PROSPECTUS
[LOGO]
MILLENNIUM AMERICA INC.
$100,000,000
OFFER TO EXCHANGE ALL OUTSTANDING
UNREGISTERED 9 1/4% SENIOR NOTES DUE 2008
FOR
9 1/4% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
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We are offering to exchange all of our outstanding unregistered 9 1/4%
Senior Notes due 2008 for new notes with substantially identical terms which
have been registered under the Securities Act of 1933, as amended, and will not
bear any legend restricting their transfer. The exchange notes offered hereby
will represent the same debt as the outstanding unregistered notes, will be
fully and unconditionally guaranteed by our parent Millennium Chemicals Inc.,
and will be issued under the same indenture as the outstanding unregistered
notes.
In this prospectus, the exchange notes offered hereby will be called
'exchange notes,' unless otherwise indicated.
The principal features of the exchange offer are as follows:
Expires 5:00 p.m., New York City time, on January 8, 2003, unless extended.
We will exchange all outstanding unregistered notes that are validly
tendered and not validly withdrawn prior to the expiration date of the
exchange offer.
You may withdraw tendered outstanding unregistered notes at any time prior
to the expiration of the exchange offer.
The exchange of outstanding unregistered notes for exchange notes offered
hereby pursuant to the exchange offer will be a tax-free event for United
States federal income tax purposes.
We will not receive any proceeds from the exchange offer.
We do not intend to apply for listing of the exchange notes on any
securities exchange or automated quotation system.
The exchange notes will bear the same CUSIP number, and will be
interchangeable with, our outstanding registered 9 1/4% Senior Notes due
2008.
-------------------
INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE 'RISK
FACTORS' SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS PROSPECTUS IS DECEMBER 2, 2002.
TABLE OF CONTENTS
PAGE
----
Summary..................................................... 2
Risk Factors................................................ 11
Use of Proceeds............................................. 22
Selected Financial Data of Millennium Chemicals Inc......... 23
Description of Certain Other Indebtedness................... 27
The Exchange Offer.......................................... 29
Description of the Exchange Notes........................... 40
Book-Entry Procedures....................................... 83
Certain Income Tax Consequences............................. 85
Plan of Distribution........................................ 90
Legal Matters............................................... 90
Independent Experts......................................... 90
Where You Can Find More Information......................... 90
Incorporation By Reference.................................. 91
This prospectus incorporates important business and financial information
about Millennium Chemicals and Millennium America that is not included or
delivered with this prospectus. This information is available without charge to
you upon written or oral request. Requests should be made to: Millennium
Chemicals Inc., 230 Half Mile Road, Red Bank, New Jersey, 07701, telephone:
(732) 933-5000, Attention: Corporate Secretary.
TO OBTAIN TIMELY DELIVERY OF THOSE MATERIALS, YOU MUST REQUEST THE
INFORMATION NO LATER THAN DECEMBER 31, 2002, WHICH IS FIVE BUSINESS DAYS BEFORE
THE EXPIRATION DATE OF THE EXCHANGE OFFER.
1
SUMMARY
This section highlights some of the information contained in this
prospectus. Because this is only a summary, it may not include all the
information that is important to you. To understand this exchange offer, you
should read the entire prospectus, especially Risk Factors, and the documents
incorporated by reference before making a decision. Unless the context requires
otherwise, in this prospectus the terms 'we,' 'us' and 'our' refer to Millennium
America together with its consolidated subsidiaries, and the term 'Millennium
Chemicals' refers to Millennium Chemicals Inc., the indirect parent of
Millennium America and the guarantor of the outstanding registered and
unregistered notes and the exchange notes offered hereby, and its consolidated
subsidiaries.
MILLENNIUM CHEMICALS INC.
Millennium Chemicals is a major international chemical company, with leading
market positions in a broad range of commodity, industrial, performance and
specialty chemicals.
Millennium Chemicals has three business segments: Titanium Dioxide and
Related Products; Acetyls; and Specialty Chemicals. Millennium Chemicals also
owns a 29.5% interest in Equistar Chemicals, LP, a joint venture owned by
Millennium Chemicals and Lyondell Chemical Company. Millennium Chemicals
accounts for its interest in Equistar as an equity investment.
Millennium Chemicals has leading market positions in the United States and
the world:
Through Millennium Chemicals' Titanium Dioxide and Related Products
business segment, it is the second-largest producer of titanium dioxide, or
TiO[u]2, in the world, with manufacturing facilities in the United States,
the United Kingdom, France, Brazil and Australia. It is also the largest
merchant seller of titanium tetrachloride, or TiCl[u]4, in North America
and Europe and a major producer of zirconia, silica gel and cadmium-based
pigments;
Through Millennium Chemicals' Acetyls business segment, it is the
second-largest producer of vinyl acetate monomer, or VAM, and acetic acid
in North America;
Through Millennium Chemicals' Specialty Chemicals business segment, it is a
leading producer of terpene-based fragrance and flavor chemicals; and
Through Millennium Chemicals' 29.5% interest in Equistar, it is a partner
in the second-largest producer of ethylene and the third-largest producer
of polyethylene in North America, and a leading producer of performance
polymers, oxygenated chemicals, aromatics and specialty petrochemicals.
References to Millennium Chemicals' and Equistar's market positions, with
the exception of Millennium Chemicals' market position in the Specialty
Chemicals business segment, are based on estimates of their respective
production capacities, as compared to the production capacities of other
industry participants. The reference to Millennium Chemicals' market position
with respect to the Specialty Chemicals business segment is based on sales
volumes of the Specialty Chemicals business segment, as compared to the
estimated sales volumes of its competitors.
Estimates of the production capacities of Millennium Chemicals and Equistar
are based upon engineering assessments by Millennium Chemicals and Equistar,
respectively, and estimates of the production capacities (and sales volumes) of
other industry participants are based on publicly available information from a
variety of industry sources. Actual production may vary depending on a number of
factors including feedstocks, product mix, unscheduled maintenance and demand.
Millennium Chemicals' common stock trades on the New York Stock Exchange
under the ticker symbol 'MCH'. As of October 31, 2002, Millennium Chemicals had
an equity market capitalization of approximately $584 million.
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Millennium Chemicals is incorporated in Delaware, the address of its
principal executive offices is 230 Half Mile Road, Red Bank, New Jersey 07701
and its telephone number at that address is (732) 933-5000.
MILLENNIUM AMERICA INC.
We are an indirect wholly owned subsidiary of Millennium Chemicals. We are a
holding company for all of Millennium Chemicals' operating subsidiaries other
than its operations in the United Kingdom, France, Brazil and Australia. We are
the issuer of the 7% Senior Notes due November 15, 2006, the 7.625% Senior
Debentures due November 15, 2026 and the outstanding registered and unregistered
9 1/4% Senior Notes due 2008 and the principal borrower under Millennium
Chemicals' bank credit agreement. All of our public indebtedness is fully and
unconditionally guaranteed by Millennium Chemicals.
We are incorporated in Delaware, and the address of our principal executive
offices is 230 Half Mile Road, Red Bank, New Jersey 07701. Our telephone number
at that address is (732) 933-5000.
EQUISTAR INVESTMENT
On August 22, 2002, Lyondell Chemical Company filed a Current Report on Form
8-K stating that it had purchased Occidental Petrochemical Corporation's
interest in Equistar, increasing Lyondell's interest in Equistar to 70.5%. Upon
the closing of the transaction, our indemnity relating to up to $750 million of
Equistar's outstanding indebtedness terminated.
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Broker-dealers receiving exchange notes for their own accounts in the
exchange offer must deliver a prospectus in any resale of the exchange notes. 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 the resales of exchange notes received in
exchange for outstanding unregistered notes where such outstanding unregistered
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Millennium America has agreed that, for
a period of 180 days after the expiration date, it will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
'Plan of Distribution'.
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THE OFFERING
In September 2001, we issued $275 million aggregate principal amount of
9 1/4% Senior Notes due 2008 in a transaction registered under the Securities
Act in exchange for notes previously issued in a private offering. On June 26,
2002 we completed the offering of an additional $100 million aggregate principal
amount of 9 1/4% Senior Notes due 2008 under the same indenture in a transaction
that was exempt from registration under the Securities Act. We used the gross
proceeds from the June 2002 note offering of $102.5 million to repay $65 million
of outstanding term loans under our bank credit agreement and $37.5 million of
outstanding indebtedness under the revolving credit facility under our bank
credit agreement. The following is a brief summary of the offering.
Outstanding unregistered
notes.............................. We sold the outstanding unregistered notes to J.P. Morgan
Securities Inc., Banc of America Securities LLC, BNP Paribas
Securities Corp., Credit Lyonnais Securities (USA) Inc.,
Daiwa Securities SMBC Europe Limited and SG Cowen Securities
Corporation, the initial purchasers, on June 26, 2002. The
initial purchasers subsequently resold the outstanding
unregistered notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act and to
non-U.S. persons outside the United States in reliance on
Regulation S under the Securities Act.
Registration rights agreement........ In connection with the issuance of the outstanding
unregistered notes, we and Millennium Chemicals entered into
a registration rights agreement with the initial purchasers
of the outstanding unregistered notes. Under the terms of
that agreement we agreed to:
file with the SEC a registration statement for the
exchange offer and the exchange notes on or before
September 24, 2002;
use our reasonable efforts to cause that registration
statement to become effective under the Securities Act
on or before December 23, 2002; and
complete the exchange offer on or before January 22,
2003.
If we do not meet one of these requirements, we must pay
liquidated damages to the holders of the outstanding
unregistered notes until we meet the requirement. We have
also agreed to keep the registration statement for the
exchange offer effective for at least 30 days (or longer, if
required by applicable law) after the date for which notice
of the exchange offer is mailed to holders of notes. The
exchange offer is being made pursuant to the registration
rights agreement and is intended to satisfy the rights
granted under the registration rights agreement, which
rights terminate upon completion of the exchange offer.
THE EXCHANGE OFFER
The following is a brief summary of the terms of the exchange offer. For a more complete
description of the exchange offer, see 'The Exchange Offer' in this prospectus.
Securities offered................... $100,000,000 aggregate principal amount of 9 1/4% Senior
Notes due 2008.
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Exchange offer....................... We are offering to exchange $1,000 principal amount of our
9 1/4% Senior Notes due 2008, which have been registered
under the Securities Act, for each $1,000 principal amount
of our currently outstanding unregistered 9 1/4% Senior
Notes due 2008. We will accept any and all outstanding
unregistered notes validly tendered and not withdrawn prior
to 5:00 p.m., New York City time on January 8, 2003. Holders
may tender some or all of their notes pursuant to the
exchange offer. However, notes may be tendered only in
integral multiples of $1,000. The form and terms of the
exchange notes are the same as the form and terms of the
outstanding unregistered notes except that:
the exchange notes have been registered under the
Securities Act and will not bear any legend restricting
their transfer;
the exchange notes bear a different CUSIP number from
the outstanding unregistered notes; and
the holders of the exchange notes will not be entitled
to certain rights under the registration rights
agreement, including the provisions for liquidated
damages on the outstanding unregistered notes in some
circumstances relating to the timing of the exchange
offer.
Transferability of exchange notes.... We believe, based on an interpretation by the staff of the
SEC outlined in a series of no-action letters issued to
third parties, that you will be able to freely transfer the
exchange notes without registration or any prospectus
delivery requirement so long as you may accurately make the
representations listed under 'The Exchange
Offer -- Transferability of Exchange Notes.' If you are a
broker-dealer that acquired outstanding unregistered notes
as a result of market-making or other trading activities,
you must deliver a prospectus in connection with any resale
of the exchange notes. See 'Plan of Distribution.'
Expiration date...................... The exchange offer will expire at 5:00 p.m., New York City
time, on January 8, 2003, unless we, in our sole discretion,
extend the exchange offer.
Conditions to the exchange offer..... Notwithstanding any other term of the exchange offer, we
shall not be required to accept for exchange, or exchange
any exchange notes for, any outstanding unregistered notes,
and may terminate or amend the exchange offer as provided in
this prospectus before the acceptance of the outstanding
unregistered notes, if certain events occur, including the
following:
the exchange notes to be received will not be tradable
by the holder without restrictions under the Securities
Act or the Exchange Act and without material
restrictions under the blue sky or securities laws of
substantially all of the states of the United States;
any action or proceeding is instituted or threatened in
any court or by or before any governmental agency with
respect to the exchange offer which, in our sole
5
judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us;
any law, statute, rule, regulation or interpretation by
the staff of the SEC is proposed, adopted or enacted,
which, in our sole judgment, might impair our ability to
proceed with the exchange offer or impair the
contemplated benefits of the exchange offer to us; or
any governmental approval has not been obtained, which
we believe, in our sole discretion, is necessary for the
consummation of the exchange offer as outlined in this
prospectus.
Procedures for tendering outstanding
unregistered notes................. If you wish to accept the exchange offer, you must complete,
sign and date the letter of transmittal, or a facsimile of
the letter of transmittal, in accordance with the
instructions contained in this prospectus and in the letter
of transmittal. You should then mail or otherwise deliver
the letter of transmittal, or facsimile, together with the
outstanding unregistered notes to be exchanged and any other
required documentation, to the exchange agent at the address
set forth in this prospectus and in the letter of
transmittal.
By executing the letter of transmittal, you will represent
to us that, among other things:
you, or the person or entity receiving the related
exchange notes, are acquiring the exchange notes in the
ordinary course of business;
neither you nor any person or entity receiving the
related exchange notes is engaging in or intends to
engage in a distribution of the exchange notes within
the meaning of the Securities Act;
neither you nor any person or entity receiving the
related exchange notes has an arrangement or
understanding with any person or entity to participate
in any distribution of the exchange notes;
neither you nor any person or entity receiving the
related exchange notes is an 'affiliate' of Millennium
Chemicals or Millennium America, as that term is defined
under Rule 405 of the Securities Act; and
you are not acting on behalf of any person or entity who
could not truthfully make these statements.
Effect of not tendering.............. Any outstanding unregistered notes that are not tendered or
that are tendered but not accepted will remain subject to
the restrictions on transfer. Since the outstanding
unregistered notes have not been registered under the
Securities Act, they bear a legend restricting their
transfer absent registration or the availability of a
specific exemption from registration. Upon the completion of
the exchange offer, we will have no further obligations,
except under limited circumstances, to provide for
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registration of the outstanding unregistered notes under the
Securities Act.
Interest on the exchange notes and
the outstanding unregistered
notes.............................. The exchange notes will bear interest from the most recent
interest payment date to which interest has been paid on the
tendered outstanding unregistered notes or, if no interest
has been paid, from June 15, 2002. Interest on the
outstanding unregistered notes accepted for exchange will
cease to accrue upon the issuance of the exchange notes.
Withdrawal rights.................... Tenders of outstanding unregistered notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the
expiration date.
Federal tax consequences............. There will be no federal income tax consequences to you if
you exchange your outstanding unregistered notes for
exchange notes in the exchange offer.
Regulatory Approvals................. Other than the federal securities laws, there are no federal
or state regulatory requirements that we must comply with
and there are no approvals that we must obtain in connection
with the exchange offer.
Exchange agent....................... The Bank of New York, the trustee under the indenture, is
serving as exchange agent in connection with the exchange
offer.
TERMS OF THE EXCHANGE NOTES
The following is a brief summary of the terms of the exchange notes offered hereby. The
financial terms and covenants of the exchange notes are the same as the terms of the outstanding
unregistered notes and the outstanding registered 9 1/4% Senior Notes due 2008. The exchange notes
offered hereby will bear the same CUSIP number as those registered notes and are to be
interchangeable with those registered notes. For a more complete description of the terms of the
exchange notes, see 'Description of Exchange Notes' in this prospectus.
Issuer............................... Millennium America Inc.
Notes offered........................ $100,000,000 in aggregate principal amount of 9 1/4% Senior
Notes due 2008.
Maturity date........................ June 15, 2008.
Interest payment dates............... Payment frequency: every six months on June 15 and
December 15.
First interest payment date.......... December 15, 2002.
Optional redemption.................. We may redeem some or all of the exchange notes at any time
at the make-whole redemption price described in the section
entitled 'Description of the Exchange Notes -- Optional
Redemption.'
In addition, at any time and from time to time prior to
June 15, 2004, we may redeem up to 35% of the principal
amount of the 9 1/4% Senior Notes due 2008 (calculated after
giving effect to any issuance of notes on or subsequent to
June 18, 2001) with the net cash proceeds of certain equity
offerings at a redemption price equal to 109.25% of the
principal amount thereof, plus accrued and unpaid interest
and liquidated damages thereon, if any, to the redemption
date so long as,
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after giving effect to any such redemption, (1) at least 65%
of the principal amount of the 9 1/4% Senior Notes due 2008
(calculated after giving effect to any issuance of notes on
or subsequent to June 18, 2001) remains outstanding and
(2) any such redemption by us is made within 60 days of
such equity offering.
We may also redeem all but not part of the exchange notes if
there are specified changes in tax law at a redemption price
equal to 100% of the principal amount of the exchange notes
plus accrued and unpaid interest and liquidated damages
thereon, if any, to the date of redemption.
Sinking fund......................... None.
Change of control.................... Upon the occurrence of a change of control, you will have
the right to require us to repurchase all or a portion of
your exchange notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages thereon, if any, to
the date of repurchase.
Note guarantee....................... The exchange notes will be irrevocably and unconditionally
guaranteed (the 'note guarantee') on an unsecured senior
basis by Millennium Chemicals. The exchange notes will not
be guaranteed by any of Millennium Chemicals' subsidiaries.
As of September 30, 2002, these subsidiaries (other than
Millennium America) had approximately $199 million of trade
payables and $28 million of total indebtedness outstanding
(exclusive of unused commitments and $21 million of undrawn
outstanding standby letters of credit) and held
approximately 99% of Millennium Chemicals' consolidated
assets. For the nine months ended September 30, 2002 and the
year ended December 31, 2001, these subsidiaries generated
approximately 100% of Millennium Chemicals' consolidated net
sales.
Security and ranking................. The exchange notes:
will be general unsecured, senior obligations of Millennium
America;
will rank equally in right of payment with all existing and
future senior indebtedness of Millennium America;
will be senior in right of payment to all future
subordinated obligations of Millennium America;
will be effectively subordinated to any secured indebtedness
of Millennium America and its subsidiaries to the extent of
the value of the assets securing such indebtedness; and
will be effectively subordinated to all liabilities
(including trade payables) and preferred stock of each
subsidiary of Millennium America.
The note guarantee of Millennium Chemicals:
will be a general unsecured, senior obligation of Millennium
Chemicals;
will rank equally in right of payment with all existing and
future senior indebtedness of Millennium Chemicals;
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will be senior in right of payment to all future
subordinated obligations of Millennium Chemicals;
will be effectively subordinated to any secured indebtedness
of Millennium Chemicals and its subsidiaries to the extent
of the value of the assets securing such indebtedness; and
will be effectively subordinated to all liabilities
(including trade payables) and preferred stock of each
subsidiary of Millennium Chemicals (other than Millennium
America).
