of the following year's
sales through such contracts.
Global Presence--The Company, along with its joint venture in Denmark,
Tarconord, serves the North American, European, Asian and Australian markets
with carbon materials and chemical products. The Company works closely with
Tarconord on marketing strategy, raw material sourcing and technology sharing.
The Company and Tarconord have completed several acquisitions and have entered
into marketing agreements enabling the Company to expand its presence into new
and emerging markets, including the United Kingdom, People's Republic of China
and other Pacific Rim nations.
Diversified Supply Base--The Company believes that its ability to source
high-quality coal tar, wood and coal from multiple suppliers provides it with
a significant competitive advantage in meeting customer requirements in a
timely and economically advantageous manner. In addition, the Company believes
its ability to source coal tar globally is critical to obtaining the quality
of coal tar needed to satisfy its global customers' needs.
Vertical Integration--The Company's ability to utilize, in its manufacturing
processes, products produced in its Carbon Materials & Chemicals and Coke
Products divisions provides the Company with significant cost savings. The
Company also believes it has a significant cost advantage over its competitors
as a result of its ability to use internally generated naphthalene as a
primary feedstock in the production of PAA. All of the Company's domestic
competitors currently use orthoxylene, which is generally a higher-cost
feedstock than naphthalene, in the production of PAA. Another example of
vertical integration is that creosote, a major by-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.
Tax Credits--The Monessen Facility qualifies for a tax credit based on its
production of coke as a non-conventional fuel source and the sale thereof to
unrelated third parties. The credit is available through December 31, 2002
and, based on current production levels at the Monessen Facility, could
provide up to $10.2 million of tax credits annually, unadjusted for inflation
and assuming full production at the Monessen Facility, until the credit
expires. Use of the tax credits is limited to the availability of taxable
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations." The Company may monetize all or
some portion of these tax credits.
INDUSTRY OVERVIEW
CARBON MATERIALS & CHEMICALS
The coal tar distillation business involves the conversion of coal tar, a
by-product of the transformation of coal into coke, into a variety of
intermediate chemical products in processes beginning with distillation.
During the distillation process, heat and vacuum are utilized to separate coal
tar into three primary components: carbon pitch (approximately 50%), creosote
oils (approximately 30%) and chemical oils (approximately 20%). The most
critical element in producing high quality tar products is the ability to
obtain and blend multiple coal tars, with various specifications, from several
sources in order to achieve the consistent properties desired by the customer.
The aluminum industry is the largest user of carbon pitch, which acts as a
binding material for the anodes used in the electrolysis process required in
aluminum smelting. Because all coal tar products are produced in
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relatively fixed proportion to carbon pitch, the level of carbon pitch
consumption generally determines the level of production of other coal tar
products. The commercial carbon industry, the second largest user of carbon
pitch, uses carbon pitch to produce electrodes and other specialty carbon
products for the steel industry. Management estimates that the United States
aluminum and specialty carbon markets consumed approximately 600,000 tons of
carbon pitch in 1996.
Creosote is used in the wood preservation industry as a preservative for
railroad crossties and lumber, utility poles and pilings. Approximately two-
thirds of the total United States market requirements are used for railroad
construction and maintenance, with the remainder used primarily for utility
poles and pilings. To the extent that creosote cannot be sold for use in
treating wood products, distillate oils are sold into the carbon black market
rather than being blended to creosote specifications. Management estimates
that the North American wood treating industry used approximately 620 million
pounds of creosote in 1996. The Carbon Materials & Chemicals division sold
approximately 283 million pounds of creosote in 1996, 34% of which was sold to
the Railroad & Utility Products division. An additional 36% of Koppers'
creosote production was sold to three Class 1 railroad customers, all of which
take delivery of the creosote at Koppers' wood treating facilities.
Chemical oils resulting from the distillation of coal tars are further
refined into naphthalene, which is the primary feedstock used by the Company
for the production of PAA. The primary markets for PAA are in the production
of flexible vinyl, polyester resin and alkyd resin. Roofing pitch and refined
tars are also produced in smaller quantities and are sold into the commercial
roofing and pavement sealer markets, respectively.
Because of the Clean Air Act Amendments and other Environmental Laws, future
coal tar availability from United States coke production is expected to
decline. Management believes that the Company's ability to source coal tar and
carbon pitch from overseas markets, as well as its research of petroleum
feedstocks, will assist in securing an uninterrupted supply of coal tar. See
"Risk Factors."
RAILROAD & UTILITY PRODUCTS
Railroad Products & Services
The major product of Railroad Products & Services is pressure-treated wood
crossties. Treated crossties are used in railroad track maintenance programs.
Approximately 15 million crossties are replaced by railroads every year.
United States Class 1 railroads (defined as the nine largest railroad systems
in the United States) maintain approximately 177,000 miles of track, estimated
to contain 540 million crossties. In addition to crossties, the division also
offers services to the railroads, such as assembling 39-foot track panel
sections, pre-plating ties, cleaning debris from cars, and disposing of
discarded ties in an environmentally safe manner.
Historically, investment trends in track maintenance by railroads have been
linked to general economic conditions in the country. During recessions, the
railroads have typically deferred track maintenance until economic conditions
improve. Demand has been relatively stable since 1993. Recently, several of
the major Class 1 railroads have merged. Management believes these mergers
will not have an adverse effect on the future demand for crossties.
Hardwoods, such as oak and other species, are the major raw materials in
wood crossties. Hardwood prices, which account for approximately 60% of a
finished tie's cost, fluctuate with the demand from competing hardwood lumber
markets, such as oak flooring, pallets and other specialty lumber products.
Normally, raw material price fluctuations are passed through to the customer
according to the terms of the applicable contract. Weather conditions can be a
factor in the supply of raw material, as unusually wet conditions may make it
difficult to harvest timber. Creosote, the preservative used to treat
crossties, accounts for approximately 10% of the finished tie's cost.
Hardwood lumber is procured by the division from hundreds of small sawmills
throughout the northeastern, midwestern, and southern areas of the country.
The ties are shipped via rail car or trucked directly to one of the
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division's thirteen treating plants, all of which are on line with a major
railroad. The ties are either air-stacked for a period of six to twelve months
or artificially dried by a process called boultonizing. Once dried, the ties
are pressure treated with creosote, a product of Koppers' Carbon Materials &
Chemicals division.
The Class 1 railroads have demonstrated a desire to outsource their non-core
business activities. This desire, coupled with Koppers' long-standing
relationships with the Class 1 railroads, has positioned the Company for a new
growth opportunity. The Company is now offering new services to the railroads
at a cost lower than the railroads' internal cost, and the Company believes
that there is an opportunity for future growth in such related areas.
Utility & Construction Products
The Utility & Construction Products division treats utility poles and timber
piling for sale to electric utilities, telephone companies and the
construction industry. These products are produced from pine or fir trees. The
trees are cut to length and shipped to peeling locations at one of the
Company's seven treating facilities or a third party's site. The poles are
then either dried in kilns or put directly into treating cylinders
(autoclaves) and steam conditioned before treatment. Kiln drying and steam
conditioning are processes that remove the water from the wood before
treatment. The applicable preservative is then injected into the wood under
pressure, after which a vacuum is used to remove any excess chemical.
Over the last two years, overall pole demand has dropped as utilities have
reduced non-essential spending in anticipation of competitive pressure arising
from deregulation. It is expected that deregulation will affect both new and
replacement pole installation markets for the next several years.
Pricing of raw materials has been significantly impacted over the last five
years due to a shortage of supply. Douglas fir availability has been affected
by logging restrictions on public land, resulting in increased demand for
southern yellow pine. According to Southern Pressure Treaters Association
statistics, pole prices have gone up over 65% during the last five years.
COKE PRODUCTS
Coke is a carbon and fuel source required in the manufacture of steel and
iron. Coal, the primary raw material, is carbonized in oxygen-free ovens to
obtain the finished product. Coke manufacturers are either an integrated part
of a steel company or, as in the case of the Company, operate independently
and are known as "merchant producers."
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 coke and foundry coke. Furnace coke, which is produced from
different coal blends and requires different 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.
Foundry coke generally has higher prices and is used predominantly by
automobile and pipe manufacturers in the metal-forming process. Imports are a
relatively small factor in the foundry coke market because of difficulties in
shipping and limited sources of high-quality imports, but imports of furnace
coke have become more significant over the past three years.
Coal is transformed into coke by a process beginning with the pulverizing,
blending and mixing of various types of coal to produce coke with the
appropriate chemical and physical specifications. The coal mixture is baked
approximately 18 hours for furnace coke and 28 hours for foundry coke at
temperatures reaching 2,000 degrees fahrenheit and is subsequently quenched
and screened in accordance with contract specifications before being loaded
for shipment. Volatile constituents, including gases, chemicals and coke-oven
tar, are extracted and sold for a variety of industrial uses, with a portion
of the gas being returned to the coking chambers as heating fuel.
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The quality of coke is determined by its chemical and physical properties. A
high percentage of fixed carbon and low levels of sulfur, ash, and other
volatile matter are essential to the effectiveness of coke in the iron and
steel manufacturing processes. The most important physical properties of coke
are its ability to withstand breakage and its resistance to abrasion during
handling and use in blast furnaces and foundries.
Domestic coke 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 1996.
Several of the large integrated steel companies have shut down or announced
plans to close their coke batteries, reducing domestic capacity. The reduction
of United States coke production capacity is expected to continue. Integrated
steel producers are employing various methods to displace a portion of the coke
use in steel production to reduce their reliance on existing suppliers and
decrease raw materials costs. In some cases, companies have been successful in
replacing a portion of their demand for coke with pulverized-coal-injection
technology.
MANUFACTURING PROCESSES
The Company's operations are, to a substantial extent, vertically integrated
and employ a variety of processes as illustrated in the following flow diagram:
[Diagram appears here]
50
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CARBON MATERIALS & CHEMICALS
The Company's Carbon Materials & Chemicals division manufactures three
principal products: carbon pitch, PAA and creosote. These products, used in
the production of aluminum, steel, flexible vinyl, polyester resins and the
treatment of wood, respectively, are produced through the distillation of coal
tar, a by-product of the transformation of coal into coke. The Company
believes that, together with Tarconord, it is one of the two largest producers
of carbon pitch in the world. The Carbon Materials & Chemicals division's
profitability is impacted by its cost to purchase coal tar in relation to its
prices realized for carbon pitch, creosote and PAA. The Company has five
operating facilities in the United States strategically located to provide
access to coal tar and to facilitate better service to its customers with a
consistent supply of high-quality products. For 1996, sales of carbon pitch,
PAA and creosote (to outside customers only) accounted for approximately 43%,
21% and 10% of the Carbon Materials & Chemicals division's net sales,
respectively. Other significant products include roofing pitches and related
products (11%), refined tar (4%), and other chemical and tar products (8%).
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 subsequently blend such coal tars to produce carbon pitch with
the consistent quality important in manufacturing quality anodes for the
aluminum industry. The Company's four coal tar distillation facilities and one
carbon pitch melting facility give it the ability to offer customers multiple
sourcing and consistent supply of high quality products. In anticipation of
potential shutdowns of United States coke capacity, the Company has secured
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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The following flow diagram illustrates the manufacturing processes in the
Carbon Materials & Chemicals division and shows the approximate percentage
yield for each gallon of coal tar distilled:
[Diagram appears here]
Koppers' sales volume of carbon pitch increased from 263,000 tons in 1993 to
364,000 tons in 1996, an increase of 38% due to improved aluminum market
conditions and the acquisition of the Clairton facility in April 1996. Overall,
pricing has trended moderately upward from 1993 through September 30, 1997.
Over 75% of Koppers' carbon pitch is sold to the aluminum industry under long-
term contracts ranging from three to seven years. Demand for carbon pitch 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 the division's net sales for
1996. The Company's three main competitors in North America in the production
of carbon pitch are AlliedSignal, Inc., VFT Canada, and Reilly Industries, Inc.
On a worldwide basis, naphthalene and orthoxylene, a petroleum derivative,
can both be used in the manufacturing of PAA and are considered to be
interchangeable. In the United States, however, the Company is the only PAA
producer capable of utilizing both orthoxylene and naphthalene in its
manufacturing process, with naphthalene being a generally lower cost feedstock.
Koppers' price realizations and profit margins for PAA have
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historically fluctuated with the price of orthoxylene and its relationship to
Koppers' 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 Koppers with a significant cost advantage over its
competition and a temporary expansion of margins. In 1996, however, the
average price for orthoxylene declined to approximately $0.16 per pound,
resulting in a corresponding decline in PAA prices and margins. At September
30, 1997, orthoxylene prices were $0.19 per pound. Koppers' cost to produce
naphthalene and PAA is primarily driven by its cost to procure coal tar.
Koppers' four principal PAA competitors, Exxon Chemical Company, Aristech,
BASF Corporation and Stepan Company, can use only orthoxylene in the
production of PAA.
Approximately 34% of Koppers' creosote production is sold to the Railroad &
Utility Products division. An additional 30% is sold to three Class 1 railroad
customers, all of which take delivery of the creosote at one of Koppers' wood
treating facilities. Over the last eight years, the Railroad & Utility
Products division purchased all of its requirements of creosote from the
Carbon Materials & Chemicals division, providing it with a competitive
advantage. Koppers is the only competitor in this market that is integrated in
this fashion. The remainder of its creosote materials are sold to railroads,
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.
Coal tar is purchased from a number of outside sources as well as Koppers'
Woodward Coke Facility and Monessen Facility. Primary suppliers are Bethlehem
Steel Corporation, LTV, USX Corporation and Wheeling-Pittsburgh Steel
Corporation. The Woodward Coke Facility currently provides approximately 3% of
Koppers' coal tar, and the Monessen Facility provides approximately 2%. On an
annual basis, Koppers distills approximately 150 million gallons of coal tar
representing approximately 76% of designed capacity. Other Carbon Materials &
Chemicals products include 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.
Koppers Australia and Tarconord are major regional producers of carbon pitch
and related products and are strategically important to the Company because
they enable the Company to access global markets for its carbon pitch and
related products.
RAILROAD & UTILITY PRODUCTS
The Company believes it is the largest supplier of treated wood crossties
and poles in the world. The Company markets these products almost exclusively
to the railroad and public utility markets, primarily in the United States and
Australia. The Railroad & Utility Products division's profitability is
primarily influenced by the demand for railroad products and services by Class
1 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. 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 13 pole distribution
yards located throughout the United States, and the Company also has one used
crosstie burning cogeneration plant. The Company's network of plants is
strategically located near timber supplies to enable it to access raw
materials and service customers effectively. In addition, Koppers' crosstie
treating plants abut railroad customers' track lines, and its pole
distribution yards are located near Koppers' utility customers in the
northeast and midwest regions of the United States.
Railroad Products & Services
The Railroad Products & Services business supplies treated crossties and
other products and services to the United States railroad industry. Koppers
has an estimated 47% share of the United States market for treated wood
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products sold to the railroad industry. The Railroad Products & Services
division's largest customer base is the Class 1 railroad market which buys 84%
of all crossties produced in the United States. Koppers is also expanding key
relationships with the approximately 500 short-line and regional rail lines.
The railroad crosstie market is a mature market with approximately 15.2
million replacement crossties purchased per year. The demand for crossties is
only partially affected by economic conditions and has been relatively stable
since 1993. In 1996, Koppers treated approximately 6.3 million crossties for
its Class 1 railroad customers. The Company currently has contracts with eight
of the nine United States Class 1 railroads and 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 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 1996, approximately 8% 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, including track panels, car cleaning and railroad tie
disposal that fit with its strategic plan.
Koppers' top-10 railroad accounts, which comprised approximately 53% of
Railroad & Utility Products net sales for 1996, are serviced through long-term
contracts ranging from one to twelve years on a requirements basis. CSX
accounted for 15% of Railroad & Utility Products net sales for 1996 and has a
five-year treating agreement with the Company, expiring in December 2001,
which calls for a minimum treating volume of 1.8 million crossties annually.
Koppers' 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.
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, midwestern 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. 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 eight years, the Railroad & Utility Products division purchased
all of its creosote requirements from the Carbon Materials & Chemicals
division. In addition, several railroads procure their own raw materials and
ship them into the Company's plants for treating services. Historically, over
three-fourths of the Company's net sales to railroads have been based on
annual or multi-year contracts.
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
wood crossties in limited circumstances. In 1991, the Company acquired a 50%
partnership interest in KSA, a concrete crosstie manufacturing facility in
Portsmouth, Ohio, in order to take advantage of this growth opportunity. In
1996, an estimated 1.1 million concrete crossties, or 7% of total tie
insertions, were installed by Class 1 railroads. The Company believes that
concrete ties will continue to command approximately this level of market
share. This facility produced approximately 150,000 concrete crossties in
1996, or 12% of the U.S. estimated concrete tie market. While the cost of
material and installation of a concrete tie is much higher than that of a wood
tie, the average life of wood and concrete ties are similar, although concrete
generally performs better in high weight bearing, high traffic areas and is
attractive to railroads for these purposes.
Utility & Construction Products
Koppers believes it is the largest domestic producer of treated wood pole
products. 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.
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<PAGE>
Utility poles are produced mainly 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. The majority of the softwood used for 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, the Company treats poles 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.
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 2.4 million poles are purchased
annually. In 1996 and 1997, the Company has seen its utility pole volumes
decrease due to industry deregulation and its impact on maintenance programs.
The Company expects demand for utility poles to remain at lower levels for the
next several years.
In 1996, pole products accounted for approximately 31% of Railroad & Utility
Products net sales. Koppers' sales to its ten largest pole customers accounted
for approximately 8% of Railroad & Utility Products net sales for 1996.
Principal competitors in the utility products market are McFarland Cascade,
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 mostly regional, wood treating companies which typically operate small to
medium size plants and serve local clients.
COKE PRODUCTS
The Company operates the Woodward Coke Facility and the Monessen Facility,
which have an aggregate annual coking capacity of approximately 800,000 tons.
For 1996, furnace coke comprised approximately 78% of total Coke Products net
sales, foundry coke 9%, other coke 8%, and by-products the remaining 5%.
The Company's Woodward Coke Facility produces furnace and foundry coke as
well as coal tar and other related chemicals. The Woodward Coke Facility
consists of 138 ovens arranged in three batteries and has an annual production
capacity of approximately 450,000 tons. All ovens have a capacity of
approximately eleven to twelve tons of coal per charge. One hundred of the
ovens were built in 1979 and 38 in 1970.
Due to the advanced ages of the coke oven batteries, ongoing environmental
compliance issues and significant capital expenditure requirements, all of
which have combined to reduce productive capacity and increase per unit costs,
the Company's Board of Directors has authorized the Company to close the
Woodward Coke Facility in early 1998. This will result in a charge to earnings
in the fourth quarter of 1997 of approximately $38.5 million, $9.4 million of
which will be cash charges primarily for dismantling and severance costs.
Sales and gross profit at the Woodward Coke Facility for the twelve months
ended September 30, 1997 amounted to $58.1 million and ($6.1) million,
respectively. Capital expenditures and depreciation for the twelve months
ended September 30, 1997 amounted to $3.4 million and $4.4 million,
respectively.
Koppers has made capital expenditures of approximately $25 million to
modernize the Monessen Facility since its purchase in 1995 for $5.0 million.
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 recent
improvements, makes the Monessen Facility 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 a tax credit based on its production of coke as a non-conventional fuel
and the sale thereof to unrelated third parties. The tax credit generated per
ton of coke is tied to a per-barrel of oil equivalent
55
<PAGE>
determined on a BTU basis and adjusted annually for inflation. In 1996, the
approximate value of this tax credit per ton of coke was $26.00. The credit is
available through December 31, 2002 and provided a tax benefit to Koppers of
approximately $7.0 million in 1996 and could provide up to $10.2 million per
year thereafter, unadjusted for inflation and assuming the availability of
taxable income and full production at the Monessen Facility. The Company may
monetize some or all of these tax credits. The spot market price for furnace
coke at September 30, 1997 was $107.00 per ton.
Koppers has a contract with LTV covering production at the Monessen
Facility. The contract is a seven-year contract through 2002 and is for
240,000 tons per year, plus or minus 10% at LTV's option, at prices subject to
periodic adjustments. In 1998, the Company expects LTV to take close to 100%
of the Monessen Facility's production capacity.
Due to unanticipated disruptions in United States coke consumption during
1996, along with the increasing availability of lower-priced imported coke,
the current market for coke remains relatively soft, and management believes
that currently there are significant excess inventories of coke in the United
States. In the future, the Company anticipates that additional domestic coking
facilities, including portions of its own facilities, may be idled due to the
costs associated with more stringent environmental compliance standards.
KOPPERS AUSTRALIA
Koppers Australia is a wholly owned subsidiary of the Company and is
Australia's largest manufacturer of carbon pitch, wood preservatives and
treated wood products, and markets these products, as well as carbon black, in
Australia, New Zealand and other Pacific Rim nations. Koppers Australia is the
only coal tar distiller in Australia, providing it with a significant
competitive advantage in serving the Australian aluminum smelting industry.
Products and services provided by Koppers Australia's coal tar division are
similar to those provided by the Company's Carbon Materials & Chemicals
division, with the exception that Koppers Australia does not have PAA
production capabilities (see "Business--Carbon Materials & Chemicals").
Operations in coal tar processing, chemically treated wood products, and
carbon black together accounted for 36%, 20% and 21% of Koppers Australia's
net sales respectively, in 1996. Koppers Australia also has a 51% interest in
a wood preservative chemicals company, Koppers-Hickson, which accounts for the
remaining 23% 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. 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 50%
market share.
In 1995, Koppers Australia purchased the remaining 49% of Continental Carbon
Australia Pty. Ltd., 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-
Hickson has exclusive rights to marketing, production and distribution of wood
preservatives (primarily copper chrome arsenate) developed by Hickson
International PLC throughout the Australian, South Pacific and East Asian
regions.
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Historical operating results for Koppers Australia for the past three fiscal
years are as follows (based on average month-end rates for income statement
items and end of period rates for balance sheet items):
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDING JUNE 30, ENDED SEPTEMBER 30,
(U.S. DOLLARS IN MILLIONS) ----------------------------- -------------------
1995 1996 1997 1996 1997
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenue........... $ 116.5 $ 132.6 $ 134.0 $ 102.5 $ 87.8
Operating profit............ 16.8 22.3 22.1 16.3 12.9
Net income.................. 10.7 14.3 14.8 9.5 6.2
Minority interest included
in net income............... 2.2 2.1 1.5 1.1 1.0
EBITDA...................... 23.4 29.2 29.7 22.9 19.0
Current assets.............. 46.1 47.9 53.2 62.4 60.5
Total assets................ 105.2 113.9 127.0 127.1 125.4
Current liabilities......... 19.7 22.8 22.0 24.5 19.1
Total liabilities........... 33.5 35.7 35.1 37.7 31.2
</TABLE>
EQUITY INVESTMENTS AND RELATED PARTIES
Tarconord
Tarconord, located in Nyborg, Denmark, produces and markets carbon pitch,
naphthalene and related products for the European and Middle Eastern markets.
The Company's 50% partner in Tarconord is Tarco A/S, a road paving and
industrial piping company also located in Denmark. 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.
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
Tarconord's tar distillation facility at Nyborg to Norwegian smelters located
at deep water sites.
Tarconord helps 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 and
domestic aluminum manufacturers.
The Company 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 in the production of carbon pitch and accompanying by-products. The
Koppers Group meets regularly and cooperates actively in the sharing of
technology and operating experience, reviewing research and development
projects, sourcing raw materials and determining marketing strategy. The
Company believes that, together with Tarconord, it has a 21% world market
share in carbon pitch, excluding the People's Republic of China and the states
of the former Soviet Union and Eastern Europe (for which data is not
available).
On August 2, 1996, Tarconord acquired 100% of the capital stock of Bitmac, a
United Kingdom company engaged in tar distillation which has had long-term
access to the coal tar generated by British Steel Corporation. Bitmac operates
four plants in the United Kingdom and its sales for its fiscal year ended
March 31, 1996 were approximately $60 million. The Company believes that this
acquisition will more than double Tarconord's capacity and sales and
strengthen its strategic position as a supplier to European aluminum smelters.
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.
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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 1.0 million concrete ties, approximately 0.75
million of which have been supplied since the start-up of operations in 1992.
It has also expanded its product offerings to include concrete turnouts, used
in rail traffic switching, and used crosstie rehabilitation.
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 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
TARCONORD
Total sales.......................................... $45,778 $72,419 $118,178
Equity in earnings................................... 738 3,139 1,577
Dividends received................................... 562 731 2,430
EBITDA............................................... 6,448 14,393 10,328
KSA
Total sales.......................................... $11,249 $14,751 $ 15,613
Equity in earnings................................... 962 1,102 1,470
Dividends received................................... 500 1,500 1,000
EBITDA............................................... 2,777 3,279 4,457
</TABLE>
RESEARCH AND DEVELOPMENT
As of September 30, 1997, the Company had ten 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 regarding 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 1994,
1995 and 1996 were $0.9 million, $0.9 million and $1.0 million, respectively.
TECHNOLOGY AND LICENSING
In 1988, Koppers 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 was the name "Koppers." The
association of the name with the chemical, building, wood preservation and
coke industries is beneficial to the Company, as it represents longstanding,
high-quality products. Included in the patents that were acquired by Koppers
were patents for refuse burners, pitch quality controls (both in tar plants
and aluminum plants), wood preservatives and additives, and tar refining.
ENVIRONMENTAL MATTERS
Like companies involved in similar environmentally sensitive businesses, the
Company's operations and properties are subject to extensive Environmental
Laws. The Clean Air Act and Clean Water Act, each as amended, impose stringent
standards on air emissions and water discharges, respectively. Under RCRA, a
facility that treats, stores or disposes of hazardous waste on-site may be
liable for corrective action costs, and a facility that holds a RCRA permit
may have to incur costs relating to the closure of certain "hazardous" or
"solid" waste management units. Under CERCLA and similar state laws, an owner
or operator of property at which
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releases of hazardous substances have occurred may be liable for investigation
and remediation of any resulting contamination and related natural resource
damages. In addition, under CERCLA, the generator of hazardous substances may
be strictly, and jointly and severally liable for any required investigation
or remediation at third-party disposal sites and related natural resource
damages. The Environmental Laws are subject to frequent amendment. The
sanction for failure to comply with such Environmental Laws can include
significant civil penalties, criminal penalties, injunctive relief and denial
or loss of, or imposition of significant restrictions on, environmental
permits. In addition, the Company could be subject to suit by third parties in
connection with violations of or liability under Environmental Laws.
Jefferson County issued a notice of violation in March 1996 in connection
with various alleged violations of Jefferson County's air pollution control
regulations for emissions from coke oven batteries at Koppers' Woodward Coke
Facility during the period May 26, 1992 through March 1, 1996. On February 14,
1997, the US-EPA issued a notice of violation covering the same issues as were
raised in the Jefferson County notice of violation. Thereafter, Koppers
discovered that certain benzene abatement equipment at the its Woodward Coke
Facility had not been operational for several months. Following a preliminary
investigation, Koppers also discovered that certain environmental reports and
records contained incomplete and inaccurate information and that certain
environmental reports and certifications were not filed when required. Koppers
has notified Jefferson County, the State of Alabama and the US-EPA of these
irregularities, and the environmental reporting status of the Woodward Coke
Facility has been brought up to date by Koppers. Counsel and independent
investigators have been retained to conduct a complete and thorough
investigation. While the benzene abatement equipment has been returned to
service, Koppers could be subject to significant liability in connection with
these matters, including civil and criminal penalties and the risk of third-
party lawsuits. Koppers and Jefferson County have negotiated a settlement
agreement, pursuant to which Koppers might be required to install monitoring
and control equipment and institute operational changes. In addition, Koppers
has permanently shut down Batteries 4A, 4B and 5 at the Woodward Coke
Facility. The settlement agreement includes both the original Jefferson County
notice of violation and the self-reported benzene abatement violations. The
settlement agreement, in addition to the items listed above, also required
Koppers to pay a civil penalty in the amount of $450,000 to Jefferson County,
which sum has been paid. There can be no assurance that the settlement with
Jefferson County will deter the US-EPA from pursuing its notice of violation
and that the US-EPA will not seek additional actions or penalties that could
have a material adverse effect on the business, financial condition, cash flow
and results of operations of the Company.
During the investigation of the Woodward Coke Facility described above, it
was also discovered that certain environmental records and reports relating to
discharges of treated process water and treated storm water contained
incomplete and inaccurate information. Corrected reports have been submitted
to the State of Alabama and the US-EPA. While no notice of violation has been
issued in conjunction with this issue, it is believed likely that a notice of
violation will be issued and substantial penalties may be sought by the State
of Alabama or the US-EPA.
Koppers was served with a notice of violation from Pa-DEP, which alleged
Koppers was not in compliance with a plan approval issued by Pa-DEP for the
Monessen Facility. The notice alleges that the Monessen Facility is emitting
more nitrogen oxides than is allowed by the plan approval. Koppers also
received a notice of violation in connection with a failure to conduct timely
emission testing on the boilers at the Monessen Facility. Koppers has
installed additional equipment and modified existing equipment to improve the
quality of boiler emissions. Resolution of these matters could have a material
adverse effect on the business, financial condition, cash flow and results of
operations of the Company. Koppers has submitted an amended plan approval
application to Pa-DEP that provides for limitations on the operation of the
two boilers at the Monessen Facility. Pa-DEP is currently reviewing this
application. As a result of the failure to meet the original nitrogen oxide
emission limitations, it is expected that Pa-DEP will propose a civil penalty
in an amount of approximately $100,000. However, there can be no assurance
that a higher penalty will not be sought.
On June 12, 1996, Pa-DEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a consent agreement between Koppers
and Pa-DEP regarding liability for environmental conditions
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<PAGE>
existing at the time Koppers purchased the Monessen Facility ("Consent
Agreement"). The notice of violation alleged that Koppers had not implemented
the corrective actions required under the Consent Agreement in a timely
fashion. Pa-DEP has calculated that a stipulated penalty in the amount of
$261,000 may be requested under the Consent Agreement for the alleged untimely
actions. Koppers has completed the implementation of the corrective actions at
issue and is in the process of conducting settlement negotiations with Pa-DEP
to agree upon the amount of the stipulated penalty to be assessed in
connection with this matter.
In June 1997, during a routine environmental compliance audit of the
Logansport Wood Treating Facility, it was discovered that certain records and
reports relating to discharges of treated process water contained incomplete
and inaccurate information. Corrected reports have been submitted to the local
municipality, the State of Louisiana and the US-EPA. While no notice of
violation has been issued in conjunction with this issue, it is likely that a
notice of violation will be issued and substantial penalties will be sought by
the local municipality, the State of Louisiana or the US-EPA.
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 $7.0 million and $16.0 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 $3.8 million and $6.9
million for 1997 and 1998, respectively. Because Environmental Laws have
historically become increasingly more stringent, costs and expenses relating
to environmental control and compliance may increase in the future. Also,
Koppers may have to incur additional capital expenditures and compliance costs
(which it is unable to estimate at this time) in connection with the
resolution of the aforementioned notices of violations. As such, there can be
no assurance that costs of compliance with existing and future Environmental
Laws will not exceed current estimates and will not have a material adverse
effect on the business, financial condition, cash flow and results of
operations of the Company.
Under the terms of the Asset Purchase Agreement between Koppers and Old
Koppers (now known as Beazer East, Inc.) at the formation of Koppers in 1988,
Beazer East assumed the liability for and indemnified Koppers against (among
other things) cleanup liabilities for contamination occurring prior to the
purchase date at sites acquired from Beazer East, and third-party claims
arising from such contamination under the Indemnity. Beazer East's performance
of the Indemnity is unconditionally guaranteed by Beazer Limited under the
Beazer Guarantee. The obligations of Beazer Limited under the Beazer Guarantee
may be enforced directly against Beazer Limited without notice of default to
Beazer East and without making any demand on, obtaining any judgment or order
or commencing any legal proceeding against, or taking any other action against
Beazer East. 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, and if Koppers were required to pay such costs,
it could have a material adverse effect on the business, financial condition,
cash flow and results of operations of the Company. Furthermore, if Koppers
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 Koppers would have significant negative net worth.
Five of the sites owned and/or operated by Koppers are listed on the
National Priorities List ("NPL") promulgated under CERCLA. These sites are the
Feather River Wood Treating Facility, Gainesville Wood Treating Facility,
Galesburg Wood Treating Facility, Florence Wood Treating Facility, and
Follansbee Tar Facility. In addition, many of Koppers' 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, cleanup and closure
activities are being conducted and paid for by Beazer East pursuant to the
terms of the Indemnity. The Indemnity provides that, with certain limited
exceptions, Beazer East will be responsible for and will indemnify Koppers
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
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<PAGE>
condition or activity at the sites purchased or leased in connection with the
acquisition from Beazer East existing on or prior to the Asset Closing,
provided that, within twelve years after the Asset Closing (December 29, 2000)
Beazer East either receives a claim asserted by Koppers or a third party or
receives specific and particularized notice of a condition or activity that
may give rise to a claim and such a claim is at any time actually brought.
However, claims related to hazardous substances that were both generated at
facilities owned or operated prior to the Asset Closing and disposed of at
third-party locations before the date of the Asset Closing do not have to be
asserted or identified before the twelfth anniversary. Also, Beazer East
indemnifies Koppers for ninety percent (90%) of claims in excess of $100,000
in any year that are related to disposal of contaminated soil generated as a
result of a voluntary decision by Koppers. In regard to personal injury
environmental claims asserted by an employee alleging exposure to toxic
substances in the workplace, such claims are allocated between Beazer East and
Koppers according to how many months the employee making the claim worked for
each entity.
Costs and liabilities associated with investigative, cleanup and closure
activities 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 investigative, cleanup and closure activities
relating to pre-Asset Closing contamination at such properties (including
being the signatory on several consent agreements relating to such sites) and
has paid, to date, for substantially all such investigative, remedial and
closure costs, the government has the right under applicable Environmental
Laws to seek relief directly from Koppers for any and all such pre-Asset
Closing obligations and liabilities at or on sites owned or operated by
Koppers. 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 Beazer Guarantee, respectively. Since 1991, Beazer East and Beazer
Limited have been wholly-owned indirect subsidiaries of Hanson PLC. Hanson PLC
recently reorganized by spinning-off its chemicals, tobacco and energy
subsidiaries. However, Koppers has not received information indicating that
this spin-off will adversely affect the ability of Beazer East and Beazer
Limited to meet their obligations under the Indemnity and the Beazer
Guarantee, respectively.
Beazer East is actively fulfilling its obligations to conduct investigative,
cleanup and closure programs at the properties which Koppers acquired from
Beazer East in accordance with the requirements of regulatory authorities. The
Indemnity is not applicable to sites acquired since the formation of Koppers,
for which separate indemnifications have been negotiated where appropriate.
Beazer East and Beazer Limited are indirect subsidiaries of Hanson PLC. The
largest and smallest group in which the result of these companies are
consolidated is that headed by Hanson PLC. Beazer East is an operating company
which had revenues of approximately $600 million for each of the last three
fiscal years ended September 28, 1996 and had total assets of $1.7 billion as
of September 28, 1996. The Beazer East unaudited consolidated balance sheet at
September 28, 1996 reflects negative net worth of $64 million (including an
intercompany liability of $1.4 billion). This negative net worth is in large
measure the result of the adoption of SFAS 121, which resulted in pre-tax
charges for asset write-downs of $4.4 billion during fiscal year 1996.
Furthermore, Beazer East had a negative cash flow from operations in the
fiscal year ended September 28, 1996 and required funding from other Hanson
subsidiaries to meet its obligations. According to the Directors' Report and
draft accounts for the year ended September 30, 1996, Beazer Limited is a
holding company. While the unaudited balance sheet of September 30, 1996
expects to show a negative shareholder funds balance of (Pounds)10.4mn, the
accounts are prepared under the going concern concept because a fellow
subsidiary undertaking provides financial support to enable Beazer Limited to
meet its liabilities as they fall due. The Company has been informed that
Beazer East and Beazer Limited will remain wholly-owned indirect subsidiaries
of Hanson PLC. Management believes that Beazer East and Beazer Limited will
continue to fulfill their obligations as they have for the last eight years.
In the event that Beazer East and Beazer Limited do not continue to fulfill
their commitments under the Indemnity and the Beazer Guarantee, Koppers may be
required to pay costs covered by the Indemnity.
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<PAGE>
Koppers has been informed by Beazer East that for the last three years,
amounts paid by Beazer East under the Indemnity have averaged approximately
$13.0 million per year. The requirement to pay such costs without
reimbursement would have a material adverse effect on the business, financial
condition, cash flow and results of operations of the Company. Furthermore, if
Koppers were required to record a contingent liability regarding environmental
matters covered by the Indemnity on its balance sheets, the result could be
that Koppers would have significant negative net worth.
In addition, Beazer East has defended and is presently defending certain
toxic tort actions arising from the pre-Asset Closing operation of assets
which the Company acquired from Beazer East. These tort actions were not
assumed by Koppers under the Asset Purchase Agreement and are within the scope
of the Indemnity.
As a result of a lawsuit among CSX, Beazer East and the Company, CSX has
assumed Beazer East's obligations under the Indemnity in connection with
Koppers' facility located in Green Spring, West Virginia. There can be no
assurance that CSX will perform its obligations and if Koppers were required
to pay such costs, it could have a material adverse effect on the business,
financial condition, cash flow and results of operations of the Company.
The Indemnity does not afford Koppers indemnification against environmental
costs and liabilities relating to activities or conditions occurring or
arising after the Asset Closing, nor does the Indemnity cover liabilities
arising in connection with post-Asset Closing acquisitions.
