Filed Pursuant to Rule 424(b)(3)
Registration No. 333-150909
(TENNECO COMPANY)
TENNECO INC.
OFFER TO EXCHANGE
ALL OUTSTANDING $250,000,000 PRINCIPAL AMOUNT OF
8 1/8% SENIOR NOTES DUE 2015 ISSUED NOVEMBER 20, 2007
FOR $250,000,000 PRINCIPAL AMOUNT OF
8 1/8% SENIOR NOTES DUE 2015 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
PRINCIPAL TERMS OF THE EXCHANGE OFFER:
- We will exchange all old 8 1/8% senior notes due 2015 that were issued on
November 20, 2007 in a private offering that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that have
been registered.
- The exchange offer expires at 5:00 p.m., New York City time, on June 30, 2008,
unless we extend the offer. You may withdraw tenders of old notes at any time
prior to the expiration of the exchange offer.
- The exchange offer is not subject to any condition other than that it will not
violate applicable law or interpretations of the staff of the Securities and
Exchange Commission and that no proceedings with respect to the exchange offer
have been instituted or threatened in any court or by any governmental agency.
PRINCIPAL TERMS OF THE EXCHANGE NOTES:
- The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the old notes, except that the exchange notes will
be freely tradeable by persons who are not affiliated with us and will not
have registration rights.
- No public market currently exists for the old notes. We do not intend to list
the exchange notes on any securities exchange and, therefore, no active public
market is anticipated.
- The exchange notes will be jointly and severally guaranteed by all of our
domestic subsidiaries that guarantee the old notes.
- The exchange notes and the guarantees thereof will rank:
- equal in right of payment with all of our and our subsidiary guarantors'
other existing and future senior debt; and
- senior in right of payment to all of our and our subsidiary guarantors'
existing and future subordinated debt.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This date of this prospectus is June 2, 2008.
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
Risk Factors................................................ 11
Forward-Looking Statements.................................. 24
Use of Proceeds............................................. 25
The Exchange Offer.......................................... 26
Description of the Notes.................................... 36
Registration Rights......................................... 75
Book-Entry; Delivery and Form............................... 76
Certain United States Federal Income Tax Considerations..... 78
Plan of Distribution........................................ 81
Legal Matters............................................... 82
Experts..................................................... 82
Where you can Find More Information......................... 82
Incorporation by Reference.................................. 83
Tenneco Inc. is a Delaware corporation. Our principal executive offices are
located at 500 North Field Drive, Lake Forest, Illinois 60045 and our telephone
number at that address is (847) 482-5000. Our web site is located at
http://www.tenneco.com. The information on our web site is not part of this
prospectus.
-----------------
Monroe(R), Rancho(R), Fric Rot(TM), Clevite(R) Elastomers, Walker(R),
Gillet(TM), Quiet-Flow(R), Walker Ultra(TM), DynoMax(R), Sensa-Trac(R), Monroe
Reflex(R), Monroe(R) Dynamics and Ceramics, Thrush(R) and Armstrong(TM) are some
of our primary trademarks. All other trademarks, service marks or trade names
referred to in this prospectus are the property of their respective owners.
-----------------
You should rely only on the information contained in this prospectus. We
have not authorized any person to provide you with any information or represent
anything about us or this exchange offer that is not contained in this
prospectus. If given or made, any such other information or representation
should not be relied upon as having been authorized by us. We are not making an
offer of these securities in any state or other jurisdiction where the offer is
not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date printed on the front
of this prospectus.
Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal
accompanying this prospectus 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 outstanding old
notes where such outstanding old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. We have agreed
that, for a period of not less than 180 days after the expiration of this
exchange offer, we will make this prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
i
Industry and market data and other statistical information used throughout
this prospectus were obtained through company research, surveys and studies
conducted by third parties and industry and general publications. We have not
independently verified market and industry data from third-party sources. Some
data are also based on our good faith estimates, which are derived from our
review of internal surveys, as well as the independent sources described above.
While we believe internal company survey data are reliable and market
definitions are appropriate, neither these surveys nor these definitions have
been verified by any independent sources.
-----------------
This prospectus incorporates by reference important business and financial
information about us which is not included in or delivered with this prospectus.
See "Where you can Find More Information" and "Incorporation by Reference." This
information, excluding exhibits to the information unless the exhibits are
specifically incorporated by reference into the information, is available
without charge to any holder or beneficial owner of old notes upon written or
oral request to David A. Wardell, Senior Vice President, General Counsel and
Corporate Secretary, 500 North Field Drive, Lake Forest, Illinois 60045,
telephone number (847) 482-5000. To obtain timely delivery of this information,
you must request this information no later than five (5) business days before
the expiration of the exchange offer. Therefore, you must request information on
or before June 23, 2008.
ii
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. Because this is only a summary, it may not contain all of the
information you should consider in making your decision of whether to
participate in the exchange offer. To understand all of the terms of this
exchange offer and for a more complete understanding of our business, you should
carefully read this entire prospectus, particularly the section entitled "Risk
Factors," and the documents incorporated by reference in this prospectus. In
this prospectus, except as set forth under "Description of the Notes" and
"Certain United States Federal Income Tax Considerations," the words "we," "our"
and "us" refer to Tenneco Inc. and its subsidiaries. In this prospectus, we use
the term old notes to refer to the $250 million 8 1/8% Senior Notes due 2015
that were issued on November 20, 2007 in a private offering. The term exchange
notes refers to the 8 1/8% Senior Notes due 2015 offered in the exchange offer
described in this prospectus, and we use the term notes to refer to the old
notes and the exchange notes, collectively. Some of the statements contained in
this "Prospectus Summary" are forward-looking statements. See "Forward-Looking
Statements."
THE COMPANY
Tenneco Inc. is one of the world's largest producers of automotive emission
control and ride control products and systems. We serve both original equipment
manufacturers ("OEMs") and replacement markets worldwide through leading brands,
including Monroe(R), Rancho(R), Clevite(R) Elastomers, and Fric Rot(TM) ride
control products and Walker(R), Fonos(TM), and Gillet(TM) emission control
products. For 2007, we generated net sales of approximately $6,184 million. (See
"-- Selected Consolidated Financial Data.")
As an automotive parts supplier, we produce individual component parts for
vehicles as well as groups of components that are combined as modules or systems
within vehicles. These parts, modules and systems are sold globally to most
leading OEMs and throughout all aftermarket distribution channels. During 2007,
we operated more than 80 manufacturing facilities and 15 engineering and
technical centers around the world, and sold and distributed our products to
customers located in more than 100 countries. For 2007, we generated
approximately 53 percent of our net sales outside of North America, including in
expanding markets such as China and Eastern Europe.
We manufacture and sell emission control components, such as mufflers,
catalytic converter shells, fabricated manifolds, pipes, exhaust heat
exchangers, diesel particulate filters and complete exhaust systems. These
products play a critical role in reducing the level of pollutants in engine
emission and managing engine exhaust noise. Emission control products accounted
for 70 percent of our net sales for 2007. We also manufacture and sell ride
control products, such as shock absorbers, struts, vibration control components
and suspension systems. These products are designed to function as safety
components for vehicles, provide a comfortable ride and improve vehicle
stability and handling. Ride control products accounted for 30 percent of our
net sales for 2007.
We have developed long-standing business relationships with our customers
around the world. In each of our operating segments, we work together with our
customers in all stages of production, including design, development, component
sourcing, quality assurance, manufacturing and delivery. With a balanced mix of
OE and aftermarket products and facilities in major markets worldwide, we
believe we are well-positioned to meet customer needs. We believe we have a
strong, established reputation with customers for providing high-quality
products at competitive prices, as well as for timely delivery and customer
service.
1
SUMMARY OF THE EXCHANGE OFFER
On November 20, 2007, we completed the private offering of $250 million of
our 8 1/8% Senior Notes due 2015. In connection with that private offering we
entered into a registration rights agreement with the initial purchasers of the
old notes. In that agreement, we agreed, among other things, to deliver to you
this prospectus for the exchange of up to $250 million of new 8 1/8% Senior
Notes that have been registered under the Securities Act for up to $250 million
aggregate principal amount of the old 8 1/8% Senior Notes that were issued on
November 20, 2007. The exchange notes will be substantially identical to the old
notes, except that:
- the exchange notes have been registered under the Securities Act and will
be freely tradable by persons who are not affiliated with us;
- the exchange notes are not entitled to the rights that are applicable to
the old notes under the registration rights agreement; and
- our obligation to pay additional interest on the old notes does not apply
if the registration statement of which this prospectus forms a part is
declared effective or certain other circumstances occur, as described
under the heading "Registration Rights."
Old notes may be exchanged only in integral multiples of $1,000. You should
read the discussion under the headings "Summary -- The Exchange Notes" and
"Description of the Notes" for further information regarding the exchange notes.
You should also read the discussion under the heading "The Exchange Offer" for
further information regarding the exchange offer and resale of the exchange
notes.
Exchange offer........... We will exchange our exchange notes for a like
aggregate principal amount and maturity of our old
notes as provided in the registration rights
agreement related to the old notes. The exchange
offer is intended to satisfy the rights granted to
holders of the old notes in that agreement. After the
exchange offer is complete you will no longer be
entitled to any exchange or registration rights with
respect to your notes.
Resales.................. Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, we believe that the exchange notes may
be offered for resale, resold and otherwise
transferred by you (unless you are our "affiliate"
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 you:
- are acquiring the exchange notes in the ordinary
course of business, and
- have not engaged in, do not intend to engage in,
and have no arrangement or understanding with any
person to participate in, a distribution of the
exchange notes.
By signing the letter of transmittal and exchanging
your original notes for exchange notes, as described
below, you will be making representations to this
effect.
Each participating broker-dealer that receives
exchange notes for its own account pursuant to the
exchange offer in exchange for the old notes that
were acquired as a result of market-making or other
trading activity must acknowledge that it will
deliver a prospectus in connection with any resale of
the exchange notes. See "Plan of Distribution."
Any holder of old notes who:
2
- is our affiliate,
- does not acquire the exchange notes in the ordinary
course of its business, or
- cannot rely on the position of the staff of the
Commission expressed in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated or
similar no-action letters, must, in the absence of
an exemption, comply with registration and
prospectus delivery requirements of the Securities
Act in connection with the resale of the exchange
notes. We will not assume, nor will we indemnify
you against, any liability you may incur under the
Securities Act or state or local securities laws if
you transfer any exchange notes issued to you in
the exchange offer absent compliance with the
applicable registration and prospectus delivery
requirements or an applicable exemption.
Expiration time.......... The exchange offer will expire at 5:00 p.m., New York
City time, on June 30, 2008, or such later date and
time to which we extend it. We do not currently
intend to extend the expiration time.
Conditions to the
exchange offer........... The exchange offer is subject to the following
conditions, which we may waive:
- the exchange offer does not violate applicable law
or applicable interpretations of the staff of the
Commission; and
- there is no action or proceeding instituted or
threatened in any court or by any governmental
agency with respect to this exchange offer.
Please refer to the section in this prospectus
entitled "The Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for tendering
the Notes................ If you wish to accept and participate in this
exchange offer, you must complete, sign and date the
accompanying letter of transmittal, or a copy of the
letter of transmittal, according to the instructions
contained in this prospectus and the letter of
transmittal. You must also mail or otherwise deliver
the completed, executed letter of transmittal or the
copy thereof, together with the old notes and any
other required documents, to the exchange agent at
the address set forth on the cover of the letter of
transmittal. If you hold old notes through The
Depository Trust Company and wish to participate in
the exchange offer, you must comply with the
Automated Tender Offer Program procedures of DTC, by
which you will agree to be bound by the letter of
transmittal.
By signing or agreeing to be bound by the letter of
transmittal, you will represent to us that, among
other things:
- any exchange notes that you receive will be
acquired in the ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in the distribution
of the exchange notes;
- if you are a broker-dealer that will receive
exchange notes for your own account in exchange for
old notes that were acquired as a result of market-
making activities, that you will deliver a
3
prospectus, as required by law, in connection with
any resale of the exchange notes; and
- you are not our "affiliate" as defined in Rule 405
under the Securities Act.
Guaranteed delivery
procedures............... If you wish to tender your old notes and your old
notes are not immediately available or you cannot
deliver your old notes, the letter of transmittal or
any other documents required by the letter of
transmittal or comply with the applicable procedures
under DTC's Automated Tender Offer Program prior to
the expiration time, you must tender your old notes
according to the guaranteed delivery procedures set
forth in this prospectus under ''The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal of tenders.... A tender of old notes pursuant to the exchange offer
may be withdrawn at any time prior to the expiration
time. To withdraw, you must send a written or
facsimile transmission notice of withdrawal to the
exchange agent at its address indicated under "The
Exchange Offer -- Exchange Agent" before 5:00 p.m.,
New York City time, on the expiration date of the
exchange offer.
Acceptance of old notes
and delivery of exchange
delivery of exchange
notes.................... If all the conditions to the completion of this
exchange offer are satisfied, we will accept any and
all old notes that are properly tendered in this
exchange offer and not properly withdrawn on or
before 5:00 p.m., New York City time, on the
expiration date. We will return any old note that we
do not accept for exchange to its registered holder
at our expense as promptly as practicable after the
expiration date. We will deliver the exchange notes
to the registered holders of old notes accepted for
exchange as promptly as practicable after the
expiration date and acceptance of such old notes.
Please refer to the section in this prospectus
entitled "The Exchange Offer -- Acceptance of Old
Notes for Exchange and Delivery of Exchange Notes."
Effect on holder of old
Notes.................... As a result of making, and upon acceptance for
exchange of all validly tendered old notes pursuant
to the terms of, the exchange offer, we will have
fulfilled a covenant contained in the registration
rights agreement. If you are a holder of old notes
and do not tender your old notes in the exchange
offer, you will continue to hold your old notes and
you will be entitled to all the rights and
limitations applicable to the old notes in the
indenture, except for any rights under the
registration rights agreement that by their terms
terminate upon the consummation of the exchange
offer.
Accrued interest on the
exchange notes and the
old notes................ Each exchange note will bear interest from May 15,
2008. The holders of old notes that are accepted for
exchange will be deemed to have waived the right to
receive payment of accrued interest on those old
notes from May 15, 2008 to the date of issuance of
the exchange notes. Interest on the old notes
accepted for exchange will cease to accrue upon
issuance of the exchange notes.
Consequently, if you exchange your old notes for
exchange notes, you will receive the same interest
payment on November 15, 2008
4
that you would have received if you had not accepted
this exchange offer.
Consequences of failure
to exchange.............. All untendered old notes will continue to be subject
to the restrictions on transfer provided for in the
old notes and in the indenture. In general, the old
notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to,
the Securities Act and applicable state or local
securities laws. Other than in connection with the
exchange offer, we do not currently anticipate that
we will register the old notes under the Securities
Act. The trading market for your old notes will
become more limited to the extent that other holders
of old notes participate in the exchange offer.
U.S. federal income tax
considerations........... The exchange of old notes for exchange notes in the
exchange offer should not be a taxable event for
United States federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Exchange agent........... Wells Fargo Bank, N.A. is the exchange agent for the
exchange offer. The address and telephone number of
the exchange agent are set forth in the section
captioned "The Exchange Offer -- Exchange Agent."
Shelf registration
statement................ We have agreed to register the old notes in a shelf
registration statement and use our best efforts to
cause the shelf registration statement to be declared
effective by the Commission if:
- we determine that any changes in law or of the
applicable interpretations of the staff of the
Commission do not permit us to effect this exchange
offer or may prevent us from completing the
exchange offer as soon as practicable;
- we do not complete the exchange offer on or before
June 17, 2008; or
- any of the initial purchasers of the old notes that
holds old notes that have the status of an unsold
allotment in an initial distribution requests us to
do so in writing on or prior to the 60th day after
the consummation of the exchange offer.
We have agreed to maintain the effectiveness of the
shelf registration statement for, in some
circumstances, up to two years from the date of the
original issuance of the old notes to cover resales
of the old notes held by the holders. See "The
Exchange Offer -- Purpose and Effect of the Exchange
Offer."
5
THE EXCHANGE NOTES
The following summary contains basic information about the exchange notes
and is not intended to be complete. It may not contain all of the information
that is important to you. For a more complete description of the terms of the
notes, see "Description of the Notes."
Issuer................... Tenneco Inc.
General.................. The form and terms of the exchange notes are
identical in all material respects to the form and
terms of the old notes except that:
- the exchange notes will bear a "Series B"
designation to differentiate them from the old notes,
which bear a "Series A" designation;
- the exchange notes have been registered under the
Securities Act and, therefore, will not bear legends
restricting their transfer; and
- the holders of exchange notes will not be entitled
to rights under the registration rights agreement,
including any registration rights or rights to
additional interest.
The exchange notes will evidence the same debt as the
old notes and will be entitled to the benefits of the
indenture under which the old notes were issued.
Securities offered....... $250 million aggregate principal amount of 8 1/8
percent Senior Notes due 2015, Series B
Maturity................. November 15, 2015.
Interest rate............ Annual rate: 8 1/8 percent
Payment frequency: every six months on May 15 and
November 15.
First payment: November 15, 2008.
Interest payments on the
exchange notes........... Holders of old notes whose old notes are accepted for
exchange in the exchange offer will be deemed to have
waived the right to receive any payment in respect of
interest on the old notes accrued from November 20,
2007 to the date of issuance of the exchange notes.
Consequently, holders who exchange their old notes
for exchange notes will receive the same interest
payment on November 15, 2008 (the next interest
payment date with respect to the old notes and the
first interest payment date with respect to the
exchange notes following consummation of the exchange
offer) that they would have received if they had not
accepted the exchange offer.
Guarantees............... Each of our material domestic wholly owned
subsidiaries that guarantees our senior credit
facility and the old notes will also unconditionally
guarantee the exchange notes on a senior basis.
Subject to limited exceptions, future domestic
subsidiaries will also be required to guarantee the
exchange notes in certain circumstances, including if
they also guarantee our senior credit facility.
Ranking.................. The exchange notes, like the old notes, will be
general senior obligations and will rank equal in
right of payment with all other of our and our
subsidiary guarantors' existing and future senior
indebtedness and senior in right of payment to all of
our existing
6
and our subsidiary guarantors' future subordinated
indebtedness. The exchange notes will not be secured
by any of our assets. Accordingly, the exchange notes
will be effectively junior in right of payment to all
of our and our subsidiary guarantors' existing and
future senior secured debt to the extent of the value
of the collateral securing such indebtedness. The
exchange notes will also be effectively junior in
right of payment to all existing and future
liabilities, including trade payables, of our foreign
subsidiaries, which will not guarantee the exchange
notes, and of those of our domestic subsidiaries that
do not guarantee the exchange notes. (See
"Description of the Notes -- Brief Description of the
Notes and Guarantees -- The Guarantees").
As of December 31, 2007, we had:
- $564 million of other senior indebtedness,
including $319 million of loans outstanding under
our senior credit facility, which is secured and
guaranteed on a senior secured basis by our
material domestic wholly-owned subsidiaries and
$245 million aggregate principal amount of senior
secured notes, all of which would have been
effectively senior in right of payment to the old
notes and exchange notes to the extent of the value
of the collateral securing such indebtedness;
- $480 million of unused capacity under the revolving
credit facility and the tranche B-1 letter of
credit/revolving loan facility and $31 million in
outstanding letters of credit under the revolving
credit facility, all of which is secured and
guaranteed on a senior secured basis by our
material domestic wholly-owned subsidiaries and all
of which, if drawn, would have been effectively
senior in right of payment to the old notes and
exchange notes to the extent of the value of the
collateral securing such indebtedness;
- $500 million senior subordinated notes, all of
which would have been junior in right of payment to
the old notes and exchange notes; and
- $250 million aggregate principal amount of old
notes.
As of December 31, 2007, our non-guarantor
subsidiaries had $1,151 million of liabilities on
their balance sheets.
Optional redemption...... We may redeem some or all of the notes at any time on
or after November 15, 2011 at specified redemption
prices. We also may redeem up to 35 percent of the
aggregate principal amount of the exchange notes
using the proceeds of certain equity offerings
completed on or before November 15, 2010. We may also
redeem the exchange notes, in whole or in part, at
any time prior to November 15, 2011 at a price equal
to 100% of the principal amount thereof plus the
Applicable Premium. The redemption prices and the
calculation of the Applicable Premium are described
under ''Description of the Notes -- Redemption."
Change of control and
asset sales.............. If we experience specific kinds of changes of control
or we sell assets under certain circumstances, we
will be required to make an offer to repurchase the
exchange notes at 101% of their principal
7
amount, plus accrued and unpaid interest, if any, to
the repurchase date. See "Description of the
Notes -- Change of Control."
Restrictive covenants.... We will issue the exchange notes under the indenture
dated November 20, 2007 with Wells Fargo Bank, N.A.,
as trustee. The indenture, among other things,
restricts our ability and the ability of our
restricted subsidiaries to:
- incur additional indebtedness or contingent
obligations;
- pay dividends or make distributions to our
stockholders;
- repurchase or redeem equity interests;
- make investments;
- grant liens;
- make capital expenditures;
- enter into transactions with our shareholders and
affiliates;
- sell assets; and
- acquire the assets of, or merge or consolidate
with, other companies.
These covenants are subject to important exceptions
and qualifications that are described in "Description
of the Notes."
Investing in the exchange notes and participating in the exchange offer
involve substantial risks. See "Risk Factors" beginning on page 11 for a
discussion of certain risks relating to us, our business and an investment in
the exchange notes that you should carefully consider before participating in
the exchange offer.
8
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data.