As of September 30, 2002:
Millennium America had approximately $1,188 million of
senior indebtedness (including the outstanding unregistered
notes), of which $49 million was secured indebtedness under
the bank credit agreement (exclusive of unused commitments
under the bank credit agreement, and $2 million of undrawn
outstanding standby letters of credit);
Millennium Chemicals had approximately $1,139 million of
senior indebtedness, consisting of the note guarantee and
its guarantee of Millennium America's other notes and
debentures (exclusive of guarantees of indebtedness under
the bank credit agreement), of which none was secured
indebtedness;
Millennium Chemicals and Millennium America had no
subordinated obligations; and
the subsidiaries of Millennium Chemicals (other than
Millennium America) had $199 million of trade payables and
$28 million of total indebtedness outstanding (exclusive of
unused commitments and $21 million of undrawn outstanding
standby letters of credit). In addition, since each of
Millennium Chemicals and Millennium America conducts all of
its operations through its subsidiaries, the subsidiaries
of Millennium Chemicals (other than Millennium America)
have substantial operating liabilities.
Certain covenants.................... The indenture, among other things, restricts Millennium
Chemicals', Millennium America's and the other restricted
subsidiaries' ability to:
incur additional debt;
issue redeemable stock and preferred stock;
pay dividends or make distributions;
repurchase capital stock;
make other restricted payments including, without
limitation, investments;
create liens;
redeem debt that is junior in right of payment to the notes;
sell or otherwise dispose of assets, including capital stock
of subsidiaries;
9
enter into arrangements that restrict dividends from
subsidiaries;
enter into mergers or consolidations;
enter into transactions with affiliates; and
enter into sale/leaseback transactions.
These covenants will be subject to a number of important
exceptions and qualifications. In addition, if we achieve
certain debt ratings from Standard & Poor's and Moody's
Investors Service and meet certain other requirements,
certain of these covenants will no longer apply.
No assurance of liquid market for the
exchange notes..................... Although the exchange notes will trade with the outstanding
registered 9 1/4% Senior Notes due 2008, there can be no
assurance as to the liquidity of any market for the exchange
notes. The initial purchasers of the outstanding
unregistered notes have advised us that they intend to make
a market in the exchange notes. However, they are not
obligated to do so, and may discontinue any market making
with respect to the exchange notes at any time without
notice. We do not intend to apply for listing of the
exchange notes on any securities exchange or to arrange for
any quotation system to quote them.
Tax consequences..................... The ownership and disposition of the exchange notes have
certain U.S. Federal tax consequences. For more details, see
'Certain Income Tax Considerations.'
Accounting Treatment................. The exchange notes will be recorded at the same carrying
value as the outstanding unregistered notes. The carrying
value is the aggregate gross proceeds received from the sale
of the unregistered notes as reflected in our accounting
records on the date of exchange. Accordingly, we will
recognize no gain or loss for accounting purposes. The
expenses of the exchange offer will be expensed over the
term of the exchange notes.
RISK FACTORS
You should consider carefully all of the information contained in or
incorporated by reference into this prospectus and, in particular, should
evaluate the specific factors under 'Risk Factors' beginning on page 11 before
determining whether to participate in the exchange offer.
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RISK FACTORS
You should carefully consider the following factors, together with the other
information included or incorporated by reference in this prospectus, before
determining whether to participate in the exchange offer. These factors, other
than the first factor, are generally applicable to the outstanding unregistered
notes as well as the exchange notes.
RISKS RELATING TO THE EXCHANGE NOTES
IF YOU FAIL TO EXCHANGE YOUR OUTSTANDING UNREGISTERED NOTES FOR EXCHANGE NOTES
IN THE EXCHANGE OFFER, YOUR OUTSTANDING UNREGISTERED NOTES WILL CONTINUE TO BE
SUBJECT TO TRANSFER RESTRICTIONS AND MAY HAVE REDUCED LIQUIDITY.
In the event the exchange offer is completed, holders of outstanding
unregistered notes which have not been exchanged who seek liquidity in their
investment would have to rely on exemptions to the registration requirements
under the securities laws, including the Securities Act, since the outstanding
unregistered notes will continue to be subject to restrictions on transfer.
Consequently, holders of outstanding unregistered notes who do not participate
in the exchange offer could experience significant diminution in the value of
their outstanding unregistered notes, compared to the value of the exchange
notes. Following the exchange offer, none of the exchange notes will be entitled
to the contingent liquidated damages provided for in the event of a failure to
complete the exchange offer in accordance with the terms of the registration
rights agreement. In addition, we do not intend to register resales of the
outstanding unregistered notes under the Securities Act, except as required by
the registration rights agreement.
OUR SUBSTANTIAL INDEBTEDNESS CAUSES US TO HAVE SIGNIFICANT DEBT SERVICE
OBLIGATIONS, WHICH REDUCES OUR CASH FLOW AVAILABLE TO FUND OPERATIONS.
Millennium Chemicals and its consolidated subsidiaries have substantial
indebtedness and, as a result, significant debt service obligations. As of
September 30, 2002, their total indebtedness outstanding aggregated
approximately $1,216 million (excluding unused commitments and $23 million of
outstanding undrawn standby letters of credit), representing approximately 67%
of their total capitalization. For the nine months ended September 30, 2002, on
a pro forma basis to give effect for the entire period to the issuance of $100
million aggregate principal amount of the outstanding unregistered notes in June
2002 and the use of the gross proceeds thereof to repay $102.5 million of
outstanding indebtedness under our bank credit agreement, Millennium Chemicals
and its consolidated subsidiaries interest expense would have been $69 million
and the ratio of earnings to fixed charges would have been 1.0x. In addition,
Millennium Chemicals' debt instruments permit Millennium Chemicals and its
consolidated subsidiaries to incur or guarantee certain additional indebtedness,
subject to certain limitations. Our debt service obligations reduce our cash
flow available to fund our operations and future business requirements.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR
BUSINESS AND LIMIT OUR ABILITY TO OBTAIN ADDITIONAL FINANCING.
The degree of our leverage could have significant consequences to holders of
exchange notes, including:
limiting our ability to obtain additional financing on satisfactory
terms to fund our business and operations;
increasing our vulnerability to general economic downturns and adverse
competitive and industry conditions, which could place us at a
competitive disadvantage;
increasing our exposure to interest rate increases because a portion of
our borrowings are at variable interest rates; and
limiting our flexibility in planning for, or reacting to, changes in
our business and the chemical industry.
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SERVICING OUR DEBT OBLIGATIONS REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to satisfy our debt service obligations will depend, among other
things, upon our future operating performance, the future operating performance
of Equistar and our ability to refinance indebtedness when necessary. Each of
these factors is to a large extent dependent on economic, financial, competitive
and other factors beyond our control. The amount of cash distributions we
receive from Equistar will be affected by its results of operations and cash
flow and by the agreements under which it operates. We did not receive any cash
distributions from Equistar during 2001, and it is unlikely that we will receive
any distributions during 2002. If, in the future, we cannot generate sufficient
cash from our operations and from Equistar to meet our debt service obligations,
we may need to reduce or delay capital expenditures or curtail research and
development efforts. In addition, we may need to refinance our debt, obtain
additional financing or sell assets, which we may not be able to do on
commercially reasonable terms, if at all. We cannot assure you that our business
or that of Equistar will generate sufficient cash flow, or that we will be able
to obtain funding, sufficient to satisfy our debt service obligations.
RESTRICTIONS IMPOSED BY OUR DEBT INSTRUMENTS MAY LIMIT OUR ABILITY TO FINANCE
FUTURE OPERATIONS OR CAPITAL NEEDS OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT
MAY BE IN OUR INTEREST. OUR FAILURE TO COMPLY WITH THESE RESTRICTIONS COULD LEAD
TO AN ACCELERATION OF OUR INDEBTEDNESS.
Our debt instruments contain numerous financial and operating covenants
that, among other things, limit Millennium Chemicals' and its subsidiaries'
ability to (1) incur additional indebtedness, (2) repurchase or redeem capital
stock, (3) create liens or other encumbrances, (4) redeem debt that is junior in
right of payment to the notes, (5) make certain payments and investments,
including dividend payments, (6) enter into sale/leaseback transactions,
(7) sell or otherwise dispose of assets, (8) merge or consolidate with other
entities or (9) engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. Our bank credit agreement also
requires us to meet certain financial ratios and tests. Agreements governing
future indebtedness could also contain significant financial and operating
restrictions. Our ability to comply with these restrictions may be affected by
factors beyond our control. A failure to comply with the obligations contained
in our bank credit agreement or our indentures could result in an event of
default under our bank credit agreement or the indentures, which could permit
acceleration of the related debt and acceleration of debt under other
instruments that may contain cross-acceleration or cross-default provisions. We
are not certain whether we would have, or be able to obtain, sufficient funds to
make these accelerated payments. In that event, the lenders under our bank
credit agreement could proceed against our assets that secure their debt.
MILLENNIUM AMERICA AND MILLENNIUM CHEMICALS ARE HOLDING COMPANIES AND DEPEND ON
THE RECEIPT OF DIVIDENDS OR OTHER PAYMENTS FROM THEIR SUBSIDIARIES TO PAY THE
PRINCIPAL OF AND INTEREST ON THE NOTES.
Each of Millennium America and Millennium Chemicals is a holding company,
the primary asset of which is 100% of the outstanding capital stock of an
intermediate holding company, which, in turn, is the direct or indirect parent
of numerous subsidiaries. Millennium Chemicals will unconditionally guarantee
the exchange notes on a senior unsecured basis. In repaying their indebtedness,
including, with respect to Millennium America, the exchange notes and, with
respect to Millennium Chemicals, the guarantee of the exchange notes, Millennium
America and Millennium Chemicals must rely on cash flows from their respective
subsidiaries, including dividends or other payments. Certain subsidiaries of
Millennium Chemicals, including those that own the United Kingdom, French,
Australian and Brazilian TiO2 operations, are owned indirectly by Millennium
Chemicals, but not by Millennium America.
The ability of Millennium America's and Millennium Chemicals' subsidiaries
to make payments to Millennium America and Millennium Chemicals, respectively,
will be subject to, among other things, applicable corporate laws and other laws
and regulations of the applicable state or foreign
12
jurisdiction. State corporate law applicable to Millennium America's principal
subsidiaries generally prohibits the payment of dividends by any subsidiary
unless the subsidiary has capital surplus or net profits in the current or
immediately preceding year.
Although the indenture under which the exchange notes will be issued will
limit the ability of our subsidiaries to enter into consensual restrictions on
their ability to pay dividends and make other payments, these limitations have a
number of significant qualifications and exceptions. See 'Description of
Exchange Notes -- Certain Covenants -- Limitation on Restrictions on
Distributions from Restricted Subsidiaries.'
CLAIMS OF CREDITORS OF MILLENNIUM CHEMICALS, MILLENNIUM AMERICA AND EQUISTAR MAY
HAVE PRIORITY OVER CLAIMS OF NOTEHOLDERS WITH RESPECT TO THE ASSETS AND EARNINGS
OF THESE COMPANIES.
The holders of the exchange notes will have no direct claims against
Millennium America's subsidiaries or Millennium Chemicals' subsidiaries (other
than Millennium America). Generally, creditors of subsidiaries of Millennium
America and Millennium Chemicals will have claims to the assets and earnings of
these subsidiaries that are superior to claims of creditors of Millennium
America and Millennium Chemicals, respectively. Therefore, claims of holders of
the indebtedness of Millennium America and Millennium Chemicals, including, with
respect to Millennium America, the exchange notes and, with respect to
Millennium Chemicals, the guarantee of the exchange notes, against the cash flow
and assets of subsidiaries of Millennium America and Millennium Chemicals,
respectively, will be effectively subordinated to claims of these subsidiaries'
creditors. As of September 30, 2002, subsidiaries of Millennium America had
approximately $105 million of trade payables and no indebtedness outstanding
(excluding unused commitments and $11 million of outstanding undrawn standby
letters of credit) and subsidiaries of Millennium Chemicals (other than
Millennium America) had approximately $199 million of trade payables and $28
million of total indebtedness outstanding (excluding unused commitments and $21
million of outstanding undrawn standby letters of credit). Since Millennium
America and Millennium Chemicals conduct all of their operations through their
subsidiaries, their subsidiaries (other than, with respect to Millennium
Chemicals, Millennium America) also have substantial operating liabilities. In
the event of Millennium America's or Millennium Chemicals' dissolution,
bankruptcy, liquidation or reorganization, the holders of the exchange notes may
not receive any amounts with respect to the exchange notes until after payment
in full of the claims of creditors of subsidiaries of Millennium America and
Millennium Chemicals.
Claims of holders of the exchange notes against the cash flow and assets of
Equistar and its subsidiaries will be effectively subordinated to claims of
creditors of Equistar and its subsidiaries. As of September 30, 2002, Equistar
and its subsidiaries had $409 million of accounts payable and $2.3 billion of
long-term indebtedness outstanding.
THE EXCHANGE NOTES WILL NOT BE SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR BANK
CREDIT AGREEMENT IS SECURED AND, THEREFORE, OUR BANK LENDERS WILL HAVE A PRIOR
CLAIM ON CERTAIN OF OUR ASSETS.
The exchange notes will not be secured by any of our assets. However, our
bank credit agreement is secured by (1) a pledge of 100% of the stock of
Millennium Chemicals' existing and future domestic subsidiaries, including
Millennium America, and 65% of the stock of Millennium Chemicals' existing and
future first-tier foreign subsidiaries, in both cases other than subsidiaries
that hold immaterial assets, (2) all the equity interests held by Millennium
Chemicals' subsidiaries in Equistar and La Porte Methanol Company (which pledge
is limited to the right to receive distributions made by Equistar and La Porte
Methanol Company, respectively), and (3) all present and future accounts
receivable, intercompany indebtedness and inventory of Millennium America and
its domestic subsidiaries other than subsidiaries that hold immaterial assets.
If Millennium Chemicals becomes insolvent or is liquidated, or if payment under
any of the instruments governing its secured debt is accelerated, the lenders
under these instruments will be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to
13
instruments governing such debt. Accordingly, the lenders will have a prior
claim on Millennium Chemicals' assets. In that event, because the exchange notes
will not be secured by any of Millennium Chemicals' assets, it is possible that
Millennium Chemicals' remaining assets might be insufficient to satisfy your
claims in full.
WE COULD ENTER INTO VARIOUS TRANSACTIONS, SUCH AS ACQUISITIONS, REFINANCINGS,
RECAPITALIZATIONS, OR OTHER HIGHLY LEVERAGED TRANSACTIONS, WHICH WOULD NOT
CONSTITUTE A CHANGE OF CONTROL, BUT WHICH WOULD NEVERTHELESS INCREASE THE AMOUNT
OF OUTSTANDING DEBT AT SUCH TIME, OR ADVERSELY AFFECT OUR CAPITAL STRUCTURE OR
CREDIT RATINGS, OR OTHERWISE ADVERSELY AFFECT HOLDERS OF THE EXCHANGE NOTES.
Under the terms of the notes, a variety of acquisition, refinancing,
recapitalization or other highly leveraged transactions are not considered
change in control transactions. As a result, we could enter into any such
transaction without being required to make an offer to repurchase the notes even
though the transaction could increase the total amount of our outstanding
indebtedness, adversely affect our capital structure or credit ratings or
otherwise adversely affect the holders of the exchange notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS TO PURCHASE THE EXCHANGE NOTES
UPON A CHANGE OF CONTROL AS REQUIRED BY THE INDENTURE.
Upon the occurrence of certain change of control events, each holder of
exchange notes may require us to repurchase all or a portion of its exchange
notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest and liquidated damages. Our ability to repurchase the exchange
notes upon a change of control will be limited by the terms of our other debt
agreements. Upon a change of control, we may be required immediately to repay
the outstanding principal, any accrued interest and any other amounts owed by us
under our bank credit agreement. We cannot assure you that we would be able to
repay amounts outstanding under our bank credit agreement or obtain necessary
consents under such agreement to repurchase the exchange notes. Any requirement
to offer to purchase any exchange notes may result in our having to refinance
our outstanding indebtedness, which we may not be able to do. In addition, even
if we were able to refinance such indebtedness, such financing may not be on
terms favorable to us.
IN THE EVENT OF A SALE OF ALL OR SUBSTANTIALLY ALL OF OUR ASSETS, THERE MAY BE A
DEGREE OF UNCERTAINTY AS TO WHETHER A CHANGE OF CONTROL HAS OCCURRED WHICH WILL
GIVE RISE TO OUR REPURCHASE OBLIGATIONS UNDER THE INDENTURE.
One of the events which would trigger a change in control is a sale of 'all
or substantially all' of our assets. Although there is a limited body of case
law interpreting the phrase 'all or substantially all' as used in the definition
of 'change in control,' there is no precise established definition of the phrase
under New York law (which is the governing law of the indenture). As a
consequence, there may be a degree of uncertainty as to whether a change of
control has occurred giving rise to the repurchase obligations under the
indenture. It is possible, therefore, that there could be a disagreement between
us and some or all holders of the notes over whether a specific asset sale or
sales triggers a change of control offer and that holders of the notes might not
receive a change of control offer in respect of that transaction. In addition,
in the event the holders of the notes elected to exercise their rights under the
indenture and we elected to contest such election, there could be no assurance
as to how a court interpreting New York law would interpret the phrase 'all or
substantially all.'
WE CANNOT GUARANTEE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES OR THAT YOU WILL BE ABLE TO SELL YOUR EXCHANGE NOTES.
There is currently a limited trading market for the exchange notes. We do
not intend to apply for listing of the exchange notes on any securities exchange
or for quotation through the National Association of Securities Dealers
Automated Quotation System. The liquidity of any market for the
14
exchange notes will depend on the number of holders of the exchange notes, our
performance, the market for similar securities, the interest of securities
dealers in making a market in the exchange notes and other factors. Each initial
purchaser of the outstanding unregistered notes has informed us that, subject to
applicable law, it currently intends to make a market in the exchange notes.
However, the initial purchasers are not obligated to do so, and any market
making by the initial purchasers may be discontinued at any time without notice.
UNDER U.S. FEDERAL AND STATE FRAUDULENT TRANSFER OR CONVEYANCE STATUTES, A COURT
COULD VOID THE OBLIGATIONS OF MILLENNIUM AMERICA AND MILLENNIUM CHEMICALS OR
TAKE OTHER ACTIONS DETRIMENTAL TO HOLDERS OF THE EXCHANGE NOTES OFFERED HEREBY.