In the summer of 1997, Koppers evaluated the environmental liabilities
related to the manufacturing sites associated with the Asset Closing. The
evaluation was based on a report prepared by an independent consultant, which
utilized site-specific public information to the extent available, as
supplemented by (among other things) its technical knowledge and expertise,
published resources regarding costing of remediation techniques and specified
technical cost and regulatory assumptions. The evaluation and report estimated
that approximately $111.1 million would be expended at these sites for
environmental remediation during the period of 1998 to 2042. Koppers estimates
that approximately $92.9 million of this amount is covered under the
Indemnity, that it is responsible for $135,000, and that identified third
parties are responsible for the remaining $18.1 million. There can be no
assurance, however, that the actual liabilities associated with the
investigation, cleanup and closure of these sites will not exceed this
estimate. The factors that could affect the continuing validity of the
estimate include: new information about the contamination at the sites that is
contrary to previous assumptions, new interpretations of existing
Environmental Laws, new and more stringent Environmental Laws, and more
vigorous enforcement policies of regulatory authorities. Further, in the event
that Beazer East does not fulfill it commitments under the Indemnity or the
identified third parties do not fulfill their commitments, Koppers may be
required to pay costs that would have a material adverse effect on the
business, financial condition, cash flow and results of operation of the
Company.
Koppers is aware of environmental contamination at the Monessen Facility,
which was purchased by Koppers after the Asset Closing (which site was not
previously owned by Beazer East and is thus not subject to the Indemnity).
Koppers has entered into the Monessen Consent Order with Pa-DEP in connection
with this site pursuant to which Koppers' liabilities for environmental
cleanup have been capped at $550,000 for environmental problems which have
been identified pursuant to the Monessen Consent Order.
Koppers purchased a wood treating facility located in Somerville, Texas from
Atchison, Topeka & Santa Fe Railway Company ("Santa Fe") in March 1995. At the
time of the purchase there were several existing environmental issues at the
facility. Santa Fe retained responsibility for remediating and monitoring all
closed solid waste units and surface impoundments at the facility that were in
existence at the time of the sale. Santa Fe indemnified Koppers for all
violations of Environmental Laws or releases of hazardous substances or
petroleum products that occurred before the sale. In addition, for the first
twelve years following the sale, Santa Fe is obligated to indemnify Koppers
for costs that exceed a specified annual cap ($50,000) when such costs arise
from a construction project that Koppers voluntarily initiates and also arise
from complying with Environmental Laws governing containment, disposal or
monitoring of hazardous substances at the site.
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<PAGE>
Koppers purchased a tar refinery located in Clairton, PA from Aristech in
April 1996. This tar refinery is located within the boundaries of a coke
facility owned and operated by U.S. Steel Group. U.S. Steel Group had sold the
tar refinery to Aristech in 1986. At the time of the purchase there were
several existing environmental issues at the tar refinery. When USX sold the
tar refinery to Aristech, it provided Aristech with a broad indemnity for
environmental contamination that predated the 1986 sale of the tar refinery to
Aristech. When Koppers purchased the tar refinery from Aristech, it assumed
Aristech's obligations and gained Aristech's protections under the USX
indemnity agreement. The principal obligation is that Koppers must pay for ten
percent (10%) of the environmental remediation costs incurred by USX in
implementing a consent decree concerning the tar refinery and USX's
surrounding coke facility, up to a maximum combined payment by both Koppers
and Aristech of $500,000. Prior to Koppers' purchase of the tar refinery,
Aristech had made payments of approximately $175,000 under the USX indemnity
agreement. To date, Koppers has not made any payments under this indemnity
provision. As part of the agreement with Aristech, Koppers agreed to indemnify
Aristech for environmental claims arising from operations at the tar refinery.
However, the requirement for Koppers to indemnity Aristech has several
exceptions, including but not limited to: claims for which USX will provide
indemnification, personal injury claims arising from a pre-sale chemical
release, and any incident listed on a schedule to the asset purchase
agreement.
At the Clairton facility, the Somerville facility and the Monessen Facility
(all of which Koppers acquired subsequent to the acquisition of the Beazer
East properties), remedial actions are being performed in accordance with
applicable regulations and all indemnification obligations are being honored
at the Clairton and Somerville facilities. The Company believes that the
sellers (or their predecessors) at both of these sites will conduct and
finance most investigative and cleanup activities directly. Although the
Company is not aware of any reason why such indemnification obligations will
not be performed, if Koppers were required to pay costs associated with
environmental contamination at these two sites, it could have a material
adverse effect on the business, financial condition, cash flow and results of
operations of the Company. The Monessen Facility was purchased pursuant to a
bankruptcy sale. Although an environmental indemnification was provided by the
seller of that facility to Koppers, Koppers does not expect that such
indemnification obligations will be honored. If contamination at the Monessen
Facility should be discovered which has not been identified pursuant to the
Monessen Consent Order, or if the US-EPA should require cleanup above the
$550,000 "cap" contained in the Monessen Consent Order, the costs associated
with such events could have a material adverse effect on Koppers' business,
financial position, cash flow and results of operations.
Koppers has made other asset acquisitions that involved purchase of real
property. While environmental indemnifications were obtained as part of the
transactions, the limited financial resources of the selling parties makes
fulfillment of these indemnifications unlikely. Material pre-purchase
environmental conditions identified during the due diligence leading up to
these acquisitions were addressed either before the purchase or immediately
afterwards.
From time to time, Koppers is served with notices of violation and requests
for information relating to environmental compliance matters at the various
facilities it owns and operates. In November 1996, Koppers received an
information request from US-EPA in regard to water discharges from its
facilities. Subsequent to this initial request, Koppers has received two
additional information requests from US-EPA. The initial request and the first
supplemental request have been answered. The second supplemental request is in
the process of being answered. While the US-EPA has not issued a notice of
violation in connection with these requests, there can be no assurance that
civil penalties or the requirement to expend capital resources will not arise.
In September 1996, Koppers was served with a notice of violation from the
Illinois Environmental Protection Agency ("IEPA") relating to 16 releases of
hazardous materials which occurred at or from its facility located in
Stickney, Illinois between January 24, 1990 and May 3, 1996. Koppers has
entered into negotiations with the IEPA to investigate four of the releases
which had the potential to cause groundwater or off-site contamination.
Although Koppers believes that all such releases were remediated when they
occurred, there can be no assurances that the IEPA will not require additional
action in connection with this matter.
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<PAGE>
In addition to the environmental issues discussed above, Koppers has
received or expects to receive notices of violations and requests for
information at its Monessen Facility and the Follansbee, Gainesville and
Stickney facilities that relate to matters which Koppers does not believe will
have a material impact on the business, financial condition, cash flow, and
results of operation of the Company.
On occasion, Koppers Australia has been served with notices relating to
environmental compliance issues arising in connection with its operations.
Koppers Australia was served with a notice by the Tasmanian Department of
Environment and Land Management ("DELM") which alleged that the Longford,
Tasmania facility was not in compliance with certain water discharge
requirements. Koppers Australia is currently in negotiations with the DELM
with respect to this issue. In addition, historic operations conducted at the
Koppers Australia facilities have resulted in identified and potential soil
and groundwater contamination of varying degrees. The Trentham, Victoria
facility is listed on the Victorian Register of Contaminated Sites. The
Rockhampton and Takura, Queensland facilities are listed on the Queensland
Register of Contaminated Sites as "probable sites". In addition, Koppers
Australia has identified various levels of groundwater contamination at the
Mayfield, New South Wales and Bunbury, Western Australia facilities. Although
the relevant regulatory authorities have not required the investigation or
remediation of these or other Koppers Australia facilities to date, these
authorities may require such work if Koppers Australia does not undertake such
activities itself. Costs associated with these activities may be material and
there can be no assurance that such costs will not have a material adverse
effect on the business, financial condition, cash flow and results of
operations of the Company.
EMPLOYEES AND EMPLOYEE RELATIONS
As of August 31, 1997, the Company employed 601 salaried employees and 1,643
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>
Carbon Materials & Chemicals............................ 131 300 431
Railroad & Utility Products............................. 213 614 827
Coke Products........................................... 69 436 505
Koppers Australia....................................... 106 284 390
Administration.......................................... 82 9 91
--- ----- -----
Total Employees....................................... 601 1,643 2,244
=== ===== =====
</TABLE>
Of the Company's 2,244 employees, approximately 1,400 are represented by 17
different unions and covered under 29 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.
In the last five years, 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.
LEGAL PROCEEDINGS
Jefferson County issued a notice of violation on March 11, 1996 in
connection with various alleged violations of Jefferson County's air pollution
control rules and regulations for emissions from coke oven batteries
64
<PAGE>
at Koppers' Woodward Coke Facility. On February 14, 1997, the US-EPA sent a
notice of violation to Koppers that covered the same issues identified in the
Jefferson County notice of violation. Koppers has entered into a settlement
agreement with Jefferson County; however, there can be no assurance that the
US-EPA will not seek additional actions or penalties that could have a
material adverse effect on the business, financial condition, cash flow and
results of operations of the Company. See "Business--Environmental Matters."
Koppers was served with a notice of violation from the Pennsylvania
Department of Environmental Protection ("Pa-DEP"), which alleged Koppers was
not in compliance with a plan approval issued by Pa-DEP for the Monessen
Facility. The notice alleges that the Monessen Facility is emitting more
nitrogen oxides than is allowed by the plan approval. Koppers also received a
notice of violation in connection with a failure to conduct timely emission
monitoring testing on the boilers at the facility. Koppers has installed
additional equipment and modified existing equipment to improve the quality of
boiler emissions. Resolution of these matters could have a negative effect on
the business, financial condition, cash flow and results of operations of the
Company. Koppers has submitted an amended plan approval application to Pa-DEP
that provides for limitations on the operation of the two boilers at the
Monessen Facility. Pa-DEP is currently reviewing this application. As a result
of the failure to meet the original nitrogen oxide emission limitations, it is
expected that Pa-DEP will propose a civil penalty in an amount of
approximately $100,000. See "Business--Environmental Matters."
On June 12, 1996, Pa-DEP issued a notice of violation in connection with an
alleged noncompliance with the terms of a Consent Agreement between the
Company and Pa-DEP regarding liability for environmental conditions existing
at the time Koppers purchased the Monessen Facility. The notice of violation
alleged that Koppers had not implemented the corrective actions required under
the Consent Agreement in a timely fashion. Pa-DEP has calculated that a
stipulated penalty in the amount of $261,000 may be requested under the
Consent Agreement for the alleged untimely actions. Koppers has completed the
implementation of the corrective actions at issue and is in the process of
conducting settlement negotiations with Pa-DEP to agree upon the amount of the
stipulated penalty to be assessed in connection with this matter. See
"Business--Environmental Matters."
The Company is involved in various other proceedings relating to
environmental laws and regulations. See "Business--Environmental Matters."
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 business,
financial condition, cash flow and results of operations of the Company.
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 five Carbon Materials &
Chemicals facilities, 15 wood treating facilities, 14 facilities in the South
Pacific and the Woodward Coke and Monessen Facilities. See "--Carbon Materials
& Chemicals," "--Railroad & Utility Products" and "--Coke Products." As of
December 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:
<TABLE>
<CAPTION>
DESCRIPTION OF
DIVISION/PLANT LOCATION ACREAGE PROPERTY INTEREST
- -------------- -------- ------- -----------------
<S> <C> <C> <C>
CARBON MATERIALS & CHEMICALS
Clairton Clairton, PA 17 Owned
Follansbee Follansbee, WV 32 Owned
Portland Portland, OR 6 Leased through 12/31/98
Stickney Cicero, IL 38 Owned
Woodward Dolomite, AL 23 Owned
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF
DIVISION/PLANT LOCATION ACREAGE PROPERTY INTEREST
- -------------- -------- ------- -----------------
<S> <C> <C> <C>
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
COKE PRODUCTS
Monessen Monessen, PA 45 Owned
Woodward Dolomite, AL 136 Owned
KOPPERS
AUSTRALIA
Koppers-Hickson Trentham, Victoria 24 Owned
Auckland, New Zealand 1.3 Leased
Penang, Malaysia 3 Leased
Fiji .7 Owned
South Africa .3 Leased
Koppers Timber
Preservation Bunbury, West Australia 13.7 Leased
Grafton, New South Wales 100 Owned
Hume, Australia Capital Territory 50 Leased
Longford, Tasmania 16.5 Owned
Rockhampton, Queensland 3.5 Leased
Takura, Queensland 79 Leased
Thorton, New South Wales 15 Owned
Koppers Coal Tar
Products Mayfield, New South Wales 26 Owned
Continental Kurnell, New South Wales 20 Leased
Carbon Australia
Pty Ltd.
</TABLE>
The Company's corporate headquarters are 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.
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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........ 66 Chairman, Acting Chief Executive Officer and Director
Clayton A. Sweeney...... 66 Director
Brooks C. Wilson........ 64 Director
N. H. Prater............ 69 Director
Christian L. Oberbeck... 37 Director
Donald E. Davis......... 40 Vice President and Chief Financial Officer
Thomas D. Loadman....... 43 Vice President and General Manager, Railroad Products & Services
William R. Donley....... 40 Vice President and General Manager, Utility & Construction Products
Walter W. Turner........ 50 Vice President and General Manager, Carbon Materials & Chemicals
Randall D. Collins...... 45 Vice President, Corporate Services and Secretary
Joseph E. Boan.......... 50 Vice President, Human Resources
Robert H. Wombles....... 45 Vice President, Technology
M. Claire Schaming...... 44 Treasurer and Assistant Secretary
</TABLE>
Mr. Wagner was elected Chairman and Chief Executive Officer of Koppers in
November 1994, having served as President and Chief Executive Officer from
1988 through 1994. As of March 1, 1996, he resigned his position as Chief
Executive Officer, retaining his responsibilities as Chairman and Director. As
of June 10, 1997, he assumed the position of Acting Chief Executive Officer.
He has been a Director of Koppers 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 also served as a Director of
Integra Financial Corporation of Pittsburgh, Pennsylvania from 1992 until 1996
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. Sweeney has been a Director of Koppers since January 1989. Mr. Sweeney
has been a shareholder and Director of Dickie, McCamey & Chilcote, P.C. since
1987 and served as Managing Director from 1988 to September 1993. 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 and St. Francis Medical Center.
Mr. Wilson has been a Director of Koppers 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 Koppers since May 1989. Mr. Prater retired
from Mobay Corporation, where he served as the President and Chief Executive
Officer from July 1986 to July 1990. He currently serves
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<PAGE>
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. Oberbeck has been a Director of Koppers since October 20, 1997. Mr.
Oberbeck has been a Managing Director of SBC Warburg Dillon Read Inc. since
September 1997. Previously, he was a Managing Director of Dillon, Read & Co.
Inc. from February 1995 to September 1997. Prior to joining Dillon, Read & Co.
Inc., Mr. Oberbeck was a Managing Director of Castle Harlan, Inc. where he
worked from October 1987 until February 1995. Mr. Oberbeck is a member of the
Saratoga Partners Investment Committee and a Director of J&W Scientific
Incorporated and USI Holdings Corporation.
Mr. Davis was elected Vice President and Chief Financial Officer of Koppers
in November 1994. Mr. Davis had been General Manager of Koppers' Recovery
Resources Group from June 1992 to March 1996 and served as Treasurer from 1988
until 1992. He joined Old Koppers in 1978 and held various positions in the
corporate accounting and auditing departments until being named General
Manager of the Chemical Systems Sector at Old Koppers 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 the Transportation Plants
Operations Manager of the Railroad & Utility Products division 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 its Governmental
Affairs Committee.
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. Turner is
also a Director of Tarconord.
Mr. Collins was elected Vice President and Secretary in November 1994, and
has been Secretary of Koppers 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 Vice President,
Corporate Services. His responsibilities include establishing policy and
assuring regulatory compliance for environmental, safety and health matters,
coordination of legal affairs and shareholder relations. 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.
Mr. Wombles joined the Company in June 1997 and was elected Vice President,
Technology. Prior to joining Koppers, Mr. Wombles was Vice President,
Research, Applications and Development for Ashland Oil,
68
<PAGE>
Inc. Mr. Wombles has published a series of technical articles on hydrocarbon
processing and holds five patents on related methodologies.
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.
STOCKHOLDERS' AGREEMENT; NEW STOCKHOLDERS' AGREEMENT
The Company is a party to a Stockholders' Agreement by and among the
Company, Saratoga and each Management Investor dated as of December 1, 1997
(as amended, the "Stockholders' Agreement"). The Management Investors are a
group of approximately 120 individual stockholders (each, a "Management
Investor") with ownership interests ranging from .01% to 8.62% of the voting
Common Stock and collectively comprising 100.0% of the total outstanding
shares of the voting Common Stock. Each Management Investor is an officer,
Board member or current or former employee of either Koppers Industries, Inc.
or one of its subsidiaries. Pursuant to the Stockholders' Agreement, the
Management Investors as a group have appointed Robert K. Wagner and Clayton A.
Sweeney as the two Representatives ("Representatives") of the Management
Investors and granted to the Representatives an irrevocable proxy for the term
of the Stockholders' Agreement to vote all his or her voting shares.
As of September 30, 1997, Koppers was obligated to purchase approximately
235,000 shares of former employees.
The Stockholders' Agreement sets forth supermajority voting requirements for
the Board of Directors for certain matters, including the issuance of
additional stock, mergers, consolidations, acquisitions, significant asset
sales, and the incurrence of material indebtedness. Saratoga is entitled to
nominate a majority of the Board of Directors. The Stockholders' Agreement
requires the Company to redeem shares upon a Management Investor's ceasing for
any reason to be employed by the Company.
DIRECTOR COMPENSATION
Koppers does not pay compensation to Directors who are also employees. Each
Director who is not an employee is paid a fee of $22,000 per year.
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<PAGE>
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, 1996, 1995 and
1994, of those persons who were at December 31, 1996 the current and former
Chief Executive Officers and each of the other four most highly compensated
executive officers of the Company who earned more than $100,000 in salary and
bonus in 1996 (collectively, the "Named Executive Officers"):
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 (2)
- ----------------------- ---- -------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Donald P. Traviss 1996 $336,000 $117,306 $ 277 -- $11,576
President and Chief 1995 251,000 138,000 126,341(3) 45,000 3,861
Executive Officer (1) 1994 38,333 40,000 28,492 -- 1,567
Donald E. Davis 1996 151,985 55,159 -- -- 11,576
Vice President and
Chief 1995 132,860 61,446 -- 7,500 4,038
Financial Officer 1994 106,590 24,305 -- -- 1,888
Walter W. Turner 1996 128,400 53,305 -- -- 11,876
Vice President and
General 1995 106,920 53,767 -- 7,500 3,466
Manager, Carbon
Materials 1994 91,200 22,095 -- -- 1,599
& Chemicals
Lawrence F. Flaherty 1996 132,600 47,636 1,400 -- 11,576
Vice President, Total 1995 127,100 59,850 694 -- 4,204
Quality and Technology
(4) 1994 124,000 29,460 666 -- 1,023
Joseph E. Boan 1996 120,980 43,428 -- -- 9,613
Vice President 1995 116,380 56,792 -- -- 2,853
Human Resources 1994 111,880 26,116 -- -- 1,960
Robert K. Wagner 1996 107,955 27,930 1,108 -- 136,576
Chairman and Acting
Chief 1995 380,000 228,000 14,143 -- 4,649
Executive Officer (1) 1994 344,750 98,102 15,821 -- 3,000
</TABLE>
- --------
(1) Effective June 9, 1997 Mr. Traviss resigned from the Company as President
and Chief Executive Officer, and Mr. Wagner assumed the position of acting
Chief Executive Officer.
(2) All other compensation consists of regular and supplemental matches to
401(k) plan, and, in the case of Mr. Wagner, also includes $17,500 for
director fees, $16,667 for chairman fees, and $90,833 for consulting
services to the Company.
(3) Includes $116,410 of reimbursement of moving expenses under Company
relocation program.
(4) Effective July 31, 1997 Mr. Flaherty retired from Koppers.
70
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to unexercised options granted in
1996 and prior years under the Company's stock option plan. There were no
options exercised in 1996 by any of the Named Executive Officers. 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 1996.
AGGREGATED OPTION/SARS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS (1)
---------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald P. Traviss........ 30,000 shs. 15,000 shs. $103,333 $51,667
Donald E. Davis.......... 21,400 5,000 220,564 17,222
Walter W. Turner......... 17,350 5,000 172,320 17,222
Lawrence F. Flaherty..... 28,800 -- 341,432 --
Joseph E. Boan........... 27,900 -- 329,832 --
</TABLE>
- --------
(1) The value of unexercised in-the-money options is calculated by subtracting
the exercise price from $14.00 which was the market value at December 31,
1996 as determined by the Board of Directors pursuant to the provisions of
the Stockholders' Agreement.
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"). 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 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
200,000 15,680 31,360 47,040 62,720 78,400 94,080
250,000 19,680 39,360 59,040 78,720 98,400 118,080
300,000 23,680 47,360 71,040 94,720 118,400 142,080
350,000 27,680 55,360 83,040 110,720 138,400 166,080
400,000 31,680 63,360 95,040 126,720 158,400 190,080
450,000 35,680 71,360 107,040 142,720 178,400 214,080
500,000 39,680 79,360 119,040 158,720 198,400 238,080
</TABLE>
The following describes the Terminal Salary and Years of Service,
respectively, accrued as of December 31, 1996 for each Named Executive
Officer: Donald P. Traviss, $282,500 and 2 years of service; Donald E. Davis,
$126,371 and 8 years of service; Walter W. Turner, $108,732 and 8 years of
service; Lawrence F. Flaherty, $139,053 and 8 years of service; Joseph E.
Boan, $123,405 and 8 years of service; and Robert K. Wagner, $402,635 and 7
years of service.
71
<PAGE>
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 agreed to pay consulting fees totaling
$109,000 per year. The initial contract term of one year will automatically
renew for four additional one-year periods unless either party elects to
cancel the contract. Upon his assumption of the position of Acting Chief
Executive Officer of the Company in June 1997, the consulting fees were
increased to $359,000 per year, plus participation in the Company's incentive
compensation program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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.
72
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial
ownership of the Company's Common Stock at September 30, 1997, and on a pro
forma basis after consummation of, the Cornerstone-Spectrum, Inc. share
purchase and Recapitalization, respectively, by (i) each person known to the
Company to beneficially own more than five percent of the outstanding shares
of the Common Stock, (ii) each Director of the Company, (iii) each executive
officer and (iv) all officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
ACTUAL
---------------------------------------------------
VOTING NON-VOTING
COMMON STOCK COMMON STOCK (2)
------------------------- -------------------------
SHARES PERCENTAGE SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED (1) OWNED OWNED OWNED
BENEFICIAL OWNER ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cornerstone-Spectrum, Inc.. 2,117,952 30.99% 1,815,000 50.02%
Saratoga (3)...............
Saratoga Koppers (3).......
KAP Investments, Inc. (4).. 2,250,000 32.92%
APT Holdings Corporation
(5)........................ 1,813,200 49.98%
Management Investors
(6)(7)..................... 2,466,639 36.09%
Christian L. Oberbeck (3)..
Robert K. Wagner (8)....... 349,487 5.11%
Clayton A. Sweeney (8)..... 138,960 2.03%
Donald E. Davis (9)........ 44,057 *
Walter W. Turner (10)...... 41,736 *
Joseph E. Boan (11)........ 74,493 1.09%
N.H. Prater (12)........... 26,569 *
Brooks C. Wilson (13)...... 96,579 1.41%
All Directors and Officers
as a group (13 persons)... 937,087 13.71%
--------- ------ --------- ------
Total Shares Outstanding
(7)........................ 6,834,591 100.00% 3,628,200 100.00%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CORNERSTONE-SPECTRUM PRO FORMA
SHARE PURCHASE REFINANCING (14)
--------------------------------------------------- ---------------------------------------------------
VOTING NON-VOTING VOTING
COMMON STOCK COMMON STOCK COMMON STOCK PREFERRED STOCK
------------------------- ------------------------- ------------------------- -------------------------
SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED OWNED OWNED OWNED OWNED OWNED OWNED OWNED
BENEFICIAL OWNER ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cornerstone-
Spectrum, Inc...
Saratoga (3).... 2,117,952 30.99% 464,180 20.38% 2,145,624 100%
Saratoga Koppers
(3)............. 2,117,952 30.99% 464,180 20.38% 2,145,624 100%
KAP Investments,
Inc. (4)........ 2,250,000 32.92%
APT Holdings
Corporation (5). 1,813,200 79.62%
Management
Investors
(6)(7).......... 2,466,639 36.09% 1,584,286 100.00%
Christian L.
Oberbeck (3).... 2,117,952 30.99% 464,180 20.38% 2,145,624 100%
Robert K. Wagner
(8)............. 349,487 5.11% 349,487 22.06%
Clayton A.
Sweeney (8)..... 138,960 2.03% 138,960 8.77%
Donald E. Davis
(9)............. 44,057 * 44,057 2.78%
Walter W. Turner
(10)............ 41,736 * 41,736 2.63%
Joseph E. Boan
(11)............ 74,493 1.09% 74,493 4.70%
N.H. Prater
(12)............ 26,569 * 26,569 1.68%
Brooks C. Wilson
(13)............ 96,579 1.41% 96,579 6.10%
All Directors
and Officers as
a group (13
persons)....... 937,087 13.71% 937,087 59.15%
--------- ------ --------- ------ --------- ------ --------- ---
Total Shares
Outstanding (7). 6,834,591 100.00% 2,277,380 100.00% 1,584,286 100.00% 2,145,624 100%
</TABLE>
- --------
* 1% or less.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and/or investment
power with respect to the shares shown as beneficially owned.
(2) Non-Voting Common Stock is entitled to received dividends ratably with
Voting Common Stock. Non-Voting Common Stock has been issued upon the
conversion of Series B Junior Convertible Preferred Stock and upon the
exercise of warrants granted to certain of the Company's lenders.
(3) Saratoga is a private investment fund. Saratoga Koppers is an affiliate of
Saratoga. The address for Saratoga and Saratoga Koppers is 535 Madison
Avenue, New York, NY 10022. Saratoga and Saratoga Koppers have generally
authorized Mr. Oberbeck, a Director of the Company, to vote the shares of
the Company held by
73
<PAGE>
Saratoga and Saratoga Koppers. On a pro forma basis after giving effect to
the Saratoga Investment, Saratoga directly owns 2,117,952 shares of voting
Common Stock and 27,672 shares of non-voting Common Stock and Saratoga
Koppers directly owns 436,508 shares of non-voting Common Stock. On a pro
forma basis after giving effect to the Recapitalization, Saratoga directly
owns 2,145,624 shares of preferred stock. Mr. Oberbeck disclaims beneficial
ownership of the shares of Common Stock owned by Saratoga and Saratoga
Koppers. Upon consummation of the Recapitalization, Saratoga will be
entitled to elect a majority of the Board of Directors and to exercise a
majority of the voting power of all outstanding stock of the Company.
(4) KAP Investments, Inc. is a wholly owned subsidiary of Koppers Australia.
The address for KAP Investments, Inc. is 15 Blue Street, North Sydney,
NSW, Australia. KAP Investments, Inc. has authorized Mr. Brooks C. Wilson,
a Director of the Company, to vote the shares of the Company held by KAP
Investments, Inc.
(5) 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, also serves as the administrative and collateral agent
for the Company's bank credit facilities. The address for APT Holdings
Corporation is One Mellon Bank Centre, Room 4500, Pittsburgh, PA 15258.
(6) Pursuant to the Stockholders' Agreement, Mr. Wagner and Mr. Sweeney were
appointed as Representatives of the approximately 140 Management Investors
and granted irrevocable proxies to vote the shares of Common Stock owned
by the Management Investors for the term of the Stockholders' Agreement.
Upon consummation of the Recapitalization and the completion of the
Recapitalization, new proxies will be executed by the current shareholder
employees appointing Mr. Wagner and Mr. Sweeney as representatives of the
Management Investors. See "Management--Stockholders' Agreement". The
address for Mr. Wagner is Koppers Industries, Inc., 436 Seventh Avenue,
Pittsburgh, PA 15219. The address for Mr. Sweeney is Dickie, McCamey &
Chilcote, P.C., Two PPG Place, Suite 400, Pittsburgh, PA 15222.
(7) Includes vested options held by the Management Investors to acquire
549,974 shares of Common Stock which are exercisable at any time after the
consummation of the Recapitalization.
(8) Mr. Wagner and Mr. Sweeney, as Representatives of the Management Investors
pursuant to the Stockholders' Agreement, have the authority to vote the
2,466,639 shares held by the Management Investors and consequently may be
deemed to have voting control of such shares (which include 349,487 shares
directly owned by Mr. Wagner and 138,960 shares directly owned by Mr.
Sweeney).
(9) Includes vested options to purchase 23,900 shares. Pursuant to the
Stockholders' Agreement, Mr. Davis has granted an irrevocable proxy to the
Representatives of the Management Investors to vote the shares owned by
him until consummation of the Recapitalization.
(10) Includes vested options to purchase 19,850 shares. Pursuant to the
Stockholders' Agreement, Mr. Turner has granted an irrevocable proxy to
the Representatives of the Management Investors to vote the shares owned
by him until consummation of the Recapitalization.
(11) Includes vested options to purchase 27,900 shares. Pursuant to the
Stockholders' Agreement, Mr. Boan has granted an irrevocable proxy to the
Representatives of the Management Investors to vote the shares owned by
him until consummation of the Recapitalization.
(12) Pursuant to the Stockholders' Agreement, Mr. Prater has granted an
irrevocable proxy to the Representatives of the Management Investors to
vote the shares owned by him until consummation of the Recapitalization.
(13) Mr. Wilson directly owns 96,579 shares. Pursuant to the Stockholders'
Agreement, Mr. Wilson has granted an irrevocable proxy to the
Representatives of the Management Investors to vote the 96,579 shares
owned by him until consummation of the Recapitalization.
(14) Assumes that (i) APT Holdings Corporation redeems all shares; (ii) all
Non-Voting Common Stock is retired and held in Treasury; (iii) KAP
Investments, Inc. shares are retired and held in Treasury;
(iv) Management Investors redeem 882,353 shares; and (v) no shares are
redeemed by Directors and Officers.
74
<PAGE>
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--
Stockholders' Agreement."
Pursuant to a resolution of the Board of Directors, Koppers redeemed, on
April 2, 1996, 25% of the shares of Common Stock then held by Mr. Wagner at
$12.33 per share.
On March 13, 1996, Cornerstone-Spectrum, Inc. converted all of its shares of
Series B Junior Convertible Preferred Stock into shares of non-voting Common
Stock, $.01 par value, in accordance with Section 8(e) of the Certificate of
Designation of the Series B Preferred Stock. On March 22 and March 25, 1996,
Koppers 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 October 1997, all shares of Common Stock held by Cornerstone-
Spectrum, Inc. were purchased by the Offeree Stockholders and subsequently
transferred to the Company, Saratoga and Saratoga Koppers. In addition, all
shares of Common Stock held by APT Holdings Corporation will be redeemed as
part of the Recapitalization. See "Principal and Selling Stockholders."
In connection with the Recapitalization, the Company paid a transaction fee
of $1.4 million to an affiliate of Saratoga, and a financial advisory fee of
$1.4 million to the Initial Purchaser, in consideration for advisory services
related to the structuring and financing of the Saratoga Investment and the
Recapitalization.
Koppers has entered into an advisory and consulting agreement with Saratoga
pursuant to which the Company will pay a management fee of $150,000 per
quarter to Saratoga. In addition, Saratoga will provide the Company with
advisory services in connection with significant business transactions, such
as acquisitions, for which the Company will pay Saratoga compensation
comparable to compensation paid for such services by similarly situated
companies.
DESCRIPTION OF NEW CREDIT FACILITIES
Koppers has established New Credit Facilities of $275.0 million aggregate
principal amount with Swiss Bank Corporation, Stamford Branch and Mellon Bank,
N.A. The New Credit Facilities will be syndicated among several lenders who
will be parties thereto (collectively, the "Lenders"), with SBC Warburg Dillon
Read Inc. as arranger and syndication agent, Swiss Bank Corporation, Stamford
Branch, as documentation agent, and Mellon Bank, N.A., as administrative agent
(the "Administrative Agent") (the Administrative Agent together with the other
agents, the "Agents"). The following is a summary description of the principal
terms of the New Credit Facilities. The description set forth below does not
purport to be complete and is qualified in its entirety by reference to the
agreements setting forth the principal terms and conditions of the New Credit
Facilities, which are available upon request from Koppers.
Structure. The New Credit Facilities consist of (a) a Term Loan A Facility
in an aggregate principal amount of $70 million, (b) a Term Loan B Facility in
an aggregate principal amount of $65 million and (c) a Revolving Credit
Facility for up to $140 million, including (i) up to $20 million of such
amount being available as a standby or trade letter of credit sub-facility;
(ii) $10 million of such amount being available as a swing-line sub-facility
and (iii) up to $40 million and $20 million of such amount being exclusively
reserved for use in connection with the Australian Term Letter of Credit and
the Australian Revolving Letter of Credit described below, respectively.
75
<PAGE>
National Australia Bank, Limited provided an Australian dollar ("A$")
denominated term loan to Koppers Australia and certain of its subsidiaries who
are Subsidiary Guarantors in an aggregate principal amount equivalent to US$40
million. As credit support for such term loan, an A$ denominated letter of
credit (the "Australian Term Letter of Credit") was issued under the Revolving
Credit Facility to such Australian lender in the amount of A$59,303,187.55.
Commonwealth Bank of Australia provided an A$ denominated revolving loan
facility for the benefit of Koppers Australia and certain of its subsidiaries
who are Subsidiary Guarantors with availability of up to the equivalent of
US$10 million. As credit support for such Australian revolving facility, an A$
denominated letter of credit (the "Australian Revolving Letter of Credit") was
issued under the Revolving Credit Facility to such Australian lender in the
amount of A$14,825,796.89. To the extent that currency fluctuations cause the
face amount of the Australian Term Letter of Credit or the Australian
Revolving Letter of Credit to exceed on a US$ equivalent basis their
respective subfacility limits, availability will be correspondingly reduced
under the Revolving Credit Facility.
Availability. Loans under the Term Loan A Facility are available in multiple
draws for up to 364 days from the date on which the other transactions were
consummated and all other conditions to closing were met (the "Closing Date")
for use as follows: on the Closing Date, to provide a portion of the proceeds
necessary to consummate the Recapitalization and to pay related fees and
expenses, and after the Closing Date, to repurchase Senior Notes not tendered
in the Tender Offer or to repurchase shares of the Company's common stock
owned by management or the redemption of shares of Common Stock held by APT
Holdings Corporation if consummated after the Closing Date. Loans under the
Term Loan B Facility and the Australian term loan were drawn on the Closing
Date to provide a portion of the proceeds necessary to consummate the
Recapitalization and to pay related fees and expenses. The Revolving Credit
Facility and the Australian revolving facility are available at any time
during the six-year period following the Closing Date subject to the
fulfillment of certain conditions precedent including the absence of a default
under the New Credit Facilities.
Security; Guarantee. The Company's obligations under the New Credit
Facilities are guaranteed by any subsidiary which guarantees indebtedness
represented by the Notes, Koppers Australia, any subsidiary of the Company
which owns Capital Stock of Koppers Australia and each subsequently acquired
or organized significant subsidiary of the Company, subject to certain
exceptions. The New Credit Facilities and the guarantees thereof are secured
by a perfected first priority lien on, and pledge of, all of the capital stock
and intercompany notes of each of the direct and indirect subsidiaries of the
Company on the Closing Date or thereafter created or acquired and a perfected
first priority security interest in all substantial tangible and intangible
assets and proceeds of the foregoing of the Company and the guarantors subject
to certain permitted liens.
Interest; Maturity. Borrowings under the Term Loan A Facility, the Revolving
Credit Facility and the Australian facilities bear interest, payable
quarterly, at a rate per annum equal to: (i) LIBOR (or in the case of the
Australian facilities, the Bank Swap Reference Rate) plus an applicable margin
or (ii) the Administrative Agent's prime rate (the "base rate") plus an
applicable margin. Borrowings under the Term Loan B Facility bear interest,
payable quarterly, at a rate per annum equal to LIBOR plus an applicable
margin. The initial applicable margin is 1.75% per annum for LIBOR loans and
Bank Swap Reference Rate loans, as the case may be, under the Term Loan A
Facility and the Revolving Credit Facility (including the Australian Term
Letter of Credit and the Australian Revolving Letter of Credit), 2.25% per
annum for loans under the Term Loan B Facility and .75% per annum for base
rate loans, which may only be made under the Term Loan A Facility and the
Revolving Credit Facility (other than the Australian Term Letter of Credit and
the Australian Revolving Letter of Credit). The applicable margins may
increase to as high as 2.0% per annum or reduce ultimately to as low as .75%
per annum in the case of LIBOR loans and Bank Swap Reference Rate loans, as
the case may be, under the Term Loan A Facility and the Revolving Credit
Facility (including the Australian Term Letter of Credit and the Australian
Revolving Letter of Credit), increase to as high as 2.5% per annum or reduce
to as low as 1.75% per annum in the case of loans under the Term Loan B
Facility and increase to as high as 1.0% per annum or reduce to as low as 0.0%
per annum in the case of base rate loans, in each case based upon improved
credit measures. The Term Loan A Facility and the Australian term loan will
mature on the date which is six years
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after the Closing Date, and the Term Loan B Facility will mature on the date
which is seven years after the Closing Date. Amounts outstanding under the
Term Loan Facilities will amortize on a semi-annual basis beginning at the end
of the second full fiscal quarter after the Closing Date. Aggregate principal
payments will be $11.0 million, $16.0 million and $21.0 million for the years
1998, 1999 and 2000, respectively, increasing to a maximum of $45.0 million in
2003.