Our selected consolidated financial data as of and for the years ended December
31, 2007, 2006, 2005, 2004 and 2003 have been derived from our audited
consolidated financial statements. Our selected consolidated financial data as
of and for the three month periods ended March 31, 2008 and 2007 have been
derived from our unaudited consolidated financial statements. In the opinion of
management, our selected consolidated financial data as of and for the three
month periods ended March 31, 2008 and 2007 contain all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods and dates
presented. You should not regard the results of operations for the three months
ended March 31, 2008 as indicative of the results that may be expected for the
full year or any other future period. You should read the following financial
information along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes, which are included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 and our Quarterly Report on Form 10-Q
for the three months ended March 31, 2008, incorporated by reference in this
prospectus.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------------------------
2008 2007 2007 2006(A) 2005(A) 2004(A)(B)(D) 2003(B)(C)(D)
----------- ----------- ----------- ----------- ----------- ------------- -------------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENTS OF INCOME
(LOSS) DATA:
Net sales and operating
revenues -- North
America................ 685 645 $ 2,910 $ 1,963 $ 2,033 $ 1,966 $ 1,889
Europe, South America
and India........... 803 743 3,135 2,387 2,110 1,940 1,611
Asia Pacific........... 145 116 560 436 371 380 322
Intergroup sales....... (73) (104) (421) (104) (74) (73) (54)
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,560 $ 1,400 $ 6,184 $ 4,682 $ 4,440 $ 4,213 $ 3,768
=========== =========== =========== =========== =========== =========== ===========
Income before interest
expense, income taxes,
and minority
interest --
North America.......... 9 30 $ 120 $ 103 $ 148 $ 131 $ 128
Europe, South America
and India........... 25 13 99 81 53 19 20
Asia Pacific........... 5 6 33 12 16 20 23
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total............... $ 39 $ 49 $ 252 $ 196 $ 217 $ 170 $ 171
Interest expense (net of
interest capitalized).. 25 40 164 136 133 178 146
Income tax expense
(benefit).............. 5 2 83 5 26 (21) (6)
Minority interest........ 3 2 10 6 2 4 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ 6 $ 5 $ (5) $ 49 $ 56 $ 9 $ 25
Average number of shares
of common stock
outstanding
Basic.................. 46,253,272 45,425,823 45,809,730 44,625,220 43,088,558 41,534,810 40,426,136
Diluted................ 47,737,835 47,320,779 45,809,730 46,755,573 45,321,225 44,180,460 41,767,959
Basic earnings (loss) per
share of common stock.. $ 0.14 $ 0.11 $ (0.11) $ 1.11 $ 1.30 $ 0.22 $ 0.60
=========== =========== =========== =========== =========== =========== ===========
Diluted earnings (loss)
per share of common
stock.................. $ 0.13 $ 0.11 $ (0.11) $ 1.05 $ 1.24 $ 0.21 $ 0.58
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
9
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------ ----------------------------------------------------------
2008 2007 2007 2006(A) 2005(A) 2004(A)(B)(D) 2003(B)(C)(D)
----- ---- ------ ------- ------- ------------- -------------
(MILLIONS EXCEPT RATIO AND PERCENT AMOUNTS)
BALANCE SHEET DATA:
Total assets....................... 3,773 $3,590 $3,274 $2,945 $3,134 $2,883
Short-term debt.................... 44 46 28 22 19 20
Long-term debt..................... 1,419 1,328 1,357 1,361 1,402 1,410
Minority interest.................. 34 31 28 24 24 23
Shareholders' equity............... 464 400 226 137 170 81
Book Value per Average Basic Share
Outstanding..................... 10.03 8.73 5.06 3.18 4.09 2.00
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by
operating activities............ (67) (93) $ 165 $ 203 $ 123 $ 218 $ 290
Net cash used by investing
activities...................... (67) (45) (202) (172) (164) (131) (134)
Net cash provided (used) by
financing activities............ 87 69 (17) 12 (28) (15) (51)
Cash Payments for plant, property
and equipment................... (63) (39) (177) (177) (140) (132) (130)
OTHER DATA:
Ratio of earnings to fixed
charges(e)...................... 1.35 1.18 1.46 1.35 1.55 0.95 1.15
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NOTE: Our consolidated financial statements for the three years ended December
31, 2007, which are discussed in the following notes, are included in our
Annual Report on Form 10-K under Item 8, incorporated by reference in
this prospectus.
(a) These amounts reflect the restatement discussed in Note 4 to the
consolidated financial statements of Tenneco Inc. and Consolidated
Subsidiaries included in item 8 -- Financial Statements and Supplementary
Data of our Annual Report on Form 10-K, which is incorporated by reference
in this prospectus.
For a discussion of the significant items affecting comparability of the
financial information for the years ended 2007, 2006 and 2005, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K, which is incorporated by
reference in this prospectus.
(b) Prior to the first quarter of 2005, inventories in the U.S. based
operations (17 percent and 19 percent of our total consolidated inventories
at December 31, 2004 and 2003, respectively) were valued using the last-in,
first-out ("LIFO") method and all other inventories were valued using the
first-in, first-out ("FIFO") or average cost methods at the lower of cost
or market value. Effective January 1, 2005, we changed our accounting
method for valuing inventory for our U.S. based operations from the LIFO
method to the FIFO method. As a result, all U.S. inventories are now stated
at the lower of cost, determined on a FIFO basis, or market. We elected to
change to the FIFO method as we believe it is preferable for the following
reasons: 1) the change will provide better matching of revenue and
expenditures and 2) the change will achieve greater consistency in valuing
our global inventory. Additionally, we initially adopted LIFO as it
provided certain U.S. tax benefits which we no longer realize due to our
U.S. net operating losses (when applied for tax purposes, tax laws require
that LIFO be applied for accounting principles generally accepted in the
United States of America ("GAAP") as well). As a result of the change, we
also expect to realize administrative efficiencies. In accordance with
GAAP, the change in inventory accounting has been applied by restating
prior years' consolidated financial statements. The effect of the change on
our financial position and results of operations are presented below.
(c) Similar correcting entries have been made to the 2003 amounts for the
restatement discussed in Note 4 to the consolidated financial statements of
Tenneco Inc. and Consolidated Subsidiaries included in Item 8 -- Financial
Statements and Supplementary Data of our Annual Report on Form 10-K, which
is incorporated by reference in this prospectus.
AS OF DECEMBER 31,
---------------------
2004 2003
----- ------
(MILLIONS EXCEPT PER
SHARE AMOUNTS)
Inventories......................................... $ 14 $ 11
Deferred income tax assets (noncurrent)............. $ (5) $ (4)
Shareholders' equity................................ $ 9 $ 7
Income (loss) before interest expenses, income taxes
and minority interest............................. $ 3 $ (2)
Income tax expense (benefit)........................ 1 (1)
----- ------
Income (loss) before cumulative effect of change in
accounting principle and net income (loss)........ $ 2 $ (1)
===== ======
Basic earnings (loss) per share of common stock..... $0.04 $(0.03)
===== ======
Diluted earnings (loss) per share of common stock... $0.04 $(0.03)
===== ======
(d) In October 2004 and July 2005, we announced a change in the structure of
our organization which changed the components of our reportable segments.
The European segment now includes our South American and Indian operations.
While this has no impact on our consolidated results, it changes our
segment results.
(e) For purposes of computing this ratio, earnings generally consist of income
before income taxes and fixed charges excluding capitalized interest. Fixed
charges consist of interest expense, the portion of rental expense
considered representative of the interest factor and capitalized interest.
For the year ended December 31, 2004, earnings were insufficient by $9
million to cover fixed charges. See Exhibit 12 to the Registration
Statement that includes this prospectus for the calculation of this ratio.
10
RISK FACTORS
You should carefully consider the following risks described below, together
with the other information included or incorporated by reference in this
prospectus, before making a decision to participate in the exchange offer.
Additional risks and uncertainties not currently known to us, or that we
currently deem immaterial, also may impair our business operations. We cannot
assure you that any of the events discussed in the risk factors below will not
occur. If they do, our business, financial condition, results of operations or
cash flow could be materially and adversely affected. In such case, the trading
price of our securities, including the exchange notes, could decline, and you
might lose all or part of your original investment. Some of the statements in
this discussion of risk factors are forward-looking statements. See "Forward-
Looking Statements."
RISKS RELATING TO THIS OFFERING, THE OLD NOTES AND THE EXCHANGE NOTES
OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL TO FUND OUR OPERATIONS, LIMIT OUR ABILITY TO REACT TO CHANGES IN THE
ECONOMY OR OUR INDUSTRY AND PREVENT US FROM MAKING PAYMENTS ON THE NOTES.
We are a highly leveraged company. As of December 31, 2007, we had (i) $819
million of outstanding senior indebtedness and (ii) $480 million of unused
capacity under the revolving credit facility and tranche B-1 letter of
credit/revolving loan facility and $31 million in outstanding letters of credit
under the revolving credit facility, all of which if drawn also would have been
senior debt. We also had $500 million of senior subordinated debt. Our
substantial amount of debt requires significant interest payments. We also incur
additional debt from time to time to finance working capital, capital
expenditures, investments or acquisitions, or for other general corporate
purposes.
This level of indebtedness could have important consequences for you,
including the following:
- a substantial portion of our cash flow from operations is dedicated to
the repayment of our indebtedness and would not be available for other
purposes;
- it may limit our ability to borrow money or sell stock for our working
capital, capital expenditures, debt service requirements or other
purposes;
- it may limit our flexibility in planning for, or reacting to, changes in
our operations, our business or the industry in which we compete;
- we are more highly leveraged than all of our major competitors, which
may place us at a competitive disadvantage;
- it may make us more vulnerable to downturns in our business or the
economy;
- our ability to meet the debt service requirements of our indebtedness
could make it more difficult for us to make payments on the notes; and
- there would be a material adverse effect on our business and financial
condition if we were unable to service our indebtedness or obtain
additional financing, as needed.
DESPITE OUR SUBSTANTIAL INDEBTEDNESS, WE MAY STILL BE ABLE TO INCUR
SIGNIFICANTLY MORE DEBT, INCLUDING DEBT THAT IS SECURED BY OUR ASSETS. THIS
COULD INTENSIFY MANY OF THE RISKS DESCRIBED HEREIN.
The terms of our senior credit agreement, the indentures governing the
notes offered hereby, our senior secured notes and our senior subordinated notes
and the agreements governing our other indebtedness limit, but do not prohibit,
us and our subsidiaries from incurring significant additional indebtedness in
the future. As of December 31, 2007, under our senior credit facility, which is
secured by a substantial portion of our assets, we had $480 million of unused
capacity under the revolving credit facility and tranche B-1 letter of
credit/revolving loan facility capacity and $31 million of letters of credit
issued under the revolving credit facility, and the covenants under our debt
agreements would allow us to borrow a significant amount of additional
indebtedness, including secured indebtedness. The more we become leveraged, the
more we, and in turn our security holders, become exposed to many of the risks
described herein.
11
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES AND GUARANTEES IS EFFECTIVELY JUNIOR
TO OUR AND OUR SUBSIDIARY GUARANTORS' SENIOR DEBT THAT IS SECURED.
Payment on the notes and guarantees will be effectively junior in right of
payment to all of our and our subsidiary guarantors' senior debt that is
secured, including our senior credit facility and senior secured notes. Upon any
distribution to our creditors or the creditors of any guarantor in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or such
guarantor or our or its property, the holders of senior debt that is secured
will be entitled to be paid in full in cash before any payment may be made on
these notes or the subsidiary guarantees. In these cases, we and the guarantors
may not have sufficient funds to pay all of our creditors, and holders of notes
may receive less, ratably, than the holders of senior debt that is secured.
In addition, our (i) senior credit facility is (a) secured by substantially
all of the tangible and intangible assets of us and our subsidiary guarantors,
(b) collateralized by a perfected security interest in all of the capital stock
of our and the subsidiary guarantors' domestic subsidiaries and (c) secured by
up to 66 percent of the capital stock of our and the subsidiary guarantors'
direct foreign subsidiaries, and (ii) senior secured notes and guarantees
thereof are secured by second priority liens, subject to specified exceptions,
on substantially all of the existing and future tangible and intangible assets
owned by us and our subsidiary guarantors, subject to certain limitations, that
secure our obligations under our senior credit facility. Accordingly, upon our
bankruptcy, liquidation or reorganization or similar proceeding, the holders of
the notes offered hereby will have no claim against these assets or the capital
stock of these subsidiaries until the lenders under the senior credit facility
and holders of senior secured notes have been paid in full.
WE ARE REQUIRED TO MAKE SUBSTANTIAL DEBT SERVICE PAYMENTS, AND WE MAY NOT BE
ABLE TO GENERATE SUFFICIENT CASH TO SERVICE ALL OF OUR INDEBTEDNESS, INCLUDING
THE NOTES. IN ADDITION, A SUBSTANTIAL AMOUNT OF OUR DEBT IS SECURED.
Our ability to make payments on our indebtedness, including the notes,
depends on our ability to generate cash in the future. Our annual debt service
obligations in 2008, assuming we incur no further indebtedness, will consist
primarily of interest and required principal payments under our senior credit
facility and the agreements governing the debt incurred by our foreign
subsidiaries, interest payments on our senior secured notes and senior
subordinated notes and interest payments on the notes offered hereby. Our annual
cash debt service payments, based on the amount of indebtedness we had
outstanding on December 31, 2007 are expected to be approximately $118 million
for 2008. This assumes interest rates would remain at the levels we experienced
through December 31, 2007. See "-- Our variable rate indebtedness subjects us to
interest rate risk, which could cause our annual debt service obligations to
increase significantly." Accordingly, we will have to generate significant cash
flows from operations to meet our debt service requirements. For the year ended
December 31, 2007, our cash flows from operating activities were a source of
$165 million. If we do not generate sufficient cash flow to meet our debt
service and working capital requirements, we may need to seek additional
financing or sell assets. This may make it more difficult for us to obtain
financing on terms that are acceptable to us, or at all. Without any such
financing, we could be forced to sell assets to make up for any shortfall in our
payment obligations under unfavorable circumstances.
Our senior credit agreement and the indentures governing the senior secured
notes and the senior subordinated notes limit, and the indenture governing the
notes offered hereby will limit, our ability to sell assets and also restrict
the use of proceeds from any asset sale. Moreover, our senior credit facility is
secured on a first priority basis by substantially all of our and our subsidiary
guarantors' tangible and intangible domestic assets, pledges of all of the stock
of our and our subsidiary guarantors' direct domestic subsidiaries and pledges
of up to 66 percent of the stock of our and our subsidiary guarantors' direct
foreign subsidiaries. The senior secured notes are secured on a second priority
basis by substantially all of our and our subsidiary guarantors' tangible and
intangible assets excluding, however, any stock of foreign subsidiaries and a
portion of the stock of domestic subsidiaries. If necessary, we may not be able
to sell assets quickly enough or for sufficient amounts to enable us to meet our
obligations. Furthermore, a substantial portion of our assets are, and may
continue to be, intangible assets. Therefore, it may be difficult for us to pay
you in the event of an acceleration of the notes.
12
OUR VARIABLE RATE INDEBTEDNESS SUBJECTS US TO INTEREST RATE RISK, WHICH COULD
CAUSE OUR ANNUAL DEBT SERVICE OBLIGATIONS TO INCREASE SIGNIFICANTLY.
Certain of our borrowings, including borrowings under our senior credit
facility, are at variable rates of interest and expose us to interest rate risk.
If interest rates increase, our debt service obligations on the variable rate
indebtedness would increase even though the amount borrowed remained the same,
and our net income would decrease. An increase of 1.0 percent in the interest
rates payable on our existing variable rate indebtedness would increased our
2008 estimated debt service requirements by approximately $2 million after
taxes, excluding the effect of marking the interest rate swaps to market. In
April 2004, we entered into $150 million of fixed-to-floating interest rate
swaps with two separate financial institutions. An increase of 1.0 percent in
the interest rates payable on these swaps would increase our debt service
requirements by less than $1 million annually after taxes. We have no interest
rate hedge agreements that would shield us from this risk. We might consider
entering into additional fixed-to-floating interest rate swaps on all or any
portion of our remaining fixed-rate debt. Such a transaction could initially
reduce our interest expense, but may expose us to an increase in interest rates
in the future.
WE RELY ON OUR SUBSIDIARIES TO FUND OUR FINANCIAL OBLIGATIONS, INCLUDING THE
NOTES. ADDITIONALLY, NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE NOTES AND
ASSETS OF OUR NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS
ON THE NOTES.
Tenneco Inc., the issuer of the notes, is a holding company and relies on
its subsidiaries for all funds necessary to meet its financial obligations,
including the notes. The assets of Tenneco Inc. consist of the stock of
subsidiaries and certain intellectual property. If distributions from our
subsidiaries to us were eliminated, delayed, reduced or otherwise impaired, our
ability to make payments on the notes would be substantially impaired.
Although some of our subsidiaries will guarantee the notes, a substantial
number of them will not. Payments on the notes will only be required to be made
by Tenneco Inc. and the subsidiary guarantors. The non-guarantor subsidiaries
consist of all of our foreign subsidiaries, immaterial domestic subsidiaries and
variable interest entities and other finance-related subsidiaries. Because the
non-guaranteeing subsidiaries may have other creditors and are not obligated to
repay and do not guarantee repayment of the notes, you cannot rely on such
subsidiaries to make any payments on the notes directly to you or to make
sufficient distributions to enable us to satisfy our obligations to you under
the notes. As of December 31, 2007, and the year ended December 31, 2006, the
non-guarantor subsidiaries represented approximately 68 percent and 66 percent,
respectively, of our consolidated assets, approximately 54 percent and 60
percent, respectively, of our consolidated net sales (excluding intercompany
sales), approximately 91 percent and 42 percent, respectively, of our
consolidated operating income and approximately 78 percent and 52 percent,
respectively, of our consolidated EBITDA. To the extent we expand our
international operations, a larger percentage of our consolidated assets, net
sales and operating income may be derived from non-guarantor foreign
subsidiaries. Our ability to repatriate cash from foreign subsidiaries may be
limited. See "-- Risks Relating to our Business -- We are subject to risks
related to our international operations." We will depend in part on the non-
guarantor subsidiaries for dividends and other payments to generate the funds
necessary to meet our financial obligations, including the payment of principal
and interest on the notes. Further, the earnings from, or other available assets
of, these non-guarantor subsidiaries, together with our guarantor subsidiaries,
may not be sufficient to make distributions to enable us to pay interest on the
notes when due or principal of the notes at maturity.
If any or all of our non-guarantor subsidiaries become the subject of a
bankruptcy, liquidation or reorganization, the creditors of the subsidiary or
subsidiaries, including debt holders, must be paid in full out of the
subsidiary's or subsidiaries' assets before any monies may be distributed to us
as the holder of the equity in the subsidiary or subsidiaries. As of December
31, 2007 and December 31, 2006, our non-guarantor subsidiaries had $1,151
million and $1,008 million, respectively, of liabilities recorded on their
balance sheets. The indenture governing the notes limits, but does not prohibit,
our subsidiaries from incurring additional indebtedness.
13
OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED IN THE AGREEMENT GOVERNING
OUR SENIOR CREDIT FACILITY, THE INDENTURE GOVERNING OUR SENIOR SECURED NOTES,
THE INDENTURE GOVERNING OUR SENIOR SUBORDINATED NOTES OR OUR OTHER DEBT
AGREEMENTS, INCLUDING AS A RESULT OF EVENTS BEYOND OUR CONTROL, COULD RESULT IN
AN EVENT OF DEFAULT WHICH COULD MATERIALLY AND ADVERSELY AFFECT OUR OPERATING
RESULTS AND OUR FINANCIAL CONDITION.
Our senior credit facility requires us to maintain specified financial
ratios. In addition, our senior credit facility and our other debt instruments
require us to comply with various operational and other covenants. If there were
an event of default under any of our debt instruments that was not cured or
waived, the holders of the defaulted debt could cause all amounts outstanding
with respect to that debt to be due and payable immediately. We cannot assure
you that our assets or cash flow would be sufficient to fully repay borrowings
under our outstanding debt instruments, either upon maturity or if accelerated,
upon an event of default, or that, if we were required to repurchase the notes
or any of our other debt securities upon a change of control, we would be able
to refinance or restructure the payments on those debt securities.
For example, we sought amendments to our senior credit facility on several
occasions from 2000 through 2002 to revise the financial ratios we are required
to maintain thereunder. We were able to obtain an amendment in each of those
instances. If, in the future, we are required to obtain similar amendments,
there can be no assurance that those amendments would be available on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in our Annual Report on Form 10-K for the year ended December
31, 2007, which is incorporated by reference herein.
If, as or when required, we are unable to repay, refinance or restructure
our indebtedness under our senior credit facility, or amend the covenants
contained therein, the lenders under our senior credit facility could elect to
terminate their commitments thereunder, cease making further loans and institute
foreclosure proceedings against our assets. Under such circumstances, we could
be forced into bankruptcy or liquidation. In addition, any event of default or
declaration of acceleration under one of our debt instruments could also result
in an event of default under one or more of our other financing agreements,
including the notes and the agreements under which we sell certain of our
accounts receivable. This would have a material adverse impact on our liquidity
and financial position.
WE MAY NOT BE ABLE TO REPAY, REFINANCE OR REPLACE OUR SENIOR CREDIT FACILITY,
SENIOR SECURED NOTES OR SENIOR SUBORDINATED NOTES WHEN THEY TERMINATE OR BECOME
DUE, WHICH WILL OCCUR BEFORE THE MATURITY OF THE NOTES OFFERED HEREBY.
Amounts borrowed under our senior credit facility, which is secured by a
substantial portion of our assets, will mature at varying times from March 2012
to March 2014 (except as described below), which is prior to the maturity of the
notes offered hereby. The revolving credit facility will terminate in March
2012. The term loan facility matures in March 2012 and the tranche B-1 letter of
credit/revolving loan facility matures in March 2014 (or, if the maturity of the
senior secured notes has not been extended to or beyond the end of September
2014 by December 15, 2012, such facility will mature on December 15, 2012). Our
senior secured notes are scheduled to mature in July 2013, and our senior
subordinated notes are scheduled to mature in November 2014, each of which is
also prior to the maturity of the notes offered hereby.
We may not be able to (i) repay or refinance amounts due under the senior
credit facility prior to their maturity dates, (ii) repay or replace the
revolving portions of our senior credit facility prior to their termination or
(iii) repay, refinance or extend the maturity of our senior secured notes or our
senior subordinated notes prior to the applicable date described above. If we
are unable to repay, refinance or restructure all or any part of our senior
credit facility or senior secured notes, the lenders thereunder and holders
thereof, as the case may be, could proceed against any collateral securing such
indebtedness. If we are unable to repay, refinance or extend the maturity of
this indebtedness or the indebtedness under the senior subordinated notes prior
to the applicable dates described above, our liquidity and financial flexibility
would be substantially impaired.
14
RELEASES OF THE GUARANTEES OF THE NOTES OR ADDITIONAL GUARANTEES MAY BE
CONTROLLED UNDER SOME CIRCUMSTANCES BY THE ADMINISTRATIVE AGENT UNDER OUR SENIOR
CREDIT FACILITY.
The notes will be guaranteed by each of our current and future domestic
subsidiaries that guarantees the obligations under our senior credit facility.
If we create or acquire a material domestic subsidiary in the future and the
administrative agent under our senior credit facility does not require that
subsidiary to guarantee the obligations under the senior credit facility, then
the subsidiary will not be required to guarantee the notes unless it incurs
indebtedness. In addition, under the terms of the indenture, a guarantee of the
notes made by a guarantor will be released without any action on the part of the
trustee or any holder of the notes if the administrative agent under our senior
credit facility releases the guarantee of obligations under our senior credit
facility made by that guarantor (unless the guarantor remains or becomes a
guarantor of is otherwise liable on account of any our indebtedness). Additional
releases of the guarantees of the notes are permitted under some circumstances.
See "Description of the Notes -- Brief Description of the Notes and the
Guarantees -- The Guarantees."
BECAUSE EACH OF OUR SUBSIDIARY GUARANTOR'S LIABILITY UNDER ITS GUARANTEE MAY BE
REDUCED TO ZERO, AVOIDED OR RELEASED UNDER CERTAIN CIRCUMSTANCES, YOU MAY NOT
RECEIVE ANY PAYMENTS FROM SOME OR ALL OF THE GUARANTORS.