Under U.S. federal or state fraudulent transfer or conveyance laws, a court
could take actions detrimental to you if it found that, at the time the exchange
notes offered hereby or the exchange note guarantee were issued:
(1) Millennium America or Millennium Chemicals issued the exchange notes
or the exchange note guarantee with the intent of hindering, delaying or
defrauding current or future creditors; or
(2) (a) Millennium America or Millennium Chemicals received less than
fair consideration for incurring the debt represented by the exchange notes
or the exchange note guarantee; and
(b) Millennium America or Millennium Chemicals:
was insolvent;
was engaged in a business or transaction for which the assets
remaining with Millennium America or Millennium Chemicals would
constitute unreasonably small capital; or
incurred debt beyond Millennium America's or Millennium Chemicals'
ability to pay.
If a court made such a finding, it could:
void all or part of Millennium America's or Millennium Chemicals'
obligations to the holders of the exchange notes and direct the
repayment of any amounts thereunder to Millennium America's or
Millennium Chemicals' other creditors;
subordinate Millennium America's or Millennium Chemicals' obligations
to the holders of the exchange notes to Millennium America's or
Millennium Chemicals' other debt; or
take other actions detrimental to the holders of the exchange notes.
If this were to occur, we cannot assure you that Millennium America could pay
amounts due on the exchange notes offered hereby.
We cannot predict what standard a court would apply in making these
findings, or whether a court would determine that the payments constituted
fraudulent transfers or conveyances on other grounds.
To the extent a court voids the exchange note guarantee as a fraudulent
transfer or conveyance or holds it unenforceable for any other reason, holders
of exchange notes offered hereby would cease to have any claim against
Millennium Chemicals. If a court were to take this action, we cannot assure you
that Millennium America's assets would be sufficient to satisfy the claims of
the holders of exchange notes relating to any voided portions of the exchange
note guarantee.
15
RISKS RELATING TO OUR BUSINESS
THE CYCLICALITY AND VOLATILITY OF THE CHEMICAL INDUSTRY MAY ADVERSELY AFFECT OUR
INCOME AND CASH FLOW LEVELS, AND MAY CAUSE FLUCTUATIONS IN OUR RESULTS OF
OPERATIONS.
Our income and cash flow levels reflect the cyclical nature of the chemical
industries in which we operate. Certain of these industries are mature and
sensitive to cyclical supply and demand balances. In particular, the markets for
ethylene and polyethylene, in which we participate through our interest in
Equistar, are highly cyclical, resulting in volatile profits and cash flow over
the business cycle. Further, the global markets for TiO[u]2, VAM, acetic acid
and our fragrance and flavor chemicals are cyclical, although to a lesser
degree. The balance of supply and demand in the markets in which we and Equistar
do business, as well as the level of inventories held by downstream customers,
has a direct effect on the sales volumes and prices of our products as well as
Equistar's. For example, if supply exceeds demand, producers are often pressured
to maintain sales volumes with customers and, consequently, pressure to reduce
prices may result. This is especially true in periods of economic decline or
uncertainty, when demand may be limited and the economic conditions create
caution on the part of customers to build inventory. Reaction by producers,
including us and Equistar, is dependent on the particular circumstances in
effect at the time, but could include meeting competitive price reductions,
short-term curtailment of production, and longer-term temporary or permanent
plant shutdowns. In contrast, we believe that, over a business cycle, the
markets for specialty chemicals are generally more stable in terms of industry
demand, selling prices and operating margins.
Demand for TiO[u]2 is influenced by changes in the gross domestic product of
various regions of the world and has fluctuated from year to year. The industry
is also sensitive to changes in its customers' marketplaces, which are primarily
the paint and coatings, plastics and paper industries. In recent history,
consolidations and negative business conditions within certain of those
industries have put pressure on TiO[u]2 prices as companies compete to keep
volumes placed.
Demand for ethylene, its derivatives and acetyls has fluctuated from year to
year. These industry segments are particularly sensitive to capacity additions.
Producers have historically experienced alternating periods of inadequate
capacity, resulting in increased selling prices and operating margins, followed
by periods of large capacity additions, resulting in declining capacity
utilization rates, selling prices and operating margins. Profitability is
further influenced by fluctuations in the price of feedstocks for ethylene,
which generally follow price trends for crude oil or natural gas.
The ethylene industry has experienced significant capacity additions.
Additional capacity at a time of weak demand could result in declining capacity
utilization rates, selling prices and margins, which could negatively affect
Equistar's results of operations. We cannot assure you that future growth in
product demand will be sufficient to utilize any additional capacity.
Different facilities may have differing operating rates from
period-to-period depending on supply and demand for the product produced at the
facility during that period, which may be affected by many factors, such as
energy costs, feedstock costs and transportation costs. As a result, individual
facilities may be operated below or above rated capacities, may be idled or may
be shut down and restarted in any period. It is possible that lower demand in
the future will cause us to reduce operating rates.
OUR BUSINESS AND EQUISTAR'S BUSINESS ARE SUBJECT TO MATERIAL FLUCTUATIONS DUE TO
EXTERNAL FACTORS WHICH MAY NEGATIVELY AFFECT OUR AND EQUISTAR'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
External factors beyond our control, such as general economic conditions,
competitor actions, international events and governmental regulation in the
United States and abroad, can cause fluctuations in demand for our products,
fluctuations in prices and margins and volatility in the price of raw materials
that we purchase. In particular, demand within the primary end-markets for our
and Equistar's products is generally a function of regional economic conditions
in geographic areas in which sales are generated. In addition, our business
depends on the free flow of
16
products and services through the channels of commerce. Recently, in response to
terrorists' activities and threats aimed at the United States, transportation,
mail, financial and other services have been slowed. Further delays or stoppages
in transportation, mail, financial and other services could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of these activities and
threats. To the extent the U.S. economy is adversely affected by the terrorist
activities and potential activities, any economic downturn could adversely
impact our results of operations, impair our ability to raise capital or
otherwise adversely affect our ability to grow our business. These external
factors can magnify the impact of industry cycles. As a result, our income and
cash flow are subject to material fluctuations. The cash distributions we expect
to receive from Equistar may be affected by the same or similar external
factors.
OUR PARTICIPATION IN THE EQUISTAR JOINT VENTURE EXPOSES US TO RISKS OF SHARED
CONTROL AND FUTURE CAPITAL COMMITMENTS WHICH, AMONG OTHER THINGS, MAY ADVERSELY
AFFECT EQUISTAR'S BUSINESS OR OUR RESULTS OF OPERATIONS.
We rely, in part, on cash distributions from Equistar. We did not receive
any cash distributions from Equistar during 2001 or the first nine months of
2002, and we do not expect to receive any distributions during the remainder of
2002. Our cash flow could be adversely affected by actions taken by Equistar or
our partner in Equistar or by conditions that affect Equistar or its business.
In particular, if our partner in Equistar does not fulfill its obligations under
the Equistar partnership agreement, Equistar may not be able to operate
according to its business plan. If this were to occur, our results of operations
could be adversely affected. In addition, although unanimous consent of all of
Equistar's partners is required for aggregate partner contributions not
contemplated by an approved strategic plan that exceed $100 million in any given
year or $300 million in a five-year period, we may be required, without our
consent, to contribute amounts up to our pro rata portion of such amounts or an
unlimited amount to allow Equistar to achieve or maintain compliance with
certain health, safety and environmental laws. If we fail to contribute these
amounts, we may have to sell our interest in Equistar to our partner at a price
or on terms which may be unfavorable to us.
RISING COSTS OF ENERGY AND OTHER RAW MATERIALS MAY RESULT IN INCREASED OPERATING
EXPENSES AND REDUCED RESULTS OF OPERATIONS.
We purchase large amounts of raw materials for our businesses. The cost of
these materials, in the aggregate, represents a substantial portion of our
operating expenses. The prices and availability of these raw materials vary with
market conditions and may be highly volatile. In addition, we use large amounts
of energy in our operations. Recently, natural gas costs have trended upward. As
these costs rise, operating expenses will likely increase and could have a
particularly negative impact on Equistar and our Acetyls business segment. From
time to time, we may enter into transactions to manage the volatility of such
costs, but we cannot assure you that these actions will have a favorable impact
on our results of operations nor can we assure you that we will continue to
enter into such transactions in the future.
There have been in the past and will likely be in the future periods of time
when we are unable to pass raw material price increases on to our customers in
whole or in part. Customer consolidation in our TiO[u]2 business has made it
more difficult to pass costs along to customers, so that increased raw material
prices negatively affect our operating margins.
In our Titanium Dioxide and Related Products business segment,
titanium-bearing ores are our primary raw materials, but we also purchase large
quantities of chlorine, sulfuric acid, caustic soda, petroleum products and
metallurgical coke, aluminum, sodium silicate, oxygen and nitrogen. In our
Acetyls business segment, our primary raw materials are natural gas, carbon
monoxide, methanol and ethylene, and in our Specialty Chemicals business
segment, our primary raw materials are crude sulfate turpentine, or CST, and gum
turpentine or their derivatives. In addition,
17
Equistar purchases petroleum liquids, including naptha, condensates and gas oils
and natural gas liquids, including ethane, propane and butane.
We use natural gas as a feedstock and as a source of energy. Fluctuations in
the price of natural gas affect our operating expenses which, in turn, affect
our results of operations. Our Acetyls business segment has the largest exposure
to natural gas costs. Our Titanium Dioxide and Related Products and Specialty
Chemicals business segments are impacted to a lesser extent.
Due to the commodity nature of most of Equistar's products, Equistar is
generally not able to protect its market position by product differentiation and
may not be able to pass on all cost increases to its customers. Accordingly,
increases in raw material and other costs may not necessarily correlate with
changes in product prices, either in the direction of the price change or in
magnitude. As a result, changes in the prices of commodities and raw materials
and other costs will affect Equistar's income and cash flow which will, in turn,
affect our financial condition and results of operations.
WE HAVE A LIMITED NUMBER OF SUPPLIERS FOR SOME OF OUR RAW MATERIALS, AND IF ONE
OF THESE SUPPLIERS WERE UNABLE TO MEET ITS OBLIGATIONS, WE COULD INCUR SUPPLY
SHORTAGES OR PRICE INCREASES FOR OUR RAW MATERIALS.
Millennium Chemicals has a limited number of suppliers for some of its raw
materials, and the number of sources for and availability of raw materials is
specific to the particular geographic region in which a facility is located. In
2001, Millennium Chemicals and its consolidated subsidiaries purchased 82% of
their titanium-bearing ores from two suppliers, Rio Tinto Iron & Titanium Inc.
(through its affiliates Richards Bay Iron & Titanium (Proprietary) Limited and
QIT-Fer et Titane Inc.) and Iluka Resources Limited under multiple year
contractual commitments. In addition, they obtain chlorine and caustic soda
exclusively from one supplier for their Australian operations under a long-term
supply agreement. For their other TiO[u]2 manufacturing plants, there are
multiple suppliers for these raw materials and they are generally purchased
through short-term contracts. They also purchase all of their ethylene
requirements from Equistar under a supply contract based on market prices. In
addition, they purchase all of their carbon monoxide from Linde AG pursuant to
a long-term contract based primarily on the cost of production. Each of the
chloride TiO[u]2 manufacturing plants has long-term supply agreements for oxygen
and nitrogen through either 'over the fence' suppliers dedicated to the site or
through a direct pipeline arrangement. Each of these contracts is an exclusive
supply contract.
Accordingly, if one of these suppliers were unable to meet its obligations
under present supply arrangements, we could suffer reduced supplies or be forced
to incur increased prices for our raw materials.
Equistar purchases the majority of its natural gas and petroleum liquids
requirements through contractual arrangements from a variety of third-party
domestic and foreign sources, as well as on the spot market from third-party
domestic and foreign sources.
OPERATING PROBLEMS IN OUR OR EQUISTAR'S BUSINESS MAY MATERIALLY ADVERSELY AFFECT
OUR PRODUCTIVITY AND PROFITABILITY.
The occurrence of material operating problems at our or Equistar's
facilities, including, but not limited to, the events described below, may have
a material adverse effect on the productivity and profitability of a particular
manufacturing facility, or on our or Equistar's operations as a whole, during
and after the period of such operational difficulties. Our income is dependent
on the continued operation of our and Equistar's various production facilities
and the ability to complete construction projects on schedule. Our and
Equistar's manufacturing operations are subject to the usual hazards associated
with chemical manufacturing and the related storage and transportation of raw
materials, products and wastes, including pipeline leaks and ruptures,
explosions, fires, inclement weather and natural disasters, mechanical failure,
unscheduled downtime, labor difficulties, transportation interruptions and
environmental hazards, such as chemical spills,
18
discharges or releases of toxic or hazardous substances or gases, storage tank
leaks and matters resulting from remedial activities. These hazards can cause
personal injury and loss of life, severe damage to or destruction of property
and equipment and environmental contamination and other environmental damage,
and may result in suspension of operations and the imposition of civil or
criminal penalties. Furthermore, we and Equistar are also subject to present and
future claims with respect to workplace exposure, workers' compensation and
other matters.
BECAUSE MILLENNIUM CHEMICALS' OPERATIONS ARE CONDUCTED WORLDWIDE, THEY ARE
AFFECTED BY RISKS OF DOING BUSINESS ABROAD, INCLUDING CURRENCY RISK.
Millennium Chemicals and its consolidated subsidiaries generate revenue from
export sales, or sales outside the United States by their domestic operations,
as well as from their operations conducted outside the United States. They sell
their products to approximately 90 countries. Sales outside the United States by
their domestic operations amounted to approximately 13% of total revenues in
2001. Revenue from non-United States operations amounted to approximately 41% of
total revenues in 2001, principally reflecting the operations of the Titanium
Dioxide and Related Products business segment in Europe, Brazil and Western
Australia. Identifiable assets of the non-United States operations represented
30% of total identifiable assets at September 30, 2002, principally reflecting
the assets of these operations. In addition, they obtain a portion of their
principal raw materials from sources outside the United States. Ores used in the
production of TiO2 are obtained from suppliers in South Africa, Australia,
Canada and the Ukraine, along with that from Millennium Chemicals' own mining
operations in Brazil, and a portion of their requirements of CST and gum
turpentine and its derivatives is obtained from suppliers in South America, and
in the past they have fulfilled a portion of these requirements from Indonesia
and other Asian countries as well as Europe.
Millennium Chemicals' international operations are subject to the risks of
doing business abroad, including fluctuations in currency exchange rates,
transportation delays and interruptions, political and economic instability and
disruptions, restrictions on the transfer of funds, the imposition of duties and
tariffs, import and export controls, changes in governmental policies, labor
unrest and current and changing regulatory environments. These events could have
an adverse effect on their international operations in the future by reducing
the demand for their products, decreasing the prices at which they can sell
their products or otherwise having an adverse effect on their business,
financial condition or results of operations. We cannot assure you that they
will continue to be found to be operating in compliance with applicable customs,
currency exchange control regulations, transfer pricing regulations or any other
laws or regulations to which they may be subject. We also cannot assure you that
these laws will not be modified, the result of which may be to prevent foreign
subsidiaries from transferring sufficient cash to Millennium Chemicals to permit
Millennium America to service and repay its debt.
The functional currency of each of Millennium Chemicals' non-United States
operations (principally, the operations of its Titanium Dioxide and Related
Products business segment in the United Kingdom, France, Brazil and Australia)
is the local currency. Exchange rates between these currencies and U.S. dollars
in recent years have fluctuated significantly and may do so in the future. As a
result of translating the functional currency financial statements of all their
foreign subsidiaries into United States dollars, consolidated shareholders'
equity decreased approximately $13 million during 2001. Future events, which may
significantly increase or decrease the risk of future movement in foreign
currencies in which they conduct their business, cannot be predicted.
In addition, Millennium Chemicals and its consolidated subsidiaries generate
revenue from export sales and operations conducted outside the United States
that may be denominated in currencies other than the relevant functional
currency. Millennium Chemicals and its consolidated subsidiaries hedge certain
revenues and costs to minimize the impact of changes in the exchange rates of
those currencies compared to the respective functional currencies. They do not
use derivative financial instruments for trading or speculative purposes. Net
foreign currency losses aggregated $7 million in 2001. It is possible that
fluctuations in foreign exchange rates will have a negative effect on their
results of operations.
19
WE AND EQUISTAR ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL REGULATIONS AND
ENVIRONMENTAL LIABILITIES THAT COULD REQUIRE US TO EXPEND MATERIAL AMOUNTS IN
COMPLIANCE, REMEDIATION, LITIGATION AND SETTLEMENT COSTS AND JUDGMENTS.
Both our businesses and those of Equistar are subject to extensive
requirements concerning the protection of the environment, including those
governing discharges of pollutants in the air and water, the generation,
management and disposal of hazardous substances and wastes and other materials
and the remediation of contamination and contaminated sites. The operation of
any chemical manufacturing plant and the distribution of chemical products
entail risks under environmental laws. We and Equistar could incur material
liabilities, including clean-up costs, fines and civil and criminal sanctions
and claims by third parties for property damage and personal injury, as a result
of violations of or liabilities under environmental laws with respect to our
operations and those of Equistar. In addition, potentially significant
expenditures could be required in connection with any investigation and
remediation of threatened or actual pollution, increases in production that
trigger more significant requirements under existing environmental laws or
requirements under future environmental laws.
Equistar's principal executive offices and many of its plants are located in
and around Houston, Texas. The eight-county Houston/Galveston region has been
designated a severe non-attainment area for ozone by the EPA. The Texas
Commission on Environmental Quality, or TCEQ, has submitted a plan to the EPA to
demonstrate compliance with the ozone standard by the year 2007. Compliance with
this plan will result in increased capital investment by Equistar, which could
be between $200 million and $260 million before the 2007 deadline, as well as
higher annual operating costs for Equistar and could potentially affect cash
distributions from Equistar to us. In addition, under the partnership agreement
relating to Equistar, Equistar can require unlimited capital contributions from
each partner on a pro rata basis for certain environmental compliance costs,
such as these. The timing and amount of these expenditures are subject to
regulatory and other uncertainties, including litigation, as well as obtaining
the necessary permits and approvals.
While we believe that our businesses and the businesses of Equistar
generally operate in compliance with applicable environmental requirements and
that we maintain adequate reserves with respect to our remediation obligations
and the environmental proceedings in which we, our subsidiaries or Equistar have
been named as defendants or potentially responsible parties, there can be no
assurance that actual costs and liabilities for environmental matters will not
exceed the forecasted amounts or that estimates made with respect to
indemnification obligations will be accurate.