Fees. The Company will be required to pay the lenders, on a quarterly basis,
a commitment fee initially equal to .375% per annum (which may be increased or
reduced based upon credit measures) on the undrawn portion of the Revolving
Credit Facility and a commitment fee initially equal to .375% per annum on the
undrawn portion of the Term Loan A Facility. The Company is also obligated to
pay: (i) a per annum letter of credit fee equal to the applicable margin for
LIBOR based loans on the aggregate amount of outstanding letters of credit,
including the Australian Term Letter of Credit and the Australian Revolving
Letter of Credit; provided the Australian Revolving Letter of Credit fee will
be based on the daily average outstanding amount of loans under the Australian
revolving facility; (ii) a facing fee for the letter of credit issuing bank;
and (iii) agent, arrangement and other similar fees.
Prepayments. The Term Loan Facilities are required to be prepaid with (a)
100% of the net proceeds (including casualty insurance proceeds) of asset
sales and other asset dispositions for proceeds in excess of a certain
threshold to be mutually agreed (subject to customary exceptions for
inventory, used or obsolete equipment, etc. and to an exclusion for a
specified amount of reinvestments of such proceeds in agreed categories of
assets), (b) 100% of the net proceeds of the issuance or incurrence of debt or
of any sale and lease-back for proceeds in excess of a certain threshold to be
mutually agreed, and (c) 50% of the net proceeds from any issuance of equity
securities in any public offering or private placement or from any capital
contribution (other than net proceeds received upon exercise of employee stock
options, the sale of shares pursuant to the Koppers Industries, Inc. Employee
Stock Purchase Plan and the Koppers Industries, Inc. Stock Redemption and
Purchase Plan, or the resale of shares to Management Investors).
Covenants. The New Credit Facilities contain a number of covenants
including, among other things, limitation on liens; limitation on indebtedness
and guarantees; limitation on loans and investments; limitations on dividends
and stock repurchases to specified amounts; limitation on optional payments
and modification of certain indebtedness; limitation on leases; limitation on
fundamental changes; limitation on disposition of assets and stock and
indebtedness of subsidiaries; limitations on transactions with affiliates;
limitation on discontinuance or changes in business (including acquisitions);
limitation on capital expenditures; limitation on filing certain consolidated
tax returns; limitation on use of proceeds from loans; limitation on the
amendment of certain documents; limitation on certain actions with respect to
pension and benefit plans; limitation on restrictions on liens and dividend
restrictions on subsidiaries. In addition, the New Credit Facilities require
that the Company comply with specified ratios and tests, including minimum net
worth (deficit) on and after December 31, 1997 of not less than $(40) million,
subject to upward adjustment, which amount shall be increased by 50% of the
Company's cumulative consolidated net income on a quarterly basis plus 100% of
the proceeds from equity issuances; capital expenditures not to exceed $35
million annually plus up to 50% of the previous year's permitted capital
expenditures to the extent such amounts were not expended in such previous
year; ratio of total debt to consolidated EBITDA of 4.80 to 1.00 initially
decreasing to 3.50 to 1.00; interest coverage ratio of 2.25 to 1.00 initially
increasing to 3.00 to 1.00; consolidated debt service coverage ratio of 1.75
to 1.00 initially decreasing to 1.25 to 1.00 and consolidated current ratio at
the end of any fiscal year to be not less than 1.10 to 1.00.
Events of Default. Events of Default under the New Credit Facilities include
non-payment of principal, interest, fees or other amounts when due; violation
of covenants; failure of any representation or warranty to be true in all
material respects; cross-default and cross-acceleration; Change in Control (as
defined in the New Credit Facilities); bankruptcy and insolvency events with
respect to the Company or a guarantor; material judgments; ERISA events; and
actual or asserted (by the Company or a guarantor) invalidity of any loan
document or security interest.
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DESCRIPTION OF NOTES
The New Notes, like the Old Notes, will be issued pursuant to the Indenture,
dated December 1, 1997, between the Company and PNC Bank, National Association
(the "Trustee"). The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (the "Trust Indenture Act"). The terms of the New Notes are
substantially identical to the Old Notes in all material respects (including
interest rate and maturity), except that (i) the New Notes will not be subject
to the restrictions on transfer (other than with respect to holders that are
broker-dealers, persons who participated in the distribution of the Old Notes
or affiliates) and (ii) the Registration Rights Agreement covenants regarding
registration and the related Liquidated Damages (other than those that have
accrued and were not paid) with respect to Registration Defaults will have
been deemed satisfied. The Notes are subject to all such terms, and holders of
Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein. Wherever particular
Sections or defined terms of the Indenture not otherwise defined herein are
referred to, such Sections or defined terms shall be incorporated herein by
reference. A copy of the form of Indenture will be made available to any
prospective purchaser of the Notes upon request to the Company.
GENERAL
The Notes mature on December 1, 2007. The Notes are limited to $175,000,000
in aggregate principal amount. Each Note bears interest at the rate per annum
shown on the front cover of this Prospectus from December 1, 1997, or from the
most recent date to which interest has been paid or provided for, payable
semi-annually (to Holders of record at the close of business on May 15 or
November 15 immediately preceding such interest payment date) on June 1 and
December 1 of each year, commencing June 1, 1998.
The Notes are issued only in fully registered form, without interest
coupons, and in denominations of $1,000 of principal amount and any integral
multiple thereof. No service charge will be made to a Holder for any
registration of transfer, exchange or redemption of Notes, but the Company may
require payment sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
RANKING
The Notes are general unsecured obligations of the Company and rank junior
to, and are subordinated in right of payment to, all existing and future
Senior Debt of the Company, pari passu in right of payment with all senior
subordinated Debt of the Company (except as to secured Debt) and senior in
right of payment to all Subordinated Debt of the Company. In addition, the
Notes are effectively subordinated to all secured obligations to the extent of
the assets securing such obligations. At September 30, 1997, on a pro forma
basis after giving effect to the Saratoga Investment and the Recapitalization,
the Company would have had $175,000,000 Senior Debt outstanding, all of which
would have been secured. All Debt incurred under the New Credit Facilities
will be Senior Debt of the Company and will be secured by substantially all of
the assets of the Company.
Except as described in "Change of Control," the Indenture does not contain
any provision that would provide protection to the holders of the Notes
against a sudden and dramatic decline in credit quality resulting from a
takeover, recapitalization or similar restructuring of the Company. If a
Change of Control were to occur, there can be no assurance that the Company
would have adequate funds to repurchase the Notes as required by the Indenture
and/or that the lenders under the New Credit Facilities will permit such
repurchase. See "--Covenants--Change of Control" and "Description of New
Credit Facilities--Events of Default."
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or in part, at
any time on or after December 1, 2002 and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first class
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mail to each Holder's last address as it appears in the registry books, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period beginning December 1, of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002..................................................... 104.938%
2003..................................................... 103.292%
2004..................................................... 101.646%
2005 and thereafter...................................... 100.000%
</TABLE>
plus accrued and unpaid interest, if any, to the date of such redemption.
In addition, at any time prior to December 1, 2000, the Company may, at its
option, redeem up to 35% of the aggregate principal amount of Notes with the
net proceeds of one or more issuances of Common Stock (other than Redeemable
Stock) at a redemption price (expressed as a percentage of principal amount)
of 109.875% plus accrued interest, if any, to the date of such redemption;
provided that at least $100,000,000 aggregate principal amount of Notes would
remain outstanding after giving effect to any such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in such manner as it will deem appropriate and
fair; provided, however, that no Note of $1,000 in original principal amount
or less will be redeemed in part.
SUBORDINATION OF THE NOTES
The payment of the principal of and interest or liquidated damages on the
Notes is subordinated in right of payment, to the extent and in the manner
provided in the Indenture, to the prior payment in full in cash of all Senior
Debt, which shall include, for all purposes described in this "Subordination
of the Notes" heading, the cash collateralization in full of all outstanding
letters of credit constituting Senior Debt.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
payment (a "Defeasance Trust Payment") from the trust described under
"Defeasance" (a "Defeasance Trust")), upon any dissolution or winding-up or
total liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all Senior Debt shall first be paid in full in cash before the Holders of the
Notes or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company of the principal of or interest or liquidated
damages on the Notes, or any payment by the Company to acquire any of the
Notes for cash, property or securities, or any distribution by the Company
with respect to the Notes of any cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment). Before any payment may be made by, or on behalf of,
the Company of the principal of or interest or liquidated damages on the Notes
upon any such dissolution or winding-up or total liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment), to which the Holders of the Notes or
the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Debt (pro rata
to such holders on the basis of the respective amounts of Senior Debt held by
such holders) or their representatives or to the trustee or trustees or agent
or agents under any agreement or indenture pursuant to which any of such
Senior Debt may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Senior Debt in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor
to or for the holders of such Senior Debt. In the event that, notwithstanding
the foregoing, the Trustee or any holder of Notes receives any payment or
distribution of assets of the Company of any kind, whether in cash, property
or securities, including, without limitation, by way of set-off or otherwise,
in respect
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of the Notes before all Senior Debt of the Company is paid in full in cash,
then such payment or distribution will be held by the recipient in trust for
the benefit of holders of Senior Debt and will be immediately paid on or
delivered to the holders of Senior Debt or their representative or
representatives to the extent necessary to make payment in full in cash of all
Senior Debt remaining unpaid, after giving effect to any concurrent or
distribution, or provision therefor, to or for the holders of Senior Debt.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment but
including the establishment of a Defeasance Trust) by or on behalf of the
Company of principal of or interest or liquidated damages on the Notes, or for
or on account of the purchase, redemption or other acquisition of the Notes by
or on behalf of the Company, whether pursuant to the terms of the Notes, upon
acceleration, pursuant to an Offer (as defined herein), a Change of Control
Offer (as defined herein) or otherwise, will be made (including, without
limitation, by way of set-off) if, at the time of such payment, there exists a
default in the payment of all or any portion of the obligations on any
Designated Senior Debt, whether at maturity, on account of mandatory
redemption or prepayment, acceleration or otherwise, and such default shall
not have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Designated Senior Debt. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Debt pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior Debt or
the trustee or agent acting on behalf of the holders of such Designated Senior
Debt, then, unless and until such event of default has been cured or waived or
has ceased to exist or such Designated Senior Debt has been discharged or
repaid in full in cash or the benefits of these provisions have been waived by
the holders of such Designated Senior Debt, no direct or indirect payment
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment but including the establishment of the
Defeasance Trust) will be made (including, without limitation, by way of set-
off) by or on behalf of the Company of principal of or interest or liquidated
damages on the Notes, or for or on account of the purchase, redemption or
other acquisition of the Notes by or on behalf of the Company, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date
of receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or
the Notes to the contrary, (x) in no event will a Payment Blockage Period
extend beyond 179 days from the date the Payment Blockage Notice in respect
thereof was given, and (y) not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive days.
No event of default that existed or was continuing on the date of commencement
of any Payment Blockage Period with respect to the Designated Senior Debt
initiating such Payment Blockage Period (to the extent the holder of
Designated Senior Debt, or trustee or agent, giving notice commencing such
Payment Blockage Period had knowledge of such existing or continuing event of
default) may be, or be made, the basis for the commencement of any other
Payment Blockage Period by the holder or holders of such Designated Senior
Debt or the trustee or agent acting on behalf of such Designated Senior Debt
whether or not within a period of 360 consecutive days, unless such event of
default has been cured or waived for a period of not less than 90 consecutive
days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders
of the Notes will be paid to the holders of Senior Debt to the extent
necessary to pay the Senior Debt in full in cash, and the Company may be
unable to meet fully its obligations with respect to the Notes.
At the time of issuance of the Old Notes, loans outstanding under the New
Credit Facilities were the only outstanding Senior Debt. Subject to the
restrictions set forth in the Indenture, in the future the Company may issue
additional Senior Debt to refinance existing Debt or for other corporate
purposes.
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GUARANTEES OF THE NOTES
The Indenture provides that each of the Subsidiary Guarantors will
unconditionally guarantee on a joint and several, senior subordinated basis
all of the Company's obligations under the Notes, including its obligations to
pay principal and interest with respect to the Notes. The Subsidiary
Guarantors also guaranteed all obligations of the Company under the New Credit
Facilities, and each Subsidiary Guarantor granted a security interest in
substantially all its assets to secure the obligations under the New Credit
Facilities.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
under the Indenture, will result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under Federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Subsidiary Guarantee
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount, based on the net assets of each Subsidiary Guarantor
determined in accordance with GAAP. Except as provided in "--Covenants" below,
the Company is not restricted from selling or otherwise disposing of any of
the equity interests of the Subsidiary Guarantors.
The Indenture provides that each of the Company's Subsidiaries formed or
acquired after the date of issuance of the Notes that provides a Guarantee
under the New Credit Facilities will be required to be a Subsidiary Guarantor.
The Company will cause each Subsidiary required to issue a Subsidiary
Guarantee after the date of issuance of the Notes to (i) execute and deliver
to the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Subsidiary shall become a party to the
Indenture and thereby unconditionally guarantee all of the Company's
Obligations under the Notes and the Indenture on the terms set forth therein
and (ii) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Subsidiary
and constitutes a legal, valid, binding and enforceable obligation of such
Subsidiary (which opinion may be subject to customary assumptions and
qualifications). Thereafter, such Subsidiary shall (unless released in
accordance with the terms of this Indenture) be a Subsidiary Guarantor for all
purposes of the Indenture.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if, subject to the requirements
of the first paragraph under "Consolidation, Merger and Sale of Assets," all
or substantially all of the assets of any Subsidiary Guarantor or all of the
equity interests of any Subsidiary Guarantor are sold (including by issuance
or otherwise) by the Company in a transaction constituting an Asset
Disposition, and if (x) the Net Cash Proceeds from such Asset Disposition are
used in accordance with the covenant described under "--Covenants--Limitation
on Asset Disposition" or (y) the Company delivers to the Trustee an Officers'
Certificate to the effect that the Net Cash Proceeds from such Asset
Disposition shall be used in accordance with the covenant described under "--
Covenants--Limitation on Asset Disposition" and within the time limits
specified by such covenant, then such Subsidiary Guarantor (in the event of a
sale or other disposition of all of the equity interests of such Subsidiary
Guarantor) or the corporation acquiring such assets (in the event of a sale or
other disposition of all or substantially all of the assets of such Subsidiary
Guarantor) shall be released and discharged of its Subsidiary Guarantee
obligations in respect of the Indenture and the Notes.
The Subsidiary Guarantees are joint and several, general unsecured
obligations of the Subsidiary Guarantors. The respective obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee are subordinated and
junior in right of payment to the prior payment in full of all existing and
future Guarantor Senior Debt of such Subsidiary Guarantor, as the case may be,
to substantially the same extent as the Notes are subordinated to all existing
and future Senior Debt of the Company. No separate financial statements of any
of the Subsidiary Guarantors are presented herein, except for Koppers
Australia, as management believes that such financial statements would not
provide any additional meaningful information.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Acquisition Debt" means Debt of any Person existing at the time such Person
became a Subsidiary of the Company (or such Person is merged into the Company
or one of its Subsidiaries) or assumed in connection with the acquisition of
assets from any such Person (other than assets acquired in the ordinary course
of business), including Debt Incurred in connection with, or in contemplation
of, such Person becoming a Subsidiary of the Company (or such Person being
merged into the Company or one of its Subsidiaries) (but excluding Debt of
such Person which is extinguished, retired or repaid in connection with such
Person becoming a Subsidiary of the Company).
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, no Person (other than the Company or any Subsidiary of the Company)
in whom a Receivables Subsidiary makes an investment solely in connection with
a Receivables Transaction shall be deemed to be an Affiliate of the Company or
any of its Subsidiaries with respect to such investment (but may be deemed an
Affiliate with respect to other transactions, if applicable).
"Approved Government Financing" means below-market interest rate financing
provided by or through any governmental or quasi-government subdivision,
agency, office or instrumentality or pursuant to any government approved or
supported loan program.
"Asset Acquisition" means (i) an investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person will become a
Subsidiary of the Company or will be merged with the Company or any of its
Subsidiaries or (ii) the acquisition by the Company or any of its Subsidiaries
of the assets of any Person which constitute substantially all of an operating
unit or business of such Person.
"Asset Disposition" means, with respect to any Person, any sale, transfer,
conveyance, lease or other disposition (including, without limitation, by way
of merger, consolidation or sale-leaseback) by such Person or any of its
Subsidiaries to any Person (other than to such Person or a Wholly-Owned
Subsidiary of such Person and other than in the ordinary course of business)
of (i) any assets of such Person or any of its Subsidiaries or (ii) any shares
of Capital Stock of such Person's Subsidiaries. For purposes of this
definition, any disposition in connection with directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall not
constitute an Asset Disposition. For purposes of this definition, the term
"Asset Disposition" will not include any sale, transfer, conveyance, lease or
other disposition of assets and properties of the Company that is governed by
the provision described in "Consolidation, Merger and Sale of Assets."
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, at the date of determination, the present value (discounted at
the rate of interest implicit in the terms of the lease) of the obligation of
the lessee for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). "Net rental payments" under any lease for
any period means the sum of such rental and other payments required to be paid
in such period by the lessee thereunder, not including, however, any amount
required to be paid by such lessee (whether or not designated as rent or
additional rent) on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges required to be paid by such lessee
thereunder or any amounts required to be paid by such lessee thereunder
contingent upon the amount of sales, maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges.
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"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board duly authorized to act under the Indenture.
"Business Day" means a day which in the city (or in any of the cities, if
more than one) where amounts are payable in respect of the Notes, as specified
on the face of the form of Note recited above, and where the Corporate Trust
Office is located, is neither a legal holiday nor a day on which banking
institutions are authorized by law or regulation to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock or equity interests whether now outstanding or issued
after the date of the Indenture, including, without limitation, all Common
Stock and all Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the rental obligations of such
Person as lessee under which, in conformity with generally accepted accounting
principles, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligation" means, as applied to any Person, the rental
obligation required to be capitalized on the balance sheet of such Person
under any Capitalized Lease of such Person.
"Cash Equivalents" means, at any time, (i) Debt with a maturity of one year
or less issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof), (h)
certificates of deposit or acceptances with a maturity of one year or less of
any financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$500,000,000, (iii) commercial paper with a maturity of 270 days or less
issued by a corporation (except an Affiliate of the Company) organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or at least P-1 by Moody's, (iv) repurchase
agreements with institutions described in clause (ii) with respect to
investments
described in clause (i), (v) market auction preferred stock rated in the
highest rating by S&P and Moody's and (vi) money market mutual funds rated in
the highest rating by S&P and Moody's or investing solely in investments
described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than one or more Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event
or otherwise), directly or indirectly, of more than 50% of the total voting
power of the then outstanding Common Stock of the Company; (ii) the Company
consolidates with, or merges with or into, another Person or the Company or
its Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of the assets of the Company and its Subsidiaries
(determined on a consolidated basis) to any Person, other than any such
transaction where immediately after such transaction the Person or Persons
that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) immediately prior to such transaction, directly or indirectly, the then
outstanding Common Stock of the Company "beneficially own" (as so determined),
directly or indirectly, a majority of the total voting power of the then
outstanding Common Stock of the surviving or transferee Person; or (iii)
following the first public offering of Common Stock of the Company, during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (which, for purposes of the
definition of "Change of Control," shall not include any committee thereof) of
the Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the
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Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding
or issued after the date of the Indenture, and includes, without limitation,
all series and classes of such common stock.
"Consolidated Capital Expenditures" means, for any period, the aggregate of
all expenditures incurred (whether paid in cash or accrued as liabilities and
including Capitalized Lease Obligations) by the Company and its Subsidiaries
during such period that, in conformity with generally accepted accounting
principles, are included as capital expenditures in the consolidated statement
of cash flows of the Company and its Consolidated Subsidiaries.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate (without duplication) of (i) Consolidated Interest Expense and (ii)
the interest attributable to Capitalized Leases, determined on a consolidated
basis for such Person and its Consolidated Subsidiaries for such period in
accordance with generally accepted accounting principles of such Person.
"Consolidated Fixed Charge Ratio" means the ratio, on a pro forma basis, of
(i) the aggregate amount of EBITDA of any Person for the Reference Period
immediately prior to the Determination Date to (ii) the aggregate Consolidated
Fixed Charges of such Person during such Reference Period; provided that for
purposes of such computation, in calculating EBITDA and Consolidated Fixed
Charges, (1) the Incurrence of the Debt giving rise to the need to calculate
the Consolidated Fixed Charge Ratio and the application of the proceeds
therefrom will be assumed to have occurred on the first day of the Reference
Period, (2) Asset Dispositions and
Asset Acquisitions which occur during the Reference Period or subsequent to
the Reference Period and prior to the Determination Date (but including any
Asset Acquisition to be made with the Debt Incurred pursuant to (1) above)
will be assumed to have occurred on the first day of the Reference Period, (3)
the Incurrence of any Debt during the Reference Period or subsequent to the
Reference Period and prior to the Determination Date and the application of
the proceeds therefrom will be assumed to have occurred on the first day of
such Reference Period, (4) Consolidated Interest Expense attributable to any
Debt (whether existing or being Incurred) computed on a pro forma basis and
bearing a floating interest rate will be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period
unless such Person or any of its Subsidiaries is a party to an Interest Rate
Agreement (which will remain in effect for the twelve month period after the
Determination Date) which has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) will be
used and (5) there will be excluded from Consolidated Fixed Charges any
Consolidated Fixed Charges related to any Debt which was outstanding during
and subsequent to the Reference Period but is not outstanding on the
Determination Date, except for Consolidated Fixed Charges actually incurred
with respect to Debt borrowed (as adjusted pursuant to clause (4)) under a
revolving credit or similar arrangement to the extent the commitment
thereunder remains in effect on the Determination Date. For the purposes of
making the computation referred to above, Asset Dispositions and Asset
Acquisitions which have been made by any Person which has become a Subsidiary
of the Company or been merged with or into the Company or any Subsidiary of
the Company during the Reference Period or subsequent to the Reference Period
and prior to the Determination Date will be calculated on a pro forma basis
(including all of the calculations referred to in numbers (1) through (5)
above) assuming such Asset Dispositions or Asset Acquisitions occurred on the
first day of the Reference Period.
"Consolidated Interest Expense" of any Person means, for any period, without
duplication, the sum of the interest expense on all Debt of such Person and
its Consolidated Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP and including, without limitation, (i) imputed
interest on Capitalized Lease Obligations and Attributable Debt, (ii)
commissions, discounts and other fees and charges owed with respect to letters
of credit securing financial obligations and bankers' acceptance financing,
(iii)
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amortization of other financing fees and expenses, (iv) the interest portion
of any deferred payment obligations, (v) amortization of debt discount or
premium, if any, (vi) all other non-cash interest expense, (vii) capitalized
interest, (viii) all interest payable with respect to discontinued operations,
and (ix) all interest on any Debt of any other Person guaranteed by the
referent Person or any of its Consolidated Subsidiaries.
"Consolidated Net Income" of any Person for any period means the Net Income
of such Person and its Consolidated Subsidiaries for such period, determined
on a consolidated basis in accordance with generally accepted accounting
principles; provided that there will be excluded (i) the Net Income of any
Person, other than a Consolidated Subsidiary, in which such Person or any of
its Consolidated Subsidiaries has a joint interest with a third party except
to the extent of the amount of dividends or distributions actually paid to
such Person or a Consolidated Subsidiary during such period, (ii) except to
the extent includible pursuant to the foregoing clause (i), the Net Income of
any Person accrued prior to the date it becomes a Subsidiary of such Person or
is merged into or consolidated with such Person or any of its Subsidiaries or
that Person's assets are acquired by such Person or any of its Subsidiaries;
provided that clause (ii) will not be effective for any calculation of the
Consolidated Fixed Charge Ratio, (iii) the Net Income (if positive) of any
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary to the Company of such Net Income is
not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any gains or losses
attributable to Asset Dispositions and (v) without duplication, any
extraordinary gains or losses realized during such period, including any
related tax effects on such Person.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with generally accepted
accounting principles, should be, accounted for by such Person as a
consolidated subsidiary.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (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
bankers' acceptance or other similar instruments (or reimbursement obligations
with respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (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 provided that, for purposes of determining the
amount of any Debt of the type described in this clause, if recourse with
respect to such Debt is limited to such asset, the amount of such Debt will be
limited to the fair market value of such asset, (vii) all Debt of others
Guaranteed by such Person, (viii) obligations under Currency Agreements and
Interest Rate Agreements (the "principal amount" of which shall be the amount
then payable by such Person upon termination thereof due to default by such
Person) and (ix) the Attributable Debt with respect to any Sale and Lease Back
Transaction.
"Designated Senior Debt" means any Debt outstanding under the New Credit
Facilities.
"Determination Date" means the date of the transaction giving rise to the
need to make a calculation required by certain of the covenants included in
the Indenture.
"EBITDA" of any Person for any period means the Consolidated Net Income of
such Person plus, in each case to the extent deducted in determining
Consolidated Net Income for such period, (i) income taxes (other than income
taxes (either positive or negative) attributable to extraordinary and
nonrecurring gains or losses or sales of assets), (ii) Consolidated Fixed
Charges, (iii) depreciation and amortization expense and (iv) all other non-
cash items reducing Consolidated Net Income for such period, minus all non-
cash items increasing Consolidated Net Income for such period, all determined
on a consolidated basis for such Person and its Consolidated Subsidiaries in
accordance with generally accepted accounting principles.
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"Event of Default" means any event or condition specified as such in "Event
of Default" which will have continued for the period of time, if any, therein
designated.
"GAAP" or "generally accepted accounting principles" means generally
accepted accounting principles in the United States as in effect as of the
date of the Indenture, including, without limitation, those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession.
"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 will not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Debt" means, with respect to any Subsidiary Guarantor, at
any date, (a) all Obligations, if any, of such Subsidiary Guarantor under the
New Credit Facilities; (b) all Obligations of such Subsidiary Guarantor under
Currency Agreements and Interest Rate Agreements (including Post-Petition
Interest); (c) all Obligations of such Subsidiary Guarantor under stand-by
letters of credit; and (d) all other Debt of such Subsidiary Guarantor for
borrowed money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Debt unless the instrument under which such
Debt of such Subsidiary Guarantor for money borrowed is Incurred expressly
provides that such Debt for money borrowed is not senior or superior in right
of payment to such Subsidiary Guarantor's Subsidiary Guarantee, and all
renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Guarantor Senior Debt shall not include (a) to
the extent that it may constitute Debt, any Obligation for Federal, state,
local or other taxes; (b) any Debt among or between such Subsidiary Guarantor
and any Subsidiary of such Subsidiary Guarantor; (c) to the extent that it may
constitute Debt, any Obligation in respect of any trade payable Incurred for
the purchase of goods or materials, or for services obtained, in the ordinary
course of business; (d) Debt evidenced by such Subsidiary Guarantor's
Subsidiary Guarantee; (e) Debt of such Subsidiary Guarantor that is expressly
subordinate or junior in right of payment to any other Debt of such Subsidiary
Guarantor; (f) to the extent that it may constitute Debt, any obligation owing
under leases (other than Capitalized Lease Obligations); and (g) any
obligation that by operation of law is subordinate to any general unsecured
obligations of such Subsidiary Guarantor.
"Hickson" means Koppers-Hickson Investments Pty. Limited and its wholly-
owned subsidiaries.
"Holder," "Holder of Notes," "Noteholder" or other similar terms means the
registered holder of any Note.
"Incurrence" means the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or becoming responsible for the
payment of, any Debt. "Incur" will have a comparable meaning.
"Independent Financial Advisor" means a nationally recognized investment
banking, accounting or appraisal firm (i) which does not (and whose directors,
officers, employees and Affiliates do not) have a direct or indirect material
financial interest in the Company or any of its Subsidiaries and (ii) which,
in the sole judgment of the Board of Directors of the Company, is otherwise
independent and qualified to perform the task for which such firm is being
engaged.
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"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge arrangement, to or under which the Company or
any of its Subsidiaries is a party or a beneficiary on the date of the
Indenture or becomes a party or a beneficiary thereafter.
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, time deposit or otherwise (but not
including any demand deposit).
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For the purposes of the Indenture, the Company will be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" from an Asset Disposition means cash or Cash Equivalents
received (including any cash or Cash Equivalents received by way of deferred
payment of principal pursuant to, or upon disposition of, a note or
installment receivable or otherwise, but only as and when received (including
any cash or Cash Equivalents received upon sale or disposition of such note or
receivable), and excluding any other consideration (i) received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
the assets disposed of in such Asset Disposition or (ii) until converted to
cash or Cash Equivalents, received in any other non-cash form) therefrom, in
each case, net of all legal, accounting and investment banking fees and
expenses, brokerage commissions and other fees and expenses incurred, and
provision for all taxes (whether or not such taxes will actually be paid or
payable) as a result of such Asset Disposition without regard to the
consolidated results of operation of the Company and its Subsidiaries as a
consequence of such Asset Disposition, transfer or other disposition, in each
case net of a reasonable reserve for the after-tax cost of any indemnification
payments (fixed and contingent) attributable to seller's indemnities to the
purchaser undertaken by the Company or any of its Subsidiaries in connection
with such Asset Disposition (but excluding any payments, which by the terms of
the indemnities will not, under any circumstances, be made during the term of
the Notes), and net of all payments made on any Debt which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which is required to be repaid as a result of such Asset
Disposition. Notwithstanding the foregoing, the term "Net Cash Proceeds" will
not include 50% of that portion of the net after tax cash proceeds from the
sale, transfer, conveyance, lease or other disposition of the Monessen
Facility that is directly attributable to the tax credits available under
Internal Revenue Code Section 29 (the "Monessen Section 29 Tax Credits")
associated with the operations of the Monessen Facility.
"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined in accordance with generally accepted
accounting principles, except that extraordinary and nonrecurring gains and
losses as determined in accordance with generally accepted accounting
principles will be excluded.
"Net Worth" of any Person means as of any date the aggregate of capital,
surplus and retained earnings of such Person and its Consolidated Subsidiaries
as would be shown on a consolidated balance sheet of such Person and its
Consolidated Subsidiaries prepared as of such date in accordance with
generally accepted accounting principles; provided that capital and surplus
attributable to Redeemable Stock will be excluded.
"New Credit Facilities" means the Credit Agreement by and among the Company,
the guarantors listed therein, the lenders listed therein, and SBC Warburg
Dillon Read Inc., Swiss Bank Corporation, and Mellon
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Bank, N.A., as Agents, as such agreement may be amended, restated,
supplemented or otherwise modified from time to time, and includes (i) the
Australian dollar denominated term loan and revolving credit facility
described therein, (ii) any credit, securities purchase or similar agreement
extending the maturity of, or restructuring all or any portion of, the Debt
under the New Credit Facilities or any successor agreement and (iii) any
agreement with one or more lenders or purchasers refinancing all or any
portion of the Debt under the New Credit Facilities or any successor
agreement, including, in the case of clauses (ii) or (iii), any increased
amount of Debt thereunder but only to the extent such increased amount of Debt
is permitted to be incurred under clause (viii) of the first paragraph under
the "Limitation on Debt" covenant described below.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages (including liquidated damages) and other liabilities
payable under the documentation governing any Debt.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors or the President or any Vice President (whether or not
designated by a number or numbers or a word or words added before or after the
title "Vice President") and by the Treasurer or the Secretary or any Assistant
Secretary of the Company and delivered to the Trustee. Each such certificate
will comply with Section 314 of the Trust Indenture Act of 1939.
"Opinion of Counsel" means an opinion in writing signed by legal counsel who
may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion will comply with Section 314 of
the Trust Indenture Act of 1939.
"Permitted Debt" means Debt described in clauses (i) through (xiv) of the
"Limitations on Debt" covenant described below.
"Permitted Holders" means Saratoga Partners III, LP and its affiliates and
the Management Investors, each of the spouses, children (adoptive or
biological) or other lineal descendants of the Management Investors, the
probate estate of any such individual and any trust, so long as one or more of
the foregoing individuals retains substantially all of the controlling or
beneficial interest thereunder.
"Permitted Junior Securities" means any securities of the Company, any
Subsidiary Guarantor or any successor to the Company or any Subsidiary
Guarantor, as the case may be, issued pursuant to a plan of reorganization or
readjustment of the Company of such Subsidiary Guarantor that are (i) equity
securities without covenants or rights of mandatory or optional redemption or
(ii) subordinated in right of payment to all Senior Debt or Guarantor Senior
Debt, as the case may be, that may at the time be outstanding, to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated as provided in the Indenture, in any event pursuant to a court
order so providing and as to which (a) the rate of interest on such securities
shall not exceed the effective rate of interest on the Notes on the date of
the Indenture, (b) such securities shall not be entitled to the benefits of
covenants or defaults materially more beneficial to the holders of such
securities than those in effect with respect to the Notes on the date of the
Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior
to the date six months following the final scheduled maturity date of the
Senior Debt or Guarantor Senior Debt, as the case may be, (as modified by the
plan of reorganization of readjustment pursuant to which such securities are
issued).
"Permitted Liens" means (i) Liens securing Debt existing as of the date of
issuance of the Notes (after giving effect to the use of proceeds of issuance
of the Notes), and related interest, fees and obligations of the Company
thereunder; (ii) Liens with respect to assets of a Subsidiary granted by such
Subsidiary to the Company to secure Debt owing to the Company; (iii) statutory
Liens or landlords and carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as will be required in conformity with GAAP will have been
made therefor; (iv) Liens for taxes, assessments, government charges or claims
which are being contested in good faith
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by appropriate proceedings promptly instituted and diligently conducted and if
a reserve or other appropriate provision, if any, as will be required in
conformity with GAAP will have been made therefor; (v) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (vi)
Liens created or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of Debt); (vii) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering in any material respect with
the business of the Company or any of its Subsidiaries incurred in the
ordinary course of business; (viii) any attachment or judgment Lien that does
not give rise to an Event of Default; (ix) rights of banks to set off deposits
against debts owed to said bank; (x) Liens on the assets of any entity
existing at the time such assets are acquired by the Company or any of its
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise; provided that such Liens (A) are not created, incurred or assumed
in connection with, or in contemplation of, such assets being acquired by the
Company or any of its Subsidiaries and (B) do not extend to any other Property
of the Company or any of its Subsidiaries; (xi) Liens securing reimbursement
obligations with respect to letters of credit which encumber documents and
goods sold relating to such letters of credit and the products and proceeds
thereof; (xii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (xiii) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or one of its Subsidiaries relating to such property or assets; (xiv)
any interest or title of a lessor in the property subject to any Capitalized
Lease or operating lease; provided that any Sale and Leaseback Transaction
related thereto complies with provisions described in "Limitations on Sale and
Leaseback Transaction"; (xv) Liens upon real or tangible personal property
acquired after the date on which the Notes are issued under the Indenture;
provided, however, that (x) such Lien is created solely for the purpose of
securing Debt Incurred (A) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 12 months after
the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (B) to refinance any Debt
previously so secured, (y) the principal amount of the Debt secured by such
Lien does not exceed 100% of such cost and (z) any such Lien will not extend
to or cover any property or assets other than such item or property or assets
and any improvements on such item; (xvi) Liens securing obligations under
Interest Rate Agreements and Currency Agreements; (xvii) Liens on accounts
receivable and inventory securing working capital borrowings (including
interest, fees and other obligations in respect thereof) made by the Company
or its Subsidiaries in accordance with the provisions described in
"Limitations on Debt"; (xviii) Liens on the Assets of a Receivables Subsidiary
in a Receivables Transaction; and (xix) any extension, renewal or replacement,
in whole or in part, of any Lien described in the foregoing clauses (i), (x)
and (xv): provided that any such extension, renewal or replacement will not
extend to any other assets of the Company or any of its Subsidiaries other
than the assets originally covered by such Lien or any improvements thereon or
additions or accessions thereto.