The holders of the notes have the benefit of guarantees from our subsidiary
guarantors. However, the guarantees from our subsidiary guarantors are limited
to the maximum amount which the subsidiary guarantors are permitted to guarantee
under applicable law. As a result, each subsidiary guarantor's liability under
its guarantee could be reduced to zero, depending upon the amount of other
obligations of the subsidiary guarantor or based on other defenses available to
guarantors.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE SUBSIDIARY GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED
FROM US OR THE SUBSIDIARY GUARANTORS. IF THAT OCCURS, YOU MAY NOT RECEIVE ANY
PAYMENTS ON THE NOTES.
Our issuance of the notes and the issuance of the guarantees by the
subsidiary guarantors may be subject to review under federal and state
fraudulent transfer and conveyance statutes. While the relevant laws may vary
from state to state, under such laws the payment of consideration will be a
fraudulent conveyance if (i) we paid the consideration with the intent of
hindering, delaying or defrauding creditors or (ii) we or any of the subsidiary
guarantors, as applicable, received less than reasonably equivalent value or
fair consideration in return for issuing either the notes or a guarantee, and,
in the case of (ii) only, one of the following is true:
- we or any of the subsidiary guarantors were or was insolvent, or
rendered insolvent, by reason of such transactions;
- paying the consideration left us or any of the subsidiary guarantors
with an unreasonably small amount of capital to carry on the business;
or
- we or any of the subsidiary guarantors intended to, or believed that we
or it would, be unable to pay debts as they matured.
If a court were to find that the issuance of the notes or a guarantee was a
fraudulent conveyance, the court could avoid the payment obligations under the
notes, such guarantee or further subordinate the notes or such guarantee to
presently existing and future indebtedness of us or of such guarantor, or
require the holders of the notes to repay any amounts received with respect to
the notes or such guarantee. In the event of a finding that a fraudulent
conveyance occurred, you may not receive any repayment on the notes.
Generally, an entity would be considered insolvent if, at the time it
incurred indebtedness:
- the sum of its liabilities (contingent or otherwise) was greater than
the fair value of all its assets;
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its existing debts and
liabilities as they become due;
15
- it cannot pay its debts as they become due; or
- it had at such time an unreasonably small amount of capital with which
to conduct its business.
RESTRICTIVE COVENANTS IN OUR SENIOR CREDIT AGREEMENT AND IN THE INDENTURES
GOVERNING OUR SENIOR SECURED NOTES, SENIOR SUBORDINATED NOTES AND THE NOTES
OFFERED HEREBY MAY PREVENT US FROM PURSUING BUSINESS STRATEGIES THAT COULD
OTHERWISE IMPROVE OUR RESULTS OF OPERATIONS.
The indentures governing the notes and our other outstanding debt
securities and our senior credit agreement limit our ability, among other
things, to:
- incur additional indebtedness or contingent obligations;
- pay dividends or make distributions to our shareholders;
- repurchase or redeem our equity interests;
- make investments;
- grant liens;
- make capital expenditures;
- enter into transactions with our shareholders and affiliates;
- sell assets; and
- acquire the assets of, or merge or consolidate with, other companies.
In addition, our senior credit facility requires us to maintain a minimum
interest coverage ratio of consolidated EBITDA to consolidated cash interest
paid and a maximum net leverage ratio of consolidated debt less unrestricted
cash/cash equivalents to consolidated EBITDA (each as defined in the senior
credit agreement). Complying with these restrictive covenants and financial
ratios may impair our ability to finance our future operations or capital needs
or to engage in other favorable business activities.
WE MAY NOT HAVE SUFFICIENT FUNDS OR BE PERMITTED BY OUR SENIOR DEBT TO PURCHASE
NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to make an offer to purchase
all outstanding notes. However, we cannot assure you that we will have or will
be able to borrow sufficient funds at the time of any change of control to make
any required repurchases of notes, or that restrictions in our senior credit
facility, our senior secured notes or other debt we may incur in the future
would permit us to make the required repurchases. For the foreseeable future,
our senior credit facility will not permit us to make the required repurchases.
Our failure to purchase, or give notice of purchase of, the notes would be a
default under the indenture, which would in turn be a default under our senior
credit facility and our other senior notes. In addition, a change of control may
be an event of default under our senior credit facility and would require us to
make an offer to purchase the senior secured notes at 101 percent of the
principal amount thereof. Subject to limited exceptions, our senior credit
facility prohibits the purchase of outstanding notes prior to repayment of the
borrowings under our senior credit facility and any exercise by the holders of
the notes of their right to require us to purchase the notes would cause an
event of default under our senior credit facility.
YOU MAY HAVE DIFFICULTY SELLING THE OLD NOTES THAT YOU DO NOT EXCHANGE.
If you do not exchange your old notes for exchange notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
old notes described in the legend on your old notes. The restrictions on
transfer of your old notes arise because we issued the old notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not intend to register the old
notes under the Securities Act. To the extent old notes are tendered and
accepted in
16
the exchange offer, the trading market, if any, for the remaining old notes
would be adversely affected. See "The Exchange Offer -- Consequences of Failure
to Exchange Old Notes" for a discussion of the possible consequences of failing
to exchange your old notes.
YOU MAY FIND IT DIFFICULT TO SELL YOUR EXCHANGE NOTES BECAUSE THERE IS NO
EXISTING TRADING MARKET FOR THE EXCHANGE NOTES.
You may find it difficult to sell your exchange notes because an active
trading market for the exchange notes may not develop. There is no existing
trading market for the exchange notes. We do not intend to apply for listing or
quotation of the exchange notes on any exchange, and so we do not know the
extent to which investor interest will lead to the development of a trading
market or how liquid that market might be. Although the initial purchasers of
the old notes have informed us that they intend to make a market in the exchange
notes, they are not obligated to do so, and any market making may be
discontinued at any time without notice. As a result, the market price of the
exchange notes, as well as your ability to sell the exchange notes, could be
adversely affected.
BROKER-DEALERS OR NOTEHOLDERS MAY BECOME SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
Any broker-dealer that:
- exchanges its old notes in the exchange offer for the purpose of
participating in a distribution of the exchange notes, or
- resells exchange notes that were received by it for its own account in
the exchange offer, may be deemed to have received restricted securities
and may be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale transaction by that broker-dealer. Any profit on the resale of
the exchange notes and any commission or concessions received by a
broker-dealer may be deemed to be underwriting compensation under the
Securities Act.
In addition to broker-dealers, any noteholder that exchanges its old notes
in the exchange offer for the purpose of participating in a distribution of the
exchange notes may be deemed to have received restricted securities and may be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction by that noteholder.
RISKS RELATING TO OUR BUSINESS
AN ECONOMIC DOWNTURN OR OTHER FACTORS THAT REDUCE CONSUMER DEMAND FOR OUR
PRODUCTS OR REDUCE PRICES COULD MATERIALLY AND ADVERSELY IMPACT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AND OUR DEBT MAKES US MORE SENSITIVE TO
THESE EFFECTS.
Demand for and pricing of our products are subject to economic conditions
and other factors present in the various domestic and international markets
where the products are sold. Demand for our OE products is subject to the level
of consumer demand for new vehicles that are equipped with our parts. The level
of new light vehicle purchases is cyclical, affected by such factors as general
economic conditions, interest rates, consumer confidence, consumer preferences,
patterns of consumer spending, fuel cost and the automobile replacement cycle.
For example, in 2006 North American light vehicle production of light trucks and
SUVs decreased 8.8 percent from 2005 to 2006 as consumers shifted their
preferences from light trucks and SUVs to other vehicles in light of higher fuel
costs. Because the percentage of our North American OE revenues related to light
trucks and SUVs is greater than the percentage of the total North American light
vehicle build rate represented by light trucks and SUVs, our North American OE
business is sensitive to this type of change in consumer preferences. A decline
in automotive sales and production would likely cause a decline in our sales to
vehicle manufacturers, and could result in a decline in our results of
operations and financial condition.
Demand for our aftermarket, or replacement, products varies based upon such
factors as general economic conditions, the level of new vehicle purchases,
which initially displaces demand for aftermarket products, the
17
severity of winter weather, which increases the demand for certain aftermarket
products, and other factors, including the average useful life of parts and
number of miles driven.
The highly cyclical nature of the automotive industry presents a risk that
is outside our control and that cannot be accurately predicted. For example,
many predict an economic downturn in the United States in 2008 and we cannot
assure you that we would be able to maintain or improve our results of
operations in a stagnant or recessionary economic environment. Further decreases
in demand for automobiles and automotive products generally, or in the demand
for our products in particular, could materially and adversely impact our
financial condition and results of operations. Our significant amount of debt
makes us more vulnerable to changes in our results of operations because we must
devote a significant portion of our cash flow to debt service, maintain
financial ratios in our debt agreements and comply with covenants in our debt
agreements that limit our flexibility in planning for or reacting to changes in
our business and our industry. Our failure to maintain or improve our cash flows
and other results of operations or our decision to otherwise increase our
leverage could have an adverse effect on our ability to service our
indebtedness, repay our debt at maturity, meet other obligations and fund other
liquidity needs, all of which could have a material adverse effect on us.
WE MAY BE UNABLE TO REALIZE SALES REPRESENTED BY OUR AWARDED BUSINESS, WHICH
COULD MATERIALLY AND ADVERSELY IMPACT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The realization of future sales from awarded business is inherently subject
to a number of important risks and uncertainties, including the number of
vehicles that our OE customers will actually produce, the timing of that
production and the mix of options that our OE customers and consumers may
choose. Substantially all of our North American vehicle manufacturing customers
have slowed or maintained at relatively flat levels new vehicle production for
the past several years. More recently, new vehicle production has varied year-
over-year from negative growth to positive growth. For example, production rates
for SUVs and light trucks increased 2.4 percent in 2007 compared to 2006 and
decreased 8.8 percent in 2006 compared to 2005. Production rates for passenger
cars decreased 6.4 percent in 2007 compared to 2006 and increased 5.1 percent in
2006 compared to 2005. We remain cautious regarding production volumes for 2008
due to rising oil and steel prices, current OE manufacturers' inventory levels
and uncertainty regarding the willingness of OE manufacturers to continue to
support vehicle sales. Production rates for SUVs and light trucks in North
America are expected to decrease by 5.7 percent and passenger car production
rates are expected to decrease by 3.7 percent in 2008. We expect the light
vehicle build for Asia to significantly increase in 2008 and production rates in
Eastern Europe and South America to increase slightly. All other regions are
expected to remain flat. In addition, our customers generally have the right to
replace us with another supplier at any time for a variety of reasons and have
increasingly demanded price decreases over the life of awarded business.
Accordingly, we cannot assure you that we will in fact realize any or all of the
future sales represented by our awarded business. Any failure to realize these
sales could have a material adverse effect on our financial condition and
results of operations.
In many cases, we must commit substantial resources in preparation for
production under awarded OE business well in advance of the customer's
production start date. In certain instances, the terms of our OE customer
arrangements permit us to recover these pre-production costs if the customer
cancels the business through no fault of our company. Although we have been
successful in recovering these costs under appropriate circumstances in the
past, we can give no assurance that our results of operations will not be
materially impacted in the future if we are unable to recover these types of
pre-production costs related to OE cancellation of awarded business.
WE ARE DEPENDENT ON LARGE CUSTOMERS FOR FUTURE REVENUE. THE LOSS OF ANY OF THESE
CUSTOMERS OR THE LOSS OF MARKET SHARE BY THESE CUSTOMERS COULD HAVE A MATERIAL
ADVERSE IMPACT ON US.
We depend on major vehicle manufacturers for a substantial portion of our
net sales. For example, during 2007, General Motors, Ford, Volkswagen, and
Daimler AG accounted for 20 percent, 14 percent, 9 percent, and 8 percent of our
net sales, respectively. The loss of all or a substantial portion of our sales
to any of our large-volume customers could have a material adverse effect on our
financial condition and results of operations by reducing cash flows and our
ability to spread costs over a larger revenue base. We may make
18
fewer sales to these customers for a variety of reasons, including: (1) loss of
awarded business; (2) reduced or delayed customer requirements; or (3) strikes
or other work stoppages affecting production by the customers.
During the past several years, General Motors, Ford and Chrysler have lost
market share particularly in the United States, primarily to Asian competitors.
While we are actively targeting Chinese and Korean automakers, any further
market share loss by these North American-based and European-based automakers
could, if we are unable to achieve increased sales to the Asian OE
manufacturers, have a material adverse effect on our business.
FINANCIAL DIFFICULTIES FACING OTHER AUTOMOTIVE COMPANIES MAY HAVE AN ADVERSE
IMPACT ON US.
A number of companies in the automotive industry are, and over the last
several years have been, facing severe financial difficulties. As a result,
there have been numerous recent bankruptcies of companies in the automotive
industry, including the 2005 bankruptcy of Delphi Corporation, one of the
world's largest automotive parts suppliers. In February 2008, Plastech
Engineered Products filed for Chapter 11 protection. Severe financial
difficulties at any major automotive manufacturer or automotive supplier could
have a significantly disruptive effect on the automotive industry in general,
including by leading to labor unrest, supply chain disruptions and weakness in
demand. In particular, severe financial difficulties at any of our major
suppliers could have a material adverse effect on us if we are unable to obtain
on a timely basis the quantity and quality of components we require to produce
our products. In addition, such financial difficulties at any of our major
customers could have a material adverse impact on us if such customer were
unable to pay for the products we provide or we experienced a loss of, or
material reduction in, business from such customer.
THE HOURLY WORKFORCE IN THE AUTOMOTIVE INDUSTRY IS HIGHLY UNIONIZED AND OUR
BUSINESS COULD BE ADVERSELY AFFECTED BY LABOR DISRUPTIONS.
Although we consider our current relations with our employees to be
satisfactory, if major work disruptions were to occur, our business could be
adversely affected by, for instance, a loss of revenues, increased costs or
reduced profitability. We have not experienced a material labor disruption in
our workforce in the last ten years, but there can be no assurance that we will
not experience a material labor disruption at one of our facilities in the
future in the course of renegotiation of our labor arrangements or otherwise. In
addition, substantially all of the hourly employees of North American vehicle
manufacturers and many of their other suppliers are represented by the United
Automobile, Aerospace and Agricultural Implement Workers of America under
collective bargaining agreements. Vehicle manufacturers and such suppliers and
their employees in other countries are also subject to labor agreements. A work
stoppage or strike at our production facilities, at those of a significant
customer, or at a significant supplier of ours or any of our customers could
have an adverse impact on us by disrupting demand for our products and/or our
ability to manufacture our products.
WE HAVE EXPERIENCED SIGNIFICANT INCREASES IN RAW MATERIALS PRICING, AND FURTHER
CHANGES IN THE PRICES OF RAW MATERIALS COULD HAVE A MATERIAL ADVERSE IMPACT ON
US.
Significant increases in the cost of certain raw materials used in our
products, to the extent they are not timely reflected in the price we charge our
customers or otherwise mitigated, could materially and adversely impact our
results. For example, since 2004, we have experienced significant increases in
processed metal and steel prices. High steel prices are expected to continue
into the foreseeable future. We expect that the pricing environment for steel
will increase our costs by up to $40 million in 2008. We addressed this increase
in 2005, 2006 and 2007 and will continue to address this issue in 2008 by
evaluating alternative materials and processes, reviewing material substitution
opportunities, increasing component and assembly outsourcing to low cost
countries and aggressively negotiating with our customers to allow us to recover
these higher costs from them. In addition to these actions, we continue to
pursue productivity initiatives and review opportunities to reduce costs through
restructuring activities. The situation remains fluid as we continue to pursue
these actions and, at this point, we cannot assure you that these actions will
be effective in containing margin pressures from these significant raw materials
price increases.
19
WE MAY BE UNABLE TO REALIZE OUR BUSINESS STRATEGY OF IMPROVING OPERATING
PERFORMANCE, GROWING OUR BUSINESS AND GENERATING SAVINGS AND IMPROVEMENTS TO
HELP OFFSET PRICING PRESSURES FROM OUR SUPPLIERS AND CUSTOMERS AND TO OTHERWISE
IMPROVE OUR RESULTS.
We regularly implement strategic and other initiatives designed to improve
our operating performance and grow our business. The failure to achieve the
goals of these initiatives could have a material adverse effect on our business,
particularly since we rely on these initiatives to offset pricing pressures from
our suppliers and our customers, as described above. Furthermore, the terms of
our senior credit agreement may restrict the types of initiatives we undertake,
as the agreement restricts our uses of cash, requires us to maintain financial
ratios and otherwise prohibits us from undertaking certain activities. In the
past we have been successful in obtaining the consent of our senior lenders
where appropriate in connection with our initiatives. We cannot assure you,
however, that we will be able to pursue, successfully implement or realize the
expected benefits of any initiative or that we will be able to sustain
improvements made to date.
In addition, we believe that increasingly stringent environmental standards
for automotive emissions have presented and will continue to present an
important opportunity for us to grow our emissions control business. We cannot
assure you, however, that environmental standards for automotive emissions will
continue to become more stringent or that the adoption of any new standards will
not be delayed beyond our expectations.
WE MAY INCUR MATERIAL COSTS RELATED TO PRODUCT WARRANTIES, ENVIRONMENTAL AND
REGULATORY MATTERS AND OTHER CLAIMS, WHICH COULD HAVE A MATERIAL ADVERSE IMPACT
ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
From time to time, we receive product warranty claims from our customers,
pursuant to which we may be required to bear costs of repair or replacement of
certain of our products. Vehicle manufacturers are increasingly requiring their
outside suppliers to guarantee or warrant their products and to be responsible
for the operation of these component products in new vehicles sold to consumers.
Warranty claims may range from individual customer claims to full recalls of all
products in the field. We cannot assure you that costs associated with providing
product warranties will not be material, or that those costs will not exceed any
amounts reserved for them in our consolidated financial statements.
Additionally, we are subject to a variety of environmental and pollution
control laws and regulations in all jurisdictions in which we operate. Soil and
groundwater remediation activities are being conducted at certain of our current
and former real properties. We record liabilities for these activities when
environmental assessments indicate that the remedial efforts are probable and
the costs can be reasonably estimated. On this basis, we have established
reserves that we believe are adequate for the remediation activities at our
current and former real properties for which we could be held responsible.
Although we believe our estimates of remediation costs are reasonable and are
based on the latest available information, the cleanup costs are estimates and
are subject to revision as more information becomes available about the extent
of remediation required. In future periods, we could be subject to cash or non-
cash charges to earnings if we are required to undertake material additional
remediation efforts based on the results of our ongoing analyses of the
environmental status of our properties, as more information becomes available to
us.
We also from time to time are involved in legal proceedings, claims or
investigations that are incidental to the conduct of our business. Some of these
proceedings allege damages against us relating to environmental liabilities,
intellectual property matters, personal injury claims, taxes, employment matters
or commercial or contractual disputes. For example, we are subject to a number
of lawsuits initiated by a significant number of claimants alleging health
problems as a result of exposure to asbestos. Many of these cases involve
significant numbers of individual claimants. Many of these cases also involve
numerous defendants, with the number of defendants in some cases exceeding 200
defendants from a variety of industries. As major asbestos manufacturers or
other companies that used asbestos in their manufacturing processes continue to
go out of business, we may experience an increased number of these claims.
We vigorously defend ourselves in connection with all of the matters
described above. We cannot, however, assure you that the costs, charges and
liabilities associated with these matters will not be material, or that those
costs, charges and liabilities will not exceed any amounts reserved for them in
our consolidated
20
financial statements. In future periods, we could be subject to cash costs or
non-cash charges to earnings if any of these matters is resolved unfavorably to
us.
WE MAY HAVE DIFFICULTY COMPETING FAVORABLY IN THE HIGHLY COMPETITIVE AUTOMOTIVE
PARTS INDUSTRY.
The automotive parts industry is highly competitive. Although the overall
number of competitors has decreased due to ongoing industry consolidation, we
face significant competition within each of our major product areas. The
principal competitive factors include price, quality, service, product
performance, design and engineering capabilities, new product innovation, global
presence and timely delivery. As a result, many suppliers have established or
are establishing themselves in emerging, low-cost markets to reduce their costs
of production and be more conveniently located for customers. Although we are
also pursuing a low-cost country production strategy and otherwise continue to
seek process improvements to reduce costs, we cannot assure you that we will be
able to continue to compete favorably in this competitive market or that
increased competition will not have a material adverse effect on our business by
reducing our ability to increase or maintain sales or profit margins.
THE DECREASING NUMBER OF AUTOMOTIVE PARTS CUSTOMERS AND SUPPLIERS COULD MAKE IT
MORE DIFFICULT FOR US TO COMPETE FAVORABLY.
Our financial condition and results of operations could be adversely
affected because the customer base for automotive parts is decreasing in both
the original equipment market and aftermarket. As a result, we are competing for
business from fewer customers. Due to the cost focus of these major customers,
we have been, and expect to continue to be, requested to reduce prices as part
of our initial business quotations and over the life of vehicle platforms we
have been awarded. We cannot be certain that we will be able to generate cost
savings and operational improvements in the future that are sufficient to offset
price reductions requested by existing customers and necessary to win additional
business.
Furthermore, the trend toward consolidation and bankruptcies among
automotive parts suppliers is resulting in fewer, larger suppliers who benefit
from purchasing and distribution economies of scale. If we cannot achieve cost
savings and operational improvements sufficient to allow us to compete favorably
in the future with these larger companies, our financial condition and results
of operations could be adversely affected due to a reduction of, or inability to
increase, sales.
WE MAY NOT BE ABLE TO SUCCESSFULLY RESPOND TO THE CHANGING DISTRIBUTION CHANNELS
FOR AFTERMARKET PRODUCTS.
Major automotive aftermarket retailers, such as AutoZone and Advance Auto
Parts, are attempting to increase their commercial sales by selling directly to
automotive parts installers in addition to individual consumers. These
installers have historically purchased from their local warehouse distributors
and jobbers, who are our more traditional customers. We cannot assure you that
we will be able to maintain or increase aftermarket sales through increasing our
sales to retailers. Furthermore, because of the cost focus of major retailers,
we have occasionally been requested to offer price concessions to them. Our
failure to maintain or increase aftermarket sales, or to offset the impact of
any reduced sales or pricing through cost improvements, could have an adverse
impact on our business and operating results.
LONGER PRODUCT LIVES OF AUTOMOTIVE PARTS ARE ADVERSELY AFFECTING AFTERMARKET
DEMAND FOR SOME OF OUR PRODUCTS.
The average useful life of automotive parts has steadily increased in
recent years due to innovations in products and technologies. The longer product
lives allow vehicle owners to replace parts of their vehicles less often. As a
result, a portion of sales in the aftermarket has been displaced. This has
adversely impacted, and could continue to adversely impact, our aftermarket
sales. Also, any additional increases in the average useful lives of automotive
parts would further adversely affect the demand for our aftermarket products.
Recently, we have experienced relative stabilization in our aftermarket business
due to our ability to win new customers and recover steel price increases
through selling price increases. However, there can be no assurance that we will
21
be able to maintain this stabilization. Aftermarket sales represented
approximately 18 percent and 23 percent of our net sales in 2007 and 2006,
respectively.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND SERIOUSLY HARM OUR
FINANCIAL CONDITION.