Certain of our subsidiaries have been named as defendants, potentially
responsible parties, or both, in a number of cleanup proceedings with respect to
various sites. In the most significant of these proceedings, one of our
subsidiaries is named as one of four potentially responsible parties at the
Kalamazoo River Superfund Site in Michigan at which the EPA is considering
selection of a remedial alternative to address polychlorinated biphenyls
contamination of river sediments. In October 2000, the Kalamazoo River Study
Group (of which our subsidiary is a member) submitted to the State of Michigan a
Draft Remedial Investigation and Draft Feasibility Study, which evaluated a
number of remedial options and recommended a remedy involving the stabilization
of several miles of river bank and the long-term monitoring of river sediments
at a total cost of approximately $73 million. Other possible remedial
alternatives range from no action at no further cost to the complete dredging of
contaminated river sediments at a total cost for all parties of approximately
$2.5 billion. Based on current information, including the levels of known
contaminants, we believe that the selection of the remedial alternative
involving complete dredging of river sediments is remote. Our liability at the
site will depend on many factors, including the ultimate remedy selected by the
EPA, a determination of final allocation, the number of other potentially
responsible parties and their financial viability and the remediation methods
and technologies available.
It is possible that costs will be incurred with respect to sites or
indemnification obligations that currently are unknown, or as to which it is
currently not possible to make an estimate.
20
WE SELL OUR PRODUCTS IN MATURE AND HIGHLY COMPETITIVE INDUSTRIES AND FACE PRICE
PRESSURE IN THE MARKETS IN WHICH WE OPERATE.
The global markets in which our chemical businesses and the businesses of
Equistar operate are highly competitive. Competition is based on a number of
factors, such as price, product quality and service. Some of our competitors may
be able to drive down prices for our products because they have costs that are
lower than ours. In addition, some of our competitors may have greater
financial, technological and other resources than ours, and may be better able
to withstand changes in market conditions. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can. Further, consolidation of our competitors or customers
in any of the industries in which we compete may have an adverse effect on us.
The occurrence of any of these events could adversely affect our financial
condition and results of operations.
PROCEEDINGS RELATING TO THE ALLEGED EXPOSURE TO LEAD-BASED PAINTS AND LEAD
PIGMENTS COULD REQUIRE US TO EXPEND MATERIAL AMOUNTS IN LITIGATION AND
SETTLEMENT COSTS AND JUDGMENTS.
Together with other alleged past manufacturers of lead-based paint and lead
pigments for use in paint, we have been named as defendants in various legal
proceedings alleging that we and other manufacturers are responsible for
personal injury, property damage, and remediation costs allegedly associated
with the use of these products. The plaintiffs in these legal proceedings
include municipalities, counties, school districts, individuals and the State of
Rhode Island, and seek recovery under a variety of theories, including
negligence, failure to warn, breach of warranty, conspiracy, market share
liability, fraud, misrepresentation and nuisance. All these legal proceedings
other than the Rhode Island proceeding discussed below are in various pre-trial
stages. The first phase of a proposed multi-phase trial in the Rhode Island
proceeding commenced on September 4, 2002. On October 29, 2002, the judge in the
case declared a mistrial after the jury declared itself deadlocked. The sole
issue before the jury was whether lead pigment in paint in and on Rhode Island
buildings constitutes a 'public nuisance'. The court has yet to rule on motions
for judgment as a matter of law filed by both sides during the trial. The court
could enter judgment in favor of either party, or deny both sides' motions,
allowing the mistrial to stand. Should the mistrial stand, the State of Rhode
Island may seek a new trial. We have not accrued any reserves for the Rhode
Island proceeding or any other lead-based paint and lead pigment litigation.
We believe that we have valid defenses to all the lead-based paint and lead
pigment proceedings and are vigorously defending them. However, litigation is
inherently subject to many uncertainties. We cannot assure you that additional
lead-based paint and lead pigment litigation will not be filed against us in the
future asserting similar or different legal theories and seeking similar or
different types of damages and relief or that any liability we incur with
respect to these matters will not be material. Adverse court rulings or
determinations of liability, among other factors, could affect this litigation
by encouraging an increase in the number of future claims and proceedings. In
addition, from time to time, legislation and administrative regulations have
been enacted or proposed to impose obligations on present and former
manufacturers of lead-based paint and lead pigment respecting asserted health
concerns associated with such products or to overturn successful court
decisions.
Due to the uncertainties involved, we are unable to predict the outcome of
lead-based paint and lead pigment litigation, the number or nature of possible
future claims and proceedings, or the effect that any legislation and/or
administrative regulations may have on the litigation against us. In addition,
management cannot reasonably estimate the scope or amount of the costs and
potential liabilities related to such litigation, or any such legislation and
regulations. As indicated above, we have not accrued any amounts for such
litigation. However, based upon, among other things, the outcome of such
litigation to date, including the dismissal of most of the over 50 lead-based
paint and lead pigment lawsuits brought in recent years, management does not
currently believe that the costs or potential liabilities ultimately determined
to be attributable to us arising
21
out of such litigation will have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
OTHER PROCEEDINGS AND CLAIMS COULD REQUIRE US TO EXPEND MATERIAL AMOUNTS IN
LITIGATION AND SETTLEMENT COSTS AND JUDGMENTS.
Millennium Chemicals and certain of its subsidiaries are defendants in a
number of pending legal proceedings relating to their present and former
operations. In addition to the environmental matters and lead-based paint and
lead pigment litigation referred to above, these legal proceedings include
several proceedings alleging injurious exposure of the plaintiffs to various
chemicals and other materials on the premises of, or manufactured by, Millennium
Chemicals' current and former subsidiaries, including asbestos. For example,
Millennium Petrochemicals is one of a number of defendants in fewer than 85
active, premises-based asbestos cases (i.e., where the alleged exposure to
asbestos-containing materials was to employees of third-party contractors or
subcontractors on the premises of certain facilities, and did not relate to any
products manufactured or sold by us or any of our predecessors). Millennium
Petrochemicals is also one of a number of defendants in one inactive,
premises-based asbestos case which the court has placed on a formal registry for
dormant claims, for which no litigation obligations attach and no defense costs
are being incurred. Millennium Chemicals is responsible for these cases under
its agreements with Equistar which require it to assume responsibility and
indemnify Equistar for them; however, under these agreements, Equistar will be
required to assume responsibility and indemnify Millennium Petrochemicals for
any such claims filed on or after December 1, 2004. In addition, Millennium
Chemicals is one of a number of defendants in approximately 50 asbestos cases in
connection with the operations of its predecessors at other facilities which
also typically involve multiple plaintiffs. Additional cases may be filed in the
future for which Millennium Chemicals may be responsible. We cannot assure you
that any liability we incur with respect to any present or future asbestos cases
against us will not be material to us (including taking into account insurance,
which will not be available for most of these cases).
On January 16, 2002, Slidell Inc. filed a lawsuit against Millennium
Inorganic Chemicals alleging breach of contract and other related causes of
action arising out of a contract between the two parties for the supply of
packaging equipment. We believe we have substantial defenses to these
allegations and have filed a counterclaim against Slidell. In addition,
Millennium Chemicals may be subject to potential unknown liabilities associated
with its present and former operations, including tax liabilities and
environmental liabilities, arising from the operations of its predecessors and
prior owners or operators of its sites or operations for which it may be
responsible.
Although, based upon information currently available, we do not believe that
the outcome of the proceedings described above will, either individually or in
the aggregate, have a material adverse effect on our consolidated financial
position, results of operations or cash flows, litigation is subject to many
uncertainties and we cannot guarantee any particular result.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
22
SELECTED FINANCIAL DATA OF MILLENNIUM CHEMICALS INC.
The following table sets forth Millennium Chemicals' selected historical
consolidated financial data for each of the fiscal years ended December 31,
2001, 2000, 1999, 1998 and 1997 and at December 31, 2001, 2000, 1999, 1998 and
1997, which is derived from its audited consolidated financial statements which
(for the years 2001, 2000 and 1999) are incorporated by reference in this
prospectus, and for the nine months ended September 30, 2002 and 2001 and as of
September 30, 2002, which is derived from its unaudited consolidated financial
statements which are incorporated by reference in this prospectus. In the
opinion of management, the unaudited interim financial data includes all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of this information. The results of operations
for interim periods are not necessarily indicative of the results that may be
expected for the entire year. The following data should be read in conjunction
with Millennium Chemicals' consolidated financial statements and related notes,
'Management's Discussion and Analysis of Financial Condition and Result of
Operations' and other financial information which is incorporated by reference
in this prospectus.
For certain historical financial data with respect to Millennium America,
see the condensed consolidating balance sheets as of September 30, 2002 and
December 31, 2001 and 2000 and condensed consolidating statements of operations
and cash flows for each of the three years in the period ended December 31, 2001
and for the nine months ended September 30, 2002 and 2001 which are incorporated
by reference in this prospectus. We account for Equistar as an equity
investment. For certain historical financial data with respect to Equistar, we
refer you to Equistar's public filings.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
2002(1)(2) 2001(1)(3) 2001(1)(3) 2000(1) 1999(1)(4) 1998(5) 1997(6)
---------- ---------- ---------- ------- ---------- ------- -------
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.............................. $1,167 $1,256 $1,590 $1,793 $1,589 $1,597 $3,048
Operating costs and expenses:
Cost of products sold............... 944 978 1,252 1,267 1,112 1,134 2,180
Depreciation and amortization....... 76 83 110 113 105 102 203
Selling, development and
administrative expense............. 80 113 146 200 204 156 216
Restructuring and other charges..... -- 36 36 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income.................... 67 46 46 213 168 205 449
Interest expense....................... (67) (62) (85) (80) (72) (76) (131)
Interest income........................ 3 2 3 3 3 4 10
Equity in (loss) earnings of
Equistar.............................. (45) (61) (90) 39 (19) 40 18
Other (expense) income, net............ (2) 1 1 14 29 29 1
Loss in value of Equistar investment... -- -- -- -- (639) -- --
------ ------ ------ ------ ------ ------ ------
(Loss) income from continuing
operations before income taxes,
minority interest and cumulative
effect of accounting change........... (44) (74) (125) 189 (530) 202 347
Benefit (provision) for income taxes... 22 26 86 (60) 209 (37) (159)
------ ------ ------ ------ ------ ------ ------
(Loss) income from continuing
operations before minority interest
and cumulative effect of accounting
change................................ (22) (48) (39) 129 (321) 165 188
Minority Interest...................... (2) (3) (4) (7) (5) (2) --
------ ------ ------ ------ ------ ------ ------
(Loss) income from continuing
operations before cumulative effect of
accounting change..................... (24) (51) (43) 122 (326) 163 188
Income (loss) from discontinued
operations (net of income taxes of
$10, $1 and ($2) for the years ended
December 31, 1999, 1998 and 1997,
respectively)......................... -- -- -- -- 38 1 (3)
------ ------ ------ ------ ------ ------ ------
(Loss) income before cumulative effect
of accounting change.................. (24) (51) (43) 122 (288) 164 185
Cumulative effect of accounting
change................................ (305) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net (loss) income...................... $ (329) $ (51) $ (43) $ 122 $ (288) $ 164 $ 185
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
23
AT DECEMBER 31,
AT ------------------------------------------
SEPTEMBER 30, 2002(1) 2001 2000 1999 1998 1997
--------------------- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 119 $ 114 $ 107 $ 110 $ 103 $ 64
Investment in Equistar............. 608 677 760 800 1,519 1,934
Total assets....................... 2,665 3,004 3,220 3,250 4,100 4,326
Total debt(7)...................... 1,216 1,187 1,197 1,102 1,082 1,347
Total shareholders' equity......... 542 878 983 1,015 1,578 1,464
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -----------------------------------------------------
2002(1)(2) 2001(1)(3) 2001(1)(3) 2000(1) 1999(1)(4) 1998(5) 1997(6)
---------- ---------- ---------- ------- ---------- ------- -------
(DOLLARS IN MILLIONS)
OTHER FINANCIAL DATA:
Capital expenditures................ $ 43 $ 85 $ 97 $110 $ 109 $215 $152
Depreciation and amortization....... 76 83 110 113 105 102 203
Cash distributions from Equistar.... -- -- -- 83 75 317 18
Ratio of earnings to fixed
charges(8)........................ 1.0x 0.8x 0.6x 3.7x (4.7x) 7.0x 3.3x
Pro Forma ratio of earnings to fixed
charges(8)(9)..................... 1.0x 0.8x 0.6x
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ---------------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
SFAS NO. 142 TRANSITIONAL DISCLOSURES(1):
Reported net (loss) income.............................. $(329) $ (51) $ (43) $ 122 $(288)
Goodwill amortization................................... -- 10 13 13 12
Equistar goodwill amortization included in Equity
in (loss) earnings of Equistar........................ -- 7 10 10 10
----- ----- ----- ----- -----
Adjusted net (loss) income.............................. (329) (34) (20) 145 (266)
Cumulative effect of accounting change.................. 305 -- -- -- --
----- ----- ----- ----- -----
Adjusted net (loss) income before cumulative effect of
accounting change..................................... $ (24) $ (34) $ (20) $ 145 $(266)
----- ----- ----- ----- -----
----- ----- ----- ----- -----
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- -----------------------------------
2002 2001 2001 2000 1999
BASIC & BASIC & BASIC & BASIC &
DILUTED DILUTED DILUTED BASIC DILUTED DILUTED
------- ------- ------- ----- ------- -------
PER SHARE AMOUNTS:
Reported net (loss) income.................... $(5.18) $(0.81) $(0.68) $1.90 $1.89 $(4.16)
Goodwill amortization......................... -- 0.16 0.20 0.20 0.20 0.17
Equistar goodwill amortization included in
Equity in (loss) earnings of Equistar....... -- 0.11 0.16 0.15 0.15 0.15
------ ------ ------ ----- ----- ------
Adjusted net (loss) income.................... (5.18) (0.54) (0.32) 2.25 2.24 (3.84)
Cumulative effect of accounting change........ 4.80 -- -- -- -- --
------ ------ ------ ----- ----- ------
Adjusted net (loss) income before cumulative
effect of accounting change................. $(0.38) $(0.54) $(0.32) $2.25 $2.24 $(3.84)
------ ------ ------ ----- ----- ------
------ ------ ------ ----- ----- ------
---------
(1) In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, 'Goodwill and Intangible Assets'
('SFAS No. 142'). Under this new standard, all goodwill, including goodwill
acquired before initial application of the standard, is not amortized but
must be tested for impairment at least annually at the reporting unit level,
(footnotes continued on next page)
24
(footnotes continued from previous page)
as defined in the standard. Millennium Chemicals and Equistar adopted this
standard on January 1, 2002. Accordingly, in the nine months ended
September 30, 2002, Millennium Chemicals reported a charge of $275 million
for the cumulative effect of an accounting change to write off certain
goodwill related to its Acetyls business, based upon its estimate of fair
value for this business. Additionally, Equistar reported an impairment of
its goodwill in the nine months ended September 30, 2002. The write-off at
Equistar required an adjustment of $30 million to reduce the carrying value
of Millennium Chemicals' investment in Equistar to its approximate
proportional share of Equistar's partners capital, which Millennium
Chemicals also reported as a charge for the cumulative effect of this
accounting change. These charges reduced the carrying value of Millennium
Chemicals' interest in Equistar by $30 million and its total shareholders'
equity by $305 million. Under this new standard, goodwill is not amortized.
Amortization expense for goodwill included on Millennium Chemicals' balance
sheet and Millennium Chemicals' share of amortization expense reported by
Equistar for its goodwill, included in Equity in (loss) earnings of
Equistar, for the nine months ended September 30, 2001 and for the years
ended December 31, 2001, 2000 and 1999 are set forth in the table 'SFAS
No. 142 Transitional Disclosures' above.
(2) The results for the nine months ended September 30, 2002 were increased by a
$5 million ($3 million after tax) adjustment of reserves for favorable
resolution of environmental claims related to predecessor businesses
reserved for in prior years.
(3) Results for 2001 were increased by net after-tax income of $14 million for
unusual items, the components of which were: a benefit from a reduction in
Millennium Chemicals' income tax accruals by $42 million due to favorable
developments related to matters reserved for in prior years; $36 million in
reorganization and plant closure charges ($24 million after-tax); and
$6 million ($4 million after-tax) representing Millennium Chemicals' share
of costs related to the shutdown of Equistar's Port Arthur, Texas plant.
Results for the nine months ended September 30, 2001 were decreased by net
after-tax charges of $28 million for unusual items, the components of which
were: $36 million in reorganization and plant closure charges ($24 million
after-tax) and $6 million ($4 million after-tax) representing Millennium
Chemicals' share of costs related to the shutdown of Equistar's Port Arthur,
Texas plant.
(4) The results for 1999 were decreased by net after-tax expense of $351 million
for unusual items, the principal components of which were a loss in value of
Millennium Chemicals' Equistar interest of $639 million ($400 million after
tax), and a gain of $48 million ($38 million after tax) from the sale in May
1999 of the 26.4% combined subordinated and general partnership interests in
Suburban Propane Partners, L.P. and Suburban Propane, L.P. (which was
reflected as a discontinued operation for 1999 and 1998), as well as other
unusual items resulting in net after-tax gains of $11 million.
(5) The results for 1998 were increased by net after-tax income of $54 million
for unusual items, principally composed of insurance settlements and tax
benefits, partially offset by a share of certain costs incurred by Equistar
and certain other charges incurred by Millennium Chemicals.
(6) The results for 1997 include 11 months of the polyethylene, alcohol and
related products businesses that were contributed to Equistar on
December 1, 1997. Since December 1, 1997, the equity method is used to
account for Millennium Chemicals' partnership interest in Equistar.
(7) Total debt does not include the indemnity by Millennium America with respect
to up to $750 million of Equistar's outstanding indebtedness, which
indemnity terminated in August 2002 upon the closing of the purchase by
Lyondell Chemical Company of Occidental Petroleum Corporation's interest in
Equistar.
(8) For purposes of calculating the ratio of earnings to fixed charges,
'earnings' represent income from continuing operations before income taxes,
minority interest and equity in earnings (loss)
(footnotes continued on next page)
25
(footnotes continued from previous page)
of Equistar, plus fixed charges and cash distributions from Equistar. 'Fixed
charges' consist of interest expense, including amortization of debt
issuance costs and that portion of rental expenses which Millennium
Chemicals considers to be a reasonable approximation of interest. The less
than one-to-one coverage ratio for the year ended December 31, 2001 and the
year ended December 31, 1999 results from the impact on (loss) income from
continuing operations before income taxes and minority interest of a $36
million charge for reorganization and plant closures and a $639 million
charge to write down the value of Millennium Chemicals' investment in
Equistar, respectively. Excluding these charges, the 2001 ratio of earnings
to fixed charges would have been 1.0x and the 1999 ratio of earnings to
fixed charges would have been 3.7x.