"Permitted Payments" means with respect to the Company or any of its
Subsidiaries (i) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Redeemable Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Redeemable Stock); (ii)
any dividend or other distribution or payment in respect of redemption of
Capital Stock payable to the Company by any of its Subsidiaries or by a
Subsidiary to another Subsidiary; (iii) the repurchase or other acquisition or
retirement for value of any shares of the Company's Capital Stock, or any
option, warrant or other right to purchase shares of the Company's Capital
Stock with additional shares of, or out of the net proceeds of a substantial
contemporaneous issuance of, Capital Stock other than Redeemable Stock; (iv)
the retirement of any shares of Redeemable Capital Stock by conversion into,
or by exchange for, additional shares of Redeemable Capital Stock, or out of
the net proceeds of the substantial contemporaneous issuance (other than to a
Subsidiary of the Company) of other shares of Redeemable Capital Stock; (v)
the payment of management, advisory or consulting fees to Saratoga or its
affiliates in an amount not to exceed $600,000 per year; (vi) the redemption
of shares of the Company's Common Stock from Management Investors as part of
the Management Redemption Offer in an amount not to exceed $15,000,000; (vii)
the redemption of shares of the Company's Common Stock from APT
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Holdings Corporation in an amount not to exceed $23,000,000; (viii) any
voluntary prepayment or defeasance, redemption, repurchase or other
acquisition for value of any Debt which by its terms ranks subordinate in
right of payment to the Notes with the net proceeds from the issuance of (a)
Debt which is also subordinate (at least to the extent and in the manner as
the Debt to be prepaid or defeased, redeemed, repurchased or otherwise
acquired is subordinate to the Notes) in right of payment to the Notes;
provided that such new subordinated Debt provides for no payments of principal
by way of sinking fund, mandatory redemption or otherwise (including
defeasance) by the Company (including, without limitation, at the option of
the holder thereof other than an option given to a holder pursuant to an
"asset sale" or "change of control" covenant which is no more favorable to the
holders of such Debt than the provisions contained in corresponding Sections
of the Indenture and such Debt provides that the Company will not repurchase
such Debt pursuant to such provisions prior to the Company's repurchase of the
Notes required to be repurchased by the Company pursuant to corresponding
Sections of the Indenture) prior to the final scheduled maturity date of the
Notes and the proceeds of such new subordinated Debt are utilized for such
purpose within 45 days of issuance or (b) Capital Stock (other than Redeemable
Stock); (ix) the repurchase of Debt subordinated to the Notes pursuant to the
provisions of any "change of control" covenant set forth in the instrument
governing such subordinated Debt; provided that such repurchases will only be
permitted if all of the terms and conditions in such provisions have been
fully complied with and such repurchases are made in accordance with the terms
of the Indenture and thereof, and provided further that the Company has
repurchased all Notes required to be repurchased by the Company pursuant to
the terms and conditions of the Indenture described in "Change of Control"
prior to the repurchase of any subordinated Debt of the Company pursuant to
the provisions of any "change of control" covenant set forth in such Debt's
governing instrument; (x) the purchase of Debt of the Company which is
subordinated to the Notes in anticipation of satisfying sinking fund,
principal installments or final maturity payments, in each case within one
year of the date of such purchase; (xi) Investments not described in any other
clause of this definition made after the date of the Indenture in an aggregate
amount (net of return of investment) not to exceed $7,500,000, which amount
may be increased by an amount equal to the lesser of (A) the excess, if any,
of $15,000,000 over the aggregate amount paid on redemption of shares of
Common Stock in accordance with the Management Redemption Offer within 60 days
of the date of issuance of the Notes and (B) $5,000,000; provided that no
Investment may be made as described in this clause (xi) unless (a) such
Investment is made in a Person engaged primarily in a business that is the
same as, similar or incidental to, or complementary with, a business in which
the Company and its Subsidiaries are substantially engaged on the date of
issuance of the Notes and (b) immediately after giving effect to such
Investment, the Company would be able to incur at least $1.00 of Debt under
certain sections of the Indenture; (xii) an Investment consisting of the
contribution of the Monessen Facility to a partnership or other entity created
for the purpose of effecting the sale of the Monessen Section 29 Tax Credits;
provided that the Company shall be the general partner (or equivalent) of such
entity, an affiliate of the Company shall continue to operate the Monessen
Facility, such contribution shall be credited to the Company's capital account
(or equivalent) of such entity at the fair market value of the Monessen
Facility and the other investor's interest in such entity shall be redeemable
by the Company following expiration of the Monessen Section 29 Tax Credits;
(xiii) an Investment by a Receivables Subsidiary consisting of equity
interests in a trust or other Person established by such Receivables
Subsidiary to effect a Receivables Transaction, and (xiv) Investments made in
Cash Equivalents and Consolidated Subsidiaries.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Post-Petition Interest" means, with respect to any Debt of any Person, all
interest accrued or accruing on such Debt after the commencement of any
Insolvency or Liquidation Proceeding against such Person in accordance with
and at the contract rate (including, without limitation, any rate applicable
upon default) specified in the agreement or instrument creating, evidencing or
governing such Debt, whether or not, pursuant to applicable law or otherwise,
the claim for such interest is allowed as a claim in such Insolvency or
Liquidation Proceeding.
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"Preferred Stock" means, with respect to any Person, any and all preferred
or preference stock (however designated) of such Person whether now
outstanding or issued after the date of the Indenture.
"principal," wherever used with reference to the Notes or any Note or any
portion thereof, will be deemed to include "and premium, if any."
"Receivables Subsidiary" means a Subsidiary of the Company exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, (i) that at no time shall the Company and its Subsidiaries have more
than one Receivables Subsidiary and (ii) all Debt or other borrowings of such
Subsidiary shall be Debt (x) as to which neither the Company nor any of its
other Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Debt), (b) is
directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; (y) no default with respect to which would permit
(upon notice, lapse of time or both) any holder of any other Debt of the
Company or any of its Subsidiaries to declare a default on such other Debt or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (z) as to which the lenders (a) have acknowledged that they do
not have recourse to the holder of the Capital Stock of the debtor or (b) have
been notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its other Subsidiaries.
"Receivables Transaction" means (i) the sale or other disposition to a third
party of accounts receivable or an interest therein, or (ii) the sale or other
disposition of accounts receivable or an interest therein to a Receivables
Subsidiary followed by a financing transaction in connection with such sale or
disposition of such accounts receivable (whether such financing transaction is
effected by such Receivables Subsidiary or by a third party to whom such
Receivables Subsidiary sells such accounts receivable or interests therein);
provided that in each of the foregoing, the Company or its Subsidiaries other
than the Receivables Subsidiary receive in cash at least 80% of the aggregate
principal amount of any accounts receivable financing in such transaction.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed, in whole or in
part, prior to the stated maturity of the Notes, (ii) redeemable at the option
of the holder thereof, upon the occurrence of any event or otherwise, at any
time prior to the stated maturity of the Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) or Debt.
"Reference Period" means the four fiscal quarters for which financial
information is available (or was required to be made available) preceding the
date of a transaction giving rise to the need to make a financial calculation.
"Restricted Payment" means with respect to any Person (i) the declaration or
payment of any dividend or other distribution on account of any shares of such
Person's Capital Stock, (ii) any payment on account of the purchase,
redemption, retirement or other acquisition of (a) any shares of such Person's
Capital Stock or (b) any option, warrant or other right to acquire shares of
such Person's Capital Stock, (iii) any voluntary prepayment or defeasance,
redemption, repurchase or other acquisition or retirement for value of any
Debt ranked subordinate in right of payment to the Notes or (iv) any
Investment. Notwithstanding the foregoing, "Restricted Payment" will not
include any Permitted Payment.
"S&P" means Standard and Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property of such Person or any of its
Subsidiaries which has been or is being sold or transferred by such Person or
such Subsidiary to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property.
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"Senior Debt" means, at any date, (a) all Obligations of the Company under
the New Credit Facilities; (b) all Obligations of the Company under Currency
Agreements and Interest Rate Agreements (including Post-Petition Interest);
(c) all Obligations of the Company under stand-by letters of credit; and (d)
all other Debt of the Company for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such Debt,
unless the instrument under which such Debt of the Company for money borrowed
is Incurred expressly provides that such Debt for money borrowed is not senior
or superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Debt shall not include (a) to the extent that it may
constitute Debt, any Obligation for Federal, state, local or other taxes; (b)
any Debt among or between the Company and any Subsidiary of the Company,
unless and for so long as such Debt has been pledged to secure Obligations
under the New Credit Facilities; (c) to the extent that it may constitute
Debt, any Obligation in respect of any trade payable Incurred for the purchase
of goods or materials, or for services obtained, in the ordinary course of
business; (d) Debt evidenced by the Notes and the Subsidiary Guarantees; (e)
Debt of the Company that is expressly subordinate or junior in right of
payment to any other Debt of the Company; (f) to the extent that it may
constitute Debt, any obligation owing under leases (other than Capitalized
Lease Obligations) or management agreements; and (g) any obligation that by
operation of law is subordinate to any general unsecured obligations of the
Company.
"Subordinated Debt" means any Debt of the Company which is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the Capital Stock 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 time directly or
indirectly owned by such Person.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Company or
any Subsidiary of the Company in the ordinary course of business in connection
with the obtaining of materials or services.
"U.S. Government Obligations" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
are not callable or redeemable at the option of the issuer thereof.
"Wholly-Owned Subsidiary" means with respect to any Person a Subsidiary all
of the voting stock of which is owned directly or indirectly by such Person.
COVENANTS
Limitations on Debt.
Under the terms of the Indenture, the Company will not, and will not permit
its Subsidiaries to, directly or indirectly Incur any Debt (including
Acquisition Debt), except (i) Debt outstanding (or, in the case of certain
term loans under the New Credit Facilities, committed) on the date of issuance
of the Notes (after giving effect to the use of proceeds of issuance of the
Notes), including the term loans under the New Credit Facilities, but not
including Debt described in clauses (iii) and (iv) below; (ii) Debt evidenced
by the Notes and the Subsidiary Guarantees; (iii) Debt of Koppers Australia,
in an aggregate principal amount not to exceed the Australian dollar
equivalent of $40,000,000 at the time such Debt is issued, in the form of term
loans under the New Credit Facilities; (iv) Debt of the Company or Koppers
Australia Incurred under the revolving credit facilities provided for in the
New Credit Facilities, including (without duplication) any such Debt in
respect of letters of credit (not including the letters of credit described in
clause (v) below), in an aggregate principal amount not to exceed the sum of
80% of accounts receivable (reduced as necessary to reflect the disposition of
any such accounts
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receivable in a Receivables Transaction) and 50% of inventory as shown on the
Company's consolidated balance sheet for the immediately preceding fiscal
quarter for which financial statements are available; (v) Debt in respect of
letters of credit with an aggregate face amount not to exceed the Australian
dollar equivalent of $60,000,000 at the time such letters of credit are issued
at any one time outstanding issued to provide support for loans to Koppers
Australia; (vi) Debt in respect of letters of credit issued in the ordinary
course of business not to exceed $15,000,000 in aggregate amount at any one
time outstanding; (vii) Debt of any Subsidiary to the Company or any Wholly-
Owned Subsidiary; (viii) Debt secured by Liens described in (x) and (xv) of
the definition of Permitted Liens in an aggregate amount not to exceed
$5,000,000 at any one time outstanding and refinancings thereof provided that
the amount of such Debt is not increased; (ix) Debt issued in exchange for, or
the proceeds of which are used to refinance, outstanding or committed Debt of
the Company or any of the Notes in an amount (or, if such new Debt, is issued
at a price less than the principal amount thereof, with an original issue
price) not to exceed the amount so exchanged or refinanced (plus accrued
interest, fees, expenses and other obligations related thereto), provided that
if the Debt to be exchanged or refinanced by its terms ranks subordinate in
right of payment to the Notes, (1) the Debt exchanged for, or the proceeds of
which are used to refinance, such Debt is also subordinate to the Notes (at
least to the extent and in the manner that the Debt to be exchanged or
refinanced is subordinate to the Notes) in right of payment to the Notes and
(2) no payments of principal of such Debt by way of sinking fund, mandatory
redemption, mandatory repurchase or otherwise (including defeasance) may be
made by the Company (including, without limitation, at the option of the
holder thereof, other than an option given to a holder pursuant to an "asset
sale" or "change of control" covenant which is no more favorable to the
holders of such Debt than the corresponding provisions contained in the
Indenture, and such Debt provides that the Company will not repurchase such
Debt pursuant to such provisions prior to the Company's repurchase of the
Notes required to be repurchased by the Company pursuant to the corresponding
provisions contained in the Indenture) at any time prior to the final
scheduled maturity date of the Notes; provided further, that (A) if any
scheduled mandatory principal payment of the Debt being exchanged for or
refinanced has a due date after December 1, 2007, the corresponding scheduled
mandatory payment of the Debt issued in exchange for, or to refinance such
Debt, will not have a due date on or prior to December 1, 2007, and (B) in no
event may Debt of the Company or a Subsidiary of the Company be refinanced by
means of Debt of any other Subsidiary of the Company pursuant to the covenant
described in this clause; (x) Debt under Currency Agreements and Interest Rate
Agreements; (xi) Debt of Hickson outstanding from time to time in an aggregate
principal amount not to exceed the Australian dollar-equivalent of $10,000,000
at the time such Debt is issued, to the extent such Debt could be incurred
pursuant to the following paragraph; (xii) Asset Dispositions in the form of
Receivables Transactions; (xiii) Guarantees of Debt under the New Credit
Facilities otherwise permitted under the Indenture; and (xiv) to the extent
not otherwise provided for in clauses (i) through (xiii) above, Debt of the
Company in an aggregate outstanding principal amount not to exceed $5,000,000
at any one time outstanding.
Notwithstanding the provisions set forth in the preceding paragraph, the
Company and the Subsidiary Guarantors may Incur Debt, including Acquisition
Debt, if on the Determination Date and after giving effect to the Incurrence
of such Debt and the application of the proceeds therefrom, the Consolidated
Fixed Charge Ratio for the Reference Period immediately preceding the
Determination Date is greater than 2.0 to 1.
Limitation on Guarantees of Debt by Subsidiaries.
The Indenture provides that in the event that any Subsidiary, directly or
indirectly, Guarantees any Debt of the Company under the New Credit Facilities
(the "Other Debt"), the Company will cause such Subsidiary to concurrently
Guarantee the Company's Obligations under the Indenture and the Notes to the
same extent that such Subsidiary Guaranteed the Company's Obligations under
the Other Debt (including waiver of subrogation, if any); provided, however,
that if such Other Debt is (i) Senior Debt, such Subsidiary Guarantee will be
subordinated in right of payment to all Guarantor Senior Debt (which will
include such Guarantee of such Other Debt) pursuant to the subordination
provisions of the Indenture (which subordination will be substantially
identical to the subordination provisions of the Indenture applicable to the
Notes), (ii) Debt which is not Senior Debt or Subordinated Debt, such
Subsidiary Guarantee will be pari passu in right of payment with the Guarantee
of the Other Debt, or (iii) Subordinated Debt, such Subsidiary Guarantee will
be senior in right of payment to
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the Guarantee of the Other Debt (which Guarantee of such Subordinated Debt
will provide that such Guarantee is subordinated to the Subsidiary Guarantee
to the same extent and in the same manner as the Notes are subordinated to
Senior Debt); provided, further, however, that each Subsidiary issuing a
Subsidiary Guarantee will be automatically and unconditionally released and
discharged from its obligations under such Subsidiary Guarantee upon the
release or discharge of the Guarantee of the Other Debt that resulted in the
Company's obligations under the Notes and the Indenture being so Guaranteed.
The Company will cause each Subsidiary required to issue a Subsidiary
Guarantee after the date of issuance of the Notes to make certain deliveries,
and such deliveries will have the effects, described above under "Guarantees
of the Notes."
Limitation on Layering.
The Company shall not, directly or indirectly, Incur any Debt that by its
terms would expressly rank senior in right of payment to the Notes and
expressly rank subordinate in right of payment to any other Debt of the
Company.
The Company shall not permit any Subsidiary Guarantor to, and no Subsidiary
Guarantor shall, directly or indirectly, Incur any Debt that by its terms
would expressly rank senior in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor and expressly rank subordinate in right of payment
to any Guarantor Senior Debt of such Subsidiary Guarantor.
Limitations on Restricted Payments.
Under the terms of the Indenture, the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any Restricted
Payment unless (a) at the time of such Restricted Payment or after giving
effect thereto, no Event of Default, and no event that through the passage of
time or the giving of notice, or both, would become an Event of Default, will
have occurred and be continuing, (b) after giving effect thereto, the Company
could Incur at least $1.00 of Debt pursuant to the provisions described in the
second paragraph under "Limitations on Debt" and (c) after giving effect
thereto, the aggregate amount of all Restricted Payments
made by the Company and its Subsidiaries after the date of issuance of the
Notes will not exceed the sum (without duplication) of: (i) 50% of
Consolidated Net Income of the Company accrued for the period (taken as one
accounting period) commencing with January 1, 1998, and ending with the first
full fiscal quarter ended immediately prior to the date of such calculation;
provided that if Consolidated Net Income for such period is less than zero,
then minus 100% of the amount of such loss; plus (ii) 50% of that portion of
the net after tax cash proceeds from the sale, transfer, carryover, lease or
other disposition of the Monessen Facility that is directly attributable to
the Monessen Section 29 Tax Credits; plus (iii) the aggregate net cash
proceeds received by the Company from the issuance or sale (other than to a
Subsidiary) of its Capital Stock (other than Redeemable Stock) after the date
of issuance of the Notes (including Capital Stock (other than Redeemable
Stock) issued upon conversion of, or in exchange for, securities other than
its Capital Stock), and warrants and other rights to purchase (not including
any such warrants or rights to purchase which are redeemable at the option of
the holder thereof) its Capital Stock (other than Redeemable Stock); plus (iv)
$5,000,000. Notwithstanding the foregoing, the Company may make payment of a
dividend or other distribution on account of its shares of Capital Stock
within 90 days of the declaration thereof if such declaration was permitted
under the provisions described in this paragraph.
Limitations on Asset Disposition.
Under the terms of the Indenture, except for any Asset Disposition permitted
to be made as described in "Consolidation, Merger and Sale of Assets," if the
aggregate fair market value of all Asset Dispositions (as determined in good
faith by the Board of Directors as of the time of each Asset Disposition)
during any consecutive twelve-month period will exceed $5,000,000 the Company
will not make, and will not permit any of its Subsidiaries to make, any Asset
Disposition unless (i) the Company (or the Subsidiary, as the case may be)
receives consideration at the time of each such Asset Disposition at least
equal to the fair market value of the
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shares or assets sold or otherwise disposed of (as determined in good faith by
the Board of Directors if the Asset Disposition involves shares or assets
having a fair market value of more than $10,000,000); (ii) not less than 80%
of the consideration received by the Company (or such Subsidiary, as the case
may be) is in the form of cash (other than in the case of a full or partial
disposition of the Monessen Facility for the purpose of effecting the sale of
all or a portion of the Monessen Section 29 Tax Credits), provided that any
note or other obligation received by the Company (or such Subsidiary, as the
case may be) that is immediately converted into cash will be deemed to be cash
for purposes of clause (ii); and (iii) the Net Cash Proceeds from such Asset
Dispositions are applied, (A) within twelve months of the date of the receipt
of the Net Cash Proceeds, (1) to the reinvestment in the business or
businesses of the Company or any of its Subsidiaries; provided, that this
clause (1) shall not be applicable in the case of Net Cash Proceeds from any
Asset Disposition in the form of a Receivables Transaction or (2) to the
extent such Net Cash Proceeds are not actually applied, or cannot be applied,
in accordance with clause (1), or, if after being so applied there remain Net
Cash Proceeds, to repay Senior Debt or Guarantor Senior Debt (other than the
Notes and Debt owed by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or another Subsidiary) (including
interest thereon and fees, expenses and other obligations related thereto) and
in connection with any such payment, any related loan commitment, standby
facility or the like will be reduced in an amount equal to the principal
amount so repaid, and (B) to the extent that such Net Cash Proceeds are not
actually applied in accordance with clause (A), or, if after being so applied
there remain Net Cash Proceeds, to make an Offer to purchase the Notes as
described in the following paragraph. Notwithstanding the foregoing, to the
extent that any or all of the Net Cash Proceeds of any Asset Disposition are
prohibited or delayed by applicable non-United States law from being
repatriated to the United States, the portion of such Net Cash Proceeds so
affected will not be required to be applied as described in this clause (other
than to repay Debt of the Subsidiary making such Asset Disposition as
contemplated by clause (A)) at the time provided above but may be retained by
the applicable Subsidiary for so long, but only so long as the applicable
local law will not permit repatriation to the United States and once such
repatriation of any of such affected Net Cash Proceeds is permitted under the
applicable local law, such repatriation will be immediately effected and such
repatriated Net Cash Proceeds will be applied in the manner described in this
section; provided that to the extent that the Company has determined in good
faith that repatriation of any or all of the Net Cash Proceeds of any such
Asset Disposition would have a material adverse tax cost consequence, the Net
Cash Proceeds so affected may be retained by the applicable Subsidiary for so
long as such material adverse tax cost event would continue.
In the event Net Cash Proceeds are required to be applied to the purchase of
Notes as described in clause (iii) of the preceding paragraph, the Company
will be required to purchase Notes tendered pursuant to a tender offer by the
Company for the Notes (the "Offer") at a purchase price of 100% of the
principal amount of the Notes plus accrued interest to the purchase date in
accordance with the procedures (including prorating in the event of
oversubscription) described in the Indenture. If the aggregate purchase price
of Notes tendered pursuant to the Offer is less than the Net Cash Proceeds
allotted to the purchase of the Notes, the Company may utilize such Net Cash
Proceeds for any purpose otherwise permitted under the Indenture. The Company
will not be required to make an Offer for Notes as described in this section
if the Net Cash Proceeds available therefor are less than $5,000,000 (which
lesser amounts not applied to an offer will be carried forward and cumulated
for each 36 consecutive month period for purposes of determining whether an
Offer is required with respect to the Net Cash Proceeds from any subsequent
Asset Disposition).
Within 30 days after the date on which Net Cash Proceeds that are required
to be applied to an Offer exceed $5,000,000, the Company will be obligated to
deliver to the Trustee and the Trustee will send by first-class mail to each
Holder a written notice stating that: (1) such Holder may elect to have his
Notes purchased by the Company either in whole or in part (subject to
prorating as hereinafter described in the event the Offer is oversubscribed)
in multiples of $1,000 principal amount, at the applicable purchase price; (2)
any Note not tendered or accepted for payment will continue to accrue
interest; (3) any Note accepted for payment pursuant to the Offer will cease
to accrue interest after the purchase date; and (4) Holders will be entitled
to withdraw their election in the manner described in the following paragraph.
The notice will also specify a purchase date not less than 30 days nor more
than 60 days after the date of such notice and will contain information
concerning the
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business of the Company which the Company in good faith believes will enable
such Holders to make an informed decision.
Holders electing to have a Note purchased will be required to surrender the
Note, with an appropriate form duly completed, to the Trustee at the address
specified in the notice at least one Business Day prior to the Purchase Date.
Holders will be entitled to withdraw this election if the Trustee or paying
agent (if any) receives not later than the close of business on the Business
Day prior to the Purchase Date a telegram, telex, facsimile transmission, or
letter setting forth the name of the Holder and a statement that such Holder
is withdrawing his election to have all or a portion of his Notes purchased.
If at the expiration of the Offer Period the aggregate principal amount of
Notes surrendered by Holders exceeds the Offer Amount, the Company will select
the Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations of
$1,000 or integral multiples thereof, will be purchased). Holders whose Notes
are purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered.
In the event the Company is unable to purchase Notes from Holders in an
Offer because such purchase is prohibited by any provision of applicable law,
the Company need not make an Offer. The Company will then be obligated to use
such Net Cash Proceeds as described in clause (iii) of the first paragraph of
this section.
Whenever Net Cash Proceeds are received by the Company, and prior to the
allocation of such Net Cash Proceeds as described in this section, such Net
Cash Proceeds will be set aside by the Company in a separate account pending
allocation.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries.
Under the terms of the Indenture, the Company will not, and will not permit
any Subsidiary to, create, assume or otherwise cause or suffer to exist or to
become effective any consensual encumbrance or restriction on the ability of
any Subsidiary to (a) pay dividends or make any other distributions on its
Capital Stock; (b) make payments in respect of any Debt owed to the Company or
any of the Company's Subsidiaries; (c) make loans or advances to the Company
or any of the Company's Subsidiaries; or (d) transfer any of its property to
the Company or any of the Company's Subsidiaries other than (i) encumbrances
and restrictions included (1) in the Indenture or (2) in any agreement in
effect on the date of the Indenture (including, without limitation, the New
Credit Facility) or (3) in any partial or total initial or successive
refinancing, refunding or replacement of any agreement referred to in clause
(2), provided that any encumbrances or restrictions in any such refinancing,
refunding, replacement, amendment, modification or supplement are not
materially less favorable to the Company than those in such agreement in
effect on the date of the Indenture; (ii) customary provisions contained in
agreements with respect to Liens applicable to the assets subject to such
Liens; (iii) encumbrances or restrictions binding upon any Person at the time
such Person becomes a Subsidiary of the Company, provided that such
encumbrances or restrictions were not incurred in anticipation of such Person
becoming a Subsidiary of the Company or (iv) restrictions applicable to a
Receivables Subsidiary arising from a Receivables Transaction. Nothing
described in this section will prevent the Company from Incurring or suffering
to exist any Lien which is permitted as described in "Limitations on Liens."
Limitations on Issuance of Subsidiary Preferred Stock.
Under the terms of the Indenture, the Company will not permit any of its
Subsidiaries to issue any Preferred Stock (other than to the Company or a
Wholly-Owned Subsidiary) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary) to own or hold any interest in any Preferred Stock of
any such Subsidiary unless the Subsidiary would be permitted to Incur Debt as
described in "Limitations on Debt" in an aggregate principal amount equal to
the aggregate liquidation value of such Preferred Stock.
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Limitations on Liens.
The Company will not, and will not cause or permit any Subsidiary to,
directly or indirectly, Incur or suffer to exist any Liens of any kind against
or upon any of their respective properties or assets now owned or hereafter
acquired, or any proceeds therefrom or any income or profits therefrom, to
secure any Debt unless contemporaneously therewith effective provision is
made, in the case of the Company, to secure the Notes and all other amounts
due under the Indenture, and in the case of a Subsidiary which is a Subsidiary
Guarantor, to secure such Subsidiary Guarantor's Subsidiary Guarantee and all
other amounts due under the Indenture, equally and ratably with such Debt (or,
in the event that such Debt is subordinated in right of payment to the Notes
or such Subsidiary Guarantee, prior to such Debt) with a Lien on the same
properties and assets securing such Debt for so long as such Debt is secured
by such Lien, except for (i) Liens securing any Senior Debt or any Guarantor
Senior Debt, (ii) Liens securing Debt of a Subsidiary which is not required to
be a Subsidiary Guarantor and (iii) Permitted Liens.
Limitations on Sale and Leaseback Transactions.
The Company will not and will not permit any Subsidiary to enter into any
Sale and Leaseback Transaction with respect to any assets (whether now owned
or hereafter acquired) unless (i) the net proceeds of the sale or transfer of
the property to be leased are at least equal to the fair market value (as
determined by the Board of Directors of the Company) of such assets (other
than in the case of a Sale and Leaseback Transaction entered into in
connection with an Approved Government Financing) and (ii) the Company could
incur the Attributable Debt in respect of such Sale and Leaseback Transaction
in compliance with the covenant described under "Limitation on Debt."
Transactions with Affiliates.
Neither the Company nor any of its Subsidiaries will directly or indirectly
enter into any transaction (including, without limitation, the sale, purchase
or lease of any assets or properties or the rendering of any services) with
any Affiliate of the Company or direct or indirect holder of 5% or more of any
class of Capital Stock of the Company or any such Affiliate (other than a
Wholly-Owned Subsidiary of the Company) except for transactions made in good
faith the terms of which are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are at least as favorable as the terms
which could be obtained by the Company or such Subsidiary, as the case may be,
in a comparable transaction made on an arm's length basis with Persons who are
not such a holder or Affiliate; provided that any such transaction will be
conclusively deemed to be on terms which are fair and reasonable to the
Company or any of its Subsidiaries and on terms which are at least as
favorable as the terms which could be obtained on an arm's length basis with
Persons who are not such a holder or Affiliate if such transaction is approved
by a majority of the Company's disinterested directors and; provided further
that with respect to any transaction or series of related transactions the
aggregate amount of which is in excess of $10,000,000, in addition to approval
of its board of directors, the Company will obtain a written opinion of an
Independent Financial Advisor stating that the terms of such transaction are
fair to the Company or its Subsidiary, as the case may be, from a financial
point of view. The covenant described in this paragraph will not apply to (a)
the payment of reasonable and customary regular fees to directors of the
Company, (b) any Permitted Payment and any Restricted Payment not otherwise
prohibited by the Indenture or (c) transactions between a Receivables
Subsidiary and any Person as part of a Receivables Transaction, but only to
the extent such transactions are solely in connection with the Receivables
Transaction.
Change of Control.
Upon a Change of Control, each Holder of the Notes will have the right to
require that the Company repurchase such Holder's Notes at a repurchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase, in accordance with the terms
contemplated in the following paragraph (the "Change of Control Offer").
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Within 30 days following any Change of Control, the Company will mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to repurchase such Holder's Notes at a repurchase price in cash equal to 101%
of the principal amount the plus accrued and unpaid interest, if any, to the
date of repurchase (the "Change of Control Purchase Price"); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which will be not earlier than 30 days or later than 60 days
from the date such notice is mailed) (the "Repurchase Date"); (4) that any
Note not tendered will continue to accrue interest; (5) that any Note accepted
for payment pursuant to the Change of Control Offer will cease to accrue
interest after the Repurchase Date, (6) that holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the paying agent at the address specified in
the notice prior to the close of business on the Repurchase Date; (7) that
holders will be entitled to withdraw their election if the paying agent
receives, not later than the close of business on the third Business Day (or
such shorter periods as may be required by applicable law) preceding the
Repurchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the principal amount of Notes the holder
delivered for purchase, and a statement that such holder is withdrawing his
election to have such Notes purchased; and (8) that holders which elect to
have their Notes purchased only in part will be issued new Notes in a
principal amount equal to the unpurchased portion of the Notes surrendered.
On the Repurchase Date, the Company will (i) accept for payment Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee Notes so accepted together with an officers'
certificate stating the Notes or portions thereof tendered to the Company. The
Trustee will promptly mail to the holders of Note so accepted payment in an
amount equal to the purchase price, and prompt authenticate and mail to such
holders a new Note in a principal amount equal to any unpurchased portion of
the Note surrendered. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Repurchase
Date.
The Indenture will require that if the New Credit Facilities are in effect,
or any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to
holders described in the preceding paragraph, but in any event within 20 days
following any Change of Control, the Company covenants to (i) repay in full
all obligations under or in respect of the New Credit Facilities or offer to
repay in full all obligations under or in respect of the New Credit Facilities
and repay the obligations under or in respect of the New Credit Facilities of
each lender who has accepted such offer or (ii) obtain the requisite consent
under the New Credit Facilities to permit the repurchase of the Notes as
described above. The
Company must first comply with the covenant described in the preceding
sentence before it shall be required to purchase Notes in the event of a
Change of Control; provided that the Company's failure to comply with the
covenant described in the preceding sentence constitutes an Event of Default
described in clause (c) under "Events of Default" below if not cured within 30
days after the notice required by such clause. As a result of the foregoing, a
holder of the Notes may not be able to compel the Company to purchase the
Notes unless the Company is able at the time to refinance all of the
obligations under or in respect of the New Credit Facilities or obtain
requisite consents under the New Credit Facilities. Failure by the Company to
make a Change of Control Offer when required by the Indenture constitutes a
default under the Indenture and, if not cured within 30 days after notice,
constitutes an Event of Default.
The Indenture will require that (A) if the Company or any Subsidiary thereof
has issued any outstanding (i) Debt that is subordinated in right of payment
to the Notes or (ii) Preferred Stock, and the Company or such Subsidiary is
required to make a change of control offer or to make a distribution with
respect to such subordinated Debt or Preferred Stock in the event of a change
of control, the Company will not consummate any such offer or distribution
with respect to such subordinated Debt or Preferred Stock until such time as
the Company will have paid the Change of Control Purchase Price in full to the
holders of Notes that have accepted
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the Change of Control Offer and shall otherwise have consummated the Change of
Control Offer made to holders of the Notes and (B) the Company will not issue
Debt that is subordinated in right of payment to the Notes or Preferred Stock
with change of control provisions requiring the payment of such Debt or
Preferred Stock prior to the payment of the Notes in the event of a Change in
Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to repurchase Notes, if such
repurchase constitutes a "tender offer" for purposes of Rule 14e-1 under the
Exchange Act at that time, the Company will comply with the requirements of
Rule 14e-1 as then in effect with respect to such repurchase.
Reports.
Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any Notes are outstanding,
the Company will file with the Commission, to the extent such filings are
accepted by the Commission, and will furnish to the holders of Notes all
quarterly and annual reports and other information, documents and reports that
would be required to be filed with the Commission pursuant to Section 13 of
the Exchange Act if the Company were required to file under such section. In
addition, the Company will make such information available to prospective
purchasers of the Notes who request it in writing.
EVENTS OF DEFAULT
In case one or more of the following Events of Default (whatever the reason
for such Event of Default and whether it will be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body) will have occurred and be continuing: (a) default in the
payment of any installment of interest upon any of the Notes as and when the
same will become due and payable, and continuance of such default for a period
of 30 days; (b) default in the payment of all or any part of the principal on
any of the Notes as and when the same will become due and payable either at
maturity, upon any redemption, upon mandatory repurchase, by declaration or
otherwise; or (c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the Company in
the Notes or in the Indenture contained for a period of 60 days after the date
on which written notice specifying such failure, stating that such notice is a
"Notice of Default" under the Indenture and demanding that the Company remedy
the same, will have been given by registered or certified mail, return receipt
requested, to the Company by the Trustee, or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the Notes at the
time outstanding; (d) an involuntary case or other proceeding shall be
commenced against the Company or any of its Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of 60 days; or an order for relief shall be entered against the
Company or any of its Subsidiaries under the federal bankruptcy laws as now or
hereafter in effect; (e) the Company or any of its Subsidiaries will commence
a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consent to the entry of an order for relief
in an involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or any of its Subsidiaries
or for any substantial part of its property, or make any general assignment
for the benefit of creditors; (f) an event of default, as defined in any
indenture or instrument evidencing or under which the Company or any
Subsidiary has at the date of the Indenture or will hereafter have outstanding
at least $10,000,000 aggregate principal amount of Debt, will have occurred
and be continuing and such Debt will have been accelerated so that the same
will be or become due and payable prior to the date on which the same would
otherwise have become due and payable, and such acceleration will not be
rescinded or annulled within 30 days after such acceleration, provided that if
such event of default under such indenture or instrument will be remedied or
cured by the Company or waived by the
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holders of such indebtedness, then the Event of Default under the Indenture by
reason thereof will be deemed likewise to have been thereupon remedied, cured
or waived without further action upon the part of either the Trustee or any of
the Noteholders; (g) any final judgment or order (not covered by insurance)
for the payment of money in excess of $10,000,000 in the aggregate for all
such final judgments or orders (treating any deductibles, self-insurance or
retention as not so covered) will be rendered against the Company or any
Subsidiary and will not be discharged, and there will be any period of 30
consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding
against all such Persons to exceed $10,000,000 during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, will not be in effect; (h) the Company and/or one or more of its
Subsidiaries fails to make (A) at the final (but not any interim) fixed
maturity of any issue of Debt a principal payment of $10,000,000 or more or
(B) at the final (but not any interim) fixed maturity of more than one issue
of such Debt principal payments aggregating $10,000,000 or more and, in the
case of clause (A), such defaulted payment will not have been made, waived or
extended within 30 days of the payment default and, in the case of clause (B),
all such defaulted payments will not have been made, waived or extended within
30 days of the payment default that causes the amount described in clause (B)
to exceed $10,000,000; (i) the nonpayment of any two or more items of Debt
that would constitute at the time of such nonpayments, but for the individual
amounts of such Debt, an Event of Default under clause (f) or clause (h)
above, or both, and which items of Debt aggregate $10,000,000 or more; (j) any
Subsidiary Guarantee shall for any reason cease to be in full force and
effect; then, and in each and every such case, unless the principal of all of
the Notes will have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding under the Indenture, by notice in writing to the Company (and to
the Trustee if given by Noteholders), may declare the entire principal of all
the Notes and the interest accrued thereon, to be due and payable immediately,
and upon any such declaration the same will become immediately due and
payable; provided that, if an Event of Default specified in clause (d) or (e)
above occurs with respect to the Company, all unpaid principal of and accrued
interest on the Notes then outstanding will become and be immediately due and
payable, without any declaration, presentment, demand, protest, notice or
other act on the part of the Trustee or any Holder. Such acceleration may be
annulled and past defaults (other than the non-payment of the principal of the
Notes which will have become due otherwise than by acceleration) may be waived
by the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to the Trustee, upon the
conditions provided in the Indenture. For information as to the waiver of
defaults, see "Modification and Waiver."
The Indenture will require that the Company furnish to the Trustee on or
before 90 days after the end of the Company's fiscal year and on or before 45
days after the end of each of the first, second and third fiscal quarters in
each year a brief certificate from the principal executive, financial or
accounting officer of the Company as to his or her knowledge of the Company's
compliance with all conditions and covenants under the Indenture (such
compliance to be determined without regard to any period of grace or
requirement of notice provided under the Indenture).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The terms of Indenture and the Notes will not prevent any consolidation of
the Company with, or merger of the Company into, any other corporation or
corporations (whether or not affiliated with the Company), or successive
consolidations or mergers to which the Company or its successor or successors
will be a party or parties, nor will it prevent any sale, lease or conveyance
of all or substantially all of the property of the Company as an entirety or
substantially as an entirety to any Person; provided that: (a) the Company
will be the continuing Person, or the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or to which
properties and assets of the Company are transferred will be a solvent
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and will expressly assume in writing
all the obligations of the Company under the Notes, (b) immediately before and
immediately after giving effect to such transaction no Event of Default or
event or condition which through the giving of notice or lapse of time or both
would become an Event of Default will have occurred and be continuing,
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(c) the Net Worth of the Company or the surviving entity, as the case may be,
on a pro forma basis after giving effect to such transaction is not less than
the Net Worth of the Company immediately prior to such transaction, and (d)
immediately after giving effect to such transaction on a pro forma basis, the
Company or the surviving entity would be able to incur at least $1.00 of Debt
pursuant to the provisions described in the second paragraph under
"Limitations on Debt." However, the foregoing will not prohibit a transaction,
the principal purpose of which is (as determined in good faith by the Board of
Directors of the Company and evidenced by the resolution thereof) to change
the state of incorporation of the Company, and such transaction does not have
as one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge of Indenture.