We may, from time to time, consider acquisitions of complementary
companies, products or technologies. Acquisitions involve numerous risks,
including difficulties in the assimilation of the acquired businesses, the
diversion of our management's attention from other business concerns and
potential adverse effects on existing business relationships with current
customers and suppliers. In addition, any acquisitions could involve the
incurrence of substantial additional indebtedness. We cannot assure you that we
will be able to successfully integrate any acquisitions that we pursue or that
such acquisitions will perform as planned or prove to be beneficial to our
operations and cash flow. Any such failure could seriously harm our business,
financial condition and results of operations.
WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
We have manufacturing and distribution facilities in many regions and
countries, including Australia, China, India, North America, Europe and South
America, and sell our products worldwide. For 2007, approximately 53 percent of
our net sales were derived from operations outside North America. International
operations are subject to various risks which could have a material adverse
effect on those operations or our business as a whole, including:
- exposure to local economic conditions;
- exposure to local political conditions, including the risk of seizure of
assets by a foreign government;
- exposure to local social unrest, including any resultant acts of war,
terrorism or similar events;
- exposure to local public health issues and the resultant impact on
economic and political conditions;
- currency exchange rate fluctuations;
- hyperinflation in certain foreign countries;
- controls on the repatriation of cash, including imposition or increase
of withholding and other taxes on remittances and other payments by
foreign subsidiaries; and
- export and import restrictions.
EXCHANGE RATE FLUCTUATIONS COULD CAUSE A DECLINE IN OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As a result of our international operations, we generate a significant
portion of our net sales and incur a significant portion of our expenses in
currencies other than the U.S. dollar. To the extent we are unable to match
revenues received in foreign currencies with costs paid in the same currency,
exchange rate fluctuations in that currency could have a material adverse effect
on our business. For example, where we have significantly more costs than
revenues generated in a foreign currency, we are subject to risk if the foreign
currency in which our costs are paid appreciates against the currency in which
we generate revenue because the appreciation effectively increases our cost in
that country.
The financial condition and results of operations of some of our operating
entities are reported in foreign currencies and then translated into U.S.
dollars at the applicable exchange rate for inclusion in our consolidated
financial statements. As a result, appreciation of the U.S. dollar against these
foreign currencies generally will have a negative impact on our reported
revenues and operating profit while depreciation of the U.S. dollar against
these foreign currencies will generally have a positive effect on reported
revenues and operating profit. For example, our European operations were
positively impacted in 2007 and 2006 due to the strengthening of the Euro
against the U.S. dollar. However, in 2005, the dollar strengthened against the
Euro which had a negative effect on our results of operations. Our South
American operations were negatively impacted by the devaluation in 2000 of the
Brazilian currency as well as by the devaluation of the Argentine currency in
2002. We do not generally seek to mitigate this translation effect through the
use of derivative financial instruments.
22
WE HAVE DISCLOSED A MATERIAL WEAKNESS IN OUR INTERNAL CONTROL OVER FINANCIAL
REPORTING RELATING TO OUR ACCOUNTING FOR INCOME TAXES WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO REPORT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACCURATELY AND ON A TIMELY BASIS.
In connection with our assessment of internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002, we identified a
material weakness in our internal control over financial reporting relating to
our accounting for income taxes as of December 31, 2006. Although we believe our
processes have improved, during 2007, we believe we have a material weakness in
accounting for income taxes as of December 31, 2007.
A material weakness in our internal control over financial reporting could
adversely impact our ability to provide timely and accurate financial
information. While we have taken measures to strengthen our internal controls in
response to the identified material weakness related to accounting for income
taxes, and engaged outside professionals to assist us in our efforts, additional
work remains to be done to address the identified material weakness. If we are
unsuccessful in implementing or following our remediation plan, we may not be
able to timely or accurately report our financial condition, results of
operations or cash flows or maintain effective disclosure controls and
procedures. If we are unable to report financial information timely and
accurately or to maintain effective disclosure controls and procedures, we could
be subject to, among other things, regulatory or enforcement actions by the SEC
and the NYSE, including a delisting from the NYSE, securities litigation, debt
rating agency downgrades or rating withdrawals, and a general loss of investor
confidence, any one of which could adversely affect our business prospects and
the valuation of our common stock.
23
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus and the documents incorporated by
reference constitute "forward-looking statements" as that term is defined under
Section 21E of the Securities Exchange Act of 1934, as amended, concerning,
among other things, the prospects and developments of our company and business
strategies for our operations, all of which are subject to risks and
uncertainties. These forward-looking statements are included in various sections
of this prospectus. They are identified as "forward-looking statements" or by
their use of terms (and variations thereof) such as "will," "may," "can,"
"anticipate," "intend," "continue," "estimate," "expect," "plan," "should,"
"outlook," "believe" and "seek," and similar terms (and variations thereof) and
phrases.
When a forward-looking statement includes a statement of the assumptions or
bases underlying the forward-looking statement, we caution that, while we
believe such assumptions or bases to be reasonable and make them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, we or
our management expresses an expectation or belief as to future results, we
express that expectation or belief in good faith and believe it has a reasonable
basis, but we can give no assurance that the statement of expectation or belief
will result or be achieved or accomplished.
Our actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include the matters described in the section entitled "Risk Factors" and the
following:
- general economic, business and market conditions;
- potential legislation, regulatory changes and other governmental
actions, including the ability to receive regulatory approvals and the
timing of such approvals;
- new technologies that reduce the demand for certain of our products or
otherwise render them obsolete;
- changes in distribution channels or competitive conditions in the
markets and countries where we operate;
- capital availability or costs, including changes in interest rates,
leverage, market perceptions of the industries in which we operate or
ratings of securities;
- increases in the cost of compliance with regulations, including
environmental regulations and environmental liabilities in excess of the
amount reserved;
- changes by the Financial Accounting Standards Board or the Securities
and Exchange Commission of authoritative accounting principles generally
accepted in the United States of America;
- acts of war or terrorism, including, but not limited to, the events
taking place in the Middle East, the current military action in Iraq and
the continuing war on terrorism, as well as actions taken or to be taken
by the United States and other governments as a result of further acts
or threats of terrorism, and the impact of these acts on economic,
financial and social conditions in the countries where we operate; and
- the timing and occurrence (or non-occurrence) of transactions and events
which may be subject to circumstances beyond our control.
You should be aware that any forward-looking statement made by us in this
prospectus, or elsewhere, speaks only as of the date on which we make it. New
risks and uncertainties come up from time to time, and it is impossible for us
to predict these events or how they may affect us. We have no duty to, and do
not intend to, update or revise the forward-looking statements in this
prospectus after the date of this prospectus. In light of these risks and
uncertainties, you should keep in mind that any scenarios or results contained
in any forward-looking statement made in this prospectus or elsewhere might not
occur.
24
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange old notes in like principal amount,
which will be cancelled and as such will not result in any increase in our
indebtedness.
We used all of the net proceeds of the offering of the old notes, which
were $245 million after deducting discounts to the initial purchasers and
offering expenses, together with cash on hand, to repurchase $230 million
principal amount of our 10 1/4 percent senior secured notes due 2013.
25
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Contemporaneously with issuing the $250 million of the old notes in the
private placement on November 20, 2007, we entered into a registration rights
agreement with the initial purchasers of the old notes. In that agreement we
agreed to file a registration statement relating to an offer to exchange the old
notes for exchange notes. The registration statement of which this prospectus
forms a part was filed in compliance with that obligation. We also agreed to use
our commercially reasonable efforts to cause that exchange offer to be
consummated within 210 days following the original issue of the old notes.
The exchange notes we propose to issue will have terms substantially
identical to the old notes except that the exchange notes will not contain terms
with respect to transfer restrictions, registration rights or additional
interest payable for the failure to complete the exchange offer or, if the
exchange offer is not permitted, have a shelf offer declared effective within
210 days following the original issue of the old notes.
We reserve the right, in our sole discretion, to purchase or make offers
for any old notes that remain outstanding following the expiration or
termination of this exchange offer and, to the extent permitted by applicable
law, to purchase old notes in the open market or privately negotiated
transactions, in one or more additional tender or exchange offers or otherwise.
The terms and prices of these purchases or offers could differ significantly
from the terms of this exchange offer.
Under the circumstances set forth below, we will use our commercially
reasonable efforts to cause the Commission to declare effective a shelf
registration statement with respect to the resale of the old notes and keep the
statement effective for up to two years after the original issuance of the old
notes. These circumstances include:
- if we and our subsidiary guarantors determine that any applicable law,
Commission rules or regulations or prevailing interpretations of such
rules or regulations by the staff of the Commission do not permit us to
effect the exchange offer as contemplated by the registration rights
agreement;
- if the exchange offer is not consummated within 210 days after the
original issue of the old notes; or
- if any of the initial purchasers in the private offering of the old
notes (i) holds old notes that have the status of an unsold allotment in
an initial distribution, and (ii) such initial purchaser so requests in
writing on or before the 60th day after the consummation of the exchange
offer.
If we fail to comply with our obligations under the registration rights
agreement to complete the exchange offer or, if the exchange offer is not
permitted, have a shelf offer declared effective within 210 days following the
original issue of the old notes we will be required to pay additional interest
to holders of the old notes as described under the heading "Registration
Rights."
Each holder of old notes that wishes to exchange such old notes for
exchange notes in the exchange offer will be required, among other things, to
make the following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes;
- if such holder is a broker-dealer that will receive exchange notes for
its own account in exchange for old notes that were acquired as a result
of market making activities, that such holder will deliver a prospectus,
as required by law, in connection with any resale of exchange notes; and
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of either us or any of the subsidiary guarantors.
26
RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff set forth in no action
letters issued to unrelated third parties, we believe that exchange notes issued
under the exchange offer in exchange for old notes may be offered for resale,
resold and otherwise transferred by any exchange note holder without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
- such holder is not an "affiliate" of us or our subsidiary guarantors
within the meaning of Rule 405 under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes cannot rely
on the position of the staff of the Commission set forth in "Exxon Capital
Holdings Corporation" or similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
If as stated above a holder cannot rely on the position of the staff of the
Commission set forth in "Exxon Capital Holdings Corporation" or similar
interpretive letters, any effective registration statement used in connection
with a secondary resale transaction must contain the selling security holder
information required by Item 507 of Regulation S-K under the Securities Act.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
old notes as result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
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 the exchange notes. Please read the section
captioned "Plan of Distribution" for more details regarding these procedures for
the transfer of exchange notes.
TERMS OF EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any old notes
properly tendered and not withdrawn prior to the expiration time. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of old notes surrendered under the exchange offer. Old notes may be
tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the old notes except that the exchange notes will:
- be registered under the Securities Act,
- not bear legends restricting their transfer,
- bear a "Series B" designation to differentiate them from the old notes,
which bear a "Series A" designation, and
- not provide for any additional interest upon our failure to fulfill our
obligations under the registration rights agreement to file and cause to
be effective a registration statement.
The exchange notes will evidence the same debt as the old notes. The
exchange notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the old notes. Consequently, both
series will be treated as a single class of debt securities under that
indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of exchange notes being tendered for exchange.
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As of the date of this prospectus, $250 million aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of old notes. There will be no fixed
record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the Commission. Old notes that are not tendered for exchange in
the exchange offer will remain outstanding and continue to accrue interest and
will be entitled to the rights and benefits such holders have under the
indenture relating to the old notes.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the exchange notes from us and delivering exchange notes
to such holders. Subject to the terms of the exchange and the registration
rights agreement, we expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any old notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under the caption "-- Conditions to the Exchange Offer."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees, or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes. We
will pay all charges and expenses, other than those transfer taxes described
below, in connection with the exchange offer. It is important that you read the
section labeled "-- Fees and Expenses" below for more details regarding fees and
expenses incurred in the exchange offer.
EXPIRATION TIME; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on June 30,
2008, unless, in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify in writing or by public
announcement the registered holders of old notes of the extension no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
We expressly reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "-- Conditions to the Exchange Offer"
have not been satisfied, by giving oral or written notice of such
extension or termination to the exchange agent; or
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice or public
announcement thereof to the registered holders of old notes. If we amend the
exchange offer in a manner that we determine to constitute a material change, we
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of old notes of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by issuing a
timely press release to a financial news service. If we make any material change
to this exchange offer, we will disclose this change by means of a post-
effective amendment to the registration statement which includes this
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prospectus and will distribute an amended or supplemented prospectus to each
registered holder of old notes. In addition, we will extend this exchange offer
for an additional five to ten business days as required by the Exchange Act,
depending on the significance of the amendment, if the exchange offer would
otherwise expire during that period. We will promptly notify the exchange agent
by oral notice, promptly confirmed in writing, or written notice of any delay in
acceptance, extension, termination or amendment of this exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other terms of the exchange offer, we will not be
required to accept for exchange, or exchange any exchange notes for, any old
notes, and we may terminate the exchange offer as provided in this prospectus
before accepting any old notes for exchange, if we determine in our sole
discretion:
- the exchange offer would violate applicable law or any applicable
interpretation of the staff of the Commission; or
- any action or proceeding has been instituted or threatened in any court
or by any governmental agency with respect to the exchange offer.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made the representations described in the letter of
transmittal and under "-- Purpose and Effect of the Exchange Offer,"
"-- Procedures for Tendering the Old Notes" and "Plan of Distribution," and such
other representations as may be reasonably necessary under applicable Commission
rules, regulations or interpretations to make available to it an appropriate
form for registration of the exchange notes under the Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any old notes by giving oral or written notice of such
extension to the registered holders of the old notes. During any such
extensions, all old notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange unless they have been
previously withdrawn. We will return any old notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any old notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
above. We will give oral or written notice or public announcement of any
extension, amendment, non-acceptance or termination to the registered holders of
the old notes as promptly as practicable. In the case of any extension, such
notice will be issued no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, that failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue exchange notes in exchange for any such old notes, if at such
time any stop order will be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING THE OLD NOTES
Only a holder of old notes may tender such old notes in the exchange offer.
To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
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In addition, either:
- the exchange agent must receive old notes along with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange Agent" prior to the expiration time.
The tender by a holder that is not withdrawn prior to the expiration time
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of old notes, the letter of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, we recommend that holders use an overnight
or hand delivery service. In all cases, holders should allow sufficient time to
assure delivery to the exchange agent before the expiration time. Holders should
not send us the letter of transmittal or old notes. Holders may request their
respective brokers, dealers, commercial banks, trust companies or other nominees
to effect the above transactions for them.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt) and acceptance of tendered old
notes and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
old notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give such notification. Tenders of old notes will not
be deemed made until such defects or irregularities have been cured or waived.
Any old notes received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration of the exchange offer.
In all cases, we will issue exchange notes for old notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- old notes or a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC; and
- properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of the old
notes represents, among other things, that:
(i) any exchange notes that the holder receives will be acquired in
the ordinary course of its business;
(ii) the holder has no arrangement or understanding with any person
or entity to participate in the distribution of the exchange notes;
30
(iii) if the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes that were acquired as a
result of market-making activities, that it will deliver a prospectus, as
required by law, in connection with any resale of such exchange notes; and
(iv) the holder is not an "affiliate" of us or any of our subsidiary
guarantors, as defined in Rule 405 of the Securities Act.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contract the registered holder promptly and instruct it to
tender on the owners' behalf. If such beneficial owner wishes to tender on its
own behalf, it 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 of old notes. The transfer of registered
ownership may take considerable time and may not be completed prior to the
expiration time.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto
are tendered by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal or for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed on the old notes, such old notes must
be endorsed or accompanied by a properly completed bond power. The bond power
must be signed by the registered holder as the registered holder's name appears
on the old notes and an eligible guarantor institution must guarantee the
signature on the bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the book-
entry confirmation, to the effect that:(1) DTC has received an express
acknowledgement from a participant in its Automated Tender Offer Program that is
tendering old notes that are the subject of such book-entry confirmation;(2)
such participant has received and agrees to be bound by the terms of this
prospectus and the letter of transmittal (or, in the case of an agent's message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the notice of guaranteed delivery); and (3) the agreement may be
enforced against such participant.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus and any financial institution participating in DTC's
system may make book-entry delivery of old notes by causing DTC to transfer such
old notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of old notes who are unable to deliver
confirmation of the book-entry tender of their old notes into the exchange
agent's account at DTC or all other documents of transmittal to the exchange
agent on or prior to the expiration date must tender their old notes according
to the guaranteed delivery procedures described below under "-- Guaranteed
Delivery Procedures."
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GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration time may tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration time, the exchange agent receives from such
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery (by facsimile transmission, mail
or hand delivery) or a properly transmitted agent's message and notice
of guaranteed delivery:
- setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or facsimile
thereof) together with the old notes or a book-entry confirmation, and
any other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange agent;
and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered old notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York Stock Exchange trading days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time prior to the expiration of the exchange
offer. For a withdrawal to be effective the exchange agent must receive a
written notice (which may be by telegram, telex, facsimile transmission or
letter) of withdrawal at one of the addresses set forth below under "-- Exchange
Agent", or the holder must comply with the appropriate procedure of DTC's
Automated Tender Offer Program system.
Any such notice of withdrawal must specify the name of the person who
tendered the old notes to be withdrawn, identify the old notes to be withdrawn
(including the principal amount of such old notes and, if applicable, the
registration numbers and total principal amount of such old notes), and where
certificates for old notes have been transmitted, specify the name in which such
old notes were registered, if different from that of the withdrawing holder. Any
such notice of withdrawal must also be signed by the person having tendered the
old notes to be withdrawn in the same manner as the original signature on the
letter of transmittal by which these old notes were tendered, including any
required signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee for the old notes to register the transfer of
these notes into the name of the person having made the original tender and
withdrawing the tender, and, if applicable because the old notes have been
tendered through the book-entry procedure, specify the name and number of the
participant's account at DTC to be credited, if different than that of the
person having tendered the old notes to be withdrawn.
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 guarantor institution unless such holder is an
eligible guarantor institution.
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 DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of such notices, and our
32
determination shall be final and binding on all parties. We will deem any old
notes so withdrawn not to have been validly tendered for exchange for purposes
of the exchange offer. Any old notes that have been tendered for exchange but
that are not exchanged for any reason will be returned to their holder without
cost to the holder (or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account of DTC according to the procedures described
above, such old notes will be credited to an account maintained with DTC for 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 the Old Notes" above at any time prior to the expiration time.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE AND DELIVERY OF EXCHANGE NOTES
Your tender of old notes will constitute an agreement between you and us
governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your old notes tendered, or a
timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at DTC with an agent's message, or a notice of guaranteed
delivery from an eligible guarantor institution is received by the exchange
agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes which, if accepted, would, in our judgment or our
counsel's judgment, be unlawful. We also reserve the absolute right to waive any
conditions of this exchange offer or irregularities or defects in tender as to
particular notes. Our interpretation of the terms and conditions of this
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such time as we
shall determine. We, the subsidiary guarantors, the exchange agent or any other
person will be under no duty to give notification of defects or irregularities
with respect to tenders of old notes. We, the subsidiary guarantors, the
exchange agent or any other person will incur no liability for any failure to
give notification of these defects or irregularities. Tenders of old notes will
not be deemed to have been made until such irregularities have been cured or
waived. The exchange agent will return without cost to their holders any old
notes that are not properly tendered and as to which the defects or
irregularities have not been cured or waived as promptly as practicable
following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all old notes properly tendered and will issue
the exchange notes promptly thereafter. Please refer to the section of this
prospectus entitled "-- Conditions to the Exchange Offer" above. For purposes of
this exchange offer, old notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we give oral or written notice of
acceptance to the exchange agent.
We will issue the exchange notes in exchange for the old notes tendered
pursuant to a notice of guaranteed delivery by an eligible guarantor institution
only against delivery to the exchange agent of the letter of transmittal, the
tendered old notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of old notes
into the exchange agent's account at DTC with an agent's message, in each case,
in form satisfactory to us and the exchange agent.
If any tendered old notes are not accepted for any reason provided by the
terms and conditions of this exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
non-exchanged old notes will be returned without expense to the tendering
holder, or, in the case of old notes tendered by book-entry transfer procedures
described above, will be credited to an account maintained with the book-entry
transfer facility, as promptly as practicable after withdrawal, rejection of
tender or the expiration or termination of the exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes
33
tendered, subject to the indenture. This proxy will be considered coupled with
an interest in the tendered notes. This appointment will be effective only when
and to the extent that we accept your notes in this exchange offer. All prior
proxies on these notes will then be revoked and you will not be entitled to give
any subsequent proxy. Any proxy that you may give subsequently will not be
deemed effective.
EXCHANGE AGENT
Wells Fargo Bank, N.A. has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
By Registered and By Facsimile: (Eligible By Overnight Courier or By Hand Delivery:
Certified Mail: Guarantor Institutions Regular Mail:
Only)
Wells Fargo Bank, N.A. (612) 667-6282 Wells Fargo Bank, N.A. Wells Fargo Bank, N.A.
Corporate Trust Corporate Trust Corporate Trust
Operations To Confirm by Telephone Operations Operations
MAC N9303-121 P.O. Box or for Information Call: MAC N9303-121 6th & 608 2nd Avenue South
1517 Marquette Avenue Northstar East Building
Minneapolis, MN 55480 (800) 344-5128 Minneapolis, MN 55479 -- 12th Floor
Minneapolis, MN 55402
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY TO
THE EXCHANGE AGENT.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail, however, we may make additional solicitations by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We will also pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the old notes and for handling or
forwarding tenders for exchange to their customers.
Our expenses in connection with the exchange offer include Commission
registration fees, fees and expenses of the exchange agent and trustee,
accounting and legal fees, printing costs, transfer taxes and related fees and
expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing old notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of old notes
tendered;
- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
34
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for exchange notes
under the exchange offer will remain subject to the restrictions on transfer of
such old notes as set forth in the legend printed on the old notes as a
consequence of the issuance of the old notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws, and otherwise as set forth in the
offering memorandum distributed in connection with the private placement
offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement related to the old
notes, we do not intend to register resales of the old notes under the
Securities Act. Based on interpretations of the Commission staff, exchange notes
issued pursuant to the exchange offer may be offered for resale, resold or
otherwise transferred by their holders (other than any such holder that is our
or a subsidiary guarantor's "affiliate" 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 the holders acquired the
exchange notes in the ordinary course of the holders' business and the holders
have no arrangement or understanding with respect to the distribution of the
exchange notes to be acquired in the exchange offer. Any holder who tenders in
the exchange offer for the purpose of participating in a distribution of the
exchange notes could not rely on the applicable interpretations of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
The registration rights agreement requires us to file a registration
statement for a continuous offering under the Securities Act for your benefit
if:
- we determine that any changes in law or of the applicable
interpretations of the staff of the Commission do not permit us to
effect this exchange offer or may prevent us from completing the
exchange offer as soon as practicable;
- we do not complete the exchange offer on or before June 17, 2008; or
- you are an initial purchaser of the old notes who holds old notes that
have the status of an unsold allotment in an initial distribution and
you request us to do so in writing on or prior to the 60th day after the
consummation of the exchange offer.