(9) The pro forma ratio of earnings to fixed charges gives effect to the
issuance of $100 million aggregate principal amount of outstanding
unregistered 9 1/4% Senior Notes due 2008 and the use of the gross proceeds
from that offering to repay $65 million of outstanding term loans under our
bank credit agreement and $37.5 million of outstanding indebtedness under
the revolving credit facility under our bank credit agreement, as if these
events had occurred on January 1, 2001.
26
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
BANK CREDIT AGREEMENT
We entered into a five-year Credit Agreement, dated as of June 18, 2001, as
amended on December 14, 2001 and June 19, 2002 (the 'Credit Agreement'), among
Millennium America, as a borrower, Millennium Inorganic Chemicals Limited, as a
borrower, certain borrowing subsidiaries of Millennium Chemicals from time to
time party thereto, Millennium Chemicals, as guarantor, the lenders from time to
time party thereto, the issuing banks from time to time party thereto, The Chase
Manhattan Bank, as administrative agent and collateral agent ('Chase'), and Bank
of America, N.A., as syndication agent. The terms of the Credit Agreement
provide for: (a) a commitment to provide a secured revolving credit facility in
an aggregate principal amount of $175 million (the 'Revolving Loans'), and
(b) a secured term loan facility in an aggregate principal amount of $125
million, of which $50 million was outstanding as of October 31, 2002 (the 'Term
Loans').
The senior bank loans bear interest at either the Alternate Base Rate
('ABR') rate plus the spread (the 'ABR loans'), the LIBO rate plus the spread
(the 'LIBOR loans'), or the NIBO rate plus the spread (the 'NIBOR loans'). The
ABR rate is the highest of (i) the rate of interest publicly announced by Chase
as its prime rate in effect and (ii) the federal funds effective rate from time
to time plus 1/2 of 1.0%. The LIBO rate, with respect to any borrowing comprised
of LIBOR loans for any interest period, is an interest rate per annum equal to
the rate at which deposits in the currency of such borrowing approximately equal
in principal amount to the LIBOR loan of the administrative agent for which such
LIBO rate is being determined and for a maturity comparable to the applicable
interest period are offered in immediately available funds to the administrative
agent in the London interbank market. The NIBO rate, with respect to any
borrowing consisting of NIBOR loans for any interest period, is an interest rate
per annum equal to the interest rate at which U.S. dollar deposits approximately
equal in principal amount to the NIBOR loan of the administrative agent for
which the NIBO rate is being determined and for a maturity equal to the
applicable interest period are offered in immediately available funds to the
administrative agent at the eurodollar lending offices where its committed
foreign currency and exchange operations and eurodollar funding operations are
customarily conducted in the international interbank market. The spread refers
to the applicable per annum rate based upon the leverage ratio as set forth in
the pricing grid in the Credit Agreement. Interest on all borrowings is
calculated on the basis of the actual number of days elapsed over a 360-day year
(365 or 366-day year, as applicable, for ABR borrowings accruing interest based
on the prime rate).
Interest on the senior bank loans is payable on the last day of each March,
June, September, and December in the case of ABR loans, on the last day of the
applicable one, two or three month interest period in the case of one, two or
three month LIBOR loans and NIBOR loans, and in the case of LIBOR loans and
NIBOR loans having an interest period in excess of three months, on each
successive date three months after the first day of such interest period.
REVOLVING LOANS
The Revolving Loans are available in U.S. dollars, pounds sterling, euros
and any other freely tradable currencies in the London market, which have been
approved by all the lenders participating in the revolving credit facility. The
Revolving Loans may be borrowed, repaid and reborrowed from time to time. A
letter of credit subfacility in an amount equal to $50 million is available
under the revolving credit facility. A swingline facility, in the amount of $25
million, is also available under the revolving credit facility. The total amount
of the Revolving Loans and swingline loans that may be borrowed is not permitted
to exceed the Indenture Basket (as such term is defined in the Credit
Agreement). The Revolving Loans mature in June 2006.
27
TERM LOANS
The term loan facility amortizes in quarterly amounts in each year
commencing in 2002, with the substantial majority of the repayments being due in
2005 and 2006. Unless we meet a leverage ratio of less than 3.75 to 1.00, the
Term Loans are subject to mandatory prepayment upon the occurrence of certain
asset sales. We are permitted to voluntarily prepay the Term Loans in whole or
in part at any time subject to specified break funding costs that may be
applicable. We are not permitted to reborrow any amounts under the Term Loans
that we repay. The Term Loans mature in June 2006. As of October 31, 2002, there
were $50 million in Term Loans outstanding.
COVENANTS
The Credit Agreement contains negative covenants, subject to specified
baskets, limiting the ability of Millennium Chemicals and/or certain
subsidiaries of Millennium Chemicals to, among other things:
incur debt and issue preferred stock;
create liens;
engage in sale and leaseback transactions;
declare or pay dividends on, and redeem, Millennium Chemicals' stock;
make certain restricted payments;
engage in certain transactions with affiliates;
sell assets;
engage in mergers or acquisitions;
engage in domestic account receivable securitization transactions; and
enter into certain restrictive agreements.
The Credit Agreement requires us to comply with certain financial tests and
to maintain certain financial ratios relating to maximum consolidated leverage
and minimum consolidated interest coverage, the most significant of which are
set forth below. Failure to satisfy either of these financial covenants
constitutes a default under the Credit Agreement.
The Credit Agreement also includes customary representations and warranties,
affirmative covenants and events of default, including (a) a cross-event of
default involving other material indebtedness, (b) failure of Millennium America
to remain a direct or indirect wholly owned subsidiary of Millennium Chemicals,
(c) a change of control of Millennium Chemicals and (d) other provisions
customary for this type of financing.
Millennium Chemicals and Millennium America guarantee the obligations under
the Credit Agreement. The obligations are secured by: (1) a pledge of 100% of
the stock of Millennium Chemicals' existing and future domestic subsidiaries,
including Millennium America, and 65% of the stock of Millennium Chemicals'
existing and future first-tier foreign subsidiaries, in both cases other than
subsidiaries that hold immaterial assets, (2) all the equity interests held by
Millennium Chemicals' subsidiaries in Equistar and La Porte Methanol Company
(which pledge is limited to the right to receive distributions made by Equistar
and La Porte Methanol Company, respectively), and (3) all present and future
accounts receivable, intercompany indebtedness, and inventory of Millennium
Chemicals and its domestic subsidiaries other than subsidiaries that hold
immaterial assets.
In the fourth quarter of 2001, we requested and obtained an amendment to the
leverage and interest coverage ratios and certain other covenants given the
difficult business environment at the time, which continued in early 2002. We
were in compliance with these amended covenants at March 31, 2002. In
June 2002, we requested and obtained a further amendment to our leverage and
interest coverage ratios that (1) requires that the leverage ratio (the ratio of
Total Indebtedness to EBITDA, each as defined, for the most recently ended
period of four fiscal
28
quarters for which financial statements have been filed with the SEC by
Millennium Chemicals on Forms 10-K or 10-Q) of Millennium Chemicals and its
consolidated subsidiaries on the last day of any fiscal quarter ending during
any period set forth below shall not be in excess of the ratio set forth
opposite that period:
PERIOD RATIO
------ -----
April 1, 2002 through June 30, 2002......................... 7.75 to 1.00
July 1, 2002 through September 30, 2002..................... 8.25 to 1.00
October 1, 2002 through December 31, 2002................... 7.25 to 1.00
January 1, 2003 through March 31, 2003...................... 5.75 to 1.00
April 1, 2003 through June 30, 2003......................... 4.75 to 1.00
July 1, 2003 through December 31, 2003...................... 4.50 to 1.00
and (2) requires that the interest coverage ratio (the ratio of EBITDA to Net
Interest Expense, each as defined) of Millennium Chemicals and its consolidated
subsidiaries for any period of four consecutive fiscal quarters ending during a
period set forth below shall not be less than the ratio set forth opposite that
period:
PERIOD RATIO
------ -----
April 1, 2002 through September 30, 2002.................... 1.60 to 1.00
October 1, 2002 through December 31, 2002................... 1.90 to 1.00
January 1, 2003 through March 31, 2003...................... 2.25 to 1.00
April 1, 2003 through December 31, 2003..................... 2.50 to 1.00
On January 1, 2004, the original leverage ratio requirement of not in excess
of 4.00 to 1.00 and interest coverage ratio requirement of not less than 3.00 to
1.00 as set forth in the Credit Agreement will be reinstated. The amendment
became effective on June 26, 2002, upon the closing of the offering of $100
million aggregate principal amount of the outstanding unregistered notes and the
application of the proceeds therefrom to repay outstanding indebtedness under
the Credit Agreement.
SENIOR NOTES AND SENIOR DEBENTURES
Millennium America has issued an aggregate principal amount of $500,000,000
of 7% senior notes due 2006 and an aggregate principal amount of $250,000,000 of
7.625% senior debentures due 2026. These notes and debentures are guaranteed by
Millennium Chemicals. The indenture under which these notes and debentures were
issued contains certain covenants that limit, among other things, the ability of
(1) Millennium America and its restricted subsidiaries (as defined in the
indenture) to grant liens or enter into sale-and-leaseback transactions,
(2) the restricted subsidiaries to incur additional indebtedness in excess of
15% of the Consolidated Net Tangible Assets, as defined in the indenture, of
Millennium America. In addition, such indenture contains a covenant that limits
the ability of Millennium America and Millennium Chemicals to merge, consolidate
or transfer substantially all of their respective assets.
In September 2001, Millennium America issued $275,000,000 aggregate
principal amount of 9 1/4% Senior Notes due 2008, guaranteed by Millennium
Chemicals in a transaction registered under the Securities Act. In June 2002,
Millennium America issued an additional $100,000,000 aggregate principal amount
of 9 1/4% Senior Notes due 2008 in a private offering. These registered and
unregistered notes were issued, and the exchange notes offered hereby will be
issued, under the same indenture and are subject to the same financial
covenants.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the outstanding unregistered notes to the initial purchasers on
June 26, 2002. The initial purchasers subsequently resold the outstanding
unregistered notes to qualified institutional buyers pursuant to Rule 144A under
the Securities Act and to non-U.S. persons outside the
29
United States in reliance on Regulation S under the Securities Act. In
connection with the issuance of the outstanding unregistered notes, we and
Millennium Chemicals entered into a registration rights agreement with the
initial purchasers of the outstanding unregistered notes. The registration
rights agreement requires us to register the exchange notes under the Securities
Act and offer to exchange the exchange notes for the outstanding unregistered
notes. The exchange notes will be issued without a restrictive legend and
generally may be resold without registration under the federal securities laws.
We are effecting the exchange offer to comply with the registration rights
agreement.
The registration rights agreement requires us to
file with the SEC a registration statement for the exchange offer and the
exchange notes on or before September 24, 2002;
use our reasonable efforts to cause the registration statement filed for
the exchange offer and the exchange notes to be declared effective by the
SEC on or before December 23, 2002;
complete the exchange offer on or before January 22, 2003.
These requirements under the registration rights agreement will be satisfied
when we complete the exchange offer. However, if we fail to meet any of these
requirements, we must pay liquidated damages to the holders of the outstanding
unregistered notes at the rate of $0.192 per week per $1,000 principal amount
until the applicable requirement has been met. We have also agreed to keep the
registration statement for the exchange offer effective for at least 30 days (or
longer, if required by applicable law) after the date on which notice of the
exchange offer is mailed to holders.
Under the registration rights agreement, our obligations to register the
exchange notes will terminate upon the completion of the exchange offer.
However, we will be required to file a 'shelf' registration statement for a
continuous offering by the holders of the outstanding unregistered notes if:
because of any change in law or applicable interpretations thereof by the
staff of the SEC, Millennium America is not permitted to effect the
exchange offer as contemplated by the registration rights agreement;
any outstanding unregistered notes validly tendered pursuant to the
exchange offer are not exchanged for exchange notes by January 22, 2003;
any initial purchaser of the outstanding unregistered notes so requests
with respect to outstanding unregistered notes not eligible to be exchanged
for exchange notes in the exchange offer;
any applicable law or interpretations do not permit any holder of
outstanding unregistered notes to participate in the exchange offer;
any holder of outstanding unregistered notes that participates in the
exchange offer does not receive freely transferable exchange notes in
exchange for tendered notes; or
we so elect.
If we are required to file a shelf registration statement, we will be
required to use our reasonable efforts to keep the registration statement
effective for two years, subject to some exceptions. Additionally, we will have
the ability to issue a notice that the shelf registration statement is unusable
pending a material announcement and may issue any notice suspending use of the
shelf registration statement without accruing liquidated damages so long as the
aggregate number of days in any consecutive twelve-month period for which all
notices are issued and effective does not exceed 60 days in total. Other than as
described above, no holder will have the right to require us to file a shelf
registration statement or otherwise register such holder's notes under the
federal securities laws.
The registration rights agreement also provides that we and Millennium
Chemicals
30
shall make available for a period of 180 days after the consummation of the
exchange offer a prospectus meeting the requirements of the Securities Act
to any broker-dealer for use in connection with any resale of any exchange
notes; and
shall pay all expenses incident to the exchange offer (including the
expense of one counsel to the holders of the exchange notes) and will
indemnify certain holders of the exchange notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the registration rights agreement, including certain
indemnification rights and obligations.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding unregistered notes, where such outstanding unregistered
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. Any
broker-dealer who acquired outstanding unregistered notes directly from us may
not rely on the interpretations of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act. See 'Plan of
Distribution.'
A holder who sells notes pursuant to a shelf registration statement will
generally be required to provide us with specific information, be named as a
selling security holder in the related prospectus and deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such a
holder, including certain indemnification obligations.
This summary includes only the material terms of the registration rights
agreement. For a full description, you should refer to the complete copy of the
registration rights agreement, which has been filed as an exhibit to the
registration statement for the exchange offer and the exchange notes of which
this prospectus is a part. See 'Where You Can Find More Information.'
TRANSFERABILITY OF THE EXCHANGE NOTES
Based on an interpretation of the Securities Act by the staff of the SEC in
several no-action letters issued to third parties, we believe that the holders
of the exchange notes, may offer for resale, resell or otherwise transfer the
exchange notes without further compliance with the registration and prospectus
delivery provisions of the Securities Act, if
you, or the person or entity receiving such notes, are acquiring the
exchange notes in the ordinary course of business;
neither you nor any such person or entity is engaging in or intends to
engage in a distribution of the exchange notes within the meaning of the
Securities Act;
neither you nor any such person or entity has an arrangement or
understanding with any person or entity to participate in any distribution
of the exchange notes;
neither you nor any such person or entity is an 'affiliate' of Millennium
Chemicals, as such term is defined under Rule 405 under the Securities Act;
and
you are not acting on behalf of any person or entity who could not
truthfully make these statements.
To participate in the exchange offer, you must represent as the holder of
outstanding unregistered notes that each of these statements is true.
Any holder of the outstanding unregistered notes who is an affiliate of
Millennium Chemicals or who intends to participate in the exchange offer for the
purpose of distributing the exchange notes
will not be able to rely on the interpretation by the staff of the SEC set
forth in the no-action letters described above;
31
will not be able to tender outstanding unregistered notes in the exchange
offer; and
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the notes,
unless the sale or transfer is made pursuant to an exemption from those
requirements.
Broker-dealers receiving exchange notes in exchange for outstanding
unregistered notes acquired for their own account through market-making or other
trading activities may not rely on this interpretation by the SEC. Such
broker-dealers may be deemed to be 'underwriters' within the meaning of the
Securities Act and must therefore acknowledge, by signing the letter of
transmittal, that they will deliver a prospectus meeting the requirements of the
Securities Act in connection with resale of the exchange notes. 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 SEC has taken the
position that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the exchange notes, other than a resale of an
unsold allotment from the original sale of the outstanding unregistered notes,
with the prospectus contained in the exchange offer registration statement. As
described above, under the registration rights agreement, we have agreed to
allow participating broker-dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the exchange
offer registration statement in connection with the resale of the exchange
notes. Any broker-dealer who acquired outstanding unregistered notes directly
from us may not rely on the interpretations of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act. See
'Plan of Distribution.'
TERMS OF THE EXCHANGE OFFER; ACCEPTANCE OF TENDERED NOTES
Upon the terms and subject to the conditions in this prospectus and in the
letter of transmittal, we will accept any and all outstanding unregistered notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
January 8, 2003. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding unregistered notes
accepted in the exchange offer. Holders may tender some or all of their notes
pursuant to the exchange offer. However, outstanding unregistered notes may be
tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding unregistered notes except that
the exchange notes have been registered under the Securities Act and will
not bear any legend restricting their transfer;
the exchange notes bear a different CUSIP number from the outstanding
unregistered notes; and
the holders of the exchange notes will not be entitled to certain rights
under the registration rights agreement, including the provisions for
liquidated damages on the outstanding unregistered notes in some
circumstances relating to the timing of the exchange offer.
The exchange notes will evidence the same debt as the outstanding
unregistered notes. Holders of exchange notes will be entitled to the benefits
of the indenture.
As of the date of this prospectus, $100 million aggregate principal amount
of unregistered notes was outstanding. There will be no fixed record date for
determining the holders of outstanding unregistered notes entitled to
participate in this exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Securities Exchange Act of
1934 and the rules and regulations of the SEC under the Exchange Act.
We shall be deemed to have accepted validly tendered notes when, as, and if
we have given oral or written notice to the exchange agent of our acceptance.
The exchange agent will act as agent for the tendering holders for the purpose
of receiving the exchange notes from us. If any tendered notes are not accepted
for exchange because of an invalid tender, the occurrence of
32
other events in this prospectus or otherwise, we will return the certificates
for any unaccepted notes to the tendering holder as promptly as practicable
after the expiration of the exchange offer.
Holders who tender exchange notes in the exchange offer will not be required
to pay brokerage commissions or fees with respect to the exchange of notes.
Tendering holders will also not be required to pay transfer taxes in the
exchange offer. We will pay all charges and expenses in connection with the
exchange offer as described under the subheading ' -- Solicitation of Tenders;
Fees and Expenses.' However, we will not pay any taxes incurred in connection
with a holder's request to have exchange notes or non-exchanged notes issued in
the name of a person other than the registered holder. See ' -- Transfer Taxes'
in this section below.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on
January 8, 2003, unless we, in our sole discretion, extend the exchange offer.
To extend the exchange offer, we will notify the exchange agent and each
registered holder of any extension before 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. We reserve the
right to extend the exchange offer, delay accepting any tendered notes or, if
any of the conditions described below under the heading ' -- Conditions to the
Exchange Offer' have not been satisfied, to terminate the exchange offer. We
also reserve the right to amend the terms of the exchange offer in any manner.
We will give oral or written notice of such delay, extension, termination or
amendment to the exchange agent.
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 will have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the most recent interest payment
date to which interest has been paid on the tendered outstanding unregistered
notes or, if no interest has been paid, from June 15, 2002. Interest on the
outstanding unregistered notes accepted for exchange will cease to accrue upon
the issuance of the exchange notes.