Under the terms of the Indenture, the Company will be deemed to have paid
and discharged the entire indebtedness on all the outstanding Notes on the
123rd day after the irrevocable deposit referred to in subparagraph (A) below,
and the provisions of the Indenture, as it relates to such outstanding Notes,
will no longer be in effect (except as to: (a) rights of registration of
transfer and exchange, and the Company's right of optional redemption, (b)
substitution of apparently mutilated, defaced, destroyed, lost or stolen
Notes, (c) the rights of Holders to receive payments of principal thereof and
interest thereon, (d) the rights, obligations and immunities of the Trustee
under the Indenture and (e) the rights of the Noteholders as beneficiaries
with respect to the property so deposited with the Trustee payable to all or
any of them) if (A) with reference to this provision the Company has deposited
or caused to be irrevocably deposited with the Trustee (or another trustee
satisfying the requirements of the Indenture) and conveyed all right, title
and interest for the benefit of the Holders, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee, as trust
funds in trust solely for the benefit of the Noteholders, (i) cash in an
amount, or (ii) U.S. Government Obligations maturing as to principal and
interest at such times and in such amounts as will insure the availability of
cash in an amount, or (iii) a combination thereof, sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of reinvestment of such interest and after
payment of all federal, state and local taxes or other charges payable by the
Trustee with respect to such trust fund, the principal of and each installment
of interest on the outstanding Notes at the maturity date or the redemption
date (provided, that in the case of redemption, if such Notes are to be
redeemed prior to the maturity thereof, notice of such redemption shall have
been given as provided in the Indenture or provision satisfactory to the
Trustee shall have been made for giving such Notice) of such principal or
installment of interest, on the day on which such payments are due and payable
in accordance with the terms of the Indenture and the Notes; provided, that
the Trustee or paying agent will have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of said principal and interest with respect to the Notes; (B) such
deposit will not cause the Trustee to have a conflicting interest for purposes
of the Trust Indenture Act, as amended; (C) such deposit will not result in a
breach or violation of, or constitute a default under, the Indenture or any
other agreement or instrument to which the Company is a party or by which it
is bound; (D) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or lapse
of time or both would become an Event of Default, will have occurred and be
continuing on the date of such deposit or during the period ending on the
123rd day after such date; (E) the Company has delivered to the Trustee (i)
either (x) a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of the Company's
exercise of its option described in this paragraph and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such option had not been exercised, or
(y) an Opinion of Counsel to the same effect as the ruling described in clause
(x), and (ii) an Opinion of Counsel to the effect that (x) the trust funds
will not be subject to any rights of holders of Senior Debt, including,
without limitation, those arising under the Indenture and (y) the creation of
the defeasance trust will not violate the Investment Company Act of 1940; (F)
the Company has paid or caused to be paid all sums then payable by the Company
under the Indenture and under the Notes; and (G) the Company has delivered to
the Trustee an
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Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the defeasance contemplated by
this provision have been complied with.
Defeasance of Certain Obligations.
The Company may omit to comply with the terms, provisions or conditions
described in "Covenants" and clauses (c) and (d) in "Consolidation, Merger and
Sale of Assets" if (a) with reference to the provision described herein, the
Company has deposited or caused to be irrevocably deposited with the Trustee
(or another trustee satisfying the requirements of the Indenture) and conveyed
all right, title and interest for the benefit of the Noteholders, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds in trust solely for the benefit of the
Noteholders, (i) cash in an amount, or (ii) U.S. Government Obligations
maturing as to principal and interest at such times and in such amounts as
will insure the availability of cash in an amount, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, without consideration of
reinvestment of such interest and after payment of all federal, state and
local taxes or other charges payable by the Trustee with respect to such trust
fund, the principal of and each installment of interest on the outstanding
Notes on the maturity date or the redemption date (provided, that in the case
of redemption, if such Notes are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as provided in the Indenture
or provision satisfactory to the Trustee shall have been made for giving such
Notice) of such principal or installment of interest on the day on which such
payments are due and payable in accordance with the terms of the Indenture and
of such Notes; provided, that the Trustee or paying agent will have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest with
respect to the Notes; (b) such deposit will not cause the Trustee to have a
conflicting interest for purposes of the Trust Indenture Act, as amended; (c)
such deposit will not result in a breach or violation of, or constitute a
default under, the Indenture or any other agreement or instrument to which the
Company is a party or by which it is bound; (d) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default or event
which with notice or lapse of time or both would become an Event of Default
will have occurred and be continuing on the date of such deposit; (e) the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
(i) the Holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its
option described herein and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such option had not been exercised, (ii) Holders of the Notes will
have a valid and perfected first priority security interest in the trust funds
and (iii) the creation of the defeasance trust will not violate the Investment
Company Act of 1940; (f) the Company has paid or caused to be paid all sums
then payable by the Company under the Indenture and under the Notes; and (g)
the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein described have been complied with.
MODIFICATION AND WAIVER
Modifications, waivers and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Notes; provided that
no such modification, waiver or amendment will (a) extend the final maturity
of any Note, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or alter the provisions with
respect to redemption or mandatory repurchase thereof (other than those
relating to a Change of Control), or impair or affect the right of any
Noteholder to institute suit for the payment thereof without the consent of
the holder of each Note so affected, or (b) reduce the aforesaid percentage of
Notes, the consent of the holders of which is required for any such
supplemental indenture or (c) modify the subordination provisions of the
Indenture in a manner adverse to the Noteholders, without the consent of the
holders of all Notes then outstanding; and provided, further, that no such
modification, waiver or amendment will make any change in the provisions
described above under the caption "Change of Control" or in the obligations of
the Company to make a Change of Control Offer or the definitions related
thereto that could adversely affect the
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rights of any holder of the Notes without the consent of the holders of not
less than 75% in aggregate principal amount of the outstanding Notes.
CONCERNING THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939 contain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claims as security or
otherwise. The Trustee is permitted to engage in other transactions; provided,
however, that if it acquires any conflicting interest (as defined in Section
310(b) of the Trust Indenture Act of 1939), it must eliminate such conflict or
resign.
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders not joining in the giving
of such direction. A Holder may not pursue any remedy with respect to the
Indenture unless such holder previously will have given to the Trustee written
notice of default and of the continuance thereof, and unless also the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding will have made written request upon the Trustee to institute such
action or proceedings in its own name as trustee under the Indenture and will
have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby
and the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity will have failed to institute any such action or
proceedings and no direction inconsistent with such written request will have
been given to the Trustee.
DELIVERY AND FORM OF SECURITIES
Book-Entry, Delivery and Form
Except as set forth herein, the New Notes will initially be issued in the
form of one or more registered notes in global form (the "New Global Note" and
together with the global notes representing the Old Notes, the "Global Note").
The New Global Note will be deposited on the Exchange Date with, or on behalf
of, the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note
Holder"). The Depositary will maintain the Notes in denominations of $1,000
and integral multiples thereof through its book-entry facilities.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's
system is also available to other entities such as banks, brokers, dealers and
trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depositary only through the Depositary's Participants or the
Depositary's Indirect Participants.
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The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the principal amount of the Global Note and (ii) ownership of the Notes will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests
of the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer the Notes will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Transfer Restrictions."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder of outstanding Notes
under the Indenture. Except as provided below, owners of Notes will not be
entitled to have Notes registered in their names and will not be considered
the owners or Holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such Notes.
Payments in respect of the principal of and interest and liquidated damages
on any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such
Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names any Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither of the
Company or the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including
principal, interest and liquidated damages). The Company believes, however,
that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective beneficial interests in the relevant
security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in definitive form. Upon any such issuance, the Trustee is
required to register such Notes in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). Such
Notes would be issued in fully registered form and would be subject to the
legal requirements described herein under the caption "Transfer Restrictions."
In addition, if (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or
able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in definitive
form under the Indenture, then, upon surrender by the relevant Global Note
Holder of its Global Note, Notes in such form will be issued to each person
that such Global Note Holder and the Depositary identifies as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, interest and liquidated damages) be made
in same-day funds. The Notes are expected to be eligible to trade in the
PORTAL Market and to trade in the Depositary's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in the Notes will,
therefore, be required by the Depositary to be settled in same-day funds.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into a Registration Rights
Agreement dated as of December 1, 1997. Pursuant to the Registration Rights
Agreement, the Company agreed to file with the Commission an Exchange Offer
Registration Statement with respect to the New Notes. Upon the effectiveness
of the Exchange Offer Registration Statement, the Company will offer, pursuant
to the Exchange Offer, to the Holders of Transfer Restricted Securities who
are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for New Notes. If (i) the Company is not
required to file the Exchange Offer Registration Statement because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities notifies the Company within 20
days of the commencement of the Exchange Offer that (a) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (b) it
may not resell the New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) it is a broker-dealer and holds Notes acquired directly from
the Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note or New Note
until (i) the date on which such Note or New Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note or New Note is distributed to
the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 90 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will
commence the Exchange Offer and will use its best efforts to issue on or prior
to 45 days after the date on which the Exchange Offer Registration Statement
is declared effective by the Commission (the "Exchange Offer Effective Date")
New Notes in exchange for all Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 45 days after such obligation arises and to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 90 days after such obligation arises. If (a) the
Company fails to file within 45 days, or cause to become effective within 90
days, the Exchange Offer Registration Statement or (b) the Company is
obligated to file the Shelf Registration Statement and such Shelf Registration
Statement is not filed within 45 days, or declared effective within 90 days,
of the date on which the Company became so obligated or (c) the Company fails
to consummate the Exchange Offer within 45 days of the Exchange Offer
Effective Date or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay liquidated damages ("Liquidated Damages")
to each Holder of Transfer Restricted Securities, during the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes
constituting Transfer Restricted Securities held by such Holder. The amount of
the Liquidated Damages will increase an additional $.05 per week per $1,000
principal amount constituting Transfer Restricted Securities for each
subsequent 90-day period until the applicable Registration Default has been
cured, up to a maximum amount of Liquidated Damages of $.30 per week per
$1,000 principal amount of Notes constituting Transfer Restricted
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Securities. All accrued Liquidated Damages will be paid by the Company on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to the Holders of certificated
securities by mailing a check to such Holders' registered addresses. Following
the cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
Holders of the Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Senior Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on February 23, 1998; provided, however, that if the
Company, in its sole discretion, has extended the period of time during which
the Exchange Offer is open, the term "Expiration Date" means the latest time
and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $175,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about January 23, 1998, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old
Notes for exchange pursuant to the Exchange Offer is subject to certain
customary conditions as set forth below under "--Certain Conditions to the
Exchange Offer."
The Company expressly reserves the right, at any time and from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby to delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders of the Old Notes as described
below. During any such extension, all Old Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company. Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering holders thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of $1,000
or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions to the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will
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constitute a binding agreement between the tendering holder and the Company
upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal. Except as set forth below, a holder
who wishes to tender Old Notes for exchange pursuant to the Exchange Offer
must transmit either (i) a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to PNC Bank, National Association (the "Exchange Agent") at one
of the addresses set forth below under "Exchange Agent," or (ii) if such Old
Notes are tendered pursuant to the procedures for book-entry transfer set
forth below, a holder tendering Old Notes may transmit an Agent's Message
(defined herein) to the Exchange Agent in lieu of the Letter of Transmittal,
in either case on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, along with the Letter of Transmittal or
an Agent's Message, as the case may be, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. The term "Agent's Message"
means a message, transmitted to the Book-Entry Transfer Facility and received
by the Exchange Agent and forming a part of the Book-Entry Confirmation, which
states that the Book-Entry Transfer Facility has received an express
acknowledgement from the tendering Participant (defined herein) that such
Participant has received and agrees to be bound by the Letter of Transmittal
and that the Company may enforce the Letter of Transmittal against such
Participant.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner of Old Notes whose Old Notes are registered in the name
of a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender such Old Notes in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender on
its own behalf, such owner must, prior to completing and executing the Letter
of Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of such Old Notes in such
beneficial owner's name or obtain a properly completely bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal Rights"), as the case may be, must be guaranteed
(see"--Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of those Old
Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the
registered holder or holders appear on the Old Notes with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be
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final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Old Notes not properly tendered or not to accept
any particular Old Notes not properly tendered or the acceptance of which
might, in the judgment of the Company or its counsel, be unlawful. The Company
also reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation by the Company of the terms and conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration
Date (including the Letter of Transmittal and the instructions thereto) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
None of the Company, the Exchange Agent or any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering Old Notes for exchange, each holder will represent to the
Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to engage or participate in a distribution of
the New Notes. If any holder or any such other person is an "affiliate", as
defined under Rule 405 of the Securities Act, of the Company or is engaged in
or intends to engage in, or has an arrangement or understanding with any
person to participate in, a distribution of such New Notes to be acquired
pursuant to the Exchange Offer, such holder or any such other person (i) may
not rely on the applicable interpretation of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTE
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company will be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive as set forth below under "Description of the New Notes--Book-Entry;
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Registered holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid
on the Old Notes, from December 1, 1997. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the
Exchange Offer. Accordingly, holders whose Old Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date for which the record date
occurs on or after consummation of the Exchange Offer. Old Notes not tendered
or not accepted for exchange will continue to accrue interest from and after
the date of consummation of the Exchange Offer.
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In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message in lieu thereof. If any tendered Old Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees, or an Agent's Message in lieu of a
Letter of Transmittal, and any other required documents, must in any case, be
transmitted to and received by the Exchange Agent at the addresses set forth
below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) on or prior to 5:00 p.m., New York
City time, on the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution within three NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the
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Old Notes to be withdrawn (including the principal amount of such Old Notes),
and (where certificates for Old Notes have been transmitted) specify the name
in which such Old Notes are registered, if different from that of the
withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal,
with signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution in which case such guarantee will not be required. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes, and may terminate or amend the Exchange Offer,
if, at any time before the acceptance of such New Notes for exchange, any of
the following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time
in its sole discretion. The failure by the Company at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order is threatened by the Commission or in effect
with respect to the Registration Statement of which this Prospectus is a part
or with respect to the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
EXCHANGE AGENT
PNC Bank, National Association has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
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PNC Bank, National Association, Exchange Agent
By Mail:
PNC Bank, National Association
One Oliver Plaza, 27th Floor
Pittsburgh, Pennsylvania 15222-2602
Attention: Fred J. Deramo
By Hand or Overnight Courier:
PNC Bank, National Association
One Oliver Plaza, 27th Floor
Pittsburgh, Pennsylvania 15222-2602
Attention: Fred J. Deramo
By Facsimile:
PNC Bank, National Association
Attention: Fred J. Deramo
Fax: (412) 762-8226
Confirm by Telephone:
(412) 762-3666
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or other
soliciting acceptances of the Exchange Offer.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer taxes thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act. The Company does not currently anticipate
that it will register Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission, as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by a holder thereof (other than a
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are
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acquired in the ordinary course of such holder's business and such holder,
other than a broker-dealer, has no arrangement or understanding with any
person to engage or participate in a distribution of such New Notes. However,
the Commission has not considered the Exchange Offer in the context of a no-
action letter request by the Company and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is
an affiliate of the Company or is engaged in or intends to engage in or has
any arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) may not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes pursuant
to the Exchange Offer must acknowledge that such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration
Date, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
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FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW NOTES
U.S. HOLDERS
Payments of Interest. The Old Notes were not issued with original issue
discount. As a result, payments of interest on a New Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received, in accordance with the U.S. Holder's regular
method of tax accounting.
Market Discount. A Note will be considered to bear "market discount" if the
U.S. Holder's tax basis for the Note is less than the principal amount of the
Note by more than a de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the lesser of (i) the amount of such payment or realized gain or (ii) the
market discount which has not previously been included in income and is
treated as having accrued on such New Note at the time of such payment or
disposition. Market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on the basis
of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a New Note with market discount until the maturity of the
New Note or certain earlier dispositions. A. U.S. Holder may elect to include
market discount in income currently as it accrues, in which case the rules
described above regarding the treatment as ordinary income of gain upon the
disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Persons
considering making this election should consult their tax advisors.
Premium. If a U.S. Holder's initial tax basis in any Note is greater than
the principal amount of the Note, the Note will be considered to have
"amortizable bond premium" equal in amount to such excess. A U.S. Holder may
elect to amortize such premium using a constant yield method over the
remaining term of the New Note and may offset interest otherwise required to
be included in respect of the New Note during any taxable year by the
amortized amount of such excess for the taxable year. Any election to amortize
bond premium applies to all taxable debt instruments acquired by the U.S.
Holder on or after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange or
retirement of a New Note, a U.S. Holder generally will recognize taxable gain
or loss equal to the difference between the amount realized on the sale,
exchange or retirement (other than amounts representing accrued and unpaid
interest) and such U.S. Holder's adjusted tax basis in the New Note. A U.S.
Holder's adjusted tax basis in a New Note generally will equal such U.S.
Holder's initial investment in the Note increased by any accrued market
discount that the U.S. Holder has included in income and decreased by the
amount of any amortizable bond premium taken with respect to such Note. Such
gain or loss generally will taxed at preferential tax rates if the Note has
been held for more than eighteen months.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a New Note, unless such non-U.S. Holder is a direct
or indirect 10% or greater shareholder of the Company or a controlled foreign
corporation related to the Company. To qualify for the exemption from
taxation, the last United States payor in the chain of payment prior to
payment to a non-U.S. Holder (the "Withholding Agent") must have received in
the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial
owner of the New Note under penalties of perjury, (ii) certifies that such
owner is not a U.S. Holder and (iii) provides the name and address of the
beneficial owner. The statement may be made
113
<PAGE>
on an IRS Form W-8 or a substantially similar form, and the beneficial owner
must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a New Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in such case, the signed statement must be accompanied by a
copy of the IRS Form W-8 or the substitute form provided by the beneficial
owner to the organization or institution.
Generally, a non-U.S. Holder will not be subject to federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
New Note, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The New Notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of
the Company or, at the time of such individual's death, payments in respect of
the New Notes would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
BACKUP WITHHOLDING; INFORMATION REPORTING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the New Notes to registered owners who
are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the New Notes to a U.S. Holder must be reported to
the IRS, unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for
those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a New Note to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller
is a non-U.S. Holder (and certain other conditions are met). Such a sale must
also be reported by the broker to the IRS unless either (a) the broker
determines that the seller is an exempt recipient or (b) the seller certifies
its non-U.S. status (and certain other conditions are met). Certification of
the registered owner's non-U.S. status would be made normally on an IRS Form
W-8 under penalties of perjury, although in certain cases it may be possible
to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
114
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that,
starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until August 22, 1998, all dealers
effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Act and any profit of any such resale
of New Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. Additional copies of this Prospectus,
the Letter of Transmittal and other related documents may be obtained upon
request to the Exchange Agent at (412) 762-3666. The Company has agreed to pay
all expenses incident to the Exchange Offer (including the expenses of any one
special counsel for the holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes participating in the Exchange Offer (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes will be passed upon
on behalf of the Company by Dickie, McCamey & Chilcote, P.C., Pittsburgh,
Pennsylvania. Clayton A. Sweeney is both a shareholder and Director in the
firm and a Director of the Company.
115
<PAGE>
EXPERTS
The Consolidated Financial Statements and schedule of the Company at
December 31, 1995 and 1996, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and the Registration
Statement on Form S-4 (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, 1996 and 1997 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.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the Commission under
the Securities Act, with respect to the Notes 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 Notes 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. In addition, the Commission maintains a site on the Internet
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission at
http://www.sec.gov.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Koppers Industries, Inc.
Consolidated Financial Statements for the Years Ended December 31, 1994,
1995 and 1996
Report of Independent Auditors........................................... F-2
Consolidated Statement of Operations for the Years Ended December 31,
1994, 1995 and 1996..................................................... F-3
Consolidated Balance Sheet at December 31, 1995 and 1996................. F-4
Consolidated Statement of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996..................................................... F-6
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996........................................ F-7
Notes to Consolidated Financial Statements............................... F-8
Condensed Consolidated Financial Statements (Unaudited) for the Nine
Months Ended September 30, 1996 and 1997
Condensed Consolidated Statement of Operations (Unaudited) for the Nine
Months Ended September 30, 1996 and 1997................................ F-24
Condensed Consolidated Balance Sheet (Unaudited) at September 30, 1997
and December 31, 1996................................................... F-25
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1996 and 1997................................ F-27
Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-28
Koppers Australia Pty. Limited
Consolidated Financial Statements for the Years Ended June 30, 1996 and
1997 Report of Independent Auditors...................................... F-30
Consolidated Profit and Loss Account for the Years Ended June 30, 1996
and 1997................................................................ F-31
Consolidated Balance Sheet at June 30, 1996 and 1997..................... F-32
Consolidated Statement of Cash Flows for the Years Ended June 30, 1996
and 1997................................................................ F-33
Profit and Loss Account for the Years Ended June 30, 1996 and 1997....... F-34
Balance Sheet at June 30, 1996 and 1997.................................. F-35
Statement of Cash Flows for the Years Ended June 30, 1996 and 1997....... F-36
Notes to and Forming Part of the Financial Statements.................... F-37
Condensed Consolidated Financial Statements (Unaudited) for the Three
Months Ended September 30, 1996 and 1997
Condensed Consolidated Profit and Loss Account (Unaudited) for the Three
Months Ended September 30, 1996 and 1997................................ F-56
Condensed Consolidated Balance Sheet (Unaudited) at September 30, 1997... F-57
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three
Months Ended September 30, 1996 and 1997................................ F-58
Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-59
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Koppers Industries, Inc.
We have audited the accompanying consolidated balance sheet of Koppers
Industries, Inc. at December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. 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, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 18, 1997
F-2
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
<S> <C> <C> <C>
Net sales......................................... $476,448 $525,730 $588,544
Operating expenses:
Cost of sales................................... 407,533 440,746 496,062
Depreciation and amortization................... 16,680 17,532 21,793
Selling, general and administrative............. 24,068 27,604 27,545
Restructuring charges........................... 2,458 -- 15,513
-------- -------- --------
Total operating expenses...................... 450,739 485,882 560,913
-------- -------- --------
Operating profit.................................. 25,709 39,848 27,631
Equity in earnings of affiliates.................. 5,314 9,239 9,587
Other income...................................... 531 376 --
Litigation charges................................ -- -- 12,623
-------- -------- --------
Income before interest expense and provision for
income taxes...................................... 31,554 49,463 24,595
Interest expense.................................. 13,620 15,060 16,636
-------- -------- --------
Income before income tax provision (benefit)...... 17,934 34,403 7,959
Income tax provision (benefit).................... 5,017 9,963 (6,139)
-------- -------- --------
Income before extraordinary item.................. 12,917 24,440 14,098
Extraordinary loss on early extinguishment of
debt, net of income taxes......................... (1,815) -- --
-------- -------- --------
Net income........................................ 11,102 24,440 14,098
Payment-in-kind dividends on preferred stock...... 944 -- --
-------- -------- --------
Net income applicable to common stock............. $ 10,158 $ 24,440 $ 14,098
======== ======== ========
Earnings (loss) per share of common stock:
Earnings before extraordinary item.............. $ 1.13 $ 2.36 $ 1.47
Extraordinary item.............................. (0.17) -- --
-------- -------- --------
Earnings per share of common stock................ $ 0.96 $ 2.36 $ 1.47
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 1,618 $ 1,526
Accounts receivable less allowance for doubtful
accounts of $342 in 1995 and $164 in 1996........... 57,583 72,229
Inventories:
Raw materials........................................ 38,584 33,635
Work in process...................................... 2,419 3,168
Finished goods....................................... 44,363 44,090
LIFO reserve......................................... (8,191) (7,971)
--------- ---------
Total inventories.................................. 77,175 72,922
Deferred tax benefit................................... 5,896 10,927
Other.................................................. 1,732 2,662
--------- ---------
Total current assets............................... 144,004 160,266
Investments:
Koppers Australia Pty. Limited......................... 30,223 37,561
Tarconord.............................................. 15,149 13,673
Koppers Sherman-Abetong................................ 3,669 4,139
--------- ---------
Total investments.................................. 49,041 55,373
Fixed assets:
Land................................................... 5,523 5,673
Buildings.............................................. 9,736 10,173
Machinery and equipment................................ 233,652 280,842
--------- ---------
248,911 296,688
Less: accumulated depreciation....................... (102,388) (123,468)
--------- ---------
Net fixed assets................................... 146,523 173,220
Other assets............................................. 9,387 22,321
--------- ---------
Total assets....................................... $ 348,955 $ 411,180
========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 33,237 $ 37,255
Payroll and compensation costs........................... 8,956 11,300
Accrued liabilities...................................... 12,716 26,874
Current portion of term loan............................. 9,000 7,149
-------- --------
Total current liabilities.............................. 63,909 82,578
Long-term debt:
Revolving credit......................................... 29,000 43,000
Term loan................................................ 26,000 49,735
Senior Notes............................................. 110,000 110,000
-------- --------
Total long-term debt................................... 165,000 202,735
Deferred income tax........................................ 12,788 6,904
Product warranty and insurance reserves.................... 14,492 17,379
Accrued postretirement benefits obligation................. 12,275 15,675
Other...................................................... 2,261 7,846
-------- --------
Total liabilities...................................... 270,725 333,117
Commitments and contingencies--See Note 11
Series B Junior Convertible Preferred Stock; 2,600 shares
designated and issued; liquidation value of $100 per
share..................................................... 260 --
Common stock subject to redemption......................... 23,715 23,957
Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 6,707,952 total shares
issued in 1995
and 1996.................................................. 67 67
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 2,338,200 total shares
issued in 1995
and 3,628,200 in 1996..................................... 23 36
Capital in excess of par value............................. 12,964 11,675
Retained earnings.......................................... 45,828 45,813
Cumulative translation adjustment.......................... (384) 2,181
Treasury stock, at cost, 1,433,961 shares in 1995 and
1,531,511 shares
in 1996................................................... (4,243) (5,666)
-------- --------
Total liabilities and stockholders' equity............. $348,955 $411,180
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Cash provided by operating activities:
Net income.................................. $ 11,102 $ 24,440 $ 14,098
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 16,884 17,532 21,793
Deferred income taxes..................... 349 3,835 (10,915)
Equity income of affiliated companies, net
of dividends received.................... (3,902) (6,568) (3,767)
Extraordinary loss on early extinguishment
of debt.................................... 1,815 -- --
Restructuring reserves...................... 2,046 (2,046) 14,990
Increase in reserves........................ 677 955 5,086
(Increase) decrease in working capital:
Accounts receivable....................... 3,165 (5,774) (4,626)
Inventories............................... 841 (9,724) 9,281
Accounts payable.......................... (2,323) 11,474 (5,433)
Payroll and compensation costs............ 1,999 1,120 (710)
Accrued liabilities....................... 4,924 766 5,985
Other..................................... 1,672 (734) (1,038)
--------- --------- ---------
Net cash provided by operating
activities............................. 39,249 35,276 44,744
--------- --------- ---------
Cash used in investing activities:
Acquisitions and related capital
expenditures............................... -- (34,948) (39,517)
Capital expenditures........................ (16,326) (15,193) (21,717)
Other....................................... 310 (202) 320
--------- --------- ---------
Net cash used in investing activities..... (16,016) (50,343) (60,914)
--------- --------- ---------
Cash used in financing activities:
Borrowings of revolving credit.............. 110,000 150,000 160,500
Repayments of revolving credit.............. (126,000) (155,000) (146,500)
Repayment of long term debt................. (51,750) (5,000) (14,046)
Proceeds from long term debt................ -- 25,000 35,930
Proceeds from issuance of Senior Notes...... 110,000 -- --
Retirement of preferred stock............... (53,452) -- --
Payments of deferred financing costs........ (5,425) -- (1,217)
Purchases of voting common stock............ (3,820) (1,637) (3,247)
Purchases of non-voting common stock........ -- -- (12,250)
Proceeds from exercise of warrants.......... -- 2,667 --
Dividends on common stock................... -- (2,320) (3,092)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (20,447) 13,710 16,078
--------- --------- ---------
Net increase (decrease) in cash............... 2,786 (1,357) (92)
Cash at beginning of year..................... 189 2,975 1,618
--------- --------- ---------
Cash at end of year........................... $ 2,975 $ 1,618 $ 1,526
========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest.................................. $ 9,551 $ 15,135 $ 15,843
Income taxes.............................. 3,692 7,399 2,315
</TABLE>
See accompanying notes.
F-6
<PAGE>
KOPPERS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
JUNIOR COMMON
CONVERTIBLE STOCK VOTING NON-VOTING CAPITAL IN CUMULATIVE
PREFERRED SUBJECT TO STOCK COMMON COMMON EXCESS OF RETAINED TRANSLATION TREASURY
STOCK REDEMPTION WARRANTS STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT STOCK
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $ 260 $ 800 $873 $67 $-- $ 8,789 $ 33,308 $(4,805) $(1,368)
Net income to common
stock for 1994......... -- -- -- -- -- -- 10,158 -- --
Foreign currency
translation............ -- -- -- -- -- -- -- 4,182 --
Net change in common
stock subject
to redemption.......... -- 14,650 -- -- -- (1,767) (12,883) -- --
Redemption of preferred
stock.................. -- -- -- -- -- -- 3,756 -- --
Options exercised, stock
purchased and retired,
12,768 shares.......... -- -- -- -- -- -- (342) -- --
Treasury stock
purchases, 65,796
shares................. -- -- -- -- -- -- -- -- (2,084)
Redemption of voting
common stock........... -- -- -- -- -- (147) (1,247) -- --
----- ------- ---- --- --- ------- -------- ------- -------
Balance at December 31,
1994................... 260 15,450 873 67 -- 6,875 32,750 (623) (3,452)
Net income to common
stock for 1995......... -- -- -- -- -- -- 24,440 -- --
Foreign currency
translation............ -- -- -- -- -- -- -- 239 --
Net change in common
stock subject to
redemption............. -- 8,265 -- -- -- -- (8,265) -- --
Options exercised, stock
purchased and retired,
15,583 shares.......... -- -- -- -- -- -- (435) -- --
Treasury stock
purchases, 53,671
shares................. -- -- -- -- -- -- -- -- (1,707)
Treasury stock sales,
27,451 shares.......... -- -- -- -- -- -- -- -- 916
Warrants exercised,
2,799,950 shares....... -- -- (873) -- 23 6,158 -- -- --
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................... 260 23,715 -- 67 23 12,964 45,828 (384) (4,243)
Net income to common
stock for 1996......... -- -- -- -- -- -- 14,098 -- --
Foreign currency
translation............ -- -- -- -- -- -- -- 2,565 --
Net change in common
stock subject
to redemption.......... -- 242 -- -- -- -- (242) -- --
Options exercised, stock
purchased and retired,
54,062 shares.......... -- -- -- -- -- -- (485) -- --
Treasury stock
purchases, 292,433
shares................. -- -- -- -- -- 420 -- -- (3,835)
Treasury stock sales,
194,883 shares......... -- -- -- -- -- -- -- -- 2,412
Conversion of Series B
Preferred Stock........ -- -- -- -- 23 237 -- -- --
Non-voting common stock
repurchased and
retired, 1,050,000
shares................. (260) -- -- -- (10) (1,946) (10,294) -- --
Dividends on common
stock, net of equity
interest............... -- -- -- -- -- -- (3,092) -- --
----- ------- ---- --- --- ------- -------- ------- -------
Balance at December 31,
1996................... $ -- $23,957 $ -- $67 $36 $11,675 $ 45,813 $ 2,181 $(5,666)
===== ======= ==== === === ======= ======== ======= =======
</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 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 & Utility Products division treats railroad
crossties, utility poles and pilings with preservatives for various uses. The
Company's Coke Products division produces foundry and furnace coke for sale to
steel mill blast furnaces and foundries, and coke by-products, including coal
tars, gases, oils and chemicals for sale to other industrial operations.
Basis of Financial Statements
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated.
The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. Accordingly, the Company's
share of the earnings of these companies is included in consolidated net
income.
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 first-in, first-out ("FIFO") inventory value at
December 31, 1996.
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 for their respective years ended 1994, 1995 and 1996. 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.
F-8
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................ $166,652 $203,639 $266,439
Operating profit..................................... 16,980 28,303 32,126
Net income........................................... 11,901 19,154 21,530
Equity in earnings................................... 5,951 9,577 10,765
Current assets....................................... 68,679 88,776 94,058
Total assets......................................... 152,519 171,550 201,310
Current liabilities.................................. 27,721 41,437 55,077
Non-current liabilities.............................. 30,451 23,951 33,405
Net assets........................................... 94,347 106,162 112,828
</TABLE>
The following describes activity related to the Company's significant equity
investments for the years ended December 31:
KOPPERS AUSTRALIA PTY. LIMITED ("KOPPERS AUSTRALIA")
The Company holds a 50% investment in Koppers Australia, a carbon materials,
wood treating and wood preservation operation.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1994........................................... $3,614,000 $ 360,000
1995........................................... 4,998,000 712,000
1996........................................... 6,540,000 2,769,000
</TABLE>
TARCONORD A/S ("TARCONORD")
The Company owns a 50% equity interest in Tarconord, a carbon materials
operation headquartered in Denmark, with operations in Denmark and the United
Kingdom.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1994........................................... $ 738,000 $ 562,000
1995........................................... 3,139,000 731,000
1996........................................... 1,577,000 2,430,000
</TABLE>
KOPPERS/SHERMAN--ABETONG ("KSA")
The Company holds a 50% investment in KSA, a concrete crosstie operation
located in Ohio.
<TABLE>
<CAPTION>
EQUITY INCOME DIVIDENDS RECEIVED
<S> <C> <C>
1994........................................... $ 962,000 $ 500,000
1995........................................... 1,102,000 1,500,000
1996........................................... 1,470,000 1,000,000
</TABLE>
The Company is guarantor on KSA debt in the amount of $1.9 million at
December 31, 1996.
Depreciation and Amortization
Buildings, machinery, and equipment are recorded at purchased cost and
depreciated over their estimated useful lives (5 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.
F-9
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Research and Development
Research and development costs, which are included in selling, general and
administrative expenses, amounted to $0.9 million for both 1994 and 1995, and
$1.0 million for 1996.
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 adopted Statement 121 in the first quarter of 1996 and the effect of
adoption was not material.
2.RESTRUCTURING CHARGES
The restructuring charges of $15.5 million for 1996 include $6.5 million for
the closing of a tar distillation facility in Houston, Texas; $0.9 million
related to the closing of a refractory materials facility in Carrollton, Ohio;
$5.4 million related to the idling of part of the coke operations at the
Company's Woodward, Alabama coke facility; and $2.6 million for severance
charges unrelated to the closing of these facilities; and $0.1 million for
other.
The total restructuring charges consist of the following cash and non-cash
charges (in millions):
<TABLE>
<S> <C>
Non-cash
Write-downs of equipment................................................ $4.1
Cash
Dismantling and tank cleaning........................................... $3.6
Severance............................................................... $3.3
Other................................................................... $4.5
</TABLE>
At December 31, 1996 approximately $0.5 million of the total cash charges
had been expended with the remainder to be expended in 1997.
F-10
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Results for 1994 included 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 reflected salaries and benefits for 55
participating employees.
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.
On April 1, 1996, the Company purchased a tar distillation plant and certain
assets located in Clairton, Pennsylvania for a cash purchase price of
approximately $40 million and the assumption of approximately $8 million of
liabilities, primarily for employee benefits, tank cleaning and dismantling of
idle equipment. The acquisition was accounted for as a purchase and,
accordingly, operating results of this business subsequent to the date of
acquisition are included in the Company's consolidated financial statements.
The excess purchase price over fair value of the net tangible assets acquired
was approximately $12 million and has been recorded as goodwill which is being
amortized on a straight-line basis over 25 years.
The following table represents the pro forma results of the Company as if
the Clairton acquisition had taken place on January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1996
(MILLIONS
EXCEPT SHARE FIGURES)
<S> <C> <C>
Revenues (as reported)................................... $525.7 $588.5
Revenues (pro forma)..................................... 590.1 604.7
Net income (as reported)................................. 24.4 14.1
Net income (pro forma)................................... 27.5 14.7
Earnings per share (as reported)......................... 2.36 1.47
Earnings per share (pro forma)........................... $2.65 $1.52
Average shares outstanding............................... 10,376,658 9,619,713
</TABLE>
4.DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Revolving credit.............................................. $ 29,000 $ 43,000
Term loans.................................................... 35,000 56,884
Senior Notes.................................................. 110,000 110,000
-------- --------
$174,000 $209,884
======== ========
</TABLE>
In March 1996 the Company's existing credit agreement with Mellon Bank,
N.A., as agent, along with a syndicate of other lenders, was amended (the
"Amended and Restated Credit Agreement") to increase the revolving credit
facility (the "Revolving Credit Facility") to $100 million from $75 million,
which includes letters of credit subject to an aggregate sublimit of $15
million. Proceeds from this facility were used to repay the remaining $10
million term loan which had originated in February 1994. 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
(the "Clairton Term Loan"), with repayments of $17.5 million due for both 2000
and 2001.
F-11
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Revolving Credit Facility provides for revolving credit loans up to $100
million, based upon a percentage of accounts receivable and inventory, until
March 18, 2001. Commitment fees ranging from 0.2% to 0.375% per annum on the
unborrowed amounts are required. The notes provide for interest at variable
rates. At December 31, 1996, the effective interest rate on the Revolving
Credit Facility was 6.9%, and the average rates during the years ended
December 31, 1995 and 1996 were 8.5% and 6.9%, respectively.
In March 1995 the Company entered into a standby term loan agreement (as
amended in March 1996, the "Amended Somerville/Monessen 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 million term
loan for the Monessen plant and an $11 million term loan for the Somerville
plant. The balance on the loan requires repayments of $7 million in 1997, $9
million in 1998, and $5 million in 1999.
The term loans under the Amended Somerville/Monessen Loan Agreement provide
for interest at variable rates. At December 31, 1996 the effective rate on the
term loans was 6.3%. The average rates on the term loans for the years ended
December 31, 1995 and 1996 were 9.3% and 6.8%, respectively.
Substantially all of the Company's current assets (including accounts
receivable and inventories), as well as the fixed assets of Carbon Materials &
Chemicals, are pledged as collateral for the credit facilities established
under the Amended and Restated Credit Agreement, the Amended
Somerville/Monessen Loan Agreement and the Clairton Term Loan (collectively,
the "Bank Credit Facilities").
The Bank Credit Facilities 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. In addition, such covenants give rise to events
of default upon the failure by the Company to meet certain financial ratios.
While in the past the Company has been able to obtain waivers from these
covenants to complete acquisitions and consents to exclude certain items from
the calculation of such ratios in order to avoid such events of default, there
can be no assurance that such waivers or consents will be obtained in the
future and therefore these restrictive covenants may limit the ability of the
Company to expand through acquisitions and may give rise to events of default
on the Bank Credit Facilities and adversely affect the Company's liquidity.
On February 10, 1994 the Company issued $110 million of 8.5% Senior Notes
maturing in 2004, with semiannual interest payments to the Note holders due
every February 1 and August 1.