We do not currently anticipate that we will register under the Securities
Act any old notes that remain outstanding after completion of the exchange
offer.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the old notes, as reflected in our accounting records on the
date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. We will amortize the
costs of the exchange offer and the unamortized expenses related to the issuance
of the exchange notes over the term of the exchange notes.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in the open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
35
DESCRIPTION OF THE NOTES
The old notes were, and the exchange notes will be, issued under an
indenture dated as of November 20, 2007 (the "Indenture") by and among the
Company, the Guarantors and Wells Fargo Bank, N.A., as Trustee (the "Trustee").
The Guarantors will be the following Domestic Restricted Subsidiaries of the
Company, which will be all of the Company's Domestic Restricted Subsidiaries as
of the date the notes offered hereby are issued (other than Finance
Subsidiaries, Accounts Receivable Entities and Immaterial Domestic Restricted
Subsidiaries): Tenneco Automotive Operating Company Inc., The Pullman Company,
Clevite Industries Inc., Tenneco Global Holdings Inc., TMC Texas Inc. and
Tenneco International Holding Corp. The notes will be the direct senior
obligations of the Company, ranking equal in right of payment with all other
existing and future unsubordinated indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The notes will be unconditionally guaranteed by the Guarantors. The
Guarantees will be the direct senior obligations of the respective Guarantors
and rank equal in right of payment with all other unsubordinated indebtedness of
the respective Guarantors and senior in right of payment to existing and future
subordinated indebtedness of the respective Guarantors. Unlike the Company's and
Guarantors' obligations under the Credit Agreement, Senior Secured Notes and
other secured indebtedness, which are also direct senior obligations of the
Company and Guarantors, as applicable, the notes and the Guarantees will not be
secured by any assets of the Company or Guarantors and therefore will be
effectively junior to secured indebtedness of the Company and Guarantors to the
extent of the value of the collateral securing such indebtedness. For purposes
of this section, references to "we," "our" or the "Company" include only Tenneco
Inc. and not its Subsidiaries.
On November 20, 2007, we issued $250 million aggregate principal amount of
old notes under the Indenture. The terms of the exchange notes will be identical
in all material respects to the old notes, except the exchange notes will not
contain transfer restrictions and holders of exchange notes will no longer have
any registration rights or any other rights under the registration rights
agreement. The trustee will authenticate and deliver exchange notes for original
issue only in exchange for a like principal amount of old notes.
Used in this "Description of the Notes," except as the context otherwise
requires, the term "notes" means all 8 1/8 percent senior notes due 2015 issued
by the Company pursuant to the Indenture (including the notes offered for
exchange hereby, the $250 million of old notes and any additional notes that the
Company may issue from time to time under the Indenture).
The following description is a summary of the material provisions of the
Indenture and does not include all of the information included in the Indenture
and may not include all of the information that you would consider important.
This summary is qualified by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"), and to all of the provisions of the Indenture, including
the definitions of terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture may be obtained from Tenneco. The definitions of most of the
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions."
The notes offered hereby will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples thereof.
Initially, the Trustee will act as paying agent and registrar for the notes. The
notes may be presented for registration or transfer and exchange at the offices
of the registrar, which initially will be the Trustee's corporate trust office.
The Company may change any paying agent and registrar without notice to holders
of the notes. The Company will pay principal (and premium, if any) on the notes
at the Trustee's corporate trust office in New York, New York. Interest may be
paid at the Trustee's corporate trust office, by check mailed to the registered
address of the holders or by wire transfer if instructions therefor are
furnished by a holder. Any old notes that remain outstanding after the
completion of the exchange offer, together with the exchange notes issued in
connection with the exchange offer and any additional notes subsequently issued
under the Indenture, will be treated as a single class of securities for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The registered holder of a note
will be treated as the owner of it for all purposes. Only registered holders
will have rights under the Indenture.
36
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The old notes are, and the exchange notes will:
- be general senior obligations of the Company, ranking equal in right of
payment with all other existing and future unsubordinated indebtedness
of the Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company;
- not be secured by any assets of the Company, unlike borrowings under the
Credit Agreement, Senior Secured Notes (which are senior obligations)
and other senior secured indebtedness and therefore will be effectively
junior to secured indebtedness to the extent of the value of the
collateral securing such indebtedness; and
- be unconditionally guaranteed by the Guarantors. The Guarantees will be
the general senior obligations of the respective Guarantors and rank
equal in right of payment with all other existing and future senior
indebtedness of the respective Guarantors and senior in right of payment
to existing and future subordinated indebtedness of the respective
Guarantors. The Guarantees will not be secured by the assets of any
Guarantor, unlike the guarantees of the senior obligations in respect of
the Credit Agreement, Senior Secured Notes and other secured
indebtedness, and therefore will be effectively junior to secured
indebtedness to the extent of the value of the collateral securing such
indebtedness.
As of December 31, 2007, we had $319 million of indebtedness outstanding
under our Credit Agreement, with $480 million of unused capacity under the
revolving credit facility and tranche B-1 letter of credit/revolving loan
facility and approximately $31 million in outstanding letters of credit under
our revolving credit facility, and $300 million principal amount of other
unsubordinated indebtedness outstanding (including $245 million of Senior
Secured Notes). In addition, under the Indenture, we also may incur additional
Senior Debt and indebtedness secured by liens on our property and assets as
described below under "-- Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness" and "-- Certain Covenants -- Limitation on Liens."
THE GUARANTEES
The old notes are, and the exchange notes will be, guaranteed by the
following subsidiaries of the Company:
- all Domestic Restricted Subsidiaries that guarantee the Credit Agreement
or the Senior Secured Notes or any Subordinated Indebtedness of the
Company; and
- any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture.
Each Subsidiary Guarantee of the notes will be a general senior obligation
of the Guarantor, ranking equal in right of payment to all existing and future
unsubordinated indebtedness of the Guarantor senior in right of payment to all
existing and future subordinated indebtedness of the Guarantor. The Guarantees
will not be secured by the assets of any Guarantor, unlike the guarantees of the
senior obligations in respect of the Credit Agreement, Senior Secured Notes and
other secured indebtedness and therefore will be effectively junior to secured
indebtedness to the extent of the value of the collateral securing such
indebtedness.
As of the date the exchange notes offered are issued, all of our
subsidiaries will be "Restricted Subsidiaries." However, under the circumstances
described below under the subheading ''-- Certain Covenants -- Limitation on
Designations of Unrestricted Subsidiaries," the Company will be permitted to
designate certain of its Subsidiaries as "Unrestricted Subsidiaries." Our
Unrestricted Subsidiaries will not be subject to the restrictive covenants in
the Indenture. Our Unrestricted Subsidiaries will not guarantee the notes.
These Subsidiary Guarantees will be joint and several obligations of the
Guarantors. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Risks Related
37
to Our Existing Indebtedness and an Investment in the Notes -- Because each of
our subsidiary guarantors' liability under its guarantee may be reduced to zero,
avoided or released under certain circumstances, you may not receive any
payments from some or all of the guarantors." Federal and state statutes allow
courts, under specific circumstances, to void a guarantee and the liens securing
such guarantee and require noteholders to return payments received from the
entity providing such guarantee.
Also, as of the date the exchange notes offered are issued, none of the
Company's Foreign Subsidiaries, Finance Subsidiaries, Accounts Receivable
Entities or Immaterial Domestic Subsidiaries will guarantee the notes. In the
event of a bankruptcy, liquidation or reorganization of any of these non-
guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders of
their debt and their trade creditors before they will be able to distribute any
of their assets to the Company. As of, and for the year ended December 31, 2007,
the non-guarantor Subsidiaries represented approximately 68 percent of our
consolidated assets, approximately 54 of our consolidated net sales (excluding
intercompany sales), approximately 91 percent of our consolidated operating
income and approximately 78 percent of our consolidated EBITDA. (see "Prospectus
Summary -- Summary Historical Consolidated Financial Data").
As of December 31, 2007:
- the Company had $819 million of unsubordinated indebtedness outstanding,
$569 million of which was secured;
- the Company had $480 million of unused capacity under the revolving
credit facility and tranche B letter of credit/revolving loan facility
and $31 million in outstanding letters of credit under the revolving
credit facility, all of which if drawn would be secured and therefore
rank effectively senior to the notes to the extent of the value of the
collateral securing such indebtedness;
- the Company had outstanding the $500 million of indebtedness which is
subordinated and junior in right of payment to the notes; and
- the Company's Subsidiaries, other than the Guarantors, had $1,151 of
liabilities outstanding on their balance sheets.
PRINCIPAL, MATURITY AND INTEREST
Old notes in an aggregate principal amount of $250 million were issued on
November 20, 2007. Exchange notes in a like principal amount will be issued in
exchange for all notes properly tendered and not withdrawn in the exchange
offer. The notes will trade as a single class of freely tradeable notes. The
notes will mature on November 15, 2015. Without the consent of any holders of
notes, additional notes in an unlimited amount may be issued under the Indenture
from time to time, subject to the limitations set forth under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness."
Interest on the notes will accrue at the rate of 8 1/8 percent per annum
and will be payable semi-annually in cash in arrears on each May 15 and November
15 each year, commencing on November 15, 2008, to the persons who are registered
holders at the close of business on the May 1 and November 1 immediately
preceding the applicable interest payment date. Interest on the notes will
accrue from and including the most recent date to which interest has been paid
or, if no interest has been paid, from and including the Issue Date. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Each exchange note will bear interest from May 15, 2008. The holders of old
notes that are accepted for exchange will be deemed to have waived the right to
receive payment of accrued interest on those old notes from May 15, 2008 to the
date of issuance of the exchange notes. Interest on the old notes accepted for
exchange will cease to accrue upon issuance of the exchange notes.
Consequently, if you exchange your old notes for exchange notes, you will
receive the same interest payment on November 15, 2008 that you would have
received if you had not accepted this exchange offer.
The notes will not be entitled to the benefit of any mandatory sinking
fund.
38
REDEMPTION
Optional Redemption. The Company may redeem all or portions of the notes,
on and after November 15, 2011 upon not less than 30 nor more than 60 days'
notice, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the twelve-month period commencing on
November 15 of the year set forth below, plus, in each case, accrued and unpaid
interest, if any, to the date of redemption (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
YEAR PERCENTAGE
---- ----------
2011............................................................... 104.063%
2012............................................................... 102.031%
2013 and thereafter................................................ 100.000%
At any time prior to November 15, 2011, the notes may also be redeemed in
whole or in part, at the Company's option, at a price (the "Redemption Price")
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption or purchase
(the "Redemption Date") (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
"Applicable Premium" means, at any Redemption Date, the greater of (i) 1.0%
of the principal amount of such note and (ii) the excess of (A) the present
value at such Redemption Date of (1) the redemption price of such note on
November 15, 2011 (such redemption price being that described in the first
paragraph of this "Optional Redemption" section) plus (2) all required remaining
scheduled interest payments due on such note though such date, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
principal amount of such note on such Redemption Date; and, as calculated by the
Company or on behalf of the Company by such Person as the Company shall
designate; provided that such calculation shall not be a duty or obligation of
the Trustee.
"Treasury Rate" means, with respect to a Redemption Date, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) that has become publicly available at least two
business days prior to such Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such Redemption Date to November 15, 2011;
provided, however, that if the period from the Redemption Date to such date is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United Stated Treasury securities for which such yields
are given, except that if the period from the Redemption Date to such date is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to November 15, 2010 the Company may, at its option, use all
or any portion of the net cash proceeds of one or more Equity Offerings (as
defined below) to redeem up to 35 percent of the aggregate principal amount of
the notes issued at a redemption price equal to 108.125 percent of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date); provided
that at least 65 percent of the aggregate principal amount of notes issued
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Equity Offering, the Company
shall make such redemption not more than 180 days after the consummation of any
such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any public or
private sale of the common stock of the Company, other than any public offering
with respect to the Company's common stock registered on Form S-8 or other
issuances upon exercise of options by employees of the Company or any of its
Restricted Subsidiaries.
39
Mandatory Redemption. The Company is not required to make scheduled
mandatory redemption payments or sinking fund payments with respect to the
notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are to be redeemed at any
time, selection of the notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the notes are listed or, if the notes are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that:
- no notes of a principal amount of $1,000 or less shall be redeemed in
part; and
- if a partial redemption is made with the proceeds of an Equity Offering,
selection of the notes or portions thereof for redemption shall be made
by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to DTC procedures), unless such method is
otherwise prohibited.
Notice of an optional redemption shall be mailed at least 30 but not more
than 60 days before the redemption date to each holder of notes to be redeemed
at its registered address. If any note is to be redeemed in part only, the
notice of redemption that relates to such note shall state the portion of the
principal amount thereof to be redeemed. A new note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each holder will have the right to require that the Company purchase all or a
portion of such holder's notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101 percent of the
principal amount thereof plus accrued and unpaid interest, if any, and
liquidated damages, if any, thereon to the date of purchase. Notwithstanding the
occurrence of a Change of Control, the Company will not be obligated to
repurchase the notes under this covenant if it has exercised its right to redeem
all the notes under the terms of the section entitled "-- Redemption -- Optional
Redemption."
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to:
- repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and
terminate all commitments under the Credit Agreement and all other such
Senior Debt and to repay the Indebtedness owed to (and terminate all
commitments of) each lender under the Credit Agreement and each other
holder of Senior Debt which has accepted such offer; or
- obtain consents required under the Credit Agreement and all such other
Senior Debt to permit the repurchase of the notes as provided below.
The Company will first comply with the covenant in the immediately
preceding sentence before it is required to repurchase notes under the
provisions described below.
Within 30 days following the date upon which the Change of Control occurs,
the Company will send, by first class mail, a notice to each holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice will state, among other things, the purchase date, which must
be no earlier than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). 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
40
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 third
business day prior to the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
If a Change of Control Offer is required to be made, there can be no
assurance that the Company will be permitted by the terms of its Senior Debt to
make such a Change of Control Offer or have available funds sufficient to pay
either (1) all Indebtedness under the Credit Agreement and other Senior Debt the
terms of which require payments upon a Change of Control or (2) the Change of
Control purchase price for all the notes that might be delivered by holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding notes pursuant to a Change of Control Offer,
the Company expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However, there
can be no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a holder's right to require the purchase of notes upon a
Change of Control. Restrictions in the Indenture described herein on the ability
of the Company and the Restricted Subsidiaries to incur additional Indebtedness,
to grant Liens on their property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of any
such transaction in certain circumstances may require the purchase of the notes,
and there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such purchase. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the holders
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of the property and assets of the
Company. With respect to the disposition of property or assets, the phrase "all
or substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transactions, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances, there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear whether a Change of Control has occurred and whether the Company is
required to make a Change of Control Offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event
41
of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness:
(a) the Company, any Guarantor, any Finance Subsidiary that is a
Domestic Restricted Subsidiary and any Accounts Receivable Entity that is a
Domestic Restricted Subsidiary may incur Indebtedness (including, without
limitation, Acquired Indebtedness) if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company would be greater
than 2.0 to 1.0; and
(b) any Restricted Subsidiary that is not a Guarantor (and is not a
Finance Subsidiary or an Accounts Receivable Entity that is a Domestic
Restricted Subsidiary) may incur Indebtedness (including, without
limitation, Acquired Indebtedness) if, on the date of the incurrence of
such Indebtedness, after giving effect to the incurrence thereof,
(i) the Consolidated Fixed Charge Coverage Ratio of the Company
would be greater than 2.0 to 1.0; and
(ii) if the agreements governing such Indebtedness contain an
encumbrance or restriction on the ability of the applicable Restricted
Subsidiary that is not a Guarantor (and is not a Finance Subsidiary or
an Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) to pay dividends or make distributions on or in respect of
its Capital Stock, the Combined Fixed Charge Coverage Ratio of the
Restricted Subsidiaries that are not Guarantors would be greater than
2.25 to 1.0.
No Indebtedness incurred pursuant to the Consolidated Fixed Charge Coverage
Ratio test of the preceding paragraph (including, without limitation,
Indebtedness under the Credit Agreement) shall reduce the amount of Indebtedness
which may be incurred pursuant to any clause of the definition of Permitted
Indebtedness (including without limitation, Indebtedness under the Credit
Agreement pursuant to clause (2) of the definition of Permitted Indebtedness).
The Company and the Guarantors will not incur or suffer to exist any
Indebtedness that is subordinated in right of payment to any other Indebtedness
of the Company or the Guarantors unless such Indebtedness is at least equally
subordinated in right of payment to the notes and any Subsidiary Guarantee.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of the Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of its Capital Stock to holders of such
Capital Stock (including by means of a Person (including an Unrestricted
Subsidiary) making such a payment with the proceeds of an Investment made
by the Company or any Restricted Subsidiary);
(b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock (including by means of
a Person (including an Unrestricted Subsidiary) making such a payment with
the proceeds of an Investment made by the Company or any Restricted
Subsidiary);
(c) make any principal payment on, or purchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any Subordinated Indebtedness (other
than the principal payment on, or the purchase, redemption, defeasance,
retirement or other acquisition for value of, Subordinated Indebtedness
made in satisfaction of or anticipation of satisfying a sinking fund
obligation, principal installment or final maturity within one year of the
due date of such obligation, installment or final maturity); or
(d) make any Investment (other than Permitted Investments)
42
(each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be
continuing;
(2) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
covenant described under "-- Limitation on Incurrence of Additional
Indebtedness"; or
(3) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made after March 31, 2003 (the amount expended
for such purpose, if other than in cash, being the Fair Market Value of
such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of:
(w) 50 percent of the cumulative Consolidated Net Income (or
if cumulative Consolidated Net Income shall be a loss, minus 100
percent of such loss) of the Company earned during the period
beginning on the first day of the fiscal quarter commencing on
April 1, 2003 and through the end of the most recent fiscal
quarter for which financial statements are available prior to the
date such Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus
(x) 100 percent of the Fair Market Value of the net proceeds
received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to March
31, 2003 and on or prior to the Reference Date of Qualified
Capital Stock of the Company or from the issuance of Indebtedness
of the Company that has been converted into or exchanged for
Qualified Capital Stock of the Company subsequent to the Issue
Date and on or prior to the Reference Date; plus
(y) without duplication of any amounts included in clause
(3)(x) above, 100 percent of the Fair Market Value of the net
proceeds of any contribution to the common equity capital of the
Company received by the Company from a holder of the Company's
Capital Stock subsequent to March 31, 2003; plus
(z) an amount equal to the lesser of (A) the sum of the Fair
Market Value of the Capital Stock of an Unrestricted Subsidiary
owned by the Company and/or the Restricted Subsidiaries and the
aggregate amount of all Indebtedness of such Unrestricted
Subsidiary owed to the Company and each Restricted Subsidiary on
the date of Revocation of such Unrestricted Subsidiary as an
Unrestricted Subsidiary in accordance with the covenant described
under "-- Limitation on Designations of Unrestricted
Subsidiaries" or (B) the Designation Amount with respect to such
Unrestricted Subsidiary on the date of the Designation of such
Subsidiary as an Unrestricted Subsidiary in accordance with the
covenant described under "-- Limitation on Designations of
Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(I) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(II) the acquisition of any shares of Capital Stock of the Company,
either (A) solely in exchange for shares of Qualified Capital Stock of the
Company or (B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
shares of Qualified Capital Stock of the Company;
(III) so long as no Default or Event of Default shall have occurred
and be continuing, repurchases of Capital Stock (or rights or options
therefor) of the Company from officers, directors, employees or consultants
pursuant to equity ownership or compensation plans or stockholders
agreements not to exceed $25.0 million in the aggregate subsequent to March
31, 2003;
43
(IV) dividends and distributions paid on Common Stock of a Restricted
Subsidiary on a pro rata basis;
(V) an Investment with the net proceeds of a substantially concurrent
sale for cash (other than to a Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company;
(VI) any purchase or redemption of Indebtedness that ranks subordinate
and junior in right of payment to the notes utilizing any Net Cash Proceeds
remaining after the Company has complied with the requirements of the
covenants described under "-- Limitation on Asset Sales and "-- Change of
Control";
(VII) any purchase, redemption, defeasance, retirement, payment or
prepayment of principal of Subordinated Indebtedness either (i) solely in
exchange of shares of Qualified Capital Stock of the Company or (ii)
through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company or Refinancing Indebtedness; and
(VIII) other Restricted Payments in an amount not to exceed $50
million in the aggregate since the Issue Date.
In determining the aggregate amount of Restricted Payments made subsequent
to March 31, 2003 in accordance with clause (3) of the first paragraph of this
covenant "-- Limitation on Restricted Payments," amounts expended pursuant to
clauses (I), (II) and (III), (V) and (VII)(ii) shall be included in such
calculation.
Not later than the date the Company is required to file its financial
statements with the Commission (without giving effect to any extensions thereof)
with respect to any fiscal quarter during which any Restricted Payment was made
which, together with any Restricted Payments not previously reported hereunder,
exceeds $30.0 million (which, in the case of the Company's fourth fiscal quarter
of any fiscal year, shall be the date on which the Company is required to file
its annual financial statements for that fiscal year), the Company will deliver
to the Trustee an officers' certificate stating that such Restricted Payment
complies with the Indenture and setting forth in reasonable detail the basis
upon which the required calculations were computed, which calculations may be
based upon the Company's latest available financial statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of the Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of;
(2) at least 75 percent of the consideration received by the Company
or the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; and
(3) upon the consummation of an Asset Sale, the Company shall apply,
or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days after receipt thereof either
(A) to prepay any Indebtedness secured by a lien on such asset to the
extent of the net proceeds of such asset and, in the case of any such
Indebtedness under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit facility (or
effect a permanent reduction in availability under such revolving credit
facility, regardless of the fact that no prepayment is required), (B) to
acquire Replacement Assets or (C) a combination of prepayment and
investment permitted by the foregoing clauses (3)(A) and (3)(B).
Pending the final application of the Net Cash Proceeds, the Company and the
Restricted Subsidiaries may invest such Net Cash Proceeds in any manner not
prohibited by the Indenture.
On the 366th day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (3)(A), (3)(B) and (3)(C) of the first paragraph under this "Limitation
on
44
Asset Sales" (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount
of Net Cash Proceeds which have not been applied on or before such Net Proceeds
Offer Trigger Date as permitted in clauses (3)(A), (3)(B) and (3)(C) of the
preceding paragraph (each, a "Net Proceeds Offer Amount") shall be applied by
the Company to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, from all holders on a
pro rata basis, that principal amount of notes equal to the Net Proceeds Offer
Amount at a price equal to 100 percent of the principal amount of the notes to
be purchased, plus accrued and unpaid interest, if any, thereon to the date of
purchase; provided, however, that if the Company elects (or is required by the
terms of any Indebtedness that ranks pari passu with the notes), such Net
Proceeds Offer may be made ratably to purchase the notes and such pari passu
Indebtedness.