Interest on the notes is payable semi-annually on each June 15 and
December 15, commencing on December 15, 2002.
PROCEDURES FOR TENDERING OUTSTANDING UNREGISTERED NOTES
Only a holder of outstanding unregistered notes may tender notes in the
exchange offer. To tender in the exchange offer, you must
complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
have the signatures guaranteed if required by the letter of transmittal;
and
mail or otherwise deliver the letter of transmittal or such facsimile,
together with the outstanding unregistered notes and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time, on
the expiration date.
To tender outstanding unregistered notes effectively, you must complete the
letter of transmittal and other required documents and the exchange agent must
receive all the documents prior to 5:00 p.m., New York City time, on the
expiration date. Delivery of the outstanding unregistered notes may be made by
book-entry transfer in accordance with the procedures described below. The
exchange agent must receive confirmation of book-entry transfer prior to the
expiration date.
By executing the letter of transmittal you will make to us the
representations set forth in the first paragraph under the heading
' -- Transferability of the Exchange Notes.'
All tenders not withdrawn before the expiration date and the acceptance of
the tender by us will constitute agreement between you and us under the terms
and subject to the conditions in
33
this prospectus and in the letter of transmittal including an agreement to
deliver good and marketable title to all tendered notes prior to the expiration
date free and clear of all liens, charges, claims, encumbrances, adverse claims
and rights and restrictions of any kind.
THE METHOD OF DELIVERY OF OUTSTANDING UNREGISTERED NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, YOU SHOULD
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW FOR
SUFFICIENT TIME TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION OF THE EXCHANGE OFFER. YOU MAY REQUEST YOUR BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR NOMINEE TO EFFECT THESE TRANSACTIONS FOR
YOU. YOU SHOULD NOT SEND ANY NOTE, LETTER OF TRANSMITTAL OR OTHER REQUIRED
DOCUMENT TO US.
If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you desire to tender, you should
contact the registered holder promptly and instruct the registered holder to
tender on your behalf. If you wish to tender on your own behalf, you must,
before completing and executing the letter of transmittal and delivering your
outstanding unregistered notes, either
make appropriate arrangements to register ownership of the outstanding
unregistered notes in your name, or
obtain a properly completed bond power from the registered holder of the
outstanding unregistered notes.
See 'Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner' included with the letter of transmittal.
The exchange of notes will be made only after timely receipt by the exchange
agent of certificates for outstanding unregistered notes, a letter of
transmittal and all other required documents, or timely completion of a
book-entry transfer. If any tendered notes are not accepted for any reason or if
outstanding unregistered notes are submitted for a greater principal amount than
the holder desires to exchange, the exchange agent will return such unaccepted
or non-exchanged unregistered notes to the tendering holder promptly after the
expiration or termination of the exchange offer. In the case of outstanding
unregistered notes tendered by book-entry transfer, the exchange agent will
credit the non-exchanged notes to an account maintained with The Depository
Trust Company.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding unregistered notes, where such outstanding unregistered
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. See 'Plan of
Distribution'.
GUARANTEE OF SIGNATURES
Holders must obtain a guarantee of all signatures on a letter of transmittal
or a notice of withdrawal unless the outstanding unregistered notes 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.'
Signature guarantees must be made by a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion Program, or by an
'eligible guarantor institution' within the meaning of Rule 17Ad-15 promulgated
under the Exchange Act (namely, banks; brokers and dealers; credit unions;
national securities exchanges; registered securities associations; learning
agencies; and savings associations).
34
SIGNATURE ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS
If the letter of transmittal is signed by a person other than the registered
holder of the outstanding unregistered notes listed in the letter of
transmittal, the registered holder must endorse the outstanding unregistered
notes or provide a properly completed bond power. Any such endorsement or bond
power must be signed by the registered holder as that registered holder's name
appears on the outstanding unregistered notes. Signatures on such outstanding
unregistered notes and bond powers must be guaranteed by an 'eligible guarantor
institution.'
If you sign the letter of transmittal or any outstanding unregistered notes
or bond power as a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, fiduciary or in any other representative capacity, you
must so indicate when signing. Unless we waive this condition, you must submit
satisfactory evidence to the exchange agent of your authority to act in such
capacity.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
unregistered notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the exchange offer. Subject to the
establishment of the accounts, any financial institution that is a participant
in DTC's system may make book-entry delivery of outstanding unregistered notes
by causing DTC to transfer the notes into the exchange agent's account in
accordance with DTC's procedures for such transfer. However, although delivery
of outstanding unregistered notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal (or a
manually signed facsimile of the letter of transmittal) with any required
signature guarantees, or an 'agent's message' in connection with a book-entry
transfer, and any other required documents, must, in any case, be transmitted to
and received by the exchange agent, or the guaranteed delivery procedures set
forth below must be complied with, in each case, prior to the expiration date.
Delivery of documents to DTC does not constitute delivery to the exchange agent.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. Accordingly, DTC
participants may electronically transmit their acceptance of the exchange offer
by causing DTC to transfer outstanding unregistered notes to the exchange agent
in accordance with DTC's Automated Tender Offer Program procedures for transfer.
Upon receipt of such holder's acceptance through the Automated Tender Offer
Program, DTC will edit and verify the acceptance and send an 'agent's message'
to the exchange agent for its acceptance. Delivery of tendered notes must be
made to the exchange agent pursuant to the book-entry delivery procedures set
forth above, or the tendering DTC participant must comply with the guaranteed
delivery procedures set forth below.
The term 'agent's message' means a message transmitted by DTC, and received
by the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that
DTC has received an express acknowledgment from the participant in DTC
tendering notes subject to the book-entry confirmation;
the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound to the applicable notice of guaranteed delivery; and
we may enforce such agreement against such participant.
DETERMINATION OF VALID TENDERS; OUR RIGHTS UNDER THE EXCHANGE OFFER
All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of tendered notes will be determined by us in our sole
discretion, which determination will be final and binding on all parties. We
expressly reserve the absolute right, in our sole discretion, to reject any or
all outstanding unregistered notes not properly tendered or any outstanding
35
unregistered notes the acceptance of which would, in the opinion of our counsel,
be unlawful. We also reserve the absolute right in our sole discretion to waive
or amend any conditions of the exchange offer or to waive any defects or
irregularities of tender for any particular note, whether or not similar defects
or irregularities are waived in the case of other notes. Our interpretation of
the terms and conditions of the exchange offer will be final and binding on all
parties. No alternative, conditional or contingent tenders will be accepted.
Unless waived, any defects or irregularities in connection with tenders of
outstanding unregistered notes must be cured by the tendering holder within such
time as we determine.
Although we intend to notify holders of defects or irregularities in tenders
of outstanding unregistered notes, neither we, the exchange agent or any other
person shall be under any duty to give notification of defects or irregularities
in such tenders or will incur any liability to holders for failure to give such
notification. Holders will be deemed to have tendered outstanding unregistered
notes only when such defects or irregularities have been cured or waived. The
exchange agent will return to the tendering holder, after the expiration of the
exchange offer, any outstanding unregistered notes that are not properly
tendered and as to which the defects have not been cured or waived.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender outstanding unregistered notes pursuant to the
exchange offer and (1) certificates representing such outstanding unregistered
notes are not immediately available, (2) time will not permit your letter of
transmittal, certificates representing such outstanding unregistered notes and
all other required documents to reach the exchange agent on or prior to the
expiration date, or (3) the procedures for book-entry transfer (including
delivery of an agent's message) cannot be completed on or prior to the
expiration date, you may nevertheless tender such notes with the effect that
such tender will be deemed to have been received on or prior to the expiration
date if all the following conditions are satisfied
you must effect your tender through an 'eligible guarantor institution,'
which is defined above under the heading ' -- Guarantee of Signatures';
a properly completed and duly executed notice of guaranteed delivery, or an
agent's message with respect to guaranteed delivery that is accepted by us,
is received by the exchange agent on or prior to the expiration date as
provided below; and
the certificates for the tendered notes, in proper form for transfer (or a
book-entry confirmation of the transfer of such notes into the exchange
agent's account at DTC as described above), together with a letter of
transmittal (or manually signed facsimile of the letter of transmittal)
properly completed and duly executed, with any signature guarantees and any
other documents required by the letter of transmittal or a properly
transmitted agent's message, are received by the exchange agent within
three New York Stock Exchange, Inc. trading days after the date of
execution of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible guarantor institution in the form set forth in the notice of guaranteed
delivery.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding unregistered notes
according to the guaranteed delivery procedures outlined above.
WITHDRAWAL RIGHTS
Except as otherwise provided in this prospectus, you may withdraw tendered
outstanding unregistered notes at any time before 5:00 p.m., New York City time,
on January 8, 2003. For a withdrawal of tendered outstanding unregistered notes
to be effective, a written or facsimile transmission notice of withdrawal must
be received by the exchange agent on or prior to the expiration of the exchange
offer. For DTC participants, a written notice of withdrawal may be
36
made by electronic transmission through DTC's Automated Tender Offer Program.
Any notice of withdrawal must
specify the name of the person having tendered the outstanding unregistered
notes to be withdrawn;
identify the outstanding unregistered notes to be withdrawn, including the
certificate number(s) and principal amount of the outstanding unregistered
notes, or, in the case of outstanding unregistered notes transferred by
book-entry transfer, the name and number of the account at DTC;
be signed by the holder in the same manner as the original signature on the
letter of transmittal by which such outstanding unregistered notes were
tendered, with any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding unregistered notes register the transfer of such outstanding
unregistered notes into the name of the person withdrawing the tender and a
properly completed irrevocable proxy authorizing such person to effect such
withdrawal on behalf of such holder; and
specify the name in which the outstanding unregistered notes to be
withdrawn are to be registered, if different from that of the registered
holder.
If certificates for outstanding unregistered notes have been delivered or
otherwise identified to the exchange agent, then, before the release of those
certificates, the withdrawing holder must also submit
the serial numbers of the particular certificates to be withdrawn; and
a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
Any permitted withdrawal of outstanding unregistered notes may not be
rescinded. Any outstanding unregistered notes properly withdrawn will thereafter
be deemed not to have been validly tendered for purposes of the exchange offer.
The exchange agent will return any withdrawn outstanding unregistered notes
without cost to the holder promptly after withdrawal of the outstanding
unregistered notes. Holders may retender properly withdrawn outstanding
unregistered notes at any time before the expiration of the exchange offer by
following one of the procedures described above under the heading
' -- Procedures for Tendering Outstanding Unregistered Notes.'
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange any exchange notes for, any
outstanding unregistered notes, and may terminate or amend the exchange offer as
provided in this prospectus before the expiration of the exchange offer, if
certain events occur, including the following:
the exchange notes to be received will not be tradable by the holder
without restrictions under the Securities Act or the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all the states of the United States;
any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer which, in
our reasonable judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us;
any law, statute, rule, regulation or interpretation by the staff of the
SEC is proposed, adopted or enacted, which, in our reasonable judgment,
might impair our ability to proceed with the exchange offer or impair the
contemplated benefits of the exchange offer to us; or
any governmental approval has not been obtained, which we believe, in our
reasonable judgment, is necessary for the consummation of the exchange
offer as outlined in this prospectus.
37
If we determine in our sole discretion that any of the conditions are not
satisfied, we may
refuse to accept any outstanding unregistered notes and return all tendered
outstanding unregistered notes to the tendering holders;
extend the exchange offer and retain all outstanding unregistered notes
tendered prior to the expiration of the exchange offer, subject, however,
to the rights of holders to withdraw their outstanding unregistered notes;
or
waive such unsatisfied conditions of the exchange offer and accept all
properly tendered outstanding unregistered notes which have not been
withdrawn.
These conditions are for the sole benefit of us and Millennium Chemicals and
may be asserted or waived by us at any time in our sole discretion. Our failure
to exercise any of these rights at any time will not be deemed a waiver of such
rights. These rights will be ongoing and may be asserted by us at any time.
In addition, we will not complete the exchange offer if any stop order is
threatened or issued with respect to the registration statement for the exchange
offer and the exchange notes. In any such event, we must make every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
moment.
EFFECT OF NOT TENDERING
To the extent outstanding unregistered notes are tendered and accepted in
the exchange offer, the principal amount of outstanding unregistered notes will
be reduced by the amount so tendered and a holder's ability to sell untendered
outstanding unregistered notes could be adversely affected. In addition, after
the completion of the exchange offer, the outstanding unregistered notes will
remain subject to restrictions on transfer. Since the outstanding unregistered
notes have not been registered under the Securities Act, they bear a legend
restricting their transfer absent registration or the availability of a specific
exemption from registration. The holders of outstanding unregistered notes not
tendered will have no further registration rights, except for the limited
registration rights described above under the heading ' -- Purpose of the
Exchange Offer.'
Accordingly, the outstanding unregistered notes not tendered may be resold
only
to us or our subsidiaries;
pursuant to a registration statement which has been declared effective
under the Securities Act;
for so long as the outstanding unregistered notes are eligible for resale
pursuant to Rule 144A under the Securities Act to a person the seller
reasonably believes is a qualified institutional buyer that purchases for
its own account or for the account of a qualified institutional buyer to
whom notice is given that the transfer is being made in reliance on
Rule 144A; or
pursuant to any other available exemption from the registration
requirements of the Securities Act (in which case we and the trustee shall
have the right to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to us and the
trustee), subject in each of the foregoing cases to any requirements of law
that the disposition of the seller's property or the property of such
investor account or accounts be at all times within its or their control
and to compliance with any applicable state securities laws.
Upon completion of the exchange offer, due to the restrictions on transfer
of the outstanding unregistered notes and the absence of such restrictions
applicable to the exchange notes, it is likely that the market, if any, for
outstanding unregistered notes will be relatively less liquid than the market
for exchange notes. Consequently, holders of outstanding unregistered notes who
do not participate in the exchange offer could experience significant diminution
in the value of their outstanding unregistered notes, compared to the value of
the exchange notes.
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REGULATORY APPROVALS
Other than the federal securities laws, there are no federal or state
regulatory requirements that we must comply with and there are no approvals that
we must obtain in connection with the exchange offer.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitations by telegraph, telecopy,
telephone or in person.
We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include the SEC registration fee, fees and expenses of the
exchange agent and trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding unregistered notes. The carrying value is the aggregate gross
proceeds received from the sale of the unregistered notes as reflected in our
accounting records on the date of exchange. Accordingly, we will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer will be
expensed over the term of the exchange notes.
TRANSFER TAXES
We will pay all transfer taxes, if any, required to be paid in connection
with the exchange of the outstanding unregistered notes for the exchange notes.
However, holders who instruct us to register exchange notes in the name of, or
request that outstanding unregistered notes not tendered or not accepted for
exchange be returned to, a person other than the registered holder will be
responsible for the payment of any transfer tax arising from such transfer.
If you do not submit satisfactory evidence of payment of those taxes with
the letter of transmittal, the amount of those transfer taxes will be billed to
the tendering holder.
THE EXCHANGE AGENT
The Bank of New York, the trustee under the indenture, is serving as the
exchange agent for the exchange offer. ALL EXECUTED LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE EXCHANGE AGENT AT THE ADDRESS LISTED BELOW. Questions,
requests for assistance and requests for additional copies of this prospectus or
the letter of transmittal should be directed to the exchange agent at the
address or telephone number listed below.
The Bank of New York
101 Barclay Street -- 7 East
New York, New York 10286
Attn: Bernard Arsenek, Reorganization Department
By Facsimile: (212) 298-1915
Attn: Reorganization Department
Confirm by Telephone: (212) 815-5098
Originals of all documents sent by facsimile should be promptly sent to the
exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
Delivery to an address other than as set forth above will not constitute a
valid delivery.
39
DESCRIPTION OF THE EXCHANGE NOTES
Definitions of certain terms used in this Description of the Exchange Notes
may be found under the heading 'Certain Definitions.' For purposes of this
section unless the context otherwise requires, (i) the term 'Issuer' refers only
to Millennium America Inc. and not to any of its subsidiaries, (ii) the term
'Company' refers only to Millennium Chemicals Inc., the indirect parent company
of the Issuer, and not to any of its subsidiaries, (iii) the term 'Exchange
Notes' means the notes offered hereby together with the outstanding 9 1/4%
Senior Notes due 2008 which have been registered under the Securities Act (the
'Registered Notes') and (iv) the term 'Notes' means the Exchange Notes together
with the outstanding 9 1/4% Senior Notes due 2008 which have not been registered
under the Securities Act (the 'Unregistered Notes'). The Company will guarantee
the Exchange Notes and therefore will be subject to many of the provisions
contained in this Description of the Exchange Notes. The Company's guarantee is
termed the 'Note Guarantee.'
On June 26, 2002 we issued $100 million aggregate principal amount of
Unregistered Notes under an indenture, dated June 18, 2001 (the 'Indenture'),
among the Issuer, the Company and The Bank of New York, as Trustee (the
'Trustee'), a copy of which is incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part and is available upon
request to the Company. The Exchange Notes offered hereby will be issued under
the Indenture, which is qualified under the U.S. Trust Indenture Act of 1939, as
amended. The Indenture contains provisions which define your rights under the
Exchange Notes. In addition, the Indenture governs the obligations of the Issuer
and the Company under the Exchange Notes. The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the TIA and are the same in all material respects as those of the
Unregistered Notes, except that the Exchange Notes will be registered under the
Securities Act and, therefore, will not bear legends restricting transfer.
The Exchange Notes offered hereby will constitute 'Additional Securities'
under the Indenture. The Exchange Notes offered hereby, the outstanding
Unregistered Notes and Registered Notes, and any Additional Securities issued in
the future, will constitute the same series of securities and will vote together
as one series on all matters with respect to the Notes, including with respect
to the provisions of the Indenture described below under 'Defaults' and
'Amendments and Waivers.'
The following description is meant to be only a summary of certain
provisions of the Indenture. It does not restate the terms of the Indenture in
their entirety. We urge that you carefully read the Indenture as it, and not
this description, governs your rights as Holders.
OVERVIEW OF THE EXCHANGE NOTES AND THE NOTE GUARANTEE
The Exchange Notes offered hereby:
will be general unsecured, senior obligations of the Issuer;
will rank equally in right of payment with all existing and future Senior
Indebtedness of the Issuer;
will be senior in right of payment to all future Subordinated Obligations
of the Issuer;
will be effectively subordinated to any secured Indebtedness of the Issuer
and its Subsidiaries to the extent of the value of the assets securing such
Indebtedness;
will be effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Issuer; and
will be guaranteed by the Company.