At December 31, 1996 the aggregate debt maturities for the next five years
are as follows:
<TABLE>
<S> <C>
1997................................................................ $ 7,148,620
1998................................................................ 9,151,618
1999................................................................ 5,154,678
2000................................................................ 17,592,441
2001................................................................ 60,500,000
</TABLE>
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 $0.8 million at
December 31, 1994, $1.6 million at December 31, 1995 and $2.4 million at
December 31, 1996) were $4.8 million, $4.3 million and $4.4 million, at
December 31, 1994, 1995 and 1996, respectively, and are included in other
assets.
At December 31, 1996, the Company had $8.5 million of standby letters of
credit outstanding, with terms ranging from one to two years.
F-12
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5.STOCK ACTIVITY
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
purchased and retired 1,050,000 shares of non-voting common stock of the
Company in equal amounts from Cornerstone-Spectrum, Inc. and APT Holdings
Corporation, a wholly owned subsidiary of Mellon Bank Corporation, the parent
of Mellon Bank, N.A. The effect of the purchase on stockholders' equity was to
decrease retained earnings and capital in excess of par value by $1.9 million
and $10.3 million, respectively.
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, 1996.
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 1994 prior to the redemption the Company accrued
additional Series A dividends of $0.9 million.
In prior years the Company recorded payments to a subsidiary Koppers
Australia KAP Investments, Inc. ("KAP") as the Series A Exchangeable Preferred
Stock held by KAP as paid-in-kind dividends. A portion of these payments
represented an additional investment by the Company in KAP, 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 KAP 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 KAP to reflect the
Company's 50% equity interest therein.
6.COMMON STOCK SUBJECT TO REDEMPTION
The Company has a Stockholders' Agreement (the "Stockholders' 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, termination or resignation. At December 31, 1995 and 1996 the
maximum redemptions which would have been required under the Stockholders'
Agreement were $23.7 million and $24.0 million, respectively. The value of
shares subject to redemption under the terms of the Stockholders' Agreement is
segregated from other common stock on the face of the balance sheet. There
were approximately 2.0 million and 1.7 million shares of voting common stock
at December 31, 1995 and 1996, respectively, subject to the provisions of this
Stockholders' Agreement. The Stockholders' 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 three
years based on termination events which have already occurred are as follows:
<TABLE>
<S> <C>
1997............................................................... $1.9 million
1998............................................................... $0.8 million
1999............................................................... $0.2 million
</TABLE>
F-13
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The funded status of the pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits............................................. $42,025 $46,080
Non-vested benefits......................................... 2,949 4,416
------- -------
Accumulated benefit obligation.............................. 44,974 50,496
Effect of future wage increases............................. 4,548 4,903
------- -------
Projected benefit obligation................................ 49,522 55,399
Plan assets at fair value..................................... 46,306 52,297
------- -------
Plan assets less than projected benefit obligation............ (3,216) (3,102)
Unrecognized prior service costs.............................. 324 453
Unrecognized net loss......................................... 4,695 2,758
------- -------
Prepaid pension costs (net of liabilities provided)........... $ 1,803 $ 109
======= =======
</TABLE>
The components of pension expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year..... $ 2,273 $ 2,176 $ 3,121
Interest cost on projected benefit obligation..... 2,951 3,252 4,037
(Gain) loss on plan assets........................ 1,347 (9,969) (5,433)
Other............................................. (4,658) 6,861 868
-------- -------- --------
$ 1,913 $ 2,320 $ 2,593
======== ======== ========
</TABLE>
In determining the projected benefit obligation for funded status purposes,
discount rates of 7.25% and 7.5% were used for December 31, 1995 and 1996,
respectively. In 1995 and 1996, 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 1996 decreased the accumulated benefit obligation by
approximately $1.4 million. The net increase in the accumulated benefit
obligation reflects the additional liabilities assumed by the Company as the
result of acquisitions.
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.
F-14
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
In determining the accumulated postretirement benefit obligation at December
31, 1995 and 1996, the Company used discount rates of 7.25% and 7.5%,
respectively. Inflation factors for the different types of medical costs were
assumed to range from 8.0% to 10.6% for 1997 and to decrease gradually to 6.7%
per year within 11 years.
The following summarizes the Company's accrued obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Active employees........................................... $ 9,920 $12,318
Retired employees.......................................... 1,571 1,841
------- -------
Total.................................................... 11,491 14,159
Plan assets.................................................. -- --
------- -------
Accumulated postretirement benefit obligation in excess of
plan assets................................................. 11,491 14,159
Unrecognized prior service cost.............................. 2,979 2,853
Unrecognized net gain........................................ (2,063) (1,286)
------- -------
Accrued postretirement benefit obligation.................... $12,407 $15,726
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 410 $ 345 $ 474
Interest cost..................................... 747 739 798
Net amortization and deferrals.................... (192) (368) (313)
-------- -------- --------
Net periodic postretirement benefit cost.......... $ 965 $ 716 $ 959
======== ======== ========
</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 12.6%.
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
$2.2 million in 1994, $4.1 million in 1995, and $2.9 million in 1996. For
incentive related to 1995 and 1996 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
F-15
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $0.4 million in 1994 and
$0.6 million in both 1995 and 1996. The Company may also make a supplemental
contribution at the end of each Plan Year subject to Board approval.
Supplemental contributions of $0.2 million, $1.1 million and $0.5 million were
made in 1994, 1995 and 1996, respectively. Effective in January 1995, all
regular and supplemental matching contributions have been made in voting
common stock of the Company held in Treasury.
8.INCOME TAXES
Components of the Company's provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.......................................... $3,707 $5,133 $ 3,904
State and foreign................................ 961 995 872
------- ------- ---------
Total current tax provision.................... 4,668 6,128 4,776
Deferred
Federal.......................................... 632 3,592 (9,965)
State............................................ (283) 243 (950)
------- ------- ---------
Total deferred tax provision (benefit)......... 349 3,835 (10,915)
------- ------- ---------
Total provision (benefit) for income taxes......... $5,017 $9,963 $ (6,139)
======= ======= =========
</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,
---------------
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................. $23,751 $25,184
Other....................................................... 1,780 2,354
------- -------
Total deferred tax liabilities............................ 25,531 27,538
Deferred tax assets:
Alternative minimum tax credits............................. 1,288 5,022
OPEB obligation............................................. 4,892 6,237
Reserves, including insurance and product warranty.......... 6,999 14,584
Book/tax inventory accounting............................... 2,133 1,963
Accrued vacation pay........................................ 1,254 1,292
Other....................................................... 2,073 2,463
------- -------
Total deferred tax assets................................. 18,639 31,561
------- -------
Net deferred tax liabilities (assets)..................... $ 6,892 $(4,023)
======= =======
</TABLE>
F-16
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Federal..................................................... 35.0% 35.0% 35.0%
State, net of federal tax benefit........................... 3.2 2.1 (3.7)
Equity earnings of foreign affiliates....................... (8.5) (8.3) (35.7)
Foreign taxes............................................... 0.6 0.4 10.0
Section 29 credit........................................... -- -- (87.9)
Other....................................................... (2.3) (0.2) 5.2
---- ---- -----
28.0% 29.0% (77.1)%
==== ==== =====
</TABLE>
The Company has not provided any U.S. tax on undistributed earnings of
foreign subsidiaries or joint ventures that are reinvested indefinitely. At
December 31, 1996 consolidated retained earnings of the Company included
approximately $27 million of undistributed earnings from these investments.
The Company began earning non-conventional fuels credits on coke production
at its Monessen facility during 1996. Credits earned during the period were
approximately $7 million.
The Company has an alternative minimum tax credit carryforward of
approximately $5 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 KAP have been reduced to reflect
the Company's 50% ownership interest therein.
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.
Weighted-average Common Stock considered to be outstanding:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Voting Common Stock............................. 5,545,230 5,351,907 5,290,151
Non-voting Common Stock (includes conversion
of Series B Convertible Preferred Stock)....... 2,340,000 4,678,200 3,867,749
Common Stock Equivalents........................ 2,685,741 346,551 461,813
---------- ---------- ---------
10,570,971 10,376,658 9,619,713
========== ========== =========
</TABLE>
Common shares outstanding have been computed assuming the exercise of
warrants and management stock options, using the treasury stock method.
10.STOCK OPTIONS
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
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation expense for stock
option grants.
F-17
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma effect on net income and earnings per share for 1995 and 1996
of the fair value method required by Statement No. 123, "Accounting for Stock-
Based Compensation" is immaterial. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1995 and 1996: risk-free
interest rate of 6%; dividend yield of 2.7%; volatility factor of .18; and an
expected life of the option of 10 years.
As of December 31, 1996, the Company's Board of Directors has awarded
options to purchase a total of 802,800 shares of Voting Common Stock to
certain key executives, at various exercise prices. All options granted have
10 year terms and vest and become fully exercisable at the end of three years
of continued employment.
A summary of the Company's stock option activity, and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
OPTIONS AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 678 $ 3 639 $ 3 705 $ 4
Granted................. -- -- 113 11 -- --
Exercised............... (38) 2 (47) 1 (54) 2
Forfeited............... (1) 4 -- -- (1) 11
Outstanding at end
of year................ 639 $ 3 705 $ 4 650 $ 4
Exercisable at end
of year................ 545 $ 3 607 $ 3 590 $ 4
Weighted-average fair
value of options
granted during the
year................... -- $2.84 --
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$1.11 to $10.56, and the weighted-average remaining contractual life of those
options was 5.1 years.
11. COMMITMENTS AND CONTINGENCIES
Environmental Indemnity and Guarantee
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 among the management investors, Beazer,
Inc. and Koppers Australia at the formation of the Company in 1988 (the "Asset
Purchase Agreement") Beazer East, Inc. ("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 (the "Indemnity"). Beazer Limited unconditionally guaranteed
Beazer East's performance of the indemnity pursuant to a guarantee (the
"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.
F-18
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Indemnity 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.
Beazer East and Beazer Limited are indirect subsidiaries of Hanson PLC. The
largest and smallest group in which the results of these companies are
consolidated is that headed by Hanson PLC. Beazer East is an operating company
which had revenues of approximately $600 million for each of the last three
fiscal years ended September 28, 1996 and had total assets of $1.7 billion as
of September 28, 1996. The Beazer East unaudited consolidated balance sheet at
September 28, 1996 reflects negative net worth of $64 million (including an
intercompany liability of $1.4 billion). This negative net worth is in large
measure the result of the adoption of SFAS 121 which resulted in pre-tax
charges for asset write downs of $4.4 billion during fiscal year 1996.
Furthermore, Beazer East had a negative cash flow from operations in the
fiscal year ended September 28, 1996 and required funding from other Hanson
subsidiaries to meet its obligations. According to the Directors' Report and
draft accounts for the year ended September 30, 1996 Beazer Limited is a
holding company. While the balance sheet at September 30, 1996 expects to show
a negative shareholder funds balance of (Pounds)10.4bn, the accounts are
prepared under the going concern concept because a fellow subsidiary
undertaking provides financial support to enable Beazer Limited to meets its
liabilities as they fall due. The Company has been informed that Beazer East
and Beazer Limited will remain wholly-owned indirect subsidiaries of Hanson
PLC. Management believes that Beazer East and Beazer Limited will continue to
fulfill their obligations as they have for the last 8 years.
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. The Company has been informed
by Beazer East that for the last three years amounts paid by Beazer East under
the Indemnity have averaged approximately $13 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 matters covered by the Indemnity on its
balance sheet the result could be that the Company would have significant
negative net worth.
In addition, Beazer East 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
Asset Purchase Agreement and, in any event, are within the scope of the
Indemnity.
Other Environmental Matters
The Jefferson County Department of Health ("Jefferson County") issued a
notice of violation in March 1996 in connection with various alleged
violations of Jefferson County's air pollution control regulations for
emissions from coke oven batteries at the Company's Woodward, Alabama coke
facility (the "Woodward Facility") during the period May 26, 1992 through
March 1, 1996. The Company and Jefferson County are currently negotiating a
settlement agreement, pursuant to which the Company might be required to
install monitoring and control equipment and institute operational changes.
The present draft of the settlement agreement also proposes that the Company
pay a civil penalty in the amount of $300,000, although the Company has not
agreed to such amount. In addition, the Company has decided that it will
permanently shut down Batteries No. 4A and No. 4B and idle one-half of Battery
No. 5 at the Woodward Facility, resulting in a loss of
F-19
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately one-third of the production capacity. Recently, the United
States Environmental Protection Agency ("EPA") sent a notice of violation to
the Company covering the same issues that are being addressed in the
settlement agreement negotiations. There can be no assurance that the
resolution of this matter, including additional actions or penalties that
might be required by the EPA, if any, will not have a material adverse effect
on the business, financial condition and results of operations of the Company.
The Company recently discovered that certain benzene abatement equipment at
the Company's Woodward Facility has not been operational for several months.
Following a preliminary investigation the Company also discovered that certain
reports and records contained incomplete and inaccurate information and that
certain reports and certifications were not filed when required. The Company
has notified Jefferson County, the State of Alabama and the EPA of the
environmental irregularities. Counsel and independent investigators have been
retained to conduct a complete and thorough investigation. While the Company
believes that the costs to repair such equipment will not exceed $300,000, the
Company could be subject to significant liability in connection with these
matters, including fines and civil and criminal penalties and the risk of
third party litigation and there can be no assurances that the resolution of
these matters will not have a material adverse effect on the business,
financial condition and results of operations of the Company.
The Pennsylvania Department of Environmental Protection ("PADEP") recently
issued a notice of violation alleging that the boilers at the Monessen
Facility are emitting greater quantities of nitrogen oxides than allowed under
a plan approved by PADEP. The Company is currently installing additional
equipment, modifying existing equipment and investigating additional methods
to improve boiler performance. If these measures are not successful, the
Company may have to install post-combustion control equipment. Resolution of
the matter could have a negative effect on the business, financial condition
and results of operations of the Company.
Litigation Settlements
The Company settled litigation with CSX Transportation, Inc. ("CSX") related
to a Complaint served by CSX on May 24, 1996 which alleged that the Company
failed to fulfill environmental obligations under two contracts executed by
CSX and the Company's predecessor in 1988 and performed by the Company. The
Complaint also sought reimbursement of any damages incurred in connection with
a 1992 lawsuit filed by Beazer East against CSX in which Beazer East sought
contribution for environmental cleanup at certain facilities including some
presently owned by the Company. The settlement agreement requires the Company
to pay certain amounts in each of the next five years. The Company has
recorded a $2.5 million charge to pretax earnings in the fourth quarter of
1996 as a result of the agreement.
On October 4, 1996 the Company settled litigation with Owens-Corning
Fiberglas Corporation ("OCF") which involved matters which occurred before the
Company came into existence. The case went to trial in early 1996 and, in
April 1996 resulted in a jury verdict against the Company for $10.3 million
plus legal fees and claims for pre-trial and post-trial interest. The Company
entered into a confidential settlement with OCF under which the Company paid
$12.7 million, in settlement of all claims. The charge to earnings for 1996
for the settlement and related legal fees was $10.2 million, as $3 million had
been provided for previously.
Rents
Rent expense for 1994, 1995 and 1996 was $10.3 million, $11.1 million and
$13.5 million, respectively. Commitments during the next five years under
operating leases approximate $14 million per year.
F-20
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. 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
MATERIALS & UTILITY COKE
& CHEMICALS PRODUCTS PRODUCTS CORPORATE TOTAL
----------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994:
Net sales................... $164,489 $239,596 $ 72,363 $ -- $476,448
Operating profit............ 17,019 16,203 2,627 (10,140) 25,709
Identifiable assets......... 90,578 105,594 45,501 52,520 294,193
Depreciation and
amortization................ 6,739 4,989 4,111 841 16,680
Capital expenditures........ 8,729 4,998 2,599 -- 16,326
YEAR ENDED DECEMBER 31,
1995:
Net sales................... $197,434 $248,212 $ 80,084 $ -- $525,730
Operating profit............ 27,358 22,621 33 (10,164) 39,848
Identifiable assets......... 98,334 121,162 70,824 58,635 348,955
Depreciation and
amortization................ 6,694 5,832 4,132 874 17,532
Capital expenditures........ 7,623 16,229 26,289 -- 50,141
YEAR ENDED DECEMBER 31,
1996:
Net sales................... $239,298 $239,913 $109,333 $ -- $588,544
Operating profit............ 24,705 16,685 (3,516) (10,243) 27,631
Identifiable assets......... 150,377 111,804 69,521 79,478 411,180
Depreciation and
amortization................ 8,654 6,362 5,726 1,051 21,793
Capital expenditures........ 48,504 5,209 7,237 284 61,234
</TABLE>
Intersegment sales of $12.8 million, $12.1 million and $13.9 million have
been eliminated in 1994, 1995 and 1996, respectively, from the schedule of
segment information.
Sales to LTV Steel Company, Inc. by the Coke Products business amounted to
10.8% of the Company's total net sales for 1996.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------- ------------- ------------- -------------
1995 1996 1995 1996 1995 1996 1995 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $122.2 $126.7 $135.6 $156.9 $140.9 $159.9 $127.0 $145.0
Operating profit........ $ 9.7 $ 4.2 $ 13.6 $ 13.9 $ 11.0 $ 3.2 $ 5.8 $ 6.3
Net income (loss)....... $ 5.1 $ (7.7) $ 8.7 $ 10.7 $ 6.4 $ 2.5 $ 4.2 $ 8.6
Earnings (loss) per
share of
common stock........... $ 0.50 $(0.78) $ 0.84 $ 1.14 $ 0.62 $ 0.27 $ 0.40 $ 0.91
</TABLE>
F-21
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The Company's payment obligations under the 9 7/8% Senior Subordinated Notes
Due 2007 (the "Senior Subordinated Notes") are fully and unconditionally
guaranteed on a joint and several basis by Koppers Industries International
Trade Corporation, Koppers Australia Pty. Ltd., Koppers Industries of
Delaware, Inc. and Koppers Industries B.W., Inc. (collectively, the "Guarantor
Subsidiaries"). The Senior Subordinated Notes have not been guaranteed by KHC
Assurance, Inc., Tarconord A/S, and KSA Limited Partnership (collectively, the
"Non-Guarantor Subsidiaries"). In accordance with previous positions
established by the Securities and Exchange Commission, the following
summarized financial information illustrates separately the composition of the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Separate complete
financial statements of the respective Guarantor Subsidiaries, other than
Koppers Australia Pty. Ltd., are not presented because management has
determined that they would not provide additional material information that
would be useful in assessing the financial composition of the guarantors and
non-guarantors. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
SUMMARIZED CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... $169,177 $19,636 $33,947 $(62,494) $160,266
Non-current assets...... 224,800 22,263 34,052 (30,201) 250,914
Current liabilities..... 122,108 7,718 15,246 (62,494) 82,578
Non-current liabilities. 237,272 5 13,262 -- 250,539
Net sales............... 587,861 12,893 3,171 (15,381) 588,544
Gross profit (after
depreciation &
restructuring)......... 44,997 10,681 163 (665) 55,176
Net income (loss) before
extraordinary item..... (1,694) 14,229 2,120 (557) 14,098
Net income (loss)....... (1,694) 14,229 2,120 (557) 14,098
</TABLE>
SUMMARIZED CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... $147,356 $ 4,552 $10,605 $(18,509) $144,004
Non-current assets...... 183,072 15,764 35,044 (28,929) 204,951
Current liabilities..... 76,240 3,001 3,177 (18,509) 63,909
Non-current liabilities. 202,185 5 4,626 -- 206,816
Net sales............... 525,206 523 1,955 (1,954) 525,730
Gross (new) profit
(after depreciation &
restructuring)......... 67,930 (1,393) 915 -- 67,452
Net income (loss) before
extraordinary item..... 14,878 5,503 4,410 (351) 24,440
Net income (loss)....... 14,878 5,503 4,410 (351) 24,440
</TABLE>
F-22
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUMMARIZED CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $475,981 $ 487 $1,907 $(1,927) $476,448
Gross profit (after
depreciation &
restructuring)......... 50,685 (1,213) 305 -- 49,777
Net income (loss) before
extraordinary item..... 7,561 4,265 1,637 (546) 12,917
Net income (loss)....... 5,746 4,265 1,637 (546) 11,102
</TABLE>
F-23
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
<S> <C> <C>
Net sales.................................................. $443,510 $452,260
Operating expenses:
Costs of sales........................................... 374,491 380,825
Depreciation and amortization............................ 16,298 17,908
Selling, research, general and administrative............ 21,379 21,559
Restructuring charges.................................... 10,071 --
-------- --------
Total operating expenses............................... 422,239 420,292
-------- --------
Operating profit........................................... 21,271 31,968
Equity in earnings of affiliates........................... 6,427 4,696
Other expense.............................................. (10,123) (1,414)
-------- --------
Income before interest expense and income tax (benefit)
provision ................................................. 17,575 35,250
Interest expense........................................... 12,462 12,387
-------- --------
Income before income tax (benefit) provision .............. 5,113 22,863
Income tax (benefit) provision ............................ (414) 704
-------- --------
Net income................................................. $ 5,527 $ 22,159
-------- --------
Earnings per share of common stock......................... $ 0.57 $ 2.40
======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
* (UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash.............................................. $ 1,526 $ 491
Accounts receivable less allowance for doubtful
accounts of $359 in 1996 and $148 in 1997........ 72,229 75,471
Inventories:
Raw materials................................... 33,635 32,510
Work in process................................. 3,168 2,673
Finished goods.................................. 44,090 42,036
LIFO reserve.................................... (7,971) (10,111)
--------- ---------
Total inventories............................. 72,922 67,108
Other............................................. 13,589 12,833
--------- ---------
Total current assets.......................... 160,266 155,903
Investments......................................... 55,373 49,624
Fixed assets:....................................... 296,688 308,174
Less: accumulated depreciation.................... (123,468) (139,767)
--------- ---------
Net fixed assets................................ 173,220 168,407
Other assets:....................................... 22,321 21,989
--------- ---------
Total assets.................................... $ 411,180 $ 395,923
========= =========
</TABLE>
- --------
* Summarized from the audited fiscal year 1996 balance sheet.
See accompanying notes.
F-25
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARES DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
* (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 37,255 $ 35,809
Accrued liabilities............................... 38,174 31,507
Current portion of term loans..................... 7,149 8,242
-------- -----------
Total current liabilities....................... 82,578 75,558
Long-term debt:
Revolving credit.................................. 43,000 26,000
Term loans........................................ 49,735 45,530
Senior Notes...................................... 110,000 110,000
-------- -----------
Total long-term debt............................ 202,735 181,530
Other long-term reserves............................ 47,804 47,355
-------- -----------
Total liabilities............................... 333,117 304,443
Common stock subject to redemption.................. 23,957 22,940
Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 6,707,952 shares
issued........................................... 67 67
Non-Voting Common Stock, $.01 par value:
10,000,000 shares authorized, 3,628,200 total
shares issued.................................... 36 36
Capital in excess of par value...................... 11,675 11,675
Retained earnings................................... 45,813 66,230
Cumulative translation adjustment................... 2,181 (3,589)
Treasury stock, at cost, 1,531,511 shares in 1996
and 1,548,335 shares in 1997........................ (5,666) (5,879)
-------- -----------
Total liabilities and stockholders' equity...... $411,180 $ 395,923
======== ===========
</TABLE>
- --------
* Summarized from audited fiscal year 1996 balance sheet.
See accompanying notes.
F-26
<PAGE>
KOPPERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
<S> <C> <C>
Cash provided by operating activities..................... $ 31,688 $ 35,563
Cash used in investing activities:
Acquisitions and related capital expenditures........... (39,331) --
Capital expenditures.................................... (16,134) (12,999)
Other................................................... 312 623
--------- ---------
Net cash used in investing activities................. (55,153) (12,376)
Cash provided by (used in) financing activities:
Borrowings from revolving credit........................ 124,750 101,500
Repayments of revolving credit.......................... (109,250) (118,500)
Repayment of long-term debt............................. (12,030) (3,111)
Proceeds from long-term debt............................ 35,950 --
Payment of deferred financing costs..................... (1,081) (486)
Purchase of voting common stock......................... (1,811) (1,381)
Purchase of non-voting common stock..................... (12,250) --
Dividends on common stock............................... (2,336) (2,244)
--------- ---------
Net cash provided by (used in) financing activities... 21,942 (24,222)
--------- ---------
Net decrease in cash...................................... (1,523) (1,035)
Cash at beginning of period............................... 1,618 1,526
--------- ---------
Cash at end of period..................................... $ 95 $ 491
========= =========
</TABLE>
See accompanying notes.
F-27
<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, 1994, 1995, and 1996 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) On October 15, 1997 certain members of the group of management investors
of the Company (the "Management Investors"), along with KAP Investments,
Inc., ("KAP") a wholly-owned subsidiary of Koppers Australia Pty. Limited,
the Company's 50% joint venture in Australia ("Koppers Australia")
purchased 2,117,952 shares of voting Common Stock and 1,815,000 shares of
non-voting common stock from Cornerstone-Spectrum, Inc. ("Cornerstone")
for $52.5 million. The purchase of shares was an exercise of a right of
first refusal granted to existing shareholders in the Company's
stockholders' agreement which was part of the formation of the Company in
1988 (the "Stockholders' Agreement"). As a result of the sale of shares by
Cornerstone, and in accordance with the terms of the Stockholder'
Agreement, the Cornerstone director, Brian C. Beazer, tendered his
resignation from the Board of Directors of the Company. The Management
Investors and Koppers Australia intend to use the shares to repay certain
loans obtained to finance the transaction.
(5) On October 8, 1997 the Company announced that it had entered into a
definitive agreement with the Broken Hill Proprietary Company Limited
located in Melbourne, Australia ("Broken Hill") to acquire its 50%
interest in Koppers Australia, which will result in Koppers Australia
being a wholly-owned subsidiary of the Company. The purchase, with an
estimated purchase price of $65 million, is expected to be completed in
the fourth quarter of 1997.
(6) The Company has issued a cash tender offer and consent solicitation
relating to all of the Company's $110 million 8 1/2% Senior Notes due 2004
(the "Notes"). The tender offer is part of the Company's overall plan of
recapitalization (the "Recapitalization"). At the expiration of the tender
offer the remaining steps of the Recapitalization will be completed,
including: (i) the acquisition by the Company of the 50% of Koppers
Australia not owned by it; (ii) the repayment in full of the Company's
existing bank credit facilities; and (iii) the redemption by the Company
of a portion of the shares of Common Stock held by certain existing
investors, including a portion of such shares held by the Management
Investors. Financing for the Recapitalization will be provided by a new
senior credit facility and by a contemporaneous offering of senior
subordinated notes of the Company pursuant to Rule 144A.
(7) The Company's payment obligations under the 9 7/8% Senior Subordinated
Notes Due 2007 (Senior Subordinated Notes) are fully and unconditionally
guaranteed on a joint and several basis by Koppers Industries
International Trade Corporation, Koppers Australia Pty. Ltd., Koppers
Industries of Delaware, Inc. and Koppers Industries B.W., Inc.
(collectively, the "Guarantor Subsidiaries"). The Senior Subordinated
Notes have not been guaranteed by KHC Assurance, Inc., Tarconord A/S, and
KSA Limited Partnership (collectively, the "Non-Guarantor Subsidiaries").
In accordance with previous positions established by the Securities and
Exchange Commission, the following summarized financial information
illustrates separately the composition of the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries. Separate complete financial statements of
the respective Guarantor Subsidiaries, other than Koppers
F-28
<PAGE>
KOPPERS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Australia Pty. Ltd., are not presented because management has determined
that they would not provide additional material information that would be
useful in assessing the financial composition of the guarantors and non-
guarantors. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
SUMMARIZED CONDENSED FINANCIAL INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... $164,373 $30,576 $36,377 $(75,423) $155,903
Non-current assets...... 219,659 18,344 31,931 (29,914) 240,020
Current liabilities..... 129,608 6,640 14,733 (75,423) 75,558
Non-current liabilities. 215,248 6 13,631 -- 228,885
Net sales............... 452,051 9,793 5,348 (14,932) 452,260
Gross profit (after
depreciation).......... 44,784 9,548 42 (847) 53,527
Net income (loss) before
extraordinary item..... 7,397 12,457 2,738 (433) 22,159
Net income (loss)....... 7,397 12,457 2,738 (433) 22,159
</TABLE>
F-29
<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, 1996 and June 30, 1997, and the related
consolidated statements of profit and loss and cash flows for the two years
ended June 30, 1997. 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, 1996 and 1997 and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1996 and 1997 in conformity with generally accepted accounting
principles in the United States.
As discussed in Note 1 to the financial statements, in fiscal 1997, the
Company changed its method of accounting for investments in associates.
/s/ Ernst & Young
Sydney, Australia
August 25, 1997
F-30
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEARS ENDED 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
OPERATING REVENUE....................................... 2 173,783 171,460
======= =======
OPERATING PROFIT BEFORE ABNORMAL ITEMS AND INCOME TAX... 2 29,194 29,977
ABNORMAL ITEMS BEFORE INCOME TAX........................ 3 -- (1,663)
------- -------
OPERATING PROFIT BEFORE INCOME TAX...................... 2 29,194 28,314
INCOME TAX ATTRIBUTABLE TO OPERATING PROFIT............. 4 10,397 9,376
------- -------
OPERATING PROFIT AFTER INCOME TAX....................... 18,797 18,938
OUTSIDE EQUITY INTERESTS IN OPERATING PROFIT AFTER
INCOME TAX............................................. 24 2,750 1,877
------- -------
OPERATING PROFIT AFTER INCOME TAX
Attributable to members of Koppers Australia Pty.
Limited.............................................. 5 16,047 17,061
RETAINED PROFITS
At the beginning of the financial year................ 64,995 72,042
Adjustments Resulting from Adoption of New Accounting
Standard............................................. -- 8,970
------- -------
TOTAL AVAILABLE FOR APPROPRIATION....................... 81,042 98,073
DIVIDENDS PAID.......................................... 5 9,000 6,501
------- -------
RETAINED PROFITS
At the end of the financial year...................... 72,042 91,572
======= =======
</TABLE>
The Profit and Loss Account should be read in conjunction with the accompanying
notes.
F-31
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash.................................................... 1,805 6,379
Receivables............................................. 7 23,566 25,737
Inventories............................................. 8 33,809 37,494
Other................................................... 9 1,680 989
------- -------
TOTAL CURRENT ASSETS.................................. 60,860 70,599
------- -------
NON-CURRENT ASSETS
Receivables............................................. 10 6,355 6,355
Inventories............................................. 11 1,765 1,765
Investments............................................. 12 5,349 20,623
Property, plant and equipment........................... 13 67,210 65,009
Intangibles............................................. 14 1,332 1,229
Other................................................... 15 1,717 2,876
------- -------
TOTAL NON-CURRENT ASSETS.............................. 83,728 97,857
------- -------
TOTAL ASSETS.......................................... 144,588 168,456
------- -------
CURRENT LIABILITIES
Accounts payable........................................ 16 12,041 12,178
Borrowings.............................................. 17 1,573 3,526
Provisions.............................................. 18 15,332 13,536
------- -------
TOTAL CURRENT LIABILITIES............................. 28,946 29,240
------- -------
NON-CURRENT LIABILITIES
Accounts payable........................................ 19 -- 22
Borrowings.............................................. 20 11,302 11,500
Provisions.............................................. 21 5,079 5,767
------- -------
TOTAL NON-CURRENT LIABILITIES......................... 16,381 17,289
------- -------
TOTAL LIABILITIES..................................... 45,327 46,529
------- -------
NET ASSETS................................................ 99,261 121,927
======= =======
SHAREHOLDERS' EQUITY
Share capital........................................... 22 14,559 14,559
Reserves................................................ 23 4,487 7,005
Retained profits........................................ 72,042 91,572
------- -------
Total parent entity interest in equity.................. 91,088 113,136
Outside equity interest
Issued capital........................................ 2,940 2,940
Reserves.............................................. 230 467
Retained profits...................................... 5,003 5,384
------- -------
Total outside equity interest........................... 24 8,173 8,791
------- -------
TOTAL SHAREHOLDERS' EQUITY............................ 99,261 121,927
======= =======
</TABLE>
The Balance Sheet should be read in conjunction with the accompanying notes.
F-32
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................ 172,722 162,998
Payments to suppliers and employees................ (131,431) (129,110)
Interest received.................................. 305 428
Interest and other costs of finance paid........... (1,941) (1,185)
Income tax paid.................................... (9,704) (17,012)
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES............. 25 29,951 16,119
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of shares in controlled entity............ (7,046) --
Acquisition of property, plant and equipment....... (7,961) (9,165)
Proceeds from sale of property, plant and
equipment......................................... 531 715
Dividends received................................. 986 981
Cash paid for investment in partnership............ (2,073) --
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES............. (15,563) (7,469)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid..................................... (9,000) (6,501)
Dividends paid to outside equity interests......... (2,790) (1,496)
Borrowing repayments............................... (2,025) --
Proceeds from borrowings........................... -- 2,989
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES............. (13,815) (5,008)
-------- --------
NET INCREASE/(DECREASE) IN CASH HELD................. 573 3,642
Add opening cash brought forward................... 3,626 3,950
Effects of exchange rate changes on foreign
currencies
at beginning of the financial year................ (249) 143
-------- --------
CLOSING CASH CARRIED FORWARD......................... 25 3,950 7,735
======== ========
</TABLE>
The Statement of Cash Flows should be read in conjunction with the accompanying
notes.
F-33
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
PROFIT AND LOSS ACCOUNT
YEARS ENDED 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
OPERATING REVENUE.......................................... 2 13,695 8,876
====== ======
OPERATING PROFIT........................................... 2 11,168 6,938
INCOME TAX ATTRIBUTABLE TO OPERATING PROFIT................ 4 (95) 175
------ ------
OPERATING PROFIT AFTER INCOME TAX.......................... 11,263 6,763
RETAINED PROFITS
At the beginning of the financial year................... 11,707 13,970
------ ------
TOTAL AVAILABLE FOR APPROPRIATION.......................... 22,970 20,733
DIVIDENDS PAID............................................. 6 9,000 6,501
------ ------
RETAINED PROFITS
At the end of the financial year......................... 13,970 14,232
====== ======
</TABLE>
The Profit and Loss Account should be read in conjunction with the accompanying
notes.
F-34
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
BALANCE SHEET
AT 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash...................................................... 10 --
Receivables............................................... 7 248 956
Other..................................................... 9 3 46
------ ------
TOTAL CURRENT ASSETS.................................... 261 1,002
------ ------
NON-CURRENT ASSETS
Investments............................................... 12 45,692 45,692
Property, plant and equipment............................. 13 114 120
Other..................................................... 15 217 306
------ ------
TOTAL NON-CURRENT ASSETS................................ 46,023 46,118
------ ------
TOTAL ASSETS............................................ 46,284 47,120
------ ------
CURRENT LIABILITIES
Accounts payable.......................................... 16 160 285
Borrowings................................................ 17 2,286 1,369
Provisions................................................ 18 477 487
------ ------
TOTAL CURRENT LIABILITIES............................... 2,923 2,141
------ ------
NON-CURRENT LIABILITIES
Borrowings................................................ 20 -- 1,500
Provisions................................................ 21 474 330
------ ------
TOTAL NON-CURRENT LIABILITIES........................... 474 1,830
------ ------
TOTAL LIABILITIES....................................... 3,397 3,971
------ ------
NET ASSETS.................................................. 42,887 43,149
====== ======
SHAREHOLDERS' EQUITY
Share capital............................................. 22 14,559 14,559
Reserves.................................................. 23 14,358 14,358
Retained profits.......................................... 13,970 14,232
------ ------
TOTAL SHAREHOLDERS' EQUITY.............................. 42,887 43,149
====== ======
</TABLE>
The Balance Sheet should be read in conjunction with the accompanying notes.
F-35
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
STATEMENT OF CASH FLOWS
YEARS ENDED 30 JUNE 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
NOTES A$'000 A$'000
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Interest received....................................... 8 154
Receipts from customers................................. 2,630 2,126
Dividends received...................................... 11,710 6,542
Payments to suppliers and employees..................... (1,816) (1,749)
Income tax paid......................................... (260) (164)
Interest and other costs of finance paid................ (42) (245)
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................. 25 12,230 6,664
------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment..... -- 54
Acquisition of property, plant and equipment............ (14) (92)
Purchase of shares...................................... (7,046) --
------ ------
NET CASH FLOWS USED IN INVESTING ACTIVITIES............... (7,060) (38)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings--other....................................... -- 1,500
Borrowings--related parties............................. 2,900 (1,704)
Dividends paid.......................................... (9,000) (6,501)
------ ------
NET CASH FLOWS USED IN FINANCING ACTIVITIES............... (6,100) (6,705)
------ ------
NET INCREASE/(DECREASE) IN CASH HELD...................... (930) (79)
Add opening cash brought forward........................ 940 10
------ ------
CLOSING CASH CARRIED FORWARD.............................. 25 10 (69)
====== ======
</TABLE>
The Statement of Cash Flows should be read in conjunction with the accompanying
notes.
F-36
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
30 JUNE 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of accounting
The financial statements are general purpose financial statements which 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 other mandatory professional reporting requirements (Urgent
Issues Group Consensus Views).
The accounting policies adopted are consistent with those of the previous
year except as outlined below.
In accordance with ASC Class Order 97/0798, the directors have elected to
adopt the provisions of Proposed Revised Accounting Standard AASB1016
Accounting for Investments in Associates. The effect is that investments in
associates are brought to account using the equity method of accounting under
which the carrying amount of the investment is increased or decreased to
recognise the investor's share of the post-acquisition profits or losses and
other changes in net assets of the associate. The investor's share of the
post-acquisition profits or losses of the associate is included in the
consolidated profit or loss account of the investor.
Investments in associates were previously brought to account at cost. (Refer
Note 12)
b) 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.
c) 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-37
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
d) 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 materials--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.
e) 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.
f) Property, plant and equipment
Cost and valuation
Items of property, plant and equipment comprising a class of non-current
assets are revalued at the same date on a consistent basis. Assets under
construction are brought to account at cost.
Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount.
Depreciation
Depreciation is provided on a straight line basis on all property, plant and
equipment, other than freehold land.
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>
g) Intangibles
Goodwill
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.
h) 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.
F-38
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
i) Employee entitlements
A number of companies in the economic entity offer an employee incentive
scheme to full time permanent employees. Benefits based on growth in earnings,
are payable after a qualifying period of six years service and three years
membership in the plan. Provision for these employee entitlements, based on
the estimated amount payable to employees is charged to the profits annually.
A trust has been established which offers benefits based on growth in
earnings to full time permanent staff. Benefits are payable after three years
membership in the plan. Provision for these employee entitlements, based on
the estimated amount payable to employees, is charged to the profits annually.
Employee-contributory superannuation funds exist to provide benefits for the
economic entity'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.
In respect of the economic entity's defined benefits superannuation plans,
any contributions made to the superannuation funds by entities within the
economic entity are charged against profits when due.
2. OPERATING REVENUE & OPERATING PROFIT
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
---------------- --------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Included in the operating profit are the
following items of operating revenue:
Sales revenue................................ 171,343 164,864 -- --
Equity income from associate company......... -- 4,505 -- --
Other revenue................................ 618 324 1,989 2,126
Dividends--
Associated companies....................... 986 -- 11,696 6,542
Partnership income........................... -- 624 -- --
Interest--
Related bodies corporate................... -- -- 2 106
Other persons/Corporations................. 305 428 8 48
------- ------- ------ -----
173,252 170,745 13,695 8,822
Proceeds on sale of non-current assets....... 531 715 -- 54
------- ------- ------ -----
Operating revenue............................ 173,783 171,460 13,695 8,876
======= ======= ====== =====
The operating profit before income tax is
arrived at after charging/(crediting) the
following items:
Amortisation of goodwill..................... 144 146 -- --
Amortisation and depreciation of property,
plant and equipment......................... 10,500 10,689 44 40
Diminution in value of inventories........... 345 57 -- --
Bad and doubtful debts--Trade debtors
Other persons/bodies corporate............ 189 315 -- --
Interest expense--
Related parties............................ -- -- 1 110
Other persons/Corporations................. 1,500 1,180 41 135
Finance charges--
Lease liability........................... 2 5 -- --
Rental--operating lease...................... 439 554 -- 113
Profit/Loss on sale of non-current assets.... 46 (38) -- (8)
Net foreign currency (gains)/losses.......... (76) (707) (8) (89)
Provisions for employee entitlements......... 3,786 3,325 559 235
Superannuation contributions................. 1,010 1,184 29 35
Loss on write-off of investment.............. 50 -- 50 --
</TABLE>
F-39
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
3. ABNORMAL ITEMS
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Included in the operating profit are the following
abnormal items:
Items charged
Unscheduled dry-docking for ballast tank repair
(Applicable income tax $716)................... -- 1,990 -- --
Items credited
Pole provision write-back (Applicable income tax
$118).......................................... -- 327 -- --
------ ----- ----- ------
-- 1,663 -- --
====== ===== ===== ======
</TABLE>
4. INCOME TAX
<TABLE>
<S> <C> <C> <C> <C>
The prima facie tax,* using tax rates applicable
in the country of operation, on operating
profit differs from the income tax provided in
the accounts as follows:
Prima facie tax on operating profit............. 10,322 9,817 4,020 2,505
Tax effect of permanent differences--
Rebatable dividends........................... -- -- (4,210) (2,344)
Other items (net)............................. 28 (727) 102 (2)
Future income tax benefit not brought to
account........................................ 76 14 -- --
Under/(over) provision of previous year......... (26) 272 (7) 16
Prior year losses recouped...................... (3) -- -- --
------ ----- ------ ------
Income tax attributable to operating profit..... 10,397 9,376 (95) 175
====== ===== ====== ======
Future income tax benefit arising from tax
losses of a controlled entity not brought to
account at balance date as realisation of the
benefit is not regarded as virtually certain.
189 176 -- --
====== ===== ====== ======
This future income tax benefit will only be
obtained if:
a) future assessable income is derived of a
nature and of an amount sufficient to
enable the benefit to be realised;
b) the conditions for deductibility imposed by
tax legislation continue to be complied
with; and
c) no changes in tax legislation adversely
affect the economic entity in realising the
benefit.
</TABLE>
- --------
* The prima facie tax has been arrived at using tax rates applicable in the
country of operation.
F-40
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
5. CONTRIBUTIONS TO PROFIT
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Profit contribution from companies within the
economic entity.............................. 16,047 12,556 -- --
Equity income from associate company--Koppers
Industries, Inc.............................. -- 4,505 -- --
------ ------ ----- -----
16,047 17,061 -- --
====== ====== ===== =====
6. DIVIDENDS PAID OR PROVIDED
Dividends paid during the year
Franked dividends............................. 9,000 6,501 9,000 6,501
Unfranked dividends........................... -- -- -- --
------ ------ ----- -----
9,000 6,501 9,000 6,501
====== ====== ===== =====
7. RECEIVABLES (CURRENT)
Trade debtors................................... 21,306 24,715 -- --
Provision for doubtful debts receivable......... (386) (591) -- --
------ ------ ----- -----
20,920 24,124 -- --
Short-term deposits............................. 2,543 1,581 -- --
Other........................................... 75 31 10 --
Amounts other than trade debts receivable
Controlled entity............................. -- -- 237 955
Associated entities........................... 28 1 1 1
------ ------ ----- -----
23,566 25,737 248 956
====== ====== ===== =====
(a) Aggregate amounts receivable from related
parties
Wholly-owned group............................ -- -- 237 307
Other related parties......................... 28 1 1 649
------ ------ ----- -----
28 1 238 956
====== ====== ===== =====
(b) Movement in provision for doubtful debts
Balance at beginning of year.................. 386 --
Exchange movement............................. (16) --
Bad debts previously provided for written-off
during the year.............................. (94) --
Bad and doubtful debts provided for during the
year......................................... 315 --
------ -----
Balance at end of year.......................... 591 --
====== =====
Comparatives not included as this disclosure was
not required prior to June 1997
(c) Australian dollar equivalent of amounts
receivable in foreign currencies not
effectively hedged:
--United States dollars...................... 917 4,001 -- --
--United Kingdom pounds...................... 299 115 -- --
--Singapore dollars.......................... 103 75 -- --
------ ------ ----- -----
1,319 4,191 -- --
====== ====== ===== =====
</TABLE>
F-41
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
8. INVENTORIES (CURRENT)
<TABLE>
<CAPTION>
KOPPERS
AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Raw materials and stores......................... 8,111 11,555 -- --
Work in progress................................. 51 360 -- --
Finished goods................................... 26,523 26,131 -- --
Provision for diminution in value................ (876) (552) -- --
------ ------ ------ ------
Total inventories at lower of cost and net
realisable value................................ 33,809 37,494 -- --
====== ====== ====== ======
9. OTHER CURRENT ASSETS
Prepayments...................................... 1,560 706 3 39
Other............................................ 120 283 -- 7
------ ------ ------ ------
1,680 989 3 46
====== ====== ====== ======
10. RECEIVABLES (NON-CURRENT)
Loans and advances
Other.......................................... 6,355 6,355 -- --
------ ------ ------ ------
6,355 6,355 -- --
====== ====== ====== ======
11. INVENTORIES (NON-CURRENT)
Finished goods................................... 1,765 1,765 -- --
------ ------ ------ ------
Total inventories at lower of cost and net
realisable value................................ 1,765 1,765 -- --
====== ====== ====== ======
12. INVESTMENTS (NON-CURRENT)
Investments at cost compromise:
Unlisted controlled entities..................... -- -- 45,692 45,692
Unlisted associated entities..................... 5,349 2,843 -- --
Equity accounted investments..................... -- 17,780 -- --
------ ------ ------ ------
5,349 20,623 45,692 45,692
====== ====== ====== ======
</TABLE>
Included in investments at cost is an investment of A$3 in respect of 60% of
the issued capital of Koppers SEUT Pty. Limited. As this company acts solely
as the trustee for the Koppers Senior Executive Unit Trust, it is not
controlled by Koppers Australia Pty. Limited and has not been consolidated.
F-42
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Investment in unlisted controlled entities comprises:
<TABLE>
<CAPTION>
BENEFICIAL INVESTMENT
COUNTRY OF PERCENTAGE HELD KOPPERS AUSTRALIA
NAME INCORPORATION BY ECONOMIC ENTITY PTY. LIMITED
- ---- ------------- ------------------ -----------------
1996 1997 1996 1997
% % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
Koppers Investments
(Aust.) Pty Ltd........ (ii) Australia 100 100 6,355 6,355
Koppers-Hickson Invest-
ments Pty. Limited..... Australia 51 51 3,060 3,060
Koppers Power Poles
(Australia) Pty. Limit-
ed..................... (ii) Australia 100 100 955 955
Continental Carbon Aus-
tralia Pty. Limited.... (ii) Australia 100 100 8,572 8,572
KAP Investments Inc..... U.S.A. 100 100 10,846 10,846
Koppers Timber Preserva-
tion Pty. Ltd.......... (ii) Australia 100 100 6,899 6,899
Koppers Coal Tar Prod-
ucts Pty. Ltd.......... (ii) Australia 100 100 9,005 9,005
Koppers Shipping Pty.
Ltd.................... (ii) Australia 100 100 -- --
Koppers-Hickson Timber
Protection Pty.
Limited................ Australia 51 51 -- --
Koppers-Hickson (PNG)
Pty Limited............ (i) P.N.G. 51 51 -- --
Koppers-Hickson Timber
Protection (NZ) Limit-
ed..................... (i) New Zealand 51 51 -- --
Koppers-Hickson Timber
Protection (Fiji) Lim-
ited................... (i) Fiji 51 51 -- --
Koppers-Hickson Timber
Protection (Malaysia)
SDN BHD................ (i) Malaysia 51 51 -- --
Koppers-Hickson Timber
Protection (S) Pte Ltd. (i) Singapore 51 51 -- --
Koppers-Hickson Interna-
tional Pty Ltd......... (i) Australia 51 51 -- --
Koppers-Hickson (SA)
(Pty) Ltd.............. (i) South Africa 51 51 -- --
-------- --------
45,692 45,692
======== ========
</TABLE>
Overseas controlled entities carry on business in the country of
incorporation.
(i) Controlled entities which are audited by other member firms of Ernst &
Young International.
(ii) Pursuant to Class Order 95/1530, 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 entities subject to the Class Order, have entered into a deed of
indemnity on 18 May 1995. Continental Carbon Australia Pty Ltd was joined
to this deed of cross guarantee by a deed of assumption executed on 20 May
1996. 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 entities have 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>
1996 1997
A$'000 A$'000
<S> <C> <C>
Total assets.................................................. 100,945 123,488
Total liabilities............................................. 33,867 33,858
------- -------
Net assets.................................................... 67,078 89,630
======= =======
Profit after income tax....................................... 15,145 8,986
======= =======
</TABLE>
F-43
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Investment in unlisted associated entities comprises:
<TABLE>
<CAPTION>
ECONOMIC ENTITY % HELD BY DIVIDEND
INTEREST ECONOMIC ENTITY REVENUE
---------------- --------------- -------------
1996 1997 1996 1997 1996 1997
A$'000 A$'000 % % A$'000 A$'000
<S> <C> <C> <C> <C> <C> <C>
(i)Koppers-Coastchem............ 2,170 2,843 25.5 25.5 N/A N/A
(ii)Koppers Industries, Inc.*... 3,179 -- 22.4 -- 986 --
------- -------
5,349 2,843
======= =======
</TABLE>
- ---------------------
* The investment in Koppers Industries, Inc. was previously brought to
account at cost, but is now brought to account using the equity method of
accounting. This represents a change in accounting policy as outlined in
note 1. (Accordingly comparatives have not been included in the following
disclosures).
Koppers-Coastchem
The interest in the partnership is carried at cost, plus the economic
entity's share of the partnership's result for the year. The economic
entity's share in the partnership's result is included in the economic
entity's profit.
F-44
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997
A$'000
<S> <C>
Equity accounted investments comprise:
Carrying value of investment in Koppers Industries, Inc.
Balance at the beginning of the financial year--at cost............ 3,179
Equity cross-holding adjustment.................................... (356)
Initial application of equity accounting...........................
--retained profits............................................... 8,970
--reserves....................................................... 2,095
Share of operating profit after tax................................ 4,505
Dividends received................................................. (981)
Share of movement in reserves...................................... (641)
Foreign exchange variation......................................... 1,009
------
Balance at the end of the financial year............................. 17,780
======
Represented by:
Investment at cost................................................. 2,966
Share of retained profits.......................................... 13,360
Share of reserves.................................................. 1,454
------
17,780
======
Koppers Australia Pty. Limited retained profits attributable to
Koppers Industries, Inc.:
Balance at the beginning of the financial year..................... 8,970
Share of operating profit and extraordinary items after income tax
expense........................................................... 3,035
Share of income tax expense........................................ 1,470
Dividends received from Koppers Industries, Inc.................... (981)
Foreign exchange variation......................................... 866
------
Balance at the end of the financial year............................. 13,360
======
Koppers Australia Pty. Limited reserves attributable to Koppers
Industries, Inc.:
Balance at the beginning of the financial year..................... 2,095
Share of movements during the financial year....................... (719)
Foreign exchange variation........................................... 78
------
Balance at the end of the financial year............................. 1,454
======
</TABLE>
The balance date of Koppers Industries, Inc. is 31 December
<TABLE>
<CAPTION>
30 JUNE 1997 31 DECEMBER 1996
------------ ----------------
<S> <C> <C>
Ownership interest.......................... 22.65% 22.65%
Voting power................................ 35.65% 35.71%
</TABLE>
The issued capital of Koppers Industries, Inc. includes redeemable shares
issued to management investors. In addition, options to acquire shares have
also been issued to the management of Koppers Industries, Inc. Accordingly,
the percentages shown above may be subject to variations in the future through
redemptions of shares or exercise of options. The maximum dilution through
exercise of options as at 30 June 1997 is less than 2%.
Koppers Industries, Inc. holds 100.0% of the issued capital of Koppers
Australia Pty. Limited.
Principal activities of Koppers Industries, Inc. are:
. Producer of Tar Products
carbon pitch; creosote; phthalic anhydride (PAA); roofing
pitch/bitumen
F-45
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
. Producer of Wood Products
treats railroad crossties, poles and pilings for various uses
. Producer of Coke Products
foundry & furnace coke and marketable by-products including coal
tars, gases, oils and chemicals
No adjustment has been made to reflect the dissimilar accounting policy
adopted by the associate company in relation to valuation of inventory. In
particular the last-in-first-out method of inventory valuation has been
adopted by Koppers Industries, Inc.
Koppers Australia Pty. Limited paid dividends to Koppers Industries, Inc.
during the year totalling A$3,250,294 (1996 A$4,499,900) during the year.
13. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
---------------- --------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Freehold land:
At cost............................... 334 1,239 -- --
At directors' valuation 1 July 1983... 1,247 1,245 -- --
------- ------- -------- --------
1,581 2,484 -- --
------- ------- -------- --------
Buildings on freehold land:
At cost............................... 5,819 6,047 -- --
Provision for depreciation............ (1,145) (1,194) -- --
------- ------- -------- --------
4,674 4,853 -- --
------- ------- -------- --------
At directors' valuation 1 July 1983... 2,671 2,671 -- --
Provision for depreciation............ (1,703) (1,853) -- --
------- ------- -------- --------
968 818 -- --
------- ------- -------- --------
Leasehold improvements:
At cost............................... 2,337 2,568 -- --
Provision for amortisation............ (564) (966) -- --
------- ------- -------- --------
1,773 1,602 -- --
------- ------- -------- --------
Total land and buildings.............. 8,996 9,757 -- --
------- ------- -------- --------
Plant and equipment:
At cost............................... 89,931 95,125 188 175
At directors' valuation 1 July 1983... 14,779 14,779 -- --
Provision for depreciation............ (48,299) (56,302) (74) (55)
------- ------- -------- --------
55,871 53,602 114 120
------- ------- -------- --------
Assets under construction............. 2,343 1,650 -- --
------- ------- -------- --------
Total property, plant and equipment... 67,210 65,009 114 120
======= ======= ======== ========
</TABLE>
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.
F-46
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
14. INTANGIBLES
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Goodwill.................................. 2,265 2,175 -- --
Provision for amortisation................ (933) (946) -- --
------ ------ -------- --------
1,332 1,229 -- --
====== ====== ======== ========
15. OTHER NON-CURRENT ASSETS
Future income tax benefits................ 1,717 2,876 217 306
------ ------ -------- --------
16. ACCOUNTS PAYABLE (CURRENT)
Trade creditors........................... 6,432 7,833 22 84
Lease liabilities......................... -- 46 -- --
Amounts other than trade debts payable:
Accrued expenses........................ 4,715 3,611 138 201
Other................................... 894 688 -- --
------ ------ -------- --------
12,041 12,178 160 285
====== ====== ======== ========
Australian dollar equivalents of amounts
payable in foreign currencies not
effectively hedged:
--United States dollars................. 697 385 -- --
--United Kingdom pounds................. 249 95 -- --
--Singapore dollars..................... 1 1 -- --
--New Zealand dollars................... 11 124 -- --
--Australian dollars.................... 108 17 -- --
------ ------ -------- --------
1,066 622 -- --
====== ====== ======== ========
17. BORROWINGS (CURRENT)
Bills of exchange......................... 175 -- -- --
Bank loans................................ 1,000 3,300 -- --
Bank overdrafts........................... 398 225 -- 69
Related parties
Controlled entity......................... -- -- 2,286 1,300
Other related parties..................... -- 1 -- --
------ ------ -------- --------
1,573 3,526 2,286 1,369
====== ====== ======== ========
18. PROVISIONS (CURRENT)
Taxation.................................. 8,535 4,124 (99) 32
Employee entitlements..................... 5,066 5,380 576 455
Other..................................... 1,731 4,032 -- --
------ ------ -------- --------
15,332 13,536 477 487
====== ====== ======== ========
</TABLE>
F-47
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
19. ACCOUNTS PAYABLE (NON-CURRENT)
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -----------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Lease liability.............................. -- 22 -- --
20. BORROWINGS (NON-CURRENT)
Bills of Exchange and Bank Loans............. 11,300 11,500 -- 1,500
Other........................................ 2 -- -- --
------ ------ -------- --------
11,302 11,500 -- 1,500
====== ====== ======== ========
Refer to Note 28 for details of security held over borrowings.
21. PROVISIONS (NON-CURRENT)
Employee entitlements........................ 2,624 3,125 474 330
Deferred income tax liability................ 2,455 2,642 -- --
------ ------ -------- --------
5,079 5,767 474 330
====== ====== ======== ========
22. SHARE CAPITAL
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$1 each..... 2,183 2,183 2,183 2,183
------ ------ -------- --------
14,559 14,559 14,559 14,559
====== ====== ======== ========
23. RESERVES
Reserves comprise:
Share premium account...................... 2,330 2,330 2,330 2,330
Asset revaluation.......................... 1,625 1,625 12,028 12,028
Foreign currency translation............... 532 1,974 -- --
Other reserves of associate................ -- 1,454 -- --
Equity cross-holding reserve............... -- (378) -- --
------ ------ -------- --------
Total reserves........................... 4,487 7,005 14,358 14,358
====== ====== ======== ========
Movement in reserves
Foreign currency translation
Balance at beginning of year.............. 1,934 532 -- --
Transfer to outside equity interests...... (597) -- -- --
Gain/(loss) on translation of overseas
controlled entities...................... (805) 1,442 -- --
------ ------ -------- --------
Balance at end of year.................... 532 1,974 -- --
====== ====== ======== ========
Equity cross-holding reserve
Adjustment for initial application of eq-
uity accounting........................... -- (356) -- --
Movement during the year................... -- (22) -- --
------ ------ -------- --------
Balance at end of year..................... -- (378) -- --
====== ====== ======== ========
</TABLE>
F-48
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
24. OUTSIDE EQUITY INTEREST
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- ------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Reconciliation of outside equity interest
in controlled entities:
--Opening balance....................... 15,518 8,173 -- --
--Add: outside equity interest in trans-
lation reserve not
previously brought to account...... 597 -- -- --
--Add: share of operating profit........ 2,750 1,877 -- --
--Less: dividends paid.................. (2,790) (1,496) -- --
--Less: purchase of outside equity in-
terest in subsidiary................... (7,535) -- -- --
--Add: share of movement in reserves.... (367) 237 -- --
------ ------ --------- --------
--Closing balance....................... 8,173 8,791 -- --
====== ====== ========= ========
25. STATEMENT OF CASH FLOWS
a) Reconciliation of cash
Cash balance comprises:
--cash on hand........................ 1,805 6,379 10 --
--short-term deposits................. 2,543 1,581 -- --
--bank overdraft...................... (398) (225) -- (69)
------ ------ --------- --------
Closing cash balance.................... 3,950 7,735 10 (69)
====== ====== ========= ========
b) Reconciliation of the operating profit
after tax to the net cash flows from
operations
Operating profit after tax.............. 18,797 18,938 11,263 6,763
Dividends received (investing).......... (986) -- -- --
Depreciation and amortisation
--property, plant and equipment....... 10,500 10,689 44 40
--intangibles......................... 144 146 -- --
Diminution in value of inventories........ 345 57 -- --
Loss on write-off of investments.......... 50 -- 50 --
Provision for employee entitlements....... 3,786 3,116 559 (265)
(Profit)/loss on sale of non-current as-
sets..................................... 46 (38) -- (8)
Equity income of associate company........ -- (4,505) -- --
Partnership income........................ -- (624) -- --
Changes in assets and liabilities
Trade receivables....................... 247 (3,204) -- --
Inventory............................... (896) (3,742) -- --
Prepayments............................. (915) 854 -- (36)
Other Current Assets.................... 808 (92) 723 3
Other Non-Current Assets................ (691) (559) -- --
</TABLE>
F-49
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
-------------- -------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Trade Creditors........................ (1,657) 738 (45) 125
Other Current Liabilities.............. 1,498 (1,267) 3 --
Other Non-Current Liabilities.......... (2,067) 20 -- --
Tax Provision.......................... 1,820 (4,411) (314) 131
Deferred income tax liability.......... (162) 187 -- --
Future income tax benefit.............. (965) (1,159) (53) (89)
Exchange rate changes on opening cash.. 249 (143) -- --
------ ------ --------- --------
Net cash flow from operating activities.. 29,951 16,119 12,230 6,664
====== ====== ========= ========
c) Bank overdraft facility
Refer to note 28 for details of group bank facility
26. EXPENDITURE COMMITMENTS
Capital expenditure commitments
Estimated capital expenditure contracted
for at balance date but not provided for
--payable not later than one year...... -- 516 -- --
====== ====== ========= ========
Lease expenditure commitments
Operating leases (non-cancelable):
--Not later than one year.............. 836 707 427 321
--Later than one year and not later
than two years........................ 729 434 321 --
--Later than two years and not later
than five years....................... 1,017 642 -- --
--Later than five years................ 212 2,481 -- --
------ ------ --------- --------
Aggregate lease expenditure contracted
for at balance date but not provided
for..................................... 2,794 4,264 748 321
====== ====== ========= ========
Finance leases:
--Not later than one year.............. -- 46 -- --
--Later than one year and not later
than two years........................ -- 22 -- --
--Later than two years and not later
than five years....................... -- -- -- --
--Later than five years................ -- -- -- --
------ ------ --------- --------
Total minimum lease payments........... -- 68 -- --
Future finance charges................. -- -- -- --
------ ------ --------- --------
Lease liability........................ -- 68 -- --
====== ====== ========= ========
Current liability...................... -- 46 -- --
Non-current liability.................. -- 22 -- --
------ ------ --------- --------
-- 68 -- --
====== ====== ========= ========
</TABLE>
F-50
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
27. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
EMPLOYEE ENTITLEMENTS
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
The aggregate employee entitlement liability
is comprised of:
Accrued wages, salaries and oncosts....... 52 155 -- --
Provisions (current)...................... 5,066 5,380 576 455
Provisions (non-current).................. 2,624 3,125 474 330
----- ----- --------- -------
7,742 8,660 1,050 785
===== ===== ========= =======
</TABLE>
Superannuation Commitments
All employees are entitled to varying levels of benefits on retirement,
disability or death. The superannuation plan provides defined benefits based
on years of service and final average salary. Employees contribute to the
plans at various percentages of their wages and salaries. Up until the year
ended 30 June 1994, the economic entity did not contribute to the plan.
Commencing this year, the economic entity has contributed to the plan amounts
advised by the plan manager. These contributions are not of a systematic and
long-term nature as the plan has sufficient funds to satisfy all benefits
vested under the plan as at 30 June 1997.
Details of the superannuation fund as extracted from the fund's most recent
annual report (31 August 1996) are as follows:
<TABLE>
<CAPTION>
A$'000
<S> <C>
Accrued benefits......................................................... 13,371
Net market value of plan assets.......................................... 14,116
------
Surplus of net market value of plan assets over accrued benefits......... 745
======
Vested benefits
</TABLE>
Actuarial assessment of the plan was made in February 1995 by Watson Wyatt
Worldwide.
28. CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- ------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Bank guarantees covering security deposits,
contract performance and autopay............. 1,618 2,071 1,618 2,071
===== ===== ======== ========
</TABLE>
Koppers Australia Pty. Limited and related companies, namely Koppers Power
Poles (Australia) Pty. Limited, Koppers Coal Tar Products Pty. Ltd.,
Continental Carbon Australia Pty. Limited, 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 1997 totaled A$36,350,000.
The securities held by the bank over the above facilities comprise:
1. Guarantee (unlimited) by Koppers Power Poles (Australia) Pty. Limited,
Koppers Investments (Aust.) Pty. Limited, Koppers Timber Preservation
Pty. Ltd., Koppers Coal Tar Products Pty. Ltd., Koppers Australia Pty.
Limited and Continental Carbon Australia Pty. Limited.
F-51
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
2. Letter of Comfort by BHP and Koppers Industries, Inc.
3. Negative Pledge dated 2 July 1990.
In addition, a fully interlocking guarantee has been provided by the above-
mentioned related companies, to provide security over the borrowing facilities
of the company and its related companies. Under the terms of an ASC Class
Order these above mentioned companies have guaranteed any deficiency of funds
if any of the companies is wound up. No such deficiency exists. Refer to note
12.
29. AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Amounts received or due and receivable by
the auditors, of Koppers Australia Pty.
Limited for:
-- an audit or review of the financial
statements of the entity and any other
entity in the economic entity......... 227 224 36 36
-- other services in relation to the en-
tity and any other entity in the eco-
nomic entity.......................... 63 54 10 46
Amounts received or due and receivable by
auditors other than the
auditors of Koppers Australia Pty. Lim-
ited for:
-- an audit or review of the financial
statements of
subsidiary entities................... 17 37 -- --
--- --- -------- --------
307 315 46 82
=== === ======== ========
</TABLE>
30. SUBSEQUENT EVENTS
There has been no significant event since balance date which requires
disclosure or adjustment in the financial statements of the entity.
31. RELATED PARTY DISCLOSURES
The directors of Koppers Australia Pty. Limited during the financial year
were:
D.P. Traviss (Resigned 24 June 1997);
E.S. Bryon;
M.J. Burns;
D.R. Zimmerman;
B.K. Jensen;
P.J. Laver;
R.K. Wagner;
C.R. Newell;
A.K. Purnell (Resigned 22 May 1997);
B.C. Wilson
The following related party transactions occurred during the financial year:
Transactions with other related parties
i) Dividends received of A$980,769. (1996: A$986,193)
F-52
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
Transactions with the Directors of Koppers Australia Pty. Limited and the
economic entity:
Since 1992 Koppers Australia Pty. Limited has 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.
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 have been issued units in this scheme in accordance with the plan
rules. As at 30 June 1997, the combined value of the units issued to the above
directors is A$358,270 (1996: A$291,840).
There have been no other transaction concerning shares between entities in
the reporting entity and directors of the reporting entity or their director-
related entities.
All financial benefits provided by Koppers Australia Pty. Limited or its
controlled entities to related parties were provided at arms' length terms.
Koppers Australia Pty. Limited is the ultimate Australian holding company.
32. SEGMENT INFORMATION
The economic entity operates predominantly in four industries--timber
preservation, chemicals, carbon black and coal tar products, and in four
geographical areas--Australia, P.N.G., New Zealand and Fiji and South East
Asia. The manufacturing operations comprise the refinement and distribution of
coal tar products, the manufacture of wood preservation chemicals, the
preservation of timber products and carbon black.
F-53
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
30 JUNE 1997
<TABLE>
<CAPTION>
TIMBER CARBON COAL TAR
PRESERVATION CHEMICALS BLACK PRODUCTS OTHER ELIMINATIONS
NOTES A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) Industry
Segments
OPERATING
REVENUE
Sales to
customers
outside the
economic
entity......... 28,831 34,424 42,621 40,046 33,220 35,638 62,142 62,656 4,646 1,019 -- --
Intersegment
Sales.......... 2 131 169 3,182 3,295 15 -- 2,505 14,265 9,798 14,800 (15,631) (32,529)
------- ------- ------ ------ ------ ------ ------ ------ ------- ------- ------- -------
28,962 34,593 45,803 43,341 33,235 35,638 64,647 76,921 14,444 15,819 (15,631) (32,529)
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
Consolidated
Operating
Profit/(Loss).. 2 1,297 1,743 6,228 6,054 4,575 5,783 8,947 15,240 12,448 13,296 (5,181) (12,922)
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
Segment Assets.. 29,016 27,378 28,622 26,281 22,154 20,970 73,640 68,437 91,158 74,146 (77,184) (72,624)
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
<CAPTION>
CONSOLIDATION
A$'000
1997 1996
<S> <C> <C>
(a) Industry
Segments
OPERATING
REVENUE
Sales to
customers
outside the
economic
entity......... 171,460 173,783
Intersegment
Sales.......... -- --
------- -------
171,460 173,783
======= =======
Consolidated
Operating
Profit/(Loss).. 28,314 29,194
======= =======
Segment Assets.. 167,406 144,588
======= =======
(b) Geographical
Segments
<CAPTION>
NEW ZEALAND,
FIJI & SOUTH EAST
AUSTRALIA P.N.G. STH AFRICA ASIA ELIMINATIONS CONSOLIDATION
A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
OPERATING REVENUE 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to
customers
outside the
economic
entity......... 140,460 145,947 513 676 19,522 19,891 10,965 7,269 -- -- 171,460 173,783
Intersegment
Sales.......... 15,455 32,242 -- -- 176 287 -- -- (15,631) (32,529) -- --
------- ------- ------ ------ ------ ------ ------ ------ ------- ------- ------- -------
2 155,915 178,189 513 676 19,698 20,178 10,965 7,269 (15,631) (32,529) 171,460 173,783
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
Consolidated
Operating
Profit......... 2 28,540 37,659 92 9 3,440 3,760 1,443 688 (5,181) (12,922) 28,334 29,194
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
Segment Assets.. 225,757 200,627 622 575 13,478 13,272 4,426 2,738 (77,184) (72,624) 167,099 144,588
======= ======= ====== ====== ====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
F-54
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
33. REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
KOPPERS AUSTRALIA
CONSOLIDATED PTY. LIMITED
------------- -------------------
1996 1997 1996 1997
A$'000 A$'000 A$'000 A$'000
<S> <C> <C> <C> <C>
Income paid or payable, or otherwise made
available, in respect of the financial
year, to all directors of each entity in
the economic entity, directly or
indirectly, by the entities of which they
are directors or any related party......... 1,836 1,919
===== =====
Income paid or payable, or otherwise made
available, in respect of the financial
year, to all directors of Koppers Australia
Pty. Limited, directly or indirectly, from
the entity or any related party............ 836 1,028
======= =========
The number of directors of Koppers Australia
Pty. Limited whose remuneration (including
superannuation contributions) falls within
the following bands:
$0 --$ 9,999.......................... 8 8
$190,000--$199,999.......................... 1 --
$220,000--$229,999.......................... -- 1
$250,000--$259,999.......................... 1 --
$270,000--$279,999.......................... -- 1
$350,000--$359,999.......................... -- --
$380,000--$389,999.......................... 1 --
$530,000--$539,999.......................... -- 1
------- ---------
11 11
======= =========
</TABLE>
In the opinion of the directors, remuneration paid to directors is considered
reasonable.
F-55
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
THREE MONTHS ENDED 30 SEPTEMBER 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
(UNAUDITED)
<S> <C> <C>
SALES........................................................... $43,627 $43,692
GROSS PROFIT.................................................... 13,762 12,906
SELLING, GENERAL & ADMINISTRATIVE............................... 3,606 3,633
DEPRECIATION.................................................... 2,829 2,955
------- -------
EARNINGS BEFORE INTEREST & TAXES................................ 7,327 6,318
INTEREST EXPENSE................................................ 235 202
EQUITY INCOME................................................... 276 3,631
INCOME TAX...................................................... 2,523 2,298
------- -------
NET INCOME BEFORE MINORITY INTEREST 4,845 7,449
MINORITY INTEREST............................................... 511 455
------- -------
NET INCOME...................................................... $ 4,334 $ 6,994
======= =======
</TABLE>
See accompanying notes.
F-56
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
AT 30 SEPTEMBER 1997
<TABLE>
<CAPTION>
1997
(UNAUDITED)
<S> <C>
Cash................................................................ $ 8,564
Receivables......................................................... 32,242
Inventory........................................................... 41,945
Other Current Assets................................................ 715
Net Fixed Assets.................................................... 63,276
Investments......................................................... 25,046
Goodwill............................................................ 1,262
--------
TOTAL ASSETS.................................................... $173,050
========
Creditors........................................................... 12,855
Short Term Loans.................................................... 2,047
Other Current Liabilities........................................... 11,447
Long Term Loans..................................................... 12,800
Other Non-Current Liabilities....................................... 3,947
--------
TOTAL LIABILITIES............................................... $ 43,096
========
Share Capital....................................................... 14,559
Reserves............................................................ 7,877
Profit & Loss Appropriation......................................... 98,567
Minority Interest................................................... 8,951
--------
TOTAL SHAREHOLDERS' EQUITY...................................... $129,954
========
</TABLE>
See accompanying notes.
F-57
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
(ACN 000 566 629)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF AUSTRALIAN DOLLARS)
THREE MONTHS ENDED 30 SEPTEMBER 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
(UNAUDITED)
<S> <C> <C>
CASH FROM OPERATIONS.......................................... $ 8,523 $ 8,877
INCREASE IN WORKING CAPITAL................................... 1,429 365
CAPITAL EXPENDITURES.......................................... (2,201) (2,061)
CASH TAXES.................................................... (1,469) (1,854)
DIVIDENDS RECEIVED............................................ 243 261
------- -------
CASH SURPLUS.................................................. $ 6,525 $5,588
======= =======
</TABLE>
See accompanying notes.
F-58
<PAGE>
KOPPERS AUSTRALIA PTY. LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The audited financial statements of Koppers Australia Pty. Limited
("Koppers Australia") for the Fiscal years ended June 30, 1996 and 1997
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) The financial statements have been prepared using accounting policies
consistent with those used for the year ended June 30, 1997.
F-59
<PAGE>
No dealer, salesperson or other individual has been authorized to give any in-
formation or to make any representations not contained in this Prospectus. If
given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any security other than
the securities to which it relates, any offer to sell or a solicitation of an
offer to buy the Notes in any jurisdiction where, or to any person to whom, it
is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 16
Company History............................................................ 24
Transactions............................................................... 24
Use of Proceeds............................................................ 26
Capitalization............................................................. 27
Selected Historical Consolidated Financial Information..................... 29
Unaudited Pro Forma Condensed Consolidated Financial Statements............ 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 37
Business................................................................... 46
Management................................................................. 67
Principal Stockholders..................................................... 73
Certain Relationships and Related Transactions............................. 75
Description of New Credit Facilities....................................... 75
Description of Notes....................................................... 78
The Exchange Offer......................................................... 106
Federal Income Tax Consequences of Owning
New Notes................................................................. 113
Plan of Distribution....................................................... 115
Legal Matters.............................................................. 115
Independent Auditors....................................................... 116
Available Information...................................................... 116
Index to Financial Statements.............................................. F-1
</TABLE>
$175,000,000
[LOGO OF KOPPERS INDUSTRIES]
Offer To Exchange
9 7/8% Senior Subordinated
Notes due 2007, which
have been registered
under the Securities Act,
for its 9 7/8% Senior
Subordinated Notes due
2007, which have not been
so registered.
--------------
PROSPECTUS
--------------
January 23, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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.
II-1
<PAGE>
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
directors 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*1.1 -- Purchase Agreement dated as of November 20, 1997 between the
Registrant and SBC Warburg Dillon Read, Inc.
*2.1 -- Agreement for Sale of Shares by and among BHP Nominees
Investments No. 3 Pty Ltd, The Broken Hill Proprietary Company
Limited, Koppers Industries, Inc., Koppers Australia Pty
Limited, Continental Carbon Australia Pty Limited and KAP
Investments, Inc.
*2.2 -- Variation Agreement by and among BHP Nominees Investments No.
3 Pty Ltd, The Broken Hill Proprietary Company Limited,
Koppers Industries, Inc., Koppers Australia Pty Limited,
Continental Carbon Australia Pty Limited and KAP Investments,
Inc.
*3.1 -- Restated and Amended Articles of Incorporation of the Company
(Incorporated by reference from Exhibit 4.1 of the Company's
Form S-8 Registration Statement filed December 22, 1997).
*3.2 -- Restated and Amended Bylaws of the Company (Incorporated by
reference from Exhibit 4.2 of the Company's Form S-8
Registration Statement filed December 22, 1997).
*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 -- Indenture, dated as of December 1, 1997 between the Company
and PNC Bank, National Association (the "Trustee").