If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration) or Cash Equivalents,
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $50.0 million
resulting from one or more Asset Sales or deemed Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $50.0 million, shall be applied as required pursuant to this paragraph). The
first such date the aggregate unutilized Net Proceeds Offer Amount is equal to
or in excess of $50.0 million shall be treated for this purpose as the Net
Proceeds Offer Trigger Date.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries after the
Issue Date as an entirety to a Person in a transaction permitted under
"-- Merger, Consolidation and Sale of Assets," the successor corporation shall
be deemed to have sold the properties and assets of the Company and the
Restricted Subsidiaries not so transferred for purposes of this covenant, and
shall comply with the provisions of this covenant with respect to such deemed
sale as if it were an Asset Sale. In addition, the Fair Market Value of such
properties and assets of the Company or the Restricted Subsidiaries deemed to be
sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
Notice of each Net Proceeds Offer will be mailed to the record holders as
shown on the register of holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent holders properly tender
notes in an amount exceeding the Net Proceeds Offer Amount, notes of tendering
holders will be purchased on a pro rata basis (based on amounts tendered). To
the extent that the aggregate amount of the notes tendered pursuant to a Net
Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use
such excess Net Proceeds Offer Amount for general corporate purpose or for any
other purposes not prohibited by the Indenture. Upon completion of any such Net
Proceeds Offer, the Net Proceeds Offer Amount shall be reset to zero. A Net
Proceeds Offer shall remain open for a period of at least 20 business days or
such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or
45
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of
its Capital Stock (it being understood that the priority of any preferred
stock in receiving dividends or liquidating distributions prior to
dividends or liquidating distributions being paid on common stock shall not
be deemed a restriction on the ability to make distributions on Capital
Stock);
(b) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary;
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture;
(3) the Credit Agreement and/or the documentation for the Credit
Agreement;
(4) the Senior Secured Notes and/or the documentation for the Senior
Secured Notes;
(5) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(6) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(7) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(8) any other agreement entered into after the Issue Date which
contains encumbrances and restrictions which are not materially more
restrictive with respect to any Restricted Subsidiary than those in effect
with respect to such Restricted Subsidiary pursuant to agreements as in
effect on the Issue Date;
(9) any instrument governing Indebtedness of a Foreign Restricted
Subsidiary;
(10) customary restrictions on the transfer of any property or assets
arising under a security agreement governing a Lien permitted under the
Indenture;
(11) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "-- Limitation on Incurrence of Additional
Indebtedness" and "-- Limitation on Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(12) any agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4), (6), (7) or (9) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are not materially more
restrictive than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (6), (7) or
(9);
(13) any agreement governing the sale or disposition of any Restricted
Subsidiary which restricts dividends and distributions pending such sale or
disposition;
(14) any agreement, instrument or Lien placing encumbrances or
restrictions applicable only to a Finance Subsidiary or an Accounts
Receivable Entity; or
(15) any agreement governing Indebtedness permitted to be incurred
pursuant to the "-- Limitation on Incurrence of Additional Indebtedness"
covenant; provided that the provisions relating to such encumbrance or
restriction contained in such Indebtedness, taken as a whole, are not
materially more
46
restrictive than the provisions contained in the Credit Agreement or in the
Indenture as in effect on the Issue Date.
Limitation on Issuances of Capital Stock of Restricted Subsidiaries. The
Company will not permit any of the Restricted Subsidiaries (other than a Finance
Subsidiary or an Accounts Receivable Entity) to issue any Preferred Stock (other
than to the Company or to a Restricted Subsidiary) or permit any Person (other
than the Company or a Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary (other than a Finance Subsidiary or an Accounts Receivable
Entity).
Issuance of Subsidiary Guarantees. If, on or after the Issue Date, the
Company forms or acquires any Domestic Restricted Subsidiary (other than (w) an
Acquired Subsidiary for so long as it is not a Wholly Owned Domestic Restricted
Subsidiary, (x) a Finance Subsidiary, (y) an Accounts Receivable Entity or (z)
an Immaterial Domestic Subsidiary) that incurs any Indebtedness (other than
Indebtedness owing to the Company or a Restricted Subsidiary), or if, on or
after the Issue Date, any Restricted Subsidiary that is not a Guarantor
guarantees (a "Guarantee") any Indebtedness of the Company or a Guarantor (other
than Indebtedness owing to the Company or a Restricted Subsidiary) ("Guaranteed
Indebtedness"), then the Company shall cause such Domestic Restricted Subsidiary
or Restricted Subsidiary that is not a Guarantor, as the case may be, to:
(1) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Domestic
Restricted Subsidiary or Restricted Subsidiary that is not a Guarantor, as
the case may be, shall unconditionally guarantee (each, a "Subsidiary
Guarantee") all of the Company's obligations under the notes and the
Indenture on the terms set forth in the Indenture; and
(2) execute and deliver to the Trustee an opinion of counsel (which
may contain customary exceptions) that such supplemental indenture has been
duly authorized, executed and delivered by such Domestic Restricted
Subsidiary or Restricted Subsidiary that is not a Guarantor, as the case
may be, and constitutes a legal, valid, binding and enforceable obligation
of such Domestic Restricted Subsidiary or Restricted Subsidiary that is not
a Guarantor, as the case may be.
Thereafter, such Domestic Restricted Subsidiary or Restricted Subsidiary
that was not a Guarantor, as the case may be, shall be a Guarantor for all
purposes of the Indenture. The Company may cause any other Restricted Subsidiary
of the Company to issue a Subsidiary Guarantee and become a Guarantor.
If the Guaranteed Indebtedness is pari passu with the notes, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with the
Subsidiary Guarantee. If the Guaranteed Indebtedness is subordinated to the
notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated
to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the notes.
Notwithstanding the foregoing, a Subsidiary Guarantee of the notes provided
by a Guarantor will be released without any action required on the part of the
Trustee or any holder of the notes:
(1) if the guarantee of the Credit Agreement and of the Senior Secured
Notes made by such Guarantor is released, unless such Guarantor has any
Indebtedness outstanding or remains a guarantor of Indebtedness of the
Company or another Guarantor;
(2) if (a) all of the Capital Stock of, or all or substantially all of
the assets of, such Guarantor is sold or otherwise disposed of (including
by way of merger or consolidation) to a Person other than us or any of our
Domestic Restricted Subsidiaries or (b) such Guarantor ceases to be a
Restricted Subsidiary, and we otherwise comply, to the extent applicable,
with the covenant described under the caption "-- Limitation on Asset
Sales";
(3) if we designate such Guarantor as an Unrestricted Subsidiary in
accordance with the covenant described below under the caption
"-- Limitation on Designations of Unrestricted Subsidiaries"; or
(4) upon our request if the Fair Market Value of the assets of the
applicable Guarantor (as determined in good faith by the Board of Directors
of the Company), together with the Fair Market Value of the assets of other
Guarantors whose Subsidiary Guarantee was released in the same calendar
year in
47
reliance on this paragraph (4), do not exceed $1.0 million (subject to
cumulative carryover for amounts not used in any prior calendar year).
At our request, the Trustee will execute and deliver any instrument
evidencing such release. A Guarantor may also be released from its obligation
under its Subsidiary Guarantee in connection with a permitted amendment. See
"-- Modification of the Indenture."
Limitation on Liens. The Company will not, and will not cause or permit
any of the Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of the Restricted Subsidiaries, whether
now owned or hereafter acquired, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes or a Subsidiary
Guarantee, the notes or such Subsidiary Guarantee is secured by a Lien on
such property, assets or proceeds that is senior in priority to such Liens;
and
(2) in all other cases, the notes are equally and ratably secured,
except for:
(A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(B) Liens securing Indebtedness permitted to be incurred pursuant to
clause (2) or (11) of the definition of "Permitted Indebtedness" and all
other Obligations relating thereto;
(C) Liens securing the notes or any Subsidiary Guarantee;
(D) Liens in favor of the Company or any Guarantor;
(E) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness (including, without limitation, Acquired
Indebtedness) which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of
the Indenture; provided, however, that such Liens:
(I) are no less favorable to holders of the notes and are not
more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced; and
(II) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and
(F) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) whether as an entirety or substantially as an entirety
to any Person unless:
(1) either (A) the Company shall be the surviving or continuing
corporation or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and the Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (y)
shall be a corporation organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia and (z)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the
due and punctual payment of the principal of, and premium, if any, and
interest on all of the notes and the
48
performance of every covenant of the notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction on a pro forma
basis and the assumption contemplated by clause (1)(B)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the covenant described under
"-- Limitation on Incurrence of Additional Indebtedness";
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(B)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted or to be released in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred and be
continuing; and
(4) the Company or the Surviving Entity shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have
been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the notes with the same effect as if such
surviving entity had been named as such.
No Guarantor (other than any Guarantor whose Subsidiary Guarantee is to be
released in accordance with the terms of the Subsidiary Guarantee and Indenture
in connection with any transaction complying with the provisions of the covenant
described under "-- Limitation on Asset Sales") will, and the Company will not
cause or permit any Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia;
(2) such entity shall expressly assume by supplemental indenture (in
form and substance satisfactory to the Trustee), executed and delivered to
the Trustee, the performance of every covenant of the notes, the Indenture
and the Registration Rights Agreement on the part of such Guarantor to be
performed or observed;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, the Company could satisfy
the provisions of clause (2) of the first paragraph of this covenant; and
49
(5) the Company shall have delivered to the Trustee an officers'
certificate and opinion of counsel, each stating that such consolidation or
merger and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than:
(x) Affiliate Transactions permitted under paragraph (b) below; and
(y) Affiliate Transactions on terms that are not materially less
favorable than those that would have reasonably been expected in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a Fair Market Value in excess of $10.0 million
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or series of related
Affiliate Transactions related to a common plan) on or after the Issue Date that
involves an aggregate Fair Market Value of more than $50.0 million, the Company
or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in paragraph (a) shall not apply to:
(1) employment, consulting and compensation arrangements and
agreements of the Company or any Restricted Subsidiary consistent with past
practice or approved by a majority of the disinterested members of the
Board of Directors (or a committee comprised of disinterested directors);
(2) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees, consultants or agents of the
Company or any Restricted Subsidiary as determined in good faith by the
Company's Board of Directors or senior management;
(3) transactions exclusively between or among the Company and any of
the Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided that such transactions are not otherwise prohibited
by the Indenture; and
(4) Restricted Payments, Permitted Investments or Permitted Liens
permitted by the Indenture.
Payments for Consent. The Company will not, and will not cause or permit
any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture, the notes or the Subsidiary Guarantees
unless such consideration is offered to be paid to all holders who so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or amendment.
Limitation on Designations of Unrestricted Subsidiaries. The Company may,
on or after the Issue Date, designate any Subsidiary of the Company (other than
a Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary
or is a Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
50
(2) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(A) the Fair Market Value of the Capital Stock of such Subsidiary owned by
the Company and/or any of the Restricted Subsidiaries on such date and (B)
the aggregate amount of Indebtedness of such Subsidiary owed to the Company
and the Restricted Subsidiaries on such date; and
(3) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "-- Limitation on Restricted Payments"
for all purposes of the Indenture.
The Indenture further provides that the Company shall not, and shall not
permit any Restricted Subsidiary to, at any time:
(x) provide direct or indirect credit support for or a guarantee of
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness);
(y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary; or
(z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a
default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except, in the case of clause (x) or (y), to the extent
permitted under the covenant described under "-- Limitation on Restricted
Payments."
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary ("Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if
(1) no Default or Event of Default shall have occurred and be
continuing at the time and after giving effect to such Revocation;
(2) all Liens and Indebtedness of such Unrestricted Subsidiaries
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(3) such Subsidiary shall for purposes of the covenant described above
under "-- Issuance of Subsidiary Guarantees" be treated as having then been
acquired by the Company.
All Designations and Revocations must be evidenced by an officers'
certificate of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
Reports to Holders. Notwithstanding that the Company may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Company will file with the SEC, and
provide to the Trustee and the holders of the notes, the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that are
specified in Sections 13 and 15(d) of the Exchange Act within the time periods
required; provided, however, that availability of the foregoing materials on the
SEC's EDGAR service shall be deemed to satisfy the Company's delivery
obligations under this provision. In the event that the Company is not permitted
to file such reports, documents and information with the Commission pursuant to
the Exchange Act, the Company will nevertheless provide such Exchange Act
information to the Trustee and the holders of the notes as if the Company were
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
within the time periods required by law.
51
If the Company has designated any of its Subsidiaries as an Unrestricted
Subsidiary, then the quarterly and annual financial information required by the
preceding paragraph will include a reasonably detailed presentation, either on
the face of the financial statements or in the footnotes to the financial
statements, and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," of the financial condition and results of operations
of the Company and the Restricted Subsidiaries.
In addition, the Company has agreed that, for so long as any notes remain
outstanding, it will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Notwithstanding anything herein to the contrary, the Company will not be
deemed to have failed to comply with any of its obligations hereunder for
purposes of clause (3) under "-- Events of Default and Remedies" until 90 days
after the date any report hereunder is due.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any notes when the same becomes due
and payable and the default continues for a period of 30 days;
(2) the failure to pay the principal on any notes when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(3) a default by the Company or any Restricted Subsidiary in the
observance or performance of any other covenant or agreement contained in
the Indenture which default continues for a period of 30 days after the
Company receives written notice specifying the default from the Trustee or
the holders of at least 25 percent of the outstanding principal amount of
the notes (except in the case of a default with respect to the covenant
described under "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets," which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(4) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary (or the payment
of which is guaranteed by the Company or any Restricted Subsidiary),
whether such Indebtedness now exists or is created after the Issue Date,
which default (A) is caused by a failure to pay principal of such
Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default (a "payment default") or (B)
results in the acceleration of such Indebtedness prior to its express
maturity (and such acceleration is not rescinded, or such Indebtedness is
not repaid, within 30 days) and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the maturity
of which has been so accelerated, exceeds $75.0 million or more at any
time;
(5) one or more judgments in an aggregate amount in excess of $75.0
million not covered by adequate insurance (other than self-insurance) shall
have been rendered against the Company or any of the Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
nonappealable;
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(7) any Subsidiary Guarantee of a Significant Subsidiary of the
Company ceases to be in full force and effect or any Subsidiary Guarantee
of such a Significant Subsidiary is declared to be null and void and
unenforceable or any Subsidiary Guarantee of such a Significant Subsidiary
is found to be invalid or any Guarantor which is such a Significant
Subsidiary denies its liability under its Subsidiary Guarantee (other than
by reason of release of such Guarantor in accordance with the terms of the
Indenture).
52
If an Event of Default (other than an Event of Default specified in clause
(6) above) shall occur and be continuing, the Trustee or the holders of at least
25 percent in principal amount of outstanding notes may declare the principal
of, premium, if any, and accrued interest on all the notes to be due and payable
by notice in writing to the Company (and to the Trustee if given by the holders)
specifying the respective Event of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable. If an
Event of Default specified in clause (6) above occurs and is continuing, then
all unpaid principal of, premium, if any, and accrued and unpaid interest on all
of the outstanding notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the notes as described in the preceding paragraph,
the holders of a majority in principal amount of the then outstanding notes may
rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, if interest
on overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its reasonable expenses, disbursements and
advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or Event of Default
or impair any right consequent thereto.
The holders of a majority in principal amount of the then outstanding notes
may waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any notes.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company will be required to provide an officers'
certificate to the Trustee promptly upon the Company obtaining knowledge of any
Default or Event of Default (provided that the Company shall provide such
certification at least annually whether or not it knows of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of any Guarantors discharged with respect to the
outstanding notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding notes, except for:
(1) the rights of holders to receive payments in respect of the
principal of, premium, if any, and interest on the notes when such payments
are due;
53
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission or failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy,
receivership, reorganization and insolvency events) described under "-- Events
of Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to pay the
principal of, premium, if any, and interest on the notes on the stated date
of payment thereof or on the applicable redemption date, as the case may
be;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(6) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
54
(8) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(9) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights and registration of transfer or exchange of the
notes and subordination provisions, as expressly provided for in the Indenture)
as to all outstanding notes when:
(1) either (a) all the notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all notes not theretofore delivered to the Trustee
for cancellation have (i) become due and payable, (ii) will become due and
payable at their stated maturity within one year or (iii) are to be called
for redemption within one year under arrangements satisfactory to the
Trustee, and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the notes not theretofore delivered to
the Trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may be;
(2) the Company and/or the Guarantors have paid all other sums payable
under the Indenture, including amounts owing to the Trustee;
(3) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with; and
(4) there exists no Default or Event of Default under the Indenture.
MODIFICATION OF THE INDENTURE
From time to time, the Company, any Guarantor and the Trustee, without the
consent of the holders, may amend the Indenture for certain specified purposes,
including:
(1) curing ambiguities, defects or inconsistencies, so long as such
change does not, in the opinion of the Trustee, adversely affect the rights
of any of the holders of the notes in any material respect;
(2) providing for the assumption by a successor Person of the
obligations of the Company or any Guarantor under the Indenture in
accordance with the covenant described under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets"; and
(3) adding any Guarantor.
In formulating its opinion on such matters, the Trustee will be entitled to
rely on such evidence as it deems appropriate, including, without limitation,
solely on an opinion of counsel.
Other modifications and amendments of the Indenture may be made with the
consent of the holders of a majority in principal amount of the then outstanding
notes issued under the Indenture, except that, without the consent of each
holder affected thereby, no amendment may:
(1) reduce the amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any notes;
55
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any notes; or change the date on which any notes may
be subject to redemption or reduce the redemption price therefor;
(4) make any notes payable in money other than that stated in the
notes;
(5) make any change in provisions of the Indenture protecting the
right of each holder to receive payment of principal of, premium, if any,
and interest on such notes on or after the stated due date thereof or to
bring suit to enforce such payment, or permitting holders of a majority in
principal amount of the then outstanding notes to waive Defaults or Events
of Default;
(6) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer after the
occurrence of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto;
(7) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the notes or any Subsidiary Guarantee
in a manner which adversely affects the holders;
(8) modify the provisions of "-- Certain Covenants-- Payments for
Consent" in any manner adverse to a holder of notes; or
(9) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture otherwise than in accordance with the
terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the notes and any Subsidiary Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default known to the Trustee, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it by the
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
its own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Accounts Receivable Entity" means a Person, including, without limitation,
a Subsidiary of the Company, whose operations consist solely of owning and/or
selling accounts receivable of the Company and its Subsidiaries and engaging in
other activities in connection with transactions that are Permitted Receivables
Financings.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any
56
of the Restricted Subsidiaries or assumed by the Company or any Restricted
Subsidiary in connection with the acquisition of assets from such Person and in
each case not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Acquired Subsidiary" means a Person which becomes a Restricted Subsidiary
after the Issue Date; provided that such Person has outstanding voting Capital
Stock prior to becoming a Subsidiary of the Company and a majority of such
voting Capital Stock was owned by Persons other than the Company and its
Restricted Subsidiaries.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Certain
Covenants -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means (1) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (2) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance, lease
(other than operating leases entered into in the ordinary course of business),
assignment or other transfer (other than the granting of a Lien in accordance
with the Indenture) for value by the Company or any of the Restricted
Subsidiaries (including any Sale and Leaseback Transaction) to any Person other
than the Company or a Restricted Subsidiary of (a) any Capital Stock of any
Restricted Subsidiary; or (b) any other property or assets of the Company or any
Restricted Subsidiary other than in the ordinary course of business; provided,
however, that Asset Sales shall not include:
(1) a transaction or series of related transactions for which the
Company or the Restricted Subsidiaries receive aggregate consideration of
less than $15 million;
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted by the
covenant described under "-- Certain Covenants -- Merger, Consolidation and
Sale of Assets";
(3) any Restricted Payment made in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Restricted
Payments"; or
(4) sales of accounts receivable and related assets pursuant to a
Permitted Receivables Financing made in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means (1) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock,
57
including each class of Common Stock and Preferred Stock of such Person, and (2)
with respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligations" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Rating Services
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-2 from S&P or at least P-2 from Moody's;
(4) demand and time deposit accounts, certificates of deposit or
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or any U.S. branch
of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $250 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above;
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above; and
(7) solely in respect of the ordinary course cash management
activities of the Foreign Subsidiaries, equivalents of the investments
described in clause (1) above to the extent guaranteed by any member state
of the European Union or the country in which the Foreign Subsidiary
operates and equivalents of the investments described in clause (4) above
issued, accepted or offered by any commercial bank organized under the laws
of a member state of the European Union or the jurisdiction of organization
of the applicable Foreign Subsidiary having at the date of acquisition
thereof combined capital and surplus of not less than $250 million.
"Cash Management Obligations" means, with respect to any Person, all
obligations of such Person in respect of overdrafts and related liabilities owed
to any other Person that arise from treasury, depositary or cash management
services, including in connection with any automated clearing house transfers of
funds, or any similar transactions.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture);
(2) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of the Indenture);
58
(3) any Person or Group shall become the beneficial owner, directly or
indirectly, of shares representing more than 35 percent of the aggregate
ordinary voting power represented by the issued and outstanding Capital
Stock of the Company; or
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was approved
pursuant to a vote of a majority of the directors 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 then in office.
"Change of Control Offer" has the meaning set forth under "-- Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "-- Change
of Control."
"Combined EBITDA" means, with respect to the Restricted Subsidiaries that
are not Guarantors (and are not a Finance Subsidiary or an Accounts Receivable
Entity that is a Domestic Restricted Subsidiary) (the "Combined Subsidiaries"),
for any period, the sum (without duplication) of:
(1) Combined Net Income; and
(2) to the extent Combined Net Income has been reduced thereby:
(A) all income taxes of the Combined Subsidiaries paid or accrued
in accordance with GAAP for such period;
(B) Combined Interest Expense; and
(C) Combined Non-cash Charges,
less any non-cash items increasing Combined Net Income for such period, all as
determined on a combined basis for the Combined Subsidiaries in accordance with
GAAP.
"Combined Fixed Charge Coverage Ratio" means, with respect to the
Restricted Subsidiaries that are not Guarantors (and are not a Finance
Subsidiary or an Accounts Receivable Entity that is a Domestic Restricted
Subsidiary), the ratio of Combined EBITDA during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Combined Fixed Charge Coverage Ratio
(the "Transaction Date") to Combined Fixed Charges for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Combined EBITDA" and "Combined Fixed Charges" shall be calculated
after giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of any of the
Restricted Subsidiaries that are not Guarantors (and are not a Finance
Subsidiary or an Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) (and the application of the proceeds thereof) giving rise to
the need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such incurrence or repayment, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the Four
Quarter Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of one of the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or
an Accounts Receivable Entity that is a Domestic Restricted Subsidiary)
(including any Person who becomes such a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being liable for
Acquired Indebtedness and also including any Combined EBITDA (provided that
such Combined EBITDA shall be included only to the extent includable
pursuant to the definition of "Combined Net Income") attributable
59
to the assets which are the subject of the Asset Acquisition or Asset Sale
or other disposition during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date as if such Asset
Sale or Asset Acquisition or other disposition (including the incurrence,
assumption or liability for any such Acquired Indebtedness) occurred on the
first day of the Four Quarter Period.