The Note Guarantee of the Company:
will be a general unsecured, senior obligation of the Company;
will rank equally in right of payment with all existing and future Senior
Indebtedness of the Company;
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will be senior in right of payment to all future Subordinated Obligations
of the Company;
will be effectively subordinated to any secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing such
Indebtedness; and
will be effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company (other than
the Issuer).
The Exchange Notes will not be guaranteed by any of the Company's
subsidiaries. As of September 30, 2002, these subsidiaries (other than the
Issuer) had approximately $28 million of total indebtedness outstanding
(exclusive of unused commitments and $21 million of undrawn outstanding standby
letters of credit), had approximately $199 million of trade payables
outstanding, and held approximately 99% of the Company's consolidated assets.
For the year ended December 31, 2001, these subsidiaries generated approximately
100% of the Company's consolidated net sales.
PRINCIPAL, MATURITY AND INTEREST
Up to an aggregate principal amount of $100 million of Exchange Notes will
be issued in the exchange offer. Additional notes in an unlimited amount may be
issued under the Indenture from time to time, subject to the covenants under the
Indenture and our other debt instruments in effect from time to time. The
outstanding Unregistered Notes, the Exchange Notes, and any additional Notes
subsequently issued (sometimes collectively referred to as the 'Notes') will be
treated as a single class for all purposes under the Indenture.
The outstanding Unregistered Notes and Exchange Notes will mature on
June 15, 2008. We will issue the Exchange Notes in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
Each Exchange Note we issue pursuant to the exchange offer will bear
interest at a rate of 9 1/4% per annum from the most recent interest payment
date to which interest has been paid on the tendered outstanding unregistered
notes, or if no interest has been paid, from June 15, 2002. We will pay interest
semiannually to Holders of record at the close of business on the June 1 or
December 1 immediately preceding the interest payment date on and of each year.
We will begin paying interest to Holders of the Exchange Notes offered hereby on
December 15, 2002. We will pay interest on overdue principal at 1% per annum in
excess of such rate, and we will pay interest on overdue installments of
interest at such higher rate to the extent lawful.
We will also pay liquidated damages to Holders of the outstanding
Unregistered Notes, but not the Exchange Notes, if certain conditions are not
satisfied. These liquidated damage provisions are more fully explained under the
heading 'The Exchange Offer' above.
PAYMENTS ON THE EXCHANGE NOTES
We will pay the principal of, premium, if any, interest and liquidated
damages, if any, on the Exchange Notes, and the Exchange Notes may be exchanged
or transferred, at any office of ours or any agency designated by us which is
located in the Borough of Manhattan, the City of New York. We have initially
designated the corporate trust office of the Trustee to act as the agent of the
Issuer in such matters. The location of the corporate trust office of the
Trustee is 101 Barclay Street, New York, New York 10286. We, however, reserve
the right to pay interest to Holders by check mailed directly to Holders at
their registered addresses. No service charge will be made for any registration
of transfer or exchange of Exchange Notes. We, however, may require Holders to
pay any transfer tax or other similar governmental charge payable in connection
with any such transfer or exchange.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Exchange Notes in accordance
with the Indenture. Upon any transfer or exchange, the registrar and the Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer
41
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Issuer will not be required to transfer or exchange any
Exchange Note selected for redemption or to transfer or exchange any Exchange
Note for a period of 15 days prior to a selection of Exchange Notes to be
redeemed. The Exchange Notes will be issued in registered form and the
registered Holder will be treated as the owner of such Exchange Note for all
purposes.
PAYING AGENT AND REGISTRAR
The Trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to the Holder of the Exchange
Notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
OPTIONAL REDEMPTION
The Exchange Notes may be redeemed, in whole at any time or in part from
time to time, at the option of the Issuer, upon not less than 30 nor more than
60 days' prior notice mailed by first-class mail to each Holder's registered
address, at a redemption price equal to the greater of (i) 100% of the principal
amount thereof plus accrued and unpaid interest and liquidated damages thereon,
if any, to 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) and (ii) the sum of (x) the present values of the remaining scheduled
payments of principal and interest thereon from the redemption date to the
maturity date (except for currently accrued but unpaid interest) discounted to
the redemption date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 50 basis points and (y)
accrued and unpaid interest, if any, to the redemption date.
In addition, prior to June 15, 2004, we may, on one or more occasions,
redeem up to a maximum of 35% of the aggregate principal amount of the Exchange
Notes (calculated after giving effect to any issuance of additional Notes) with
the Net Cash Proceeds of one or more Equity Offerings by the Company to the
extent the Net Cash Proceeds thereof are contributed to the Issuer or used to
purchase Capital Stock (other than Disqualified Stock) of the Issuer from the
Issuer, at a redemption price equal to 109.25% of the principal amount thereof,
plus accrued and unpaid interest and liquidated damages thereon, if any, to 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);
provided, however, that after giving effect to any such redemption:
(1) at least 65% of the aggregate principal amount of the Exchange Notes
(calculated after giving effect to any issuance of additional Notes) remains
outstanding; and
(2) any such redemption by the Company must be made within 60 days of
such Equity Offering and must be made in accordance with certain procedures
set forth in the Indenture.
Except as set forth above, or under the caption 'Redemption for Changes in
Withholding Taxes,' we may not redeem the Notes.
SELECTION
If we partially redeem Exchange Notes, the Trustee will select the Exchange
Notes to be redeemed in compliance with the requirements of the principal
national securities exchanges, if any, on which the Exchange Notes are listed,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and reasonable, although no Exchange Note of
$1,000 in original principal amount or less will be redeemed in part. If we
redeem any Exchange Note in part only, the notice of redemption relating to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancelation of the original Exchange Note. On and after the redemption date,
interest will cease to accrue on Exchange Notes or portions thereof called for
redemption so long
42
as we have deposited with the paying agent funds sufficient to pay the principal
of, plus accrued and unpaid interest and liquidated damages thereon, if any, the
Exchange Notes to be redeemed.
MANDATORY REDEMPTION
The Issuer is not required to make mandatory redemption payments or sinking
fund payments with respect to the Exchange Notes.
ADDITIONAL AMOUNTS
The Issuer or the Company is required to make all payments under or with
respect to the Exchange Notes and the Note Guarantee free and clear of and
without withholding or deduction for or on account of any present or future tax,
duty, levy, impost, assessment or other governmental charge (including
penalties, interest and other liabilities related thereto) ('Taxes') imposed or
levied by or on behalf of the government of the United Kingdom or any political
subdivision or any authority or agency therein or thereof having power to tax,
or within any other jurisdiction in which we are organized or are otherwise
resident for tax purposes or any jurisdiction from or through which payment is
made (in each case, other than the United States or any political subdivision or
taxing authority thereof) (each a 'Relevant Taxing Jurisdiction'), unless the
Issuer or the Company is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof.
If the Issuer or the Company is so required to withhold or deduct any amount
for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any
payment made under or with respect to the Exchange Notes or the Note Guarantee,
the Issuer or the Company will be required to pay such additional amounts
('Additional Amounts') as may be necessary so that the net amount received by
you (including Additional Amounts) after such withholding or deduction will not
be less than the amount you would have received if such Taxes had not been
withheld or deducted; provided, however, that the foregoing obligation to pay
Additional Amounts does not apply to (1) any Taxes that would not have been so
imposed but for the existence of any present or former connection between the
relevant Holder (or between a fiduciary, settlor, beneficiary, member or
shareholder of, or possessor of power over the relevant holder, if the relevant
holder is an estate, nominee, trust or corporation) and the Relevant Taxing
Jurisdiction (other than the mere receipt of such payment or the ownership or
holding outside of the Relevant Taxing Jurisdiction of such Exchange Note); or
(2) any estate, inheritance, gift, sales, excise, transfer, personal property
tax or similar tax, assessment or governmental charge; nor will the Issuer or
the Company pay Additional Amounts (a) if the payment could have been made
without such deduction or withholding if the beneficiary of the payment had
presented the Exchange Note for payment within 30 days after the date on which
such payment or such Exchange Note became due and payable or the date on which
payment thereof is duly provided for, whichever is later (except to the extent
that the holder would have been entitled to Additional Amounts had the Exchange
Note been presented on the last day of such 30 day period), or (b) with respect
to any payment of principal of (or premium, if any, on) or interest on such
Exchange Note to any holder who is a fiduciary or partnership or any person
other than the sole beneficial owner of such payment, to the extent that a
beneficiary or settlor with respect to such fiduciary, a member of such a
partnership or the beneficial owner of such payment would not have been entitled
to the Additional Amounts had such beneficiary, settlor, member or beneficial
owner been the actual holder of such Exchange Note.
Upon request, the Issuer or the Company will provide the Trustee with
official receipts or other documentation satisfactory to the Trustee evidencing
the payment of the Taxes with respect to which Additional Amounts are paid.
Whenever in the Indenture there is mentioned, in any context:
(1) the payment of principal;
(2) purchase prices in connection with a purchase of Exchange Notes;
43
(3) interest; or
(4) any other amount payable on or with respect to any of the Exchange
Notes,
such reference shall be deemed to include payment of Additional Amounts as
described under this heading to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof.
The Issuer or the Company will pay any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise in any jurisdiction from the execution, delivery, enforcement
or registration of the Exchange Notes, the Note Guarantee, the Indenture or any
other document or instrument in relation thereof, or the receipt of any payments
with respect to the Exchange Notes or the Note Guarantee, excluding such taxes,
charges or similar levies imposed by any jurisdiction outside of the United
Kingdom, the jurisdiction of incorporation of any successor of the Company or
any jurisdiction in which a paying agent is located, and we will agree to
indemnify the Holders for any such taxes paid by such Holders.
The obligations described under this heading will survive any termination,
defeasance or discharge of the Indenture and will apply mutatis mutandis to any
jurisdiction in which any successor Person to the Company is organized or any
political subdivision or taxing authority or agency thereof or therein (other
than the United States or any political subdivision or taxing authority
thereof).
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
We are entitled to redeem the Exchange Notes, at our option, at any time as
a whole but not in part, upon not less than 30 nor more than 60 days' notice, at
100% of the principal amount thereof, plus accrued and unpaid interest (if any)
and liquidated damages 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), in the event we have become or would become
obligated to pay, on the next date on which any amount would be payable with
respect to the Exchange Notes or the Note Guarantee, any Additional Amounts as a
result of:
(1) a change in or an amendment to the laws (including any regulations
promulgated thereunder) of any Relevant Taxing Jurisdiction; or
(2) any change in or amendment to any official position regarding the
application or interpretation of such laws or regulations, which change or
amendment is announced or becomes effective on or after the date of this
offering memorandum
and we cannot avoid such obligation by taking reasonable measures available to
us.
Before we publish or mail notice of redemption of the Exchange Notes as
described above, we will deliver to the Trustee an officers' certificate to the
effect that we cannot avoid our obligation to pay Additional Amounts by taking
reasonable measures available to us. We will also deliver an opinion of
independent legal counsel of recognized standing stating that we would be
obligated to pay Additional Amounts as a result of a change in tax laws or
regulations or the application or interpretation of such laws or regulations.
RANKING
The Exchange Notes will be general unsecured Senior Indebtedness of the
Issuer, will rank equally in right of payment with all existing and future
Senior Indebtedness of the Issuer and will be senior in right of payment to all
future Subordinated Obligations of the Issuer. The Exchange Notes also will be
effectively subordinated to any secured Indebtedness of the Issuer and its
Subsidiaries to the extent of the value of the assets securing such secured
Indebtedness.
The Note Guarantee will be general unsecured Senior Indebtedness of the
Company, will rank equally in right of payment with all existing and future
Senior Indebtedness of the Company and will be senior in right of payment to all
future Subordinated Obligations of the Company. The
44
Note Guarantee will be effectively subordinated to any secured Indebtedness of
the Company and its Subsidiaries to the extent of the value of the assets
securing such secured Indebtedness.
The Company, the indirect parent company of the Issuer, currently conducts
all of its operations through its Subsidiaries, and the Issuer currently
conducts all of its operations through its Subsidiaries. Creditors of such
Subsidiaries, including trade creditors, and preferred stockholders (if any) of
such Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of the creditors of the Company
and the Issuer, including Holders. The Exchange Notes, therefore, will be
effectively subordinated to the claims of creditors, including trade creditors,
and preferred stockholders (if any) of the Company's Subsidiaries (other than
the Issuer). Although the Indenture will limit the Incurrence of Indebtedness by
and the issuance of preferred stock of certain of our Subsidiaries, such
limitation is subject to a number of significant qualifications.
As of September 30, 2002, there was outstanding:
(1) $1,188 million of senior indebtedness of the Issuer (including the
Notes), of which $49 million was secured indebtedness (exclusive of unused
commitments under the Credit Agreement, $2 million of undrawn outstanding
standby letters of credit;
(2) $1,139 million of senior indebtedness of the Company (exclusive of
guarantees of indebtedness under the Credit Agreement), of which none was
secured indebtedness;
(3) no subordinated obligations of the Company or the Issuer; and
(4) $199 million of trade payables and $28 million of total indebtedness
outstanding (exclusive of unused commitments under the Credit Agreement and
$21 million of undrawn outstanding standby letters of credit) of
subsidiaries of the Company, other than the Issuer. In addition, since each
of the Company and the Issuer conducts all of its operations through its
subsidiaries, subsidiaries of the Company (other than the Issuer) had
substantial operating liabilities.
Although the Indenture will limit the Incurrence of Indebtedness by the
Company and the Restricted Subsidiaries (including the Issuer) and the
issuance of Preferred Stock by the Restricted Subsidiaries, such limitation
is subject to a number of significant qualifications. The Company and its
Subsidiaries may be able to Incur substantial amounts of Indebtedness in
certain circumstances. Such Indebtedness may be Senior Indebtedness.
THE NOTE GUARANTEE
The Company, as primary obligor and not merely as surety, will irrevocably
and unconditionally Guarantee on an unsecured senior basis the performance and
full and punctual payment when due, whether at Stated Maturity, by acceleration
or otherwise, of all obligations of the Issuer under the Indenture (including
obligations to the Trustee) and the Exchange Notes, whether for payment of
principal of or interest on or liquidated damages in respect of the Exchange
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by the Company being herein called the 'Guaranteed Obligations'). The Company
will agree to pay, in addition to the amount stated above, any and all costs and
expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under the Note Guarantee. The
Note Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the Company without rendering the Note
Guarantee voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
The Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon the Company and its successors and (c) inure to the benefit of, and
be enforceable by, the Trustee, the Holders and their successors, transferees
and assigns.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a 'Change of
Control'), each Holder of Exchange Notes will have the right to require the
Issuer to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Exchange Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest and liquidated
damages, if any, due on the relevant interest payment date):
(1) any 'person' (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Company or a Subsidiary of the Company, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that for purposes of this clause (1) such person
shall be deemed to have 'beneficial ownership' of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total voting power of the Voting Stock of the Issuer or
the Company (for the purposes of this clause (1), such person shall be
deemed to beneficially own any Voting Stock of an entity held by any other
entity (the 'parent entity'), if such person is the beneficial owner (as
defined in this clause (1)), directly or indirectly, of more than 50% of the
voting power of the Voting Stock of such parent entity); or
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Issuer or
the Company, as the case may be (together with any new directors whose
election by such board of directors of the Issuer or the Company, as the
case may be, or whose nomination for election by the shareholders of the
Issuer or the Company, as the case may be, was approved by a vote of 66 2/3%
of the directors of the Issuer or the Company, as the case may be, then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the board of directors of the
Issuer or the Company, as the case may be, then in office; or
(3) the adoption of a plan relating to the liquidation or dissolution of
the Issuer or the Company; or
(4) the merger or consolidation of the Issuer or the Company with or
into another Person or the merger of another Person with or into the Issuer
or the Company, or the sale of all or substantially all the assets of the
Issuer or the Company to another Person, unless, in the case of any such
merger or consolidation, the securities of the Issuer or the Company, as the
case may be, that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Issuer or the Company, as the case may be, constitute or are changed
into or exchanged for securities that constitute, in addition to any other
consideration, securities of the surviving Person that represent immediately
after such transaction at least a majority of the aggregate voting power of
the Voting Stock of the surviving Person or transferee. For purposes of this
clause (4), (i) the sale by the Company or the Issuer of the equity
interests in Millennium Petrochemicals Inc., the equity interests in the
limited liability companies which directly or indirectly own the Company's
equity interests in Equistar, and/or the Company's equity interests in
Equistar will be deemed not to constitute a sale of all or substantially all
of the assets of the Issuer or the Company if any such sale consists of Net
Tangible Assets constituting 33 1/3% or less of the Consolidated Net
Tangible Assets of the Company as of the date of the most recent publicly
available consolidated balance sheet of the Company and its Subsidiaries and
(ii) it shall not be a Change of Control if the Issuer or the Company merges
into the other or into a Restricted Subsidiary, or consolidates with or into
the other or a Restricted Subsidiary, or sells all or substantially all of
its assets to the other or a Restricted Subsidiary for internal
restructuring purposes or in combination with another transaction which does
not constitute a Change of Control.
46
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Exchange Notes pursuant
to this covenant, then prior to the mailing of the notice to Holders provided
for in the immediately following paragraph but in any event within 30 days
following any Change of Control, the Issuer shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
purchase of Exchange Notes, offer to repay in full all Bank Indebtedness and
repay the Bank Indebtedness of each lender who has accepted such offer; or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Exchange Notes as provided for
in the immediately following paragraph.
Within 30 days following any Change of Control, the Issuer shall mail a
notice to each Holder with a copy to the Trustee (the 'Change of Control Offer')
stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to purchase all or a portion of such Holder's
Exchange Notes at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and liquidated damages, if
any, to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest and liquidated damages, if any,
on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuer, consistent with the
Indenture, that a Holder must follow in order to have its Notes purchased.
The Issuer 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 Issuer and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchange Notes pursuant to the Indenture. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of the Indenture, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Indenture by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuer, the Company and the initial purchasers in the offering of the 9 1/4%
Senior Notes due 2008 in June 2001. Neither management of the Issuer nor the
Company has a present intention to engage in a transaction involving a Change of
Control, although it is possible that the Issuer or the Company would decide to
do so in the future. Subject to the limitations discussed below, we could, in
the future, enter into certain transactions, including acquisitions,
refinancings or recapitalizations, that would not constitute a Change of Control
under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings. Restrictions on our ability to Incur additional Indebtedness are
contained in the covenants described under 'Certain Covenants -- Limitation on
Indebtedness,' ' -- Limitation on Liens' and ' -- Limitation on Sale/Leaseback
Transactions.' Such restrictions can only be waived with the consent of the
Holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture does
not contain any covenants or provisions that may afford Holders protection in
the event of a highly leveraged transaction.