*4.3 -- Form of Note (contained in Indenture filed as Exhibit 4.2).
*4.4 -- Registration Rights Agreement dated as of December 1, 1997
between the Registrant and the Purchasers.
4.5 -- Form of Authorizing Resolutions adopted by the Pricing
Committee.
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 (Incorporated by reference to respective
exhibits to the Company's Amendment No. 1 to Form S-1
Registration Statement filed June 18, 1996 in connection with
the offering of 7,001,922 shares of Common Stock).
*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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*9.3 -- Stockholders' Agreement by and among Koppers Industries, Inc.,
Saratoga Partners III, L.P. and the Management Investors
referred to therein, dated December 1, 1997 (Incorporated by
reference from Exhibit 4.3 of the Company's Form S-8
Reigstration Statement filed December 22, 1997).
*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).
*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).
*10.14 -- 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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
*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).
*10.18 -- Employment Contract for Donald P. Traviss dated October 17,
1994 (Incorporated by reference to respective exhibits to the
Company's Form 10-K for the year ended December 31, 1995).
*10.19 -- Employment Contract for Robert K. Wagner dated February 29,
1996 to the Company, as revised on October 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 Form 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 Form 10-K for the year ended December 31, 1995).
*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 Form 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 Form 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 Form 10-K
for the year ended December 31, 1995).
*10.25 -- Restated and Amended Employee Stock Option Plan. (Incorporated
by reference to respective exhibits to the Company's amendment
No. 1 to Form S-1 Registration Statement filed June 18, 1996
in connection with the offering of 7,001,922 shares of Common
Stock).
*10.26 -- Employment Contract for Donald N. Sweet dated August 1, 1996
(Incorporated by reference
to respective exhibits to the Company's Form 10-Q for the
quarterly period ended
September 30, 1996).
*10.27 -- Volume Treatment Agreement CSX--Koppers dated as of January
30, 1997 (Incorporated
by reference to respective exhibits to the Company's Form 10-K
for the year ended
December 31, 1996).
*10.28 -- Credit Agreement, dated as of December 1, 1997 by and among
the Company, the Banks from time to time parties thereto and
Swiss Bank Corporation and Mellon Bank, N.A.
*10.29 -- Advisory Services Agreement between the Company and Saratoga
Partners III, L.P.
*11.1 -- Statement Regarding Computation of Per Share Earnings.
*12.1 -- Computation of Ratio of Earnings to Fixed Charges.
*21.1 -- Amended List of Subsidiaries of the Company.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Ernst & Young.
*23.3 -- Consent of Baker & McKenzie.
23.4 -- Consent of Dickie, McCamey & Chilcote, P.C. (included in
Exhibit 5.1).
*24.1 -- Power of Attorney of Koppers Industries, Inc. (appearing on
Signature Page).
24.2 -- Power of Attorney of Koppers Industries International Trade
Corporation (appearing on Signature Page).
24.3 -- Power of Attorney of Koppers Australia Pty. Ltd. (appearing on
Signature Page).
24.4 -- Power of Attorney of Koppers Industries of Delaware, Inc.
(appearing on Signature Page).
24.5 -- Power of Attorney of Koppers Industries, B.W., Inc. (appearing
on Signature Page).
*25.1 -- Form T-1 Statement of Eligibility of Trustee.
*99.1 -- Form of Letter of Transmittal and Notice of Guaranteed
Delivery.
</TABLE>
- ---------------------
*Previously filed.
(B) FINANCIAL STATEMENT 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 22. 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 exchange offer 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 exchange offer 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 exchange offer 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 Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Pittsburgh,
Pennsylvania on January 23, 1998.
KOPPERS INDUSTRIES, INC.
/s/ Robert K. Wagner
By:----------------------------------
Robert K. Wagner
Chairman
/s/ Clayton A. Sweeney
By:----------------------------------
Clayton A. Sweeney
Director
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert K. Wagner and Clayton A. Sweeney and each acting alone, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments or supplements to this Registration
Statement and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing necessary or appropriate to be done with
this Registration Statement and any amendments or supplements hereto, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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 and Acting January 23,
- ----------------------------- Chief Executive Officer 1998
Robert K. Wagner (Principal Executive Officer)
* Chief Financial Officer January 23,
- ----------------------------- (Principal Financial Officer, 1998
Donald E. Davis Principal Accounting Officer)
/s/ Clayton A. Sweeney Director January 23,
- ----------------------------- 1998
Clayton A. Sweeney
* Director January 23,
- ----------------------------- 1998
Brooks C. Wilson
* Director January 23,
- ----------------------------- 1998
N.H. Prater
II-6
<PAGE>
SIGNATURE TITLE(S) DATE
* Director
- ----------------------------- January 23,
Christian L. Oberbeck 1998
/s/ Clayton A. Sweeney
- -----------------------------
Clayton A. Sweeney
* By power of attorney
II-7
<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, hereunto duly authorized, in Pittsburgh, Pennsylvania, on January
23, 1998.
KOPPERS INDUSTRIES
INTERNATIONAL TRADE CORPORATION
/s/ Donald E. Davis
By: ___________________________
Donald E. Davis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert K. Wagner, Clayton A. Sweeney and Donald E. Davis, and each acting alone,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments or supplements to this
Registration Statement and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto in the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ --------------------------------------- ----------------
<S> <C> <C>
/s/ Donald E. Davis
_______________________ President (Principal Executive Officer) January 23, 1998
Donald E. Davis and Director
/s/ M. Claire Schaming
_______________________ Treasurer (Principal Financial Officer/ January 23, 1998
M. Claire Schaming Principal Accounting Officer)
/s/ Anne Cherry
_______________________ Director January 23, 1998
Anne Cherry
</TABLE>
II-8
<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, hereunto duly authorized, in Pittsburgh, Pennsylvania, on January
23, 1998.
KOPPERS AUSTRALIA PTY. LTD.
/s/ Robert K. Wagner
By: ___________________________
Robert K. Wagner
Director
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert K. Wagner and Clayton A. Sweeney and each acting alone, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments or supplements to this Registration
Statement and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing necessary or appropriate to be done with respect to
this Registration Statement or any amendments or supplements hereto in the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- ------------------------------------ ----------------
<S> <C> <C>
/s/ Brooks C. Wilson
_____________________ Director/Principal Executive Officer January 23, 1998
Brooks C. Wilson
/s/ Anne Cherry
_____________________ Principal Financial Officer/ January 23, 1998
Anne Cherry Principal Accounting Officer
/s/ Robert K. Wagner
_____________________ Director January 23, 1998
Robert K. Wagner
/s/ Donald E. Davis
_____________________ Director January 23, 1998
Donald E. Davis
</TABLE>
II-9
<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, hereunto duly authorized, in Pittsburgh, Pennsylvania, on January
23, 1998.
KOPPERS INDUSTRIES OF DELAWARE, INC.
/s/ Donald E. Davis
By: ___________________________
Donald E. Davis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert K. Wagner, Clayton A. Sweeney and Donald E. Davis, and each acting alone,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments or supplements to this
Registration Statement and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto in the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ --------------------------------------- ----------------
<S> <C> <C>
/s/ Donald E. Davis
_______________________ President (Principal Executive Officer) January 23, 1998
Donald E. Davis and Director
/s/ M. Claire Schaming
_______________________ Treasurer (Principal Financial Officer/ January 23, 1998
M. Claire Schaming Principal Accounting Officer)
/s/ Joseph P. DiBianca
_______________________ Director January 23, 1998
Joseph P. DiBianca
</TABLE>
II-10
<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, hereunto duly authorized, in Pittsburgh, Pennsylvania, on January
23, 1998.
KOPPERS INDUSTRIES B.W., INC.
/s/ Robert K. Wagner
By: ___________________________
Robert K. Wagner
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert K. Wagner and Clayton A. Sweeney and each acting alone, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments or supplements to this Registration
Statement and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing necessary or appropriate to be done with respect to
this Registration Statement or any amendments or supplements hereto in the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ --------------------------------------- ----------------
<S> <C> <C>
/s/ Robert K. Wagner
_______________________ President (Principal Executive Officer) January 23, 1998
Robert K. Wagner and Director
/s/ M. Claire Schaming
_______________________ Treasurer (Principal Financial Officer/ January 23, 1998
M. Claire Schaming Principal Accounting Officer)
/s/ Clayton A. Sweeney
_______________________ Director January 23, 1998
Clayton A. Sweeney
</TABLE>
II-11
<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, 1995 and 1996, and for each of the three years in the
period ended December 31, 1996, and have issued our report thereon dated
February 18, 1997. Our audits also included the financial statement schedule
listed in Item 21(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
February 18, 1997
1
<PAGE>
SCHEDULE II
KOPPERS INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts........ $247 $150 $101 $296
==== ==== ==== ====
1995
Allowance for doubtful accounts........ $296 $241 $195 $342
==== ==== ==== ====
1996
Allowance for doubtful accounts........ $342 $133 $311 $164
==== ==== ==== ====
</TABLE>
2
<PAGE>
EXHIBIT 4.5
Koppers Industries, Inc. Authorizing Resolutions
Resolutions Adopted by the Pricing Committee
of the Board of Directors
On ________, 1998
Relating to $175,000,000 Principal Amount of
9 7/8% Senior Subordinated Notes due 2007
The undersigned, the Secretary of Koppers Industries, Inc. a Pennsylvania
corporation (the "Company"), hereby certifies that the resolutions set forth
below have been duly adopted by a duly authorized Pricing Committee of the Board
of Directors of the Company, pursuant to the authority of the Board of Directors
of the Company, and that such resolutions are in force and effect and have not
been modified as of the date of this certificate.
WHEREAS, pursuant to resolutions adopted by the Pricing Committee on
November 19, 1997, the Company issued $175,000,000 principal amount of 9 7/8%
Senior Subordinated Notes due 2007 (the "Old Notes") pursuant to Rule 144A of
the Securities Act of 1933 (as defined below); and
WHEREAS, in accordance with the terms of the Registration Rights Agreement
(the "Registration Rights Agreement"), dated as of December 1, 1997, by and
among the Company and SBC Warburg Dillon Read, the Company will issue up to
$175,000,000 principal amount of 9 7/8% Senior Subordinated Notes due 2007 (the
"Notes") which have been registered under the Securities Act in exchange for a
like principal amount of Old Notes.
NOW, THEREFORE, it hereby is:
RESOLVED, that the filing with the Securities and Exchange Commission of a
Registration Statement on Form S-4 (No. 333-43153) (the "Registration
Statement") relating to the Exchange Offer (as defined in the Registration
Statement) and the payment of any filing fees related thereto with respect to
the Notes is hereby approved, ratified and confirmed in all respects; and
RESOLVED FURTHER, that the form of Prospectus (the "Prospectus") relating
to the Notes as attached hereto be approved, ratified and confirmed in all
respects, and that the Company be, and it hereby is, authorized to use such
Prospectus in connection with the Exchange Offer, in substantially such form or
in such other forms as shall be approved by this Pricing Committee; and
RESOLVED FURTHER, pursuant to the Indenture, dated as of December 1, 1997
(the "Indenture", capitalized terms used herein but not otherwise defined shall
have the meanings provided in the Indenture) between the Company and PNC Bank,
National Association, as trustee (the "Trustee"), that the Company shall
promptly following the Expiration Date (as defined in the Prospectus) issue up
to an aggregate of $175,000,000 of Securities constituting the Notes
<PAGE>
under the Indenture in exchange for a like principal amount of Old Notes
properly tendered, and, pursuant to Article Two of the Indenture, it is hereby
determined that the Securities so issued shall have the following terms:
(a) The title of the Notes shall be 9 7/8% Senior Subordinated Notes Due
2007;
(b) The aggregate principal amount of the Notes which shall be
authenticated and delivered under the Indenture at this time shall be
$175,000,000;
(c) The Notes shall mature and the unpaid principal thereon shall be
payable on December 1, 2007;
(d) the rate per annum at which interest shall be payable on the Notes is
hereby fixed at 9 7/8%, interest on the Notes shall accrue beginning December 1,
1997 or from the most recent date to which interest has been paid on the Old
Notes, interest shall be payable on the Notes on June 1 and December 1 of each
year beginning December 1, 1997 and the Regular Record Date for the payment of
such interest shall be the May 15 or December 15 immediately preceding each such
June 1 or December 1, as the case may be, and otherwise as provided in the
Indenture;
(e) Principal, premium, if any, and interest on the Notes shall be payable
in accordance with the requirements of the Depository (as defined below) with
respect to any global note representing the Notes, and otherwise at the offices
of the Paying Agent maintained for such purpose or as provided in the Indenture;
(f) The Notes will be unsecured and will rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. The Notes will be
issued in fully registered book-entry form in minimum denominations of $1,000.
A global note representing the Notes will be registered in the name of a nominee
of The Depository Trust Company (the "Depository") which will act as depository.
Beneficial interests in the Notes will be shown on, and transfers thereof will
be effected only through, records maintained by the Depository and its
participants.
(g) Upon the terms and subject to the conditions set forth in the
Prospectus and in the accompanying Letter of Transmittal, the Company will issue
Notes in exchange for Old Notes that are properly tendered on or prior to the
Expiration Date and not withdrawn; and
RESOLVED FURTHER, that the form, terms and provisions relating to the Notes
be established pursuant to Article Two of the Indenture, and the form of Note
attached hereto as Exhibit A be established pursuant to Section 2.01 of the
Indenture completed in accordance with the resolutions herein set forth and with
such changes therein, additions thereto and deletions therefrom as the officers
executing the same shall approve, the approval of such officers to be
conclusively evidenced by their execution and delivery thereto, be, and they
hereby are, approved; and
RESOLVED FURTHER, that the form of Letter of Representations as issued by
the Company and the Trustee to The Depository Trust Company to effectuate the
issuance of the Notes, substantially in the form attached hereto and registered
in the name of a nominee of
<PAGE>
Depository (the "Book-Entry System") be, and it hereby is, approved, ratified,
and confirmed in all respects; and
RESOLVED FURTHER, that PNC Bank, National Association, be and it hereby is,
designated and appointed Paying Agent with respect to the Notes at its Corporate
Trust Office in the Borough of Manhattan, The City of New York pursuant to
Section 1.023 of the Indenture; and
RESOLVED FURTHER, that the Chief Executive Officer or any Vice President of
the Company be, and each of them hereby is, authorized in the name and on behalf
of the Company to execute and deliver under the corporate seal attested to by
the Treasurer or Secretary of this Company or one of its Assistant Treasurers or
Assistant Secretaries the Notes as authorized above in substantially such form,
completed in accordance with the foregoing resolutions and with such changes
therein, additions thereto and deletions therefrom as the officers executing the
same shall approve, the approval of such officers to be conclusively evidenced
by their execution and delivery thereof; and
RESOLVED FURTHER, that the Chief Executive Officer or any Vice President of
the Company be, and each of them hereby is, authorized, on behalf of the Company
and in its name, to sign as required and cause to be filed with the Securities
and Exchange Commission any and all amendments (including, without limitation,
post-effective amendments) to the Registration Statement, any prospectus
supplements, including without limitation a prospectus supplement describing the
terms and provisions of the Notes and the offer and sale thereof, and any
additional documents which any such officer may deem necessary or desirable,
such amendments and such documents to be in such forms as the officer executing
or filing the same shall approve, such approval to be conclusively evidenced by
his execution or filing thereof; and
RESOLVED FURTHER, that each of the officers and members of this Pricing
Committee of the Company referred to above, and other appropriate officers of
the Company, are authorized and directed to execute and deliver such further
documents, agreements and certificates on behalf of this corporation, and to
take such further actions on behalf of this corporation, as any such officer or
member of this Pricing Committee shall deem appropriate or advisable in order to
implement the issuance and sale of the Notes as contemplated by these
resolutions, each of which shall be the valid and binding act and obligation of
this corporation.
IN WITNESS WHEREOF, the Company has caused this certificate to be executed
on its behalf by Randall D. Collins, its Secretary, and has caused the seal of
the Company to be affixed hereto.
_____________, 1998 KOPPERS INDUSTRIES, INC.
By: _______________________________________
Randall D. Collins
Vice President and Corporate Secretary
<PAGE>
Exhibit 5.1
LAW OFFICES OF
DICKIE, MCCAMEY & CHILCOTE
A PROFESSIONAL CORPORATION
TWO PPG PLACE, SUITE 400
PITTSBURGH, PENNSYLVANIA
15222-5402
TEL. 412/281-7272 FAX. 412/392-5367
January 23, 1998
Koppers Industries, Inc.
436 Seventh Avenue
Pittsburgh, PA 15219
Dear Ladies and Gentlemen:
We have examined a copy of the Registration Statement on Form S-4 (No.
333-43153) (the "Registration Statement"), filed by Koppers Industries, Inc.
(the "Company") with the Securities and Exchange Commission (the "Commission")
on December 22, 1997, relating to the registration pursuant to the provisions of
the Securities Act of 1933, as amended (the "Act"), of up to $175,000,000
principal amount of 9 7/8% Notes due 2007 (the "New Notes"). The New Notes,
which upon the effectiveness of the Registration Statement will be registered
under the Act, will be issued in exchange for a like principal amount of the
Company's outstanding 9 7/8% Notes due 2007 (the "Old Notes"), which are not
registered under the Act. The terms of the New Notes have been established
pursuant to authorizing resolutions (the "Authorizing Resolutions") adopted by
the Pricing Committee of the Board of Directors of the Company on November 19,
1997, and are identical in all material respects to the Old Notes, except for
certain transfer restrictions relating to the Old Notes. The New Notes will be
issued pursuant to the Authorizing Resolutions and an Indenture (the
"Indenture") dated as of December 1, 1997, between the Company and PNC Bank,
National Association. In rendering this opinion, we have reviewed such documents
and made such investigations as we have deemed appropriate.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
The New Notes have been duly authorized for issuance and, when duly
executed, authenticated, registered, issued and delivered in exchange for Old
Notes of a like principal amount, in accordance with the terms of the Indenture
and the Authorizing Resolutions and as contemplated by the Registration
Statement, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled to
the benefits of the Indenture and the Authorizing Resolutions, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights and remedies generally
and subject to general principles of equity.
We are members of the bar of the Commonwealth of Pennsylvania and do not
purport to be experts in, or to express any opinion concerning, the laws of any
jurisdiction other than the law of the Commonwealth of Pennsylvania and the
federal laws of the United States of America.
Neither this opinion nor any part hereof may be delivered to, used or
relied upon by any person other than you without our prior written consent.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Registration Statement and related prospectus.
Our consent to such reference does not constitute a consent under Section 7 of
the Securities Act, and in consenting to such reference we have not certified
any part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under said Section 7 or under
the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Dickie, McCamey & Chilcote, P.C.
Dickie, McCamey & Chilcote, P.C.
<PAGE>
Exhibit 8.1
LAW OFFICES OF
DICKIE, MCCAMEY & CHILCOTE
A PROFESSIONAL CORPORATION
TWO PPG PLACE, SUITE 400
PITTSBURGH, PENNSYLVANIA
15222-5402
TEL. 412/281-7272 FAX. 412/392-5367
January 23, 1998
Koppers Industries, Inc.
436 Seventh Avenue
Pittsburgh, PA 15219
Ladies and Gentlemen:
We have acted as counsel for Koppers Industries, Inc., a Pennsylvania
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the issuance by the Company of
$175,000,000 aggregate principal amount of its 9 7/8% Senior Subordinated Notes
due 2007 (the "Exchange Notes"). The Exchange Notes are to be offered by the
Company in exchange (the "Exchange") for $175,000,000 aggregate principal amount
of its outstanding 9 7/8% Senior Subordinated Notes due 2007 (the "Notes"). The
Notes have been, and the Exchange Notes will be, issued under an Indenture dated
as of December 1, 1997 (the "Indenture") between the Company and PNC Bank,
National Association as Trustee (the "Trustee").
We have examined the Registration Statement and the Indenture which has
been filed with the Commission as an Exhibit to the Registration Statement. In
addition, we have examined, and have relied upon as to matters of fact, the
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we hereby confirm our opinion set forth in the Prospectus
included in the Registration Statement under the caption "Federal Income Tax
Consequences of Owning New Notes."
We are members of the Bar of the Commonwealth of Pennsylvania and we do not
express any opinion herein concerning any law other than the Federal law of the
United States.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the captions
"Federal Income Tax Consequences of Owning New Notes" and "Legal Matters" in the
prospectus included therein.
Very truly yours,
/s/ Dickie, McCamey & Chilcote, P.C.
DICKIE, McCAMEY & CHILCOTE, P.C.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Summary
Historical and Pro Forma Consolidated Financial Information", "Selected
Historical Consolidated Financial Information" and "Experts" and to the use of
our reports dated February 18, 1997 in the Registration Statement (Form S-4)
and the related Prospectus of Koppers Industries, Inc. for the registration of
the Senior Subordinated Notes.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 23, 1998
<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 August 25, 1997 in the Registration Statement
(Form S-4) and the related Prospectus of Koppers Industries, Inc. for the
registration of the Senior Subordinated Notes.
/s/ Ernst & Young
Sydney, Australia
January 23, 1998
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
KOPPERS INDUSTRIES, INC.
OFFER TO EXCHANGE ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE NOT BEEN SO
REGISTERED.
PURSUANT TO THE PROSPECTUS, DATED JANUARY 23, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
23, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PNC BANK, NATIONAL ASSOCIATION, EXCHANGE AGENT
By Mail: By Hand or Overnight By Facsimile:
PNC BANK, Courier: PNC BANK,
NATIONAL ASSOCIATION PNC BANK, NATIONAL
One Oliver Plaza, 27th Floor NATIONAL ASSOCIATION ASSOCIATION
Pittsburgh, PA 15222-2602 One Oliver Plaza, 27th Floor Fax (412) 762-8226
Attention: Fred J. Deramo Pittsburgh, PA 15222-2602 Attention: Fred
Attention: Fred J. Deramo Deramo
Confirm by
Telephone:
(412) 762-3666
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated January 23, 1998 (the "Prospectus"), of Koppers Industries,
Inc., a Pennsylvania corporation (the "Company"), and this Letter of
Transmittal (the "Letter") which together constitute the Company's offer (the
"Exchange Offer") to exchange up to $175,000,000 aggregate principal amount of
the Company's 9 7/8% Senior Subordinated Notes Due 2007 (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of the Company's issued and
outstanding 9 7/8% Senior Subordinated Notes Due 2007 (the "Old Notes"), which
have not been so registered.
For each Old Note accepted for exchange, the registered holder of such Old
Note (collectively with all other registered holders of Old Notes, the
"Holders") will receive a New Note having a principal amount equal to that of
the surrendered Old Note. Registered holders of New Notes on the relevant
record date for the first interest payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid
on the Old Notes, from December 1, 1997. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the
Exchange Offer. Accordingly, Holders whose Old Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date, the record date for which
occurs on or after consummation of the Exchange Offer.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the "Book-
Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus and an Agent's
Message (as defined herein) is not delivered. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-
Entry Confirmation") and all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Prospectus" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
THE UNDERSIGNED HAS COMPLETED THE APPROPRIATE BOXES BELOW AND SIGNED THIS
LETTER TO INDICATE THE ACTION THE UNDERSIGNED DESIRES TO TAKE WITH RESPECT TO
THE EXCHANGE OFFER.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the
Company. The undersigned hereby further represents that any New Notes acquired
in exchange for Old Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the undersigned, that neither the Holder of such Old Notes
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes and that neither the
Holder of such Old Notes nor any such other person is an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred
by a Holder thereof (other than a Holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in other circumstances. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of
New Notes. If any Holder is an affiliate of the Company, is engaged in or
intends to engage in, or has any arrangement or understanding with any person
to participate in, a distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder could not rely on the applicable
interpretations of the staff of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. However,
by so acknowledging and by delivering a prospectus, the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undesigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" herein, please issue the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit
2
<PAGE>
the account indicated above maintained at the Book-Entry Transfer Facility.
Similarly, unless otherwise indicated under the box entitled "Special Delivery
Instructions" herein, please send the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown in the box herein entitled
"Description of Old Notes Delivered."
THE UNDERSIGNED, BY COMPLETING THE BOX BELOW ENTITLED "DESCRIPTION OF OLD
NOTES DELIVERED" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED OLD NOTES AS SET FORTH IN SUCH BOX.
List below the Old Notes which this Letter relates. If the space provided
below is inadequate, the certificate numbers and the principal amount of Old
Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES DELIVERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S)
AND
ADDRESS
OF AGGREGATE PRINCIPAL
REGISTERED CERTIFICATE PRINCIPAL AMOUNT
HOLDER NUMBER(S)* AMOUNT TENDERED**
- --------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
TOTALS:
- --------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to
have tendered ALL of the Old Notes represented by the listed
certificates. See Instruction 2. Old Notes tendered hereby must be in
denominations of a principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Holder's Account Number: ___________ Transaction Code Number: _____________
By crediting Old Notes to the Exchange Agent's Account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer Facility's
Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP
procedures with respect to the Exchange Offer, including transmitting an
Agent's Message to the Exchange Agent in which the Holder of Old Notes
acknowledges and agrees to be bound by the terms of this Letter, the
participant in ATOP confirms on behalf of itself and the beneficial owners of
such Old Notes all provisions of this Letter applicable to it and such
beneficial owners as if it had completed the information required herein and
executed and transmitted this Letter to the Exchange Agent.
- -------------------------------------------------------------------------------
3
<PAGE>
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder: _________________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution Which Guaranteed Delivery: _____________________________
If Delivered by Book-Entry Transfer, Complete the Following: _______________
Holder's Account Number: ___________ Transaction Code Number: _____________
- -------------------------------------------------------------------------------
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL COPIES
OF THE PROSPECTUS AND ANY AMENDMENTS OR SUPPLEMENTS THERETO. (UNLESS
OTHERWISE SPECIFIED, 10 ADDITIONAL COPIES WILL BE FURNISHED.)
Name: ______________________________________________________________________
Address: ___________________________________________________________________
4
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be issued in the name of someone
other than the person or persons
whose signature(s) appear(s) on
this Letter below, or if Old Notes
delivered by book-entry transfer
which are not accepted for exchange
are to be returned by credit to an
account maintained at the Book-
Entry Transfer Facility other than
the Holder's account previously
indicated.
Issue New Notes and/or Old Notes to:
Name _______________________________
(Please Type or Print)
Address ____________________________
____________________________________
____________________________________
(ZIP CODE)
[_] Credit unexchanged Old Notes
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below.
____________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be sent to someone other than the
person or persons whose
signature(s) appear(s) on this
Letter below or to such person or
persons at an address other than
shown in the box entitled
"Description of Old Notes
Delivered" on this Letter above.
Mail New Notes and/or Old Notes to:
Name _______________________________
(Please Type or Print)
Address ____________________________
____________________________________
____________________________________
(ZIP CODE)
5
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
HEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX ABOVE
PLEASE SIGN HERE
(ALL TENDERING HOLDERS MUST COMPLETE THIS LETTER AND THE ACCOMPANYING
SUBSTITUTE FORM W-9)
X __________________________________ Date: ______________________________
X __________________________________ Date: ______________________________
Signature(s)
Area Code and Telephone Number: _________________________
If a Holder is tendering any Old Notes, this letter must be signed by the
Holder(s) as the name(s) appear(s) on the certificate(s) for the Old Notes
or by any person(s) authorized to become Holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name: _______________________________________________________________________
_____________________________________________________________________________
(Please Type or Print)
Capacity (full title): ______________________________________________________
Address: ____________________________________________________________________
Telephone: __________________________________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3)
_____________________________________________________________________________
(Signature(s) Guaranteed by an Eligible Institution)
_____________________________________________________________________________
(Authorized Signature)
_____________________________________________________________________________
(Title)
_____________________________________________________________________________
(Name and Firm)
Date: ________________________, 1998
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO
EXCHANGE THE 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007 OF
KOPPERS INDUSTRIES, INC., WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR THE OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007 OF KOPPERS INDUSTRIES, INC., WHICH HAVE NOT BEEN SO REGISTERED.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
letter is to be completed by Holders of Old Notes either if certificates are
to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus and an Agent's Message
is not delivered. Certificates for all physically tendered Old Notes, or a
Book-Entry Confirmation, as the case may be, as well as a properly completed
and duly executed Letter (or manually signed facsimile hereof) and any other
documents required by this Letter, must be received by the Exchange Agent at
the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of a principal
amount of $1,000 and any integral multiple thereof. The term "Agent's Message"
means a message, transmitted to the Book-Entry Transfer Facility and received
by the Exchange Agent and forming a part of the Book-Entry Confirmation, which
states that the Book-Entry Transfer Facility has received an express
acknowledgement from the tendering Participant that such Participant has
received and agrees to be bound by this Letter and that the Company may
enforce this Letter against such Participant.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) on or prior to 5:00 p.m., New York City time, on the
Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter (or a facsimile
thereof or Agent's Message in lieu thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and all
other documents required by this Letter, are deposited by the Eligible
Institution within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be by registered mail, properly insured, with return receipt
requested, and made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m. New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering Holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the prior box
entitled "Description of Old Notes Delivered--Principal Amount Tendered." A
reissued certificate representing the balance of nontendered Old Notes will be
sent to such tendering Holder, unless otherwise provided in the appropriate
box of this Letter,
7
<PAGE>
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE OF
SIGNATURES. If this Letter is signed by the Holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the Holder or Holders of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
Holder, then endorsements of any certificates transmitted hereby or separate
bond powers are required. Signatures on such certificate(s) must be guaranteed
by an Eligible Institution.
If this Letter is signed by a person other than the Holder or Holders of any
certificate(s) specified herein, such certificate(s) must be endorsed
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the Holder or Holders appear(s) on the certificate(s) and
signatures on such certificate(s) must be guaranteed by an Eligible
Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FINANCIAL INSTITUTION
(INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE HOUSES)
THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE
NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK EXCHANGES
MEDALLION PROGRAM (EACH, AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN
THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY
POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE
BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this Letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Holders tendering Old Notes by book-
entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such Holder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
8
<PAGE>
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not
exchanged are to be delivered to, or are to be registered or issued in the
name of, any person other than the Holder of the Old Notes tendered hereby, or
if tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed to such
tendering Holder and the Exchange Agent will retain possession of an amount of
New Notes with a face amount equal to the amount of such transfer taxes due by
such tendering Holder pending receipt by the Exchange Agent of the amount of
such taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering Holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Although the Company intends to notify Holders of defects or irregularities
with respect to tenders of Old Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
9. WITHDRAWAL OF TENDERS. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
be signed by the Holder in the same manner as the original signature on this
Letter (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee under the Indenture
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Notes that have been tendered for exchange but which are not exchanged
for any reason will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following the procedures described above at any time on or prior
to 5:00 p.m., New York City time, on the Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at (412) 762-3666.
9
<PAGE>
11. INCORPORATION OF LETTER OF TRANSMITTAL. This Letter shall be deemed to
be incorporated in and acknowledged and accepted by any tender through the
Book-Entry Transfer Facility's ATOP procedures by any Participant on behalf of
itself and the beneficial owners of any Old Notes so tendered.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of New Notes is required to
provide the Company (as payor) with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 or otherwise establish a
basis for exemption from backup withholding to prevent backup withholding on
any New Notes delivered pursuant to the Exchange Offer and any payments
received in respect of the New Notes. If a holder of New Notes is an
individual, the TIN is such holder's social security number. If the Company is
not provided with the correct taxpayer identification number, a holder of New
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service.
Accordingly, each prospective holder of New Notes to be issued pursuant to
Special Issuance Instructions should complete the attached Substitute Form W-
9. The Substitute Form W-9 need not be completed if the box entitled "Special
Issuance Instructions" has not been completed.
Certain holders of New Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should
indicate their exempt status on Substitute Form W-9. A foreign individual may
qualify as an exempt recipient by submitting to the Company, through the
Exchange Agent, a properly completed Internal Revenue Service Form W-8 (which
the Exchange Agent will provide upon request) signed under penalty of perjury,
attesting to the holder's exempt status. See the Enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income 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 from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on any New Notes delivered pursuant to the
Exchange Offer and any payments received in respect of the New Notes, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should provide the Company, through the Exchange Agent, with
either: (i) such prospective holder's correct TIN by completing the form
below, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such prospective holder is awaiting a TIN) and that (A) such prospective
holder has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of a failure to report all interest
or dividends or (B) the Internal Revenue Service has notified such prospective
holder that he or she is no longer subject to backup withholding; or (ii) an
adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE IMPORTANT TAX INFORMATION)
PAYOR'S NAME: PNC BANK, NATIONAL ASSOCIATION
SUBSTITUTE PART I--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT OR
INDICATE THAT YOU APPLIED FOR
A TIN AND CERTIFY BY SIGNING
AND DATING BELOW.
FORM W-9 TIN:--------------
DEPARTMENT Social Security
OF THE TREASURY Number or
INTERNAL Employer
REVENUE SERVICE Identification
Number
PAYOR'S REQUEST FOR TAXPAYER TIN Applied
for [_]
PART II--CERTIFICATION--UNDER PENALTIES OF
PERJURY, I CERTIFY THAT:
IDENTIFICATION NUMBER ("TIN")
AND CERTIFICATION
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued to me);
-----------------------------------------------------
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup
withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding;
and
(3) any other information provided on this form is
true and correct.
-----------------------------------------------------
You must cross out item (2) of the above
certification if you have been notified by the IRS
that you are subject to backup withholding because
of underreporting of interest or dividends on your
tax return and you have not been notified by the
IRS that you are no longer subject to backup
withholding.
Signature: ________________ Date: ________________
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
NOTE: FAILURE BY A PROSPECTIVE HOLDER OF NEW NOTES TO BE ISSUED PURSUANT TO
THE SPECIAL ISSUANCE INSTRUCTIONS ABOVE TO COMPLETE AND RETURN THIS FORM
MAY RESULT IN BACKUP WITHHOLDING OF 31% OF THE NEW NOTES DELIVERED TO
YOU PURSUANT TO THE EXCHANGE OFFER AND ANY PAYMENTS RECEIVED BY YOU IN
RESPECT OF THE NEW NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II
OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
or (b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by
the time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
------------------------------------- -----------------------------------
Signature Date
11
<PAGE>
NOTICE OF GUARANTEED DELIVERY
KOPPERS INDUSTRIES, INC.
OFFER TO EXCHANGE ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE NOT BEEN SO
REGISTERED.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
FEBRUARY 23, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
As set forth in the Prospectus dated January 23, 1998 (the "Prospectus")
under the caption "The Exchange Offer--Guaranteed Delivery" and the
accompanying Letter of Transmittal (the "Letter of Transmittal") and
Instruction 1 thereto, this form, or one substantially equivalent hereto, must
be used to accept the Exchange Offer if certificates representing the 9 7/8%
Senior Subordinated Notes due 2007 (the "Old Notes") of Koppers Industries,
Inc., a Pennsylvania corporation (the "Company"), are not immediately
available or if the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit a Holder's certificates or other required
documents to reach the Exchange Agent on or prior to the Expiration Date. Such
form may be delivered by hand or transmitted by telegram, telex, facsimile
transmission or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution unless such form is submitted on behalf of an Eligible
Institution. Capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Prospectus.
The Exchange Agent is
PNC BANK, NATIONAL ASSOCIATION
By Mail: By Hand or Overnight Courier:
PNC Bank, National Association PNC Bank, National Association
One Oliver Plaza One Oliver Plaza
27th Floor 27th Floor
Pittsburgh, Pennsylvania 15222-2602 Pittsburgh, Pennsylvania 15222-2602
Attention: Fred J. Deramo Attention: Fred J. Deramo
Facsimile Transmission Number: Confirm by Telephone:
(412) 762-8226 (412) 762-3666
Attention: Fred Deramo
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION VIA A FACSIMILE
NUMBER OTHER THAN THE ONES LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
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Ladies & Gentlemen:
Upon the terms and subject to the conditions set forth in the Prospectus and
accompanying Letter of Transmittal, receipt of which is hereby acknowledged,
the undersigned hereby tenders to Koppers Industries, Inc., a Pennsylvania
corporation (the "Company"), $ principal amount of Old Notes, pursuant
to the guaranteed delivery procedures set forth in the Prospectus and
accompanying Letter or Transmittal.
CERTIFICATE NUMBERS OF OLD NOTES PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE) ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________
If Old Notes will be tendered by book-entry transfer to The Depository Trust
Company, provide account number:
Account No.
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The undersigned authorizes the Exchange Agent to deliver this Notice of
Guaranteed Delivery to the Company and PNC Bank, National Association with
respect to the Old Notes tendered pursuant to the Exchange Offer.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
SIGN HERE
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SIGNATURE(S) OF REGISTERED HOLDER(S) OR
AUTHORIZED SIGNATORY
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NAME(S) OF REGISTERED HOLDERS
(PLEASE TYPE OR PRINT)
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ADDRESS
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ZIP CODE
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AREA CODE AND TELEPHONE NUMBER
Dated:
-------------------------------------------------------------------- ,1998
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GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States,
hereby (a) represents that the above-named person(s) has a net long position
in the Old Notes tendered hereby within the meaning of Rule 14e-4 under the
Securities Exchange Act of 1934, as amended, (b) represents that such tender
of Old Notes complies with Rule 14e-4 and (c) guarantees delivery to the
Exchange Agent of certificates representing the Old Notes tendered hereby,
in proper form for transfer, or confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at a Book-Entry Transfer
Facility (as defined in the Prospectus), in each case together with a
properly completed and duly executed Letter of Transmittal with any required
signature guarantees and any other documents required by the Letter of
Transmittal, within three New York Stock Exchange trading days after the
date hereof.
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Name of Firm Title
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Authorized Signature Name (Please Type or Print)
------------------------------------ Dated:
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, 1998
Address
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Area Code and Telephone Number
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OLD NOTES WITH THIS FORM.
CERTIFICATES FOR OLD NOTES MUST BE SENT WITH YOUR LETTER OF TRANSMITTAL.
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