If any of the Restricted Subsidiaries that are not Guarantors (and are not
a Finance Subsidiary or Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) directly or indirectly guarantee Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Combined
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Combined Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum in effect on the Transaction Date resulting
after giving effect to the operation of such agreements on such date.
"Combined Fixed Charges" means, with respect to the Restricted Subsidiaries
that are not Guarantors (and are not a Finance Subsidiary or an Accounts
Receivable Entity that is a Domestic Restricted Subsidiary) for any period, the
sum, without duplication, of:
(1) Combined Interest Expense, plus
(2) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of the Restricted Subsidiaries that are not
Guarantors (other than Finance Subsidiaries and Accounts Receivable
Entities that are Domestic Restricted Subsidiaries) paid, accrued and/or
scheduled to be paid or accrued during such period multiplied by (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local
income tax rate of the Company, expressed as a decimal.
"Combined Interest Expense" means, with respect to the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or
Accounts Receivable Entity that is a Domestic Restricted Subsidiary) for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or
Accounts Receivable Entity that is a Domestic Restricted Subsidiary) for
such period determined on a combined basis in accordance with GAAP,
including without limitation,
(A) any amortization of debt discount,
(B) the net costs under Interest Swap Obligations,
(C) all capitalized interest, and
(D) the interest portion of any deferred payment obligation;
(2) the interest component of Capitalized Lease Obligations accrued by
the Restricted Subsidiaries that are not Guarantors (and are not a Finance
Subsidiary or Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) during such period as determined on a consolidated basis in
accordance with GAAP; and
60
(3) net losses relating to sales of accounts receivable pursuant to
Permitted Receivable Financings during such period as determined on a
combined basis in accordance with GAAP;
provided that Combined Interest Expense shall not include any of the foregoing
to the extent owing to the Company or any Restricted Subsidiary or to the extent
owed by a Finance Subsidiary or an Accounts Receivable Entity that is a Domestic
Restricted Subsidiary.
"Combined Net Income" means, with respect to the Restricted Subsidiaries
that are not Guarantors (and are not Finance Subsidiaries or Accounts Receivable
Entities that are Domestic Restricted Subsidiaries), for any period, the
aggregate net income (or loss) of the Restricted Subsidiaries that are not
Guarantors (and are not Finance Subsidiaries or Accounts Receivable Entities
that are Domestic Restricted Subsidiaries) for such period as determined on a
combined basis in accordance with GAAP; provided that there shall be excluded
therefrom:
(1) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto;
(2) extraordinary or non-recurring gains or losses (determined on an
after-tax basis);
(3) any non-cash compensation expense incurred for grants and
issuances of stock appreciation or similar rights, stock options,
restricted shares or other rights to officers, directors and employees of
the Company and its Subsidiaries (including any such grant or issuance to a
401(k) plan or other retirement benefit plan);
(4) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the
Restricted Subsidiaries that are not Guarantors (and are not Finance
Subsidiaries or Accounts Receivable Entities that are Domestic Restricted
Subsidiaries) by such Person;
(5) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of Combined Net
Income accrued at any time following March 31, 2003;
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued) from and after the
date that such operation is classified as discontinued;
(7) write-downs resulting from the impairment of intangible assets;
(8) the amount of amortization or write-off of deferred financing
costs and debt issuance costs of the Company and its Restricted
Subsidiaries during such period and any premium or penalty paid in
connection with redeeming or retiring Indebtedness of the Company and its
Restricted Subsidiaries prior to the stated maturity thereof pursuant to
the agreements governing such Indebtedness; and
(9) any restructuring charges incurred pursuant to any Genesis Project
or any related project disclosed as such in the Company's audited financial
statements prepared in accordance with GAAP, together with any related
provision for taxes, in an aggregate amount since March 16, 2007 not to
exceed $80.0 million.
"Combined Non-cash Charges" means, with respect to the Restricted
Subsidiaries that are not Guarantors (and are not Finance Subsidiaries or
Accounts Receivable Entities that are Domestic Restricted Subsidiaries), for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Restricted Subsidiaries that are not Guarantors (and are not Finance
Subsidiaries or Accounts Receivable Entities that are Domestic Restricted
Subsidiaries) reducing Combined Net Income for such period, determined on a
combined basis in accordance with GAAP (excluding any such charge which requires
an accrual of or a reserve for cash charges for any future period).
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of the Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any Restricted Subsidiary of the Company designed
61
to protect the Company or any of its Restricted Subsidiaries against
fluctuations in the price of the commodities at the time used in the ordinary
course of business of the Company or any of its Restricted Subsidiaries and not
for speculative purposes.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of, such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(A) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period;
(B) Consolidated Interest Expense; and
(C) Consolidated Non-cash Charges,
less any non-cash items increasing Consolidated Net Income for such period, all
as determined on a consolidated basis for the Company and the Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the Four Quarter
Period ending on or prior to the Transaction Date to Consolidated Fixed Charges
of the Company for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect
on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of the Company or
any of the Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale or other disposition during the Four
Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date as if such Asset Sale or Asset Acquisition or other
disposition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
If the Company or any of the Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if the Company or
any Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed
62
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum in effect on the Transaction Date resulting
after giving effect to the operation of such agreements on such date.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense, plus
(2) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of the Company (other than dividends paid in
Qualified Capital Stock) or any Restricted Subsidiary paid, accrued and/or
scheduled to be paid or accrued during such period multiplied by (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local
income tax rate of the Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including, without limitation,
(A) any amortization of debt discount,
(B) the net costs under Interest Swap Obligations,
(C) all capitalized interest, and
(D) the interest portion of any deferred payment obligation;
(2) the interest component of Capitalized Lease Obligations accrued by
the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP; and
(3) net losses relating to sales of accounts receivable pursuant to
Permitted Receivables Financings during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto;
(2) extraordinary or non-recurring gains or losses (determined on an
after-tax basis);
(3) any non-cash compensation expense incurred for grants and
issuances of stock appreciation or similar rights, stock options,
restricted shares or other rights to officers, directors and employees of
the Company and its Subsidiaries (including any such grant or issuance to a
401(k) plan or other retirement benefit plan);
63
(4) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company
or to a Restricted Subsidiary by such Person;
(6) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following March 31, 2003;
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued) from and after the
date that such operation is classified as discontinued;
(8) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets;
(9) write-downs resulting from the impairment of intangible assets;
(10) the amount of amortization or write-off of deferred financing
costs and debt issuance costs of the Company and its Restricted
Subsidiaries during such period and any premium or penalty paid in
connection with redeeming or retiring Indebtedness of the Company and its
Restricted Subsidiaries prior to the stated maturity thereof pursuant to
the agreements governing such Indebtedness; and
(11) any restructuring charges incurred pursuant to any Genesis
Project or any similar or related project disclosed as such in the
Company's audited financial statements prepared in accordance with GAAP,
together with any related provision for taxes, in an aggregate amount since
March 16, 2007 not to exceed $80.0 million.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Company and its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charge which requires an accrual of or a reserve
for cash payments for any future period).
"Consolidated Secured Debt Ratio" means, as of any date of determination,
the ratio of (a) Consolidated Total Indebtedness of the Company and the
Restricted Subsidiaries that is secured by Liens as of the end of the Four
Quarter Period ending on or prior to the Transaction Date to (b) the aggregate
amount of Consolidated EBITDA of the Company during the Four Quarter Period
ending on or prior to the Transaction Date, in each case with such pro forma
adjustments to Consolidated Total Indebtedness and Consolidated EBITDA as are
appropriate and consistent with the pro forma adjustment provisions set forth in
the definition of Consolidated Fixed Charge Coverage Ratio.
"Consolidated Total Indebtedness" means, as at any date of determination,
an amount equal to the sum of (1) the aggregate amount of all outstanding
Indebtedness of the Company and the Restricted Subsidiaries on a consolidated
basis consisting of Indebtedness for borrowed money, Obligations in respect of
Capitalized Lease Obligations and debt obligations evidenced by bonds, notes,
debentures or similar instruments or letters of credit or bankers' acceptances
(and excluding (x) any undrawn letters of credit and (y) all obligations
relating to Permitted Receivables Financings) and (2) the aggregate amount of
all outstanding Disqualified Capital Stock of the Company and all Disqualified
Capital Stock and Preferred Stock of the Restricted Subsidiaries (excluding
items eliminated in consolidation), with the amount of such Disqualified Capital
Stock
64
and Preferred Stock equal to the greater of their respective voluntary or
involuntary liquidation preferences and Maximum Fixed Repurchase Prices, in each
case determined on a consolidated basis in accordance with GAAP.
For purposes hereof, the "Maximum Fixed Repurchase Price" of any
Disqualified Capital Stock or Preferred Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock or Preferred Stock as if such Disqualified Capital
Stock or Preferred Stock were purchased on the applicable date on which
Consolidated Total Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock or Preferred Stock, such fair market
value shall be determined reasonably and in good faith by the Company.
"Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance
and Covenant Defeasance."
"Credit Agreement" means the Amended and Restated Credit Agreement, dated
as of March 16, 2007, among the Company, the Guarantors, the lenders party
thereto in their capacities as lenders thereunder and JPMorgan Chase Bank, N.A.,
as administrative agent, together with the documents related thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time in accordance
with their terms (the "Existing Credit Agreement"), including any agreement (a
"Replacement Agreement") extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
covenant described under "-- Certain Covenants-- Limitation on Incurrence of
Additional Indebtedness" (including the definition of Permitted Indebtedness))
or adding Subsidiaries as additional borrowers or guarantors thereunder) all or
any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Credit Facilities" means one or more debt facilities (including the Credit
Agreement) or commercial paper facilities providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
lenders or to special purpose entities formed to borrow from lenders against
such receivables) or letters of credit, or any debt securities or other form of
debt financing (including convertible or exchangeable debt instruments), in each
case, as amended, supplemented, modified, extended, renewed, restated or
refunded in whole or in part from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice of both would be, an Event of Default.
"Default Notice" has the meaning set forth under "-- Subordination."
"Designation" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is mandatorily exchangeable for Indebtedness, or is redeemable or exchangeable
for Indebtedness, at the sole option of the holder thereof on or prior to the
final maturity date of the notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized under the laws of the United States or any State thereof
or the District of Columbia.
65
"DTC" means The Depository Trust Company or any successor thereto.
"Equity Offering" has the meaning set forth under
"-- Redemption -- Optional Redemption upon Equity Offerings."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company.
"Finance Subsidiary" means a Restricted Subsidiary that is organized solely
for the purpose of owning Indebtedness of the Company and/or other Restricted
Subsidiaries and issuing securities the proceeds of which are utilized by the
Company and/or other Restricted Subsidiaries, and which engages only in such
activities and activities incident thereto.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
"Foreign Subsidiary" means any Subsidiary that is organized and existing
under the laws of a jurisdiction other than the United States, any State thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantee" has the meaning set forth under "-- Certain
Covenants -- Issuance of Subsidiary Guarantees."
"Guarantor" means (1) each Wholly Owned Domestic Restricted Subsidiary of
the Company (other than any Immaterial Domestic Subsidiaries, Accounts
Receivable Entities and Finance Subsidiaries) as of the Issue Date and (2) each
other Restricted Subsidiary that in the future is required to or executes a
Subsidiary Guarantee pursuant to the covenant described under "-- Certain
Covenants -- Issuance of Subsidiary Guarantees" or otherwise; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its Subsidiary Guarantee is released in accordance with the terms
of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person in respect of (a) interest rate or currency swap agreements,
interest rate or currency cap agreements, interest rate or currency collar
agreements or (b) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates and/or currency exchange rates.
"Immaterial Domestic Subsidiaries" means, at any time, any Domestic
Restricted Subsidiary of the Company having total assets (as determined in
accordance with GAAP) in an amount of less than 1 percent of the consolidated
total assets of the Company and its Domestic Restricted Subsidiaries (as
determined in accordance with GAAP); provided, however, that the total assets
(as so determined) of all Immaterial Domestic Subsidiaries shall not exceed 5
percent of consolidated total assets of the Company and its Domestic
Subsidiaries (as so determined). In the event that the total assets of all
Immaterial Domestic Subsidiaries exceed 5 percent of consolidated total assets
of the Company and its Domestic Restricted Subsidiaries, the Company will
designate Domestic Restricted Subsidiaries that would otherwise be Immaterial
Domestic Subsidiaries to be excluded as Immaterial Domestic Subsidiaries until
such 5 percent threshold is met. Notwithstanding the foregoing, no Domestic
Restricted Subsidiary that guarantees the Credit Agreement or any Credit
Agreement Obligation shall be deemed an Immaterial Domestic Subsidiary.
66
"incur" has the meaning set forth under "-- Certain Covenants -- Limitation
on Incurrence on Additional Indebtedness."
"Indebtedness" means, with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness of any other Person referred to in clauses (1) through (5)
above and clauses (8) and (10) below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the Fair Market Value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person;
(9) all Disqualified Capital Stock of the Company and all Preferred
Stock of a Restricted Subsidiary with the amount of Indebtedness
represented by such Disqualified Capital Stock or Preferred Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued and unpaid
dividends, if any; and
(10) all Outstanding Permitted Receivables Financings.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock or Preferred Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock or Preferred Stock as if such Disqualified Capital
Stock or Preferred Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Disqualified Capital
Stock or Preferred Stock, such Fair Market Value shall be determined reasonably
and in good faith by the Board of Directors of the issuer of such Disqualified
Capital Stock or Preferred Stock.
"Independent Financial Advisor" means a firm (1) which does not, and whose
directors, officers and employees and Affiliates do not, have a direct or
indirect material financial interest in the Company and (2) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Purchasers" means (i) with respect to the notes issued on the
Issue Date, the initial purchasers identified on the cover hereof and (ii) with
respect to each issuance of additional notes, if any, the Persons purchasing
securities from the Company pursuant to the related Purchase Agreement.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any voluntary or involuntary case or proceeding under any Bankruptcy Law,
(b) any other voluntary or involuntary insolvency, reorganization or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding with respect to such Person or with respect to any of
its assets, (c) any liquidation, dissolution, reorganization or winding up of
such Person whether voluntary or involuntary and whether or not
67
involving insolvency or bankruptcy or (d) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of such Person.
"Interest Swap Obligations" means the obligations of the Company and the
Restricted Subsidiaries pursuant to any arrangement with any other Person,
whereby, directly or indirectly, the Company or any Restricted Subsidiary is
entitled to receive from time to time periodic payments calculated by applying
either a floating or a fixed rate of interest on a stated notional amount in
exchange for periodic payments made by such other Person calculated by applying
a fixed or a floating rate of interest on the same notional amount and shall
include, without limitation, interest rate lock obligations, interest rate
swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude extensions of trade credit by
the Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiaries, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary
(the "Referent Subsidiary") such that after giving effect to any such sale or
disposition, the Referent Subsidiary shall cease to be a Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the Fair Market Value of the Capital Stock of the
Referent Subsidiary not sold or disposed of.
"Issue Date" means November 20, 2007, the date of initial issuance of the
notes.
"Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, deed to secure debt,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest), received
by the Company or any of the Restricted Subsidiaries from such Asset Sale net
of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees, sales commissions and relocation expenses);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayments of Indebtedness secured by the property or assets
subject to such Asset Sale that is required to be repaid in connection with
such Asset Sale; and
(4) appropriate amounts to be determined by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
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"Net Proceeds Offer Payment Date" had the meaning set forth under
"-- Certain Covenants -- Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under
"-- Certain Covenants -- Limitation on Asset Sales."
"Obligations" means any and all obligations with respect to the payment of
(a) any principal of or interest (including interest accruing on or after the
commencement of any Insolvency or Liquidation Proceedings, whether or not a
claim for post-filing interest is allowed in such proceeding) or premium on any
Indebtedness, including any reimbursement obligation in respect of any letter of
credit, (b) any fees, indemnification obligations, damages, expense
reimbursement obligations or other liabilities payable under the documentation
governing any Indebtedness, (c) any obligation to post cash collateral in
respect of letters of credit and any other obligations and (d) any Cash
Management Obligations or Hedging Obligations.
"Outstanding Permitted Receivables Financings" means the aggregate amount
of the receivables sold or financed pursuant to a Permitted Receivables
Financing that remain uncollected at any one time.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the notes, the Indenture and any Subsidiary
Guarantees outstanding on the Issue Date;
(2) Indebtedness incurred pursuant to the Credit Agreement (or, in the
case of clause (2)(x) below, pursuant to a Credit Facility) in an aggregate
principal amount at any time outstanding not to exceed the greater of:
(x) the sum of (i) $1,000 million (reduced by any required
permanent repayments with the proceeds of Asset Sales (which are
accompanied by a corresponding permanent commitment reduction)
thereunder) and (ii) the aggregate dollar amount permitted to be but
not then outstanding under the Outstanding Permitted Receivables
Financings referred to in clause (14) below; and
(y) the sum of (A) 85 percent of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries and
(B) 50 percent of the net book value of the inventory of the Company
and the Restricted Subsidiaries;
(3) other Indebtedness of the Company and the Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions are made thereon;
(4) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any Guarantor and Interest Swap Obligations of any
Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and the Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Indenture to
the extent the notional principal amount of such Interest Swap Obligations
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligations relate;
(5) Indebtedness under Currency Agreements and Commodity Agreements;
provided that in the case of Currency Agreements which relate to
Indebtedness, such Currency Agreements do not increase the Indebtedness of
the Company and the Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company, a Restricted Subsidiary of the Company
or the lenders or collateral agent under any agreement governing secured
Indebtedness permitted to be incurred under "-- Limitation on Incurrence of
Additional Indebtedness" and "-- Limitation on Liens", in each case subject
to no Lien held by a Person other than the Company, a Restricted Subsidiary
of the Company or the lenders or collateral agent under any agreement
governing
69
secured Indebtedness permitted to be incurred under "-- Limitation on
Incurrence of Additional Indebtedness" and "-- Limitation on Liens";
provided that if as of any date any Person other than the Company, a
Restricted Subsidiary of the Company or the lenders or collateral agent any
agreement governing secured Indebtedness permitted to be incurred under
"-- Limitation on Incurrence of Additional Indebtedness" and "-- Limitation
on Liens", owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness under this clause (6)
by the issuer of such Indebtedness;
(7) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted Subsidiary
of the Company or the lenders or the collateral agent under any agreement
governing secured Indebtedness permitted to be incurred under
"-- Limitation on Incurrence of Additional Indebtedness" and "-- Limitation
on Liens" and is subject to no Lien other than a Lien in favor of the
lenders or collateral agent, any agreement governing secured Indebtedness
permitted to be incurred under "-- Limitation on Incurrence of Additional
Indebtedness" and "-- Limitation on Liens"; provided that (a) any
Indebtedness of the Company to any Restricted Subsidiary of the Company is
unsecured and, except in the case of Indebtedness owed to Foreign
Subsidiaries, subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the notes and (b) if as of
any date any Person other than a Restricted Subsidiary of the Company owns
or holds any such Indebtedness or any Person holds a Lien other than a Lien
in favor of the lenders or collateral agent under any agreement governing
secured Indebtedness permitted to be incurred under "-- Limitation on
Incurrence of Additional Indebtedness" and "-- Limitation on Liens", such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (7) by the Company;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five business days after incurrence;
(9) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or any such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(10) Refinancing Indebtedness;
(11) additional Indebtedness of the Company and the Restricted
Subsidiaries in an aggregate principal amount not to exceed $100.0 million
at any one time outstanding;
(12) additional Indebtedness of Foreign Subsidiaries of the Company
under working capital facilities in an aggregate principal amount not to
exceed 100.0 million Euros at any one time outstanding;
(13) Purchase Money Indebtedness and Capitalized Lease Obligations
(and any Indebtedness incurred to Refinance such Purchase Money
Indebtedness or Capitalized Lease Obligations) not to exceed 7.5 percent of
Consolidated Net Tangible Assets at any one time outstanding; and
(14) Outstanding Permitted Receivables Financings not to exceed $250.0
million at any one time outstanding less any amount of Indebtedness then
outstanding and incurred pursuant to clause (2)(x)(ii) above.
If any Indebtedness incurred by the Company or any Restricted Subsidiary
would qualify in more than one of the categories of Permitted Indebtedness as
set forth in clauses (1) through (14) of this definition, the Company may
designate under which category such incurrence shall be deemed to have been
made.
"Permitted Investments" means:
(1) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into the Company or
a Restricted Subsidiary;
70
(2) Investments in the Company by any Restricted Subsidiary; provided
that any Indebtedness evidencing such Investment is unsecured;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees, officers and directors of the
Company and the Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of an aggregate of $25.0
million at any one time outstanding;
(5) Commodity Agreements, Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or a
Restricted Subsidiary's businesses and otherwise in compliance with the
Indenture;
(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in
settlement of delinquent accounts;
(7) Investments made by the Company or the Restricted Subsidiaries as
a result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales";
(8) Investments in Persons, including, without limitation,
Unrestricted Subsidiaries and joint ventures, engaged in a business similar
or related to or logical extensions of the businesses in which the Company
and the Restricted Subsidiaries are engaged on the Issue Date, not to
exceed 7.5 percent of Consolidated Net Tangible Assets at any one time
outstanding; and
(9) Investments in an Accounts Receivable Entity.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and, in each case, as to which the Company or any Restricted
Subsidiary shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, contracts, performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not impairing in any
material respect the ordinary conduct of the business of the Company or any
of the Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or asset
which is not leased property subject to such Capitalized Lease Obligation;
71
(7) purchase money Liens securing Indebtedness incurred to finance
property or assets of the Company or any Restricted Subsidiary acquired in
the ordinary course of business, and Liens securing Indebtedness which
Refinances any such Indebtedness; provided, however, that (A) the related
Purchase Money Indebtedness (or Refinancing Indebtedness) shall not exceed
the cost of such property or assets and shall not be secured by any
property or assets of the Company or any Restricted Subsidiary other than
the property and assets so acquired and (B) the Lien securing the Purchase
Money Indebtedness shall be created within 90 days after such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the
Company or any of the Restricted Subsidiaries, including rights of offset
and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness and other Obligations under Commodity
Agreements, Currency Agreements and Cash Management Obligations, in each
case permitted under the Indenture;
(13) Liens securing Acquired Indebtedness (and any Indebtedness which
Refinances such Acquired Indebtedness) incurred in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Incurrence
of Additional Indebtedness"; provided that (A) such Liens secured the
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and were
not granted in connection with, or in anticipation of, the incurrence of
such Acquired Indebtedness by the Company or a Restricted Subsidiary and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of the Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary;
(14) Liens securing Indebtedness of Foreign Restricted Subsidiaries
incurred in accordance with the Indenture; provided that such Liens do not
extend to any property or assets other than property or assets of Foreign
Restricted Subsidiaries;
(15) Liens incurred in connection with a Permitted Receivables
Financing; and
(16) Liens incurred to secure Obligations in respect of any
Indebtedness permitted to be incurred pursuant to the covenant described
under "Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness"; provided that, at the time of incurrence and after giving
pro forma effect thereto, the Consolidated Secured Debt Ratio would be no
greater than 2.50:1.00.
"Permitted Receivables Financing" means any sale by the Company or a
Restricted Subsidiary of accounts receivable and related assets intended to be
(and which shall be treated for purposes of the Indenture as) a true sale
transaction with customary limited recourse based upon the collectibility of the
receivables sold and the corresponding sale or pledge of such accounts
receivable (or an interest therein), in each case without any guarantee by the
Company or any Restricted Subsidiary other than an Accounts Receivable Entity.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
72
"Purchase Agreement" means (i) with respect to the notes issued on the
Issue Date, the Purchase Agreement, dated as of November 1, 2007, by and among
the Company, the Guarantors and the Initial Purchasers, and (ii) with respect to
each issuance of additional notes, if any, the purchase agreement or
underwriting agreement among the Company, the Guarantors and the Initial
Purchasers.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of an Asset Acquisition or construction or
improvement of any property; provided that the aggregate principal amount of
such Indebtedness does not exceed such purchase price or cost.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Reference Date" has the meaning set forth under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Refinance" means in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9),
(11), (12), (13) or (14) of the definition of Permitted Indebtedness), in each
case that does not:
(1) result in an increase in the aggregate principal amount of any
Indebtedness of such Person as of the date of the completion of all
components of such proposed Refinancing (provided such completion occurs
within 60 days of the initial incurrence of Indebtedness in connection with
such Refinancing) (plus the amount of any premium reasonably necessary to
Refinance such Indebtedness and plus the amount of reasonable expenses
incurred by the Company in connection with such Refinancing); or
(2) create Indebtedness with (A) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced or (B) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced;
provided that if such Indebtedness being Refinanced is Indebtedness of the
Company and/or a Guarantor, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and/or such Guarantor.
"Registration Rights Agreement" means (i) with respect to the notes issued
on the Issue Date, the Registration Rights Agreement dated the Issue Date among
the Company, the Guarantors and the Initial Purchasers and (ii) with respect to
any issuance of additional notes, the registration rights agreement relating to
such issuance of additional notes issued in a transaction exempt from the
registration requirements of the Securities Act, the registration rights
agreement, if any, among the Company, the Guarantors and the Initial Purchasers
under the related Purchase Agreement.
"Replacement Assets" means assets and property that will be used in the
business of the Company and/or its Restricted Subsidiaries as existing on the
Issue Date or in a business the same, similar or reasonably related thereto
(including Capital Stock of a Person which becomes a Restricted Subsidiary).
"Restricted Payment" has the meaning set forth under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "-- Certain Covenants -- Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.
73
"Revocation" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced on the security of such property.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"Senior Secured Notes" means the Company's 10 1/4% percent Senior Secured
Notes due 2013 issued from time to time under that certain indenture dated as of
June 19, 2003 with Wachovia Bank, National Association, as trustee.
"Senior Subordinated Notes" means the Company's 8 5/8% Senior Subordinated
Notes due 2014 issued under that certain indenture dated as of October 19, 2004
with The Bank of New York, as trustee.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subordinated Indebtedness" means Indebtedness as to which the payment of
principal (and premium, if any) and interest and other payment obligations is
subordinate or junior in right of payment by its terms to the notes or the
Subsidiary Guarantees of the Company or a Guarantor, as applicable, including,
without limitation, the Senior Subordinated Notes.
"Subsidiary," with respect to any Person, means (1) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (2) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" has the meaning set forth under "-- Certain
Covenants -- Issuance of Subsidiary Guarantees."
"Surviving Entity" has the meaning set forth under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets."
"Transaction Date" has the meaning set forth in the definition of Combined
Fixed Charge Coverage Ratio.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (A) the then outstanding
aggregate principal amount of such Indebtedness into (B) the sum of the total of
the products obtained by multiplying (I) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (II) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Domestic Restricted Subsidiary" means a Wholly Owned
Restricted Subsidiary that is also a Domestic Restricted Subsidiary.
"Wholly Owned Restricted Subsidiary" of the Company means any Restricted
Subsidiary of which all the outstanding voting securities (other than in the
case of a Foreign Restricted Subsidiary, directors' qualifying shares or an
immaterial amount of shares required to be owned by other Persons pursuant to
applicable law) are owned by the Company or any other Wholly Owned Restricted
Subsidiary.
74
REGISTRATION RIGHTS
We and our subsidiary guarantors entered into a registration rights
agreement with the initial purchasers of the old notes on November 20, 2007. In
that agreement, we agreed for the benefit of the holders of the old notes that
we would use our commercially reasonable efforts to file with the Commission and
cause to become effective a registration statement relating to an offer to
exchange the old notes for an issue of Commission-registered notes with terms
identical to those notes (except that the exchange notes will not be subject to
restrictions on transfer or to any increase in annual interest rate as described
below).
When the Commission declares the exchange offer registration statement
effective, we will offer the exchange notes in return for the old notes. The
exchange offer will remain open for at least 20 business days after the date we
mail notice of the exchange offer to noteholders. For each note surrendered to
us under the exchange offer, the noteholder will receive an exchange note of
equal principal amount. Interest on each exchange note will accrue from the last
interest payment date on which interest was paid on the notes or, if no interest
has been paid on the notes, from the issue date.
If applicable interpretations of the staff of the Commission do not permit
us to effect the exchange offer, we will use our commercially reasonable efforts
to cause to become effective a shelf registration statement relating to resales
of the notes offered hereby and to keep that shelf registration statement
effective until the expiration of the time period referred to in Rule 144(k)
under the Securities Act, or such shorter period that will terminate when all
notes covered by the shelf registration statement have been sold. Upon the
request of any initial purchaser, we will also use our commercially reasonable
efforts to cause a shelf registration statement to become and remain effective
for a specified period as to notes offered hereby held by the initial purchaser
that have the status of an unsold allotment in the initial distribution of those
notes. We will, in the event of a shelf registration, provide to each noteholder
whose notes are covered thereby copies of the prospectus that is a part of the
shelf registration statement, notify each such noteholder when the shelf
registration statement has become effective and take certain other actions to
permit resales of the notes. A noteholder that sells notes under the shelf
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with those sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
noteholder (including certain indemnification obligations).
If (i) the exchange offer is not completed (or, if the exchange offer is
not permitted, the shelf registration statement is not declared effective) on or
before the date that is 210 days after the closing date (the "Target
Registration Date") or (ii) a shelf registration statement requested by an
initial purchaser as described above is not declared effective within 60 days
after the request (also a "Target Registration Date"), the annual interest rate
borne by the notes offered hereby will be increased 0.25 percent per annum with
respect to the first 90 days after the applicable Target Registration Date, and,
if the exchange offer is not completed (or, if required, the shelf registration
statement is not declared effective) prior to the end of such 90-day period, by
an additional 0.25 percent per annum (together with the increase described in
the preceding clause, as applicable, the "Additional Stated Interest"), in each
case until the exchange offer is completed or the shelf registration statement
is declared effective. Notwithstanding the foregoing, in no event will the
Additional Stated Interest exceed 1.0 percent per annum in the aggregate.
If we effect the exchange offer, we will be entitled to close the exchange
offer 20 business days after its commencement, provided that we have accepted
all notes validly surrendered in accordance with the terms of the exchange
offer. Notes not tendered in the exchange offer shall bear interest at the rate
set forth on the cover page of this offering memorandum and be subject to all
the terms and conditions specified in the indenture, including transfer
restrictions.
This summary of the provisions of the registration rights agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the registration rights agreement, a copy
of which is available from us upon request.
75
BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
The exchange notes will be issued in the form of one or more notes in
global form without interest or coupons which are called global notes. The old
notes, to the extent validly tendered and accepted and directed by their holders
in the letters of transmittal, will be exchanged through book-entry electronic
transfer for the global note(s). Upon issuance, the global notes will be
deposited with The Depository Trust Company, or DTC, and registered in the name
of Cede & Co., as nominee of DTC.
All interests in the global notes may be subject to the procedures and
requirements of DTC and its direct and indirect participants, which are called
DTC participants, and procedures of Euroclear Bank S.A./N.V., as operator of the
Euroclear System, which we refer to as "Euroclear," and Clearstream Banking,
societe anonyme, which were refer to as "Clearstream."
Ownership of beneficial interests in each global note will be limited to
persons who have accounts with DTC, called DTC participants, or persons who hold
interests through DTC participants. We expect that under procedures established
by DTC:
- upon deposit of each global note with DTC's custodian, DTC will credit
portions of the principal amount of the global note to the accounts of
the DTC participants designated with an interest in the global notes;
and
- ownership of beneficial interests in each global note will be shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global note).
Beneficial interests in the global notes may not be exchanged for notes in
physical, certificated form except in the limited circumstances described below.
Beneficial interests in one global note may generally be exchanged for interests
in another global note.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
All interests in the global notes will be subject to the operations and
procedures of DTC, Euroclear and Clearstream. We provide the following summaries
of those operations and procedures solely for the convenience of investors. The
operations and procedures of each settlement system are controlled by that
settlement system and may be changed at any time. Neither we nor the initial
purchasers are responsible for those operations or procedures.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York State
Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants. DTC's
participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC.
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So long as DTC's nominee is the registered owner of a global note, that
nominee will be considered the sole owner or holder of the notes represented by
that global note for all purposes under the indenture. Except as provided below,
owners of beneficial interests in a global note:
- will not be entitled to have notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical, certificated notes;
and
- will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee under the indenture.
As a result, each investor who owns a beneficial interest in a global note
must rely on the procedures of DTC to exercise any rights of a holder of notes
under the indenture (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the
notes represented by a global note will be made by the Trustee to DTC's nominee
as the registered holder of the global note. Neither we nor the Trustee will
have any responsibility or liability for the payment of amounts to owners of
beneficial interests in a global note, for any aspect of the records relating to
or payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's
procedures and will be settled in same-day funds. Neither we nor the Trustee
will have any responsibility for the performance by DTC or its direct or
indirect participants of their obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each
person that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies us at any time that it is unwilling or unable to continue
as depositary for the global notes and a successor depositary is not
appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
90 days; or
- certain other events provided in the indenture should occur.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain material U.S. federal income tax
consequences of the acquisition, ownership and disposition of an exchange note
acquired pursuant to the exchange offer. For purposes of this discussion, a
"U.S. Holder" means a beneficial owner of an exchange note that for U.S. federal
income tax purposes is either:
- a citizen or resident alien of the United States;
- a corporation (including for this purpose any other entity treated as a
corporation for U.S. federal income tax purposes) created or organized
in or under the laws of the United States or any political subdivision
thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust (i) that is subject to the primary supervision of a court within
the United States and under the control of one or more U.S. persons, or
(ii) that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
A "non-U.S. Holder" means a beneficial owner of an exchange note that, for
U.S. federal income tax purposes, is a nonresident alien, corporation (including
for this purpose any other entity treated as a corporation for U.S. federal
income tax purposes), trust or estate that is not a U.S. Holder.
This summary is based on provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations issued thereunder, and
administrative and judicial interpretations thereof, all as of the date of this
prospectus and all of which are subject to change (perhaps retroactively), and
is for general purposes only. This summary addresses only holders who hold the
exchange notes as capital assets and does not represent a detailed description
of the U.S. federal income tax consequences to holders in light of their
particular circumstances. In addition, it does not represent a detailed
description of the U.S. federal income tax consequences to holders that are
subject to special treatment under the U.S. federal income tax laws, such as
taxpayers subject to the alternative minimum tax, expatriates, financial
institutions, partnerships or other pass-through entities, individual retirement
and other tax deferred accounts, dealers in securities or currencies, life
insurance companies, tax-exempt organizations, persons holding exchange notes as
a hedge or hedged against currency risk, as a position in a straddle, and U.S.
holders whose functional currency is other than the U.S. dollar. We cannot
assure you that a change in law will not alter significantly the tax
considerations that we describe in this summary. If a partnership (including,
for this purpose, any other entity, either foreign and domestic, treated as a
partnership for U.S. federal income tax purposes) holds the notes, the tax
treatment of a partner as a beneficial owner of a note generally will depend
upon the status of the partner and activities of the partnership. Foreign
partnerships are generally subject to special tax documentation requirements. We
cannot assure you that a change in law will not alter significantly the tax
considerations that we describe in this summary.
YOU SHOULD CONSULT YOUR TAX ADVISOR CONCERNING THE PARTICULAR U.S. FEDERAL
INCOME TAX CONSEQUENCES TO YOU RESULTING FROM YOUR OWNERSHIP OF THE EXCHANGE
NOTES, AS WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
THE EXCHANGE OFFER
The exchange of your old notes for exchange notes pursuant to the terms of
the exchange offer should not be a taxable event for U.S. federal income tax
purposes. Consequently, your initial tax basis in an exchange note should be
equal to your adjusted tax basis in the old note at the time of the exchange of
such old note for the exchange note. In addition, your holding period for an
exchange note should include your holding period for the old note exchanged for
such exchange note.
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U.S. FEDERAL INCOME TAX CONSEQUENCES FOR U.S. HOLDERS
Stated interest. A U.S. Holder of an exchange note will have ordinary
interest income equal to the amount of interest paid or accrued on an exchange
note, realized in accordance with the holder's regular method of tax accounting
for U.S. federal income tax purposes. The exchange notes will not be treated as
issued with original issue discount ("OID"). The deductibility of capital losses
is subject to limitations.
Dispositions. Generally, a sale, exchange, redemption or other disposition
of an exchange note will result in capital gain or loss equal to the difference,
if any, between the amount realized on the disposition (excluding amounts
attributable to accrued and unpaid interest, which will be taxed as ordinary
income to the extent not previously included in gross income by the U.S. Holder)
and the U.S. Holder's adjusted tax basis in the exchange note. A U.S. Holder's
adjusted tax basis for determining gain or loss on the disposition of a exchange
note generally will equal the purchase price of the old note exchanged for such
exchange note, reduced by amortizable bond premium to reduce interest on the old
note. Such gain or loss will be long-term capital gain or loss if the exchange
note is held for more than one year.
NON-U.S. HOLDERS
U.S. federal withholding tax. The United States generally imposes a 30
percent withholding tax on payments of interest to non-U.S. persons. The 30
percent (or lower applicable treaty rate) U.S. federal withholding tax will not
apply to a non-U.S. Holder in respect of any payment of principal or interest on
an exchange note that is not effectively connected with the conduct of a U.S.
trade or business conducted by such non-U.S. Holder provided that such holder:
- does not actually (or constructively) own ten percent or more of the
total combined voting power of all classes of our voting stock within
the meaning of the Code and U.S. Treasury regulations;
- is not a controlled foreign corporation that is related to us actually
or constructively through stock ownership;
- is not a bank whose receipt of interest on the exchange notes is
described in section 881(c)(3)(A) of the Code; and
- (a) provides identifying information (i.e. name and address) to us on
the applicable IRS Form W-BEN (or successor form), and certifies, under
penalty of perjury, that such holder is not a U.S. person or (b) a
financial institution holding the exchange notes on behalf of such
holder certifies, under penalty of perjury, that it has received the
applicable IRS Form W-8BEN (or successor form) from the beneficial owner
and provides us with a copy.
If a non-U.S. Holder cannot satisfy the requirements described above,
payments of premium and interest made to such holder will be subject to the 30
percent U.S. federal withholding tax, unless such holder provides us with a
properly executed (i) applicable IRS Form W-8BEN (or successor form) claiming an
exemption from or reduction in withholding under the benefit of an income tax
treaty or (ii) IRS Form W-8ECI (or successor form) stating that interest paid on
the exchange note is not subject to withholding tax because it is effectively
connected with such holder's conduct of a trade or business in the United
States.
The 30 percent U.S. federal withholding tax will not apply to any gain or
income realized on the sale, exchange, retirement or other disposition of an
exchange note by a non-U.S. Holder who is not engaged in the conduct of a U.S.
trade or business.
U.S. federal income tax. If a non-U.S. Holder is engaged in a trade or
business in the United States and interest on the exchange notes is effectively
connected with the conduct of that trade or business (although exempt from the
30 percent U.S. withholding tax), such holder may, subject to any applicable tax
treaty, be subject to U.S. federal income tax on that interest on a net income
basis in the same manner as if such holder were a U.S. person as defined under
the Code. In addition, if a non-U.S. Holder is a foreign corporation (or other
entity treated as a corporation for U.S. federal income tax purposes), it may be
subject to a branch profits tax equal to 30 percent (or lower applicable treaty
rate) of its earnings and profits for the taxable year, subject to adjustments,
that are effectively connected with the conduct by it of a trade or business in
the
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United States. For this purpose, effectively connected interest on exchange
notes will be included in earnings and profits.
Any gain realized on the disposition of an exchange note by a non-U.S.
Holder generally will not be subject to U.S. federal income tax, provided that
(1) such gain is effectively connected with the conduct of a trade or business
in the United States (by such holder, in which case if such non-U.S. Holder is a
corporation, a 30 percent (or lower applicable treaty rate) branch profits tax
may also apply, or (2) such holder is an individual who is present in the United
States for 183 days or more in the taxable year of that disposition and certain
other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements apply to interest paid to,
and to the proceeds of a sale or other disposition of an exchange note by,
certain U.S. Holders. In addition, back-up withholding (currently at a rate of
28%) may apply to a non-corporate U.S. Holder unless such holder provides a
correct taxpayer identification number and otherwise complies with applicable
requirements of the backup withholding rules. Backup withholding generally does
not apply to payments made to certain exempt U.S. persons, such as corporations
and tax-exempt organizations.
In general, a non-U.S. Holder will not be subject to backup withholding and
information reporting with respect to interest payments that we make to such
holder provided that we have received from such holder the statement described
above under "-- Non-U.S. Holders -- U.S. federal withholding tax."
Payments of the proceeds of a sale or other disposition of the exchange
notes made to or through a foreign office of a foreign, non-U.S. related
financial intermediaries will not be subject to information reporting or backup
withholding. In addition, a non-U.S. holder will not be subject to backup
withholding or information reporting with respect to the proceeds of the sale of
an exchange note within the United States or conducted through certain U.S.
related financial intermediaries, if the payor receives the statement described
above under "-- Non-U.S. Holders -- U.S. Federal Withholding Tax" and does not
have actual knowledge or reason to know that such holder is a U.S. person, as
defined under the Code, or such holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against a holder's U.S. federal income tax liability provided
the required information is furnished by such holder to the IRS.
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PLAN OF DISTRIBUTION
Until 90 days after the date of this prospectus, all dealers effecting
transactions in the exchange notes, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes only where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days from the date on which the exchange offer is consummated, we
will make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at 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 or the purchasers of any exchange notes.
Any broker-dealer that resells exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. 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.
The exchange notes are a new issue of securities, and there is currently no
established trading market for the notes. We do not intend to apply for the
exchange notes to be listed on any securities exchange or to arrange for the
exchange notes to be quoted on any quotation system. We cannot assure you that a
liquid trading market will develop for the exchange notes, that you will be able
to sell your exchange notes at a particular time or that the prices that you
receive when you sell will be favorable.
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LEGAL MATTERS
Legal matters regarding the notes offered hereby will be passed upon for us
by Mayer Brown LLP. Mayer Brown LLP has in the past represented and continues to
represent us in various matters.
EXPERTS
The consolidated financial statements and the related financial statement
schedule, incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 2007, and the effectiveness
of Tenneco Inc.'s internal control over financial reporting have been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their reports which are incorporated herein by reference (which
reports (1) express an unqualified opinion on the financial statements and
financial statement schedule and include explanatory paragraphs regarding the
Company's adoption of the measurement date provisions of Statement of Financial
Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension
and Other Postretirement Plans -- an amendment of FASB Statements No 87, 88,
106, and 132(R)" on January 1, 2007, the Company's adoption of Statement of
Financial Accounting Standards No. 123(R), "Share-Based Payment" on January 1,
2006 and the Company's adoption of the recognition and disclosure provisions of
Statement of Financial Accounting Standards No. 158, "Employer's Accounting for
Defined Benefit Pension and Other Postretirement Plans -- an amendment of FASB
Statements No. 87, 88, 106 and 132(R)" on December 31, 2006) and (2) express an
adverse opinion on the effectiveness of internal control over financial
reporting because of a material weakness). Such financial statements and
financial statement schedule have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 2008 and 2007, which is incorporated herein by reference,
Deloitte & Touche LLP, an independent registered public accounting firm, have
applied limited procedures in accordance with the standards of the Public
Company Accounting Oversight Board (United States) for a review of such
information. However, as stated in their report included in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual and quarterly reports and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements and other information we file at the Commission's public reference
room at MS 0102, 100 F Street NE, Washington, D.C. 20549-2521. You may request
copies of the documents, upon payment of a duplicating fee, by writing the
Public Reference Section of the Commission. Please call 1-800-SEC-0330 for
further information on the public reference rooms. Our filings will also be
available to the public from commercial document retrieval services and at the
web site maintained by the Commission at http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the
Commission the exchange notes offered hereby to be issued in exchange for the
old notes. This prospectus is part of that registration statement. As allowed by
the Commission's rules, this prospectus does not contain all of the information
you can find in the registration statement or the exhibits to the registration
statement. You should note that where we summarize in this prospectus the
material terms of any contract, agreement or other document filed as an exhibit
to the registration statement, the summary information provided in the
prospectus is less complete than the actual contract, agreement or document. You
should refer to the exhibits filed to the registration statement for copies of
the actual contract, agreement or document.
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We have agreed that, whether or not we are required to do so by the rules
and regulations of the Commission, for so long as any of the notes offered
hereby remains outstanding, we will furnish to the trustee and the holders of
the notes and, upon written request, to securities analysts and prospective
investors, and file with the Commission (unless the Commission will not accept
such a filing) (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if we were required to file such reports, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by our certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in each case
within the time period specified in the rules and regulations of the Commission.
In addition, for so long as any of the notes remain outstanding, we have agreed
to make available to any holder of the notes or prospective purchaser of the
notes, at their request, the information required by Rule 144A(d)(4) under the
Securities Act.
We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus other
than those contained in this prospectus. If you are given any information or
representations about these matters that is not discussed in this prospectus,
you must not rely on that information. This prospectus is not an offer to sell
or a solicitation of an offer to buy securities anywhere or to anyone where or
to whom we are not permitted to offer or sell securities under applicable law.
INCORPORATION BY REFERENCE
We are incorporating by reference certain information that we have filed
with the Commission under the informational requirements of the Securities
Exchange Act of 1934. The information contained in the documents we are
incorporating by reference is considered to be part of this prospectus. We are
incorporating by reference:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2007;
- our Quarterly Report on Form 10-Q for the three months ended March 31,
2008;
- information that is considered to be filed with, as opposed to furnished
to the Commission pursuant to our Current Reports on Form 8-K submitted
to the Commission on January 24, 2008, March 10, 2008, March 12, 2008
and April 24, 2008; and
- items filed by us with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 on or subsequent to the
date of this registration statement and before termination of this
offering.
Any information incorporated by reference is considered to be part of this
prospectus, and any information that we file with the Commission subsequent to
the filing of the incorporated material or the date of this prospectus will
automatically update and, if applicable, supercede the incorporated information
and this prospectus.
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