47
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future
Indebtedness of the Company and its Subsidiaries may contain prohibitions of
certain events which would constitute a Change of Control or require such
Indebtedness to be repurchased or repaid upon a Change of Control. Moreover, the
exercise by the Holders of their right to require the Issuer to purchase the
Exchange Notes could cause a default under such Indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
the Company and its Subsidiaries. Finally, the Issuer's ability to pay cash to
the Holders upon a purchase may be limited by the Issuer's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required purchases. The provisions under
the Indenture relative to the Issuer's obligation to make an offer to purchase
the Exchange Notes as a result of a Change of Control may be waived or modified
with the written consent of the Holders of a majority in principal amount of the
Notes then outstanding.
The definition of 'Change of Control' includes a disposition of all or
substantially all of the assets of the Company or the Issuer to any Person.
Although there is a limited body of case law interpreting the phrase
'substantially all,' there is no precise established definition of the phrase
under New York law (which is the governing law of the Indenture). Accordingly,
in certain circumstances there may be a degree of uncertainty as to whether a
particular transaction would involve a disposition of 'all or substantially all'
of the assets of a Person. As a result, it may be unclear as to whether a Change
of Control has occurred and whether a holder of Exchange Notes may require the
Issuer to make an offer to repurchase the Exchange Notes as described above.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) Subsequent to June 18, 2001, the Company
will not, and will not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Issuer or the Company
may Incur Indebtedness if on the date of such Incurrence and after giving effect
thereto the Consolidated Coverage Ratio would be greater than 2.00:1 if such
Indebtedness is Incurred on or prior to June 15, 2003 and 2.25:1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Bank Indebtedness (and Guarantees thereof) in an aggregate principal
amount incurred since June 18, 2001 not to exceed the greater of: (A) $300
million less the aggregate amount of all repayments of principal of such
Indebtedness pursuant to the covenant described under ' -- Limitation on
Sales of Assets and Subsidiary Stock', and (B) the sum of 85% of the book
value of accounts receivable and 50% of the book value of inventory of the
Company and its Restricted Subsidiaries, calculated on a consolidated basis
and in accordance with GAAP as of the date of the most recent publicly
available consolidated balance sheet of the Company;
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (A) any
subsequent issuance or transfer of any Capital Stock or any other event that
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof, (B) if
the Issuer is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Exchange Notes and (C) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to
the prior payment in full in cash of all obligations of the Company with
respect to its Note Guarantee;
48
(3) Indebtedness (A) represented by the Notes (not including any Notes
issued subsequent to June 18, 2001) and the Note Guarantee, (B) outstanding
on June 18, 2001 (other than the Indebtedness described in clauses (1) and
(2) above), (C) consisting of Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (3) (including Indebtedness
that is Refinancing Indebtedness) or the foregoing paragraph (a) and
(D) consisting of Guarantees of any Indebtedness permitted under clauses (1)
and (2) of this paragraph (b);
(4) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred in contemplation of, in
connection with, as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary of or was otherwise acquired by the Company); provided,
however, that on the date that such Restricted Subsidiary is acquired by the
Company, the Company would have been able to Incur $1.00 of additional
Indebtedness pursuant to the foregoing paragraph (a) after giving effect to
the Incurrence of such Indebtedness pursuant to this clause (4) and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(4);
(5) Indebtedness in respect of workers' compensation claims,
self-insurance obligations, completion guarantees, performance bonds,
bankers' acceptances, letters of credit and performance, indemnity, surety
or appeal bonds and similar items provided or Incurred by the Company and
the Restricted Subsidiaries in the ordinary course of their business;
(6) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount incurred since June 18, 2001 not in excess of $50
million at any time outstanding;
(7) Indebtedness Incurred by a Receivables Entity since June 18, 2001 in
a Qualified Receivables Transaction with respect to accounts receivable of a
Domestic Subsidiary that is not recourse to the Company or any other
Restricted Subsidiary of the Company (except for Standard Securitization
Undertakings) in an aggregate principal amount not to exceed $100 million at
any time outstanding;
(8) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, contribution, earnout, adjustment
of purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or Capital Stock
of a Restricted Subsidiary;
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument (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 of Incurrence;
(10) Indebtedness of any Foreign Subsidiary (including any Indebtedness
Incurred by a Receivables Entity in a Qualified Receivables Transaction with
respect to accounts receivable of a Foreign Subsidiary that is not recourse
to the Company or any other Restricted Subsidiary of the Company (except for
Standard Securitization Undertakings)) incurred since June 18, 2001 in an
aggregate principal amount on the date of Incurrence that, when added to all
other Indebtedness Incurred pursuant to this clause (10) and then
outstanding, will not exceed $100 million; provided that immediately after
giving effect to such Incurrence of Indebtedness, the Company would be able
to Incur at least $1.00 of additional Indebtedness under paragraph (a) of
this covenant above;
(11) Guarantees by the Company, the Issuer or a Restricted Subsidiary of
Indebtedness permitted to be Incurred by Restricted Subsidiaries (other than
Guarantees by a Restricted Subsidiary of Indebtedness of the Issuer)
pursuant to this 'Limitation on Indebtedness' covenant; or
49
(12) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(12) since June 18, 2001 and then outstanding, will not exceed $50 million.
(c) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may not Incur any Indebtedness pursuant to paragraph (b) above if
the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations of the Company
or the Issuer unless such Indebtedness will be subordinated to the Exchange
Notes or the Note Guarantee, as applicable, to at least the same extent as such
Subordinated Obligations.
(d) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant
to this covenant shall not be deemed to be exceeded solely as a result of
fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement on or prior
to June 18, 2001 shall be treated as Incurred pursuant to clause (1) of
paragraph (b) above,
(2) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness, and
(3) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in this covenant, the Issuer, in its
sole discretion, shall classify such Indebtedness and only be required to
include the amount of such Indebtedness in one of such clauses.
(e) Notwithstanding the foregoing, subsequent to June 18, 2001, the Company
shall not permit any Restricted Subsidiary to Incur any Funded Debt, except for:
(i) Funded Debt Incurred pursuant to clause (b)(3)(B) or (C) of this
covenant,
(ii) Funded Debt Incurred pursuant to clause (b)(4) of this covenant
(without giving effect to the proviso thereto after the Fall-Away Date),
(iii) Funded Debt consisting of Purchase Money Indebtedness and
Refinancing Indebtedness Incurred in respect of such Purchase Money
Indebtedness Incurred pursuant to clause (b)(6) of this covenant (without
giving effect to the cap therein after the Fall-Away Date),
(iv) Funded Debt consisting of Indebtedness Incurred pursuant to clause
(b)(2) or (b)(7) of this covenant, and
(v) Funded Debt in an aggregate principal amount which, together with
(without duplication) (a) the aggregate principal amount of all other Funded
Debt of the Restricted Subsidiaries (other than Funded Debt permitted to be
Incurred under clauses (i) through (iv) above), (b) the aggregate principal
amount of all Secured Debt of the Company and the Restricted Subsidiaries
(other than Indebtedness permitted to be secured under clauses (1) through
(9) of paragraph (a) of the covenant described under 'Limitation on Liens'),
and (c) the aggregate Value of Sale/Leaseback Transactions of the Company
and its Restricted Subsidiaries (other than Sale/Leaseback Transactions
permitted under paragraph (a) of the covenant described under 'Limitation on
Sale/Leaseback Transactions') does not at such time exceed 15% of
Consolidated Net Tangible Assets of the Issuer.
50
Limitation on Restricted Payments. (a) Subsequent to June 18, 2001, the
Company will not, and will not permit any Restricted Subsidiary, directly or
indirectly, to:
(1) declare or pay any dividend, make any distribution on or in respect
of its Capital Stock or make any similar payment (including any payment in
connection with any merger or consolidation involving the Company or any
Subsidiary of the Company) to the direct or indirect holders of its Capital
Stock, except (x) dividends or distributions payable solely in Capital Stock
of the Company or its Restricted Subsidiaries (other than Disqualified Stock
or Preferred Stock) and (y) dividends or distributions payable to the
Company or a Restricted Subsidiary (and, if such Restricted Subsidiary has
shareholders other than the Company or other Restricted Subsidiaries, to its
other shareholders on a pro rata basis),
(2) purchase, repurchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by
Persons other than the Company or a Restricted Subsidiary,
(3) purchase, repurchase, redeem, retire, defease or otherwise acquire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the purchase,
repurchase, redemption, retirement, defeasance or other acquisition for
value of Subordinated Obligations acquired in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition or Subordinated
Obligations held by the Company or any Restricted Subsidiary), or
(4) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, payment, purchase, redemption,
repurchase, defeasance, retirement, or other acquisition or Investment being
herein referred to as a 'Restricted Payment'),
if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(A) a Default will have occurred and be continuing (or would result
therefrom);
(B) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
' -- Limitation on Indebtedness'; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors of the Company, whose
determination will be conclusive and evidenced by a resolution of the
Board of Directors of the Company) declared or made subsequent to
June 18, 2001 would exceed the sum, without duplication, of:
(i) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from July 1, 2001 to the end of
the most recent fiscal quarter for which consolidated financial
statements of the Company are publicly available prior to the date of
such Restricted Payment (or, in case such Consolidated Net Income
will be a deficit, minus 100% of such deficit);
(ii) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to June 18, 2001 (other than an issuance or sale to
(x) a Subsidiary of the Company or (y) an employee stock ownership
plan or other trust established by the Company or any of its
Subsidiaries);
(iii) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to June 18, 2001 of any Indebtedness of the
Company or its Restricted Subsidiaries issued after the Closing Date
which is convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
the Fair Market Value of other property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange);
51
(iv) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) payments of dividends,
repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (y) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of 'Investment') not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation
of the amount of Restricted Payments;
(v) an amount equal to 50% of the cash distributions received by
the Company or any of its Restricted Subsidiaries from Equistar
during the period (treated as one accounting period) from April 1,
2001 to the end of the most recent fiscal quarter for which
consolidated financial statements of the Company are publicly
available prior to the date of such Restricted Payment; and
(vi) $40 million.
(b) The provisions of the foregoing paragraph (a) will not prohibit any
Permitted Investment or:
(1) any purchase, repurchase, redemption, retirement or other
acquisition for value of Capital Stock of the Company made by exchange for,
or out of the proceeds of the sale within 30 days of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary of the Company or an employee stock ownership plan
or other trust established by the Company or any of its Subsidiaries);
provided, however, that:
(A) such purchase, repurchase, redemption, retirement or other
acquisition for value will be excluded in the calculation of the amount
of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (1) will be excluded from the calculation of amounts
under clause (C)(ii) of paragraph (a) above;
(2) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of Subordinated
Obligations of the Company or the Issuer made by exchange for, or out of the
proceeds of the sale within 30 days of, Indebtedness of the Company or the
Issuer that is permitted to be Incurred pursuant to paragraph (b) of the
covenant described under ' -- Limitation on Indebtedness'; provided,
however, that such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be excluded in
the calculation of the amount of Restricted Payments;
(3) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of Subordinated
Obligations of the Company or the Issuer from Net Available Cash to the
extent permitted by the covenant described under ' -- Limitation on Sales of
Assets and Subsidiary Stock'; provided, however, that such prepayment,
repayment, purchase, repurchase, redemption, retirement, defeasance or other
acquisition for value will be excluded in the calculation of the amount of
Restricted Payments;
(4) dividends paid within 90 days after the date of declaration thereof
if at such date of declaration such dividends would have complied with this
covenant; provided, however, that such dividends will be included in the
calculation of the amount of Restricted Payments;
(5) any purchase, repurchase, redemption, retirement or other
acquisition for value of shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of agreements
(including employment agreements) or plans (or amendments thereto) approved
by the Board of Directors of the
52
Company under which such individuals purchase or sell or are granted the
option to purchase or sell, shares of such common stock; provided, however,
that the aggregate amount of such purchases, repurchases, redemptions,
retirements and other acquisitions for value permitted under this
clause (5) will not exceed $5 million in any calendar year; provided
further, however, that such amount permitted under this clause (5) in any
calendar year may be increased by up to $5 million of cash proceeds received
by the Company or any of its Restricted Subsidiaries in such calendar year
from the sale of Capital Stock of the Company (other than Disqualified
Stock) to employees or directors of the Company or its Subsidiaries (or
trusts for the benefit of such persons), provided that such cash proceeds so
applied will be excluded from the calculation of amounts under clause
(C)(ii) of paragraph (a) above; provided further, however, that such
purchases, repurchases, redemptions, retirements and other acquisitions for
value will be included in the calculation of the amount of Restricted
Payments;
(6) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company issued in accordance with the
terms of the Indenture; provided that the payment of such dividends will be
excluded from the calculation of Restricted Payments;
(7) repurchases of Capital Stock (or warrants or options convertible
into or exchangeable for such Capital Stock) deemed to occur upon the
exercise of warrants or stock options if such Capital Stock (or warrants or
options convertible into or exchangeable for such Capital Stock) represents
a portion of the exercise price thereof; provided, however, that such
repurchases will be excluded from the calculation of the amount of
Restricted Payments;
(8) Investments in Equistar that the Company is required to make
pursuant to the Equistar Partnership Agreement on terms no less favorable to
the Company than those in effect on June 18, 2001 in an amount not to exceed
$30 million in any calendar year and $100 million over any five calendar
year period; provided, however, that in the event that Investments in
Equistar by the Company or any of its Restricted Subsidiaries are required
without the consent of the Company in accordance with the Equistar
Partnership Agreement as in effect on June 18, 2001 (or on terms no less
favorable to the Company than as in effect on June 18, 2001) to achieve or
maintain compliance with any HSE Law (as defined in the Asset Contribution
Agreement as in effect on June 18, 2001) and such Investments, if made,
would exceed the annual cap set forth in this clause (8) above in the
calender year in which they are required to be made, then such annual cap
(but not the five year cap set forth in this clause (8) above) may be
exceeded; provided that if such Investment, taken together with all other
Investments made at any time pursuant to this clause (8), exceeds $30
million, at the time of making such Investment the Company would be able to
Incur at least $1.00 of additional Indebtedness under paragraph (a) of the
covenant described under ' -- Limitation on Indebtedness'; provided, further
that such Investments will be included in the calculation of Restricted
Payments; and
(9) other Restricted Payments in an aggregate amount since June 18, 2001
not to exceed $20 million; provided, however, that such Restricted Payments
shall be excluded from the calculation of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Subsequent to June 18, 2001, the Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company or the
Issuer;
(2) make any loans or advances to the Company or the Issuer; or
(3) transfer any of its property or assets to the Company or the Issuer.
53
The preceding provisions will not prohibit:
(A) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on June 18, 2001 (including,
without limitation, the Indenture and the Credit Agreement);
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary existing prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than any encumbrance or restriction
with respect to any obligation or Indebtedness Incurred as consideration
in, in contemplation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clause (A) or (B) of this covenant or this clause (C) or contained
in any amendment to an agreement referred to in clause (A) or (B) of this
covenant or this clause (C); provided, however, that the encumbrances and
restrictions contained in any such Refinancing agreement or amendment are
no less favorable in any material respect to the Holders than the
encumbrances and restrictions contained in such predecessor agreements;
(D) in the case of clause (3), any encumbrance or restriction
(i) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or (ii) contained in any
mortgage, pledge or security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements; and (iii) pursuant to customary provisions restricting
dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary;
(E) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition of
assets of, or all or substantially all the Capital Stock of, such
Restricted Subsidiary pending the closing of such sale or disposition;
(F) any encumbrance or restriction existing under or by reason of
Indebtedness or other contractual requirements of a Receivables Entity in
connection with a Qualified Receivables Transaction; provided that such
restrictions apply only to such Receivables Entity;
(G) in the case of clause (3), Purchase Money Indebtedness, Capital
Lease Obligations, industrial revenue or similar bonds, or operating
leases or similar transactions Incurred in compliance with the Indenture
that impose encumbrances or restrictions on the property so acquired or
covered thereby;
(H) encumbrances or restrictions arising or existing by reason of
applicable law or any applicable rule, regulation or order of any foreign
or domestic government agency or court;
(I) encumbrances existing under the Indenture and the Notes;
(J) any encumbrance or restriction on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary
course of business;
(K) encumbrances or restrictions existing under or by reason of
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business, so long as such encumbrances or
restrictions are not applicable to any Person (or its property or assets)
other than such joint venture or a Subsidiary thereof;
54
(L) in the case of clause (3), any Lien Incurred in compliance with
the covenant described under ' -- Limitation on Liens'; and
(M) customary restrictions imposed on the transfer of intellectual
property in the ordinary course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) Subsequent to
June 18, 2001, the Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Disposition at least equal to the Fair Market Value (determined
either at the date of such Asset Disposition or at the date of the agreement
providing for such Asset Disposition) of the shares and assets subject to
such Asset Disposition,
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, purchase, repurchase,
redeem, retire, defease or otherwise acquire for value Bank Indebtedness
of the Company or the Issuer or Indebtedness (other than obligations in
respect of Preferred Stock) of a Wholly Owned Subsidiary other than the
Issuer (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company and other than obligations in respect of
Disqualified Stock) within 360 days after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary) within 360 days from the later of such Asset
Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
Offer (as defined in paragraph (b) of this covenant below) to purchase
Notes pursuant to and subject to the conditions set forth in paragraph
(b) of this covenant; provided, however, that if the Issuer elects (or is
required by the terms of any other Senior Indebtedness), such Offer may
be made ratably to purchase the Notes and other Senior Indebtedness of
the Company or the Issuer, and
(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), for any
general corporate purpose permitted by the terms of the Indenture;
provided, however, that in connection with any prepayment, repayment, purchase,
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid, purchased, repurchased, redeemed, retired,
defeased or otherwise acquired for value.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5 million.
55
For the purposes of this covenant, the following are deemed to be cash:
the assumption of Indebtedness of (i) the Issuer (other than
obligations in respect of Disqualified Stock of the Issuer) or (ii) the
Company or any Restricted Subsidiary other than the Issuer (other than
obligations in respect of Disqualified Stock and Preferred Stock of the
Company) and the release of the Issuer, the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition (it being understood that the assumption of the
Issuer's Guarantee of Indebtedness of Equistar in effect on June 18,
2001 shall be valued as $0 for the purposes of complying with clause
(a)(2) of this covenant above) and
securities received by the Company or any Restricted Subsidiary from
the transferee that are converted, sold or exchanged within 30 days of
receipt by the Company or such Restricted Subsidiary into cash to the
extent of the cash received.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(3)(C) of this covenant, the Issuer will be required
(i) to purchase Notes tendered pursuant to an offer by the Issuer for
the Notes (the 'Offer') at a purchase price of 100% of their principal
amount plus accrued and unpaid interest and liquidated damages thereon, if
any, to the date of purchase (subject to the right of Holders of record on
the relevant date to receive interest due on the relevant interest payment
date) in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture; and
(ii) to purchase other Senior Indebtedness of the Issuer or the Company
on the terms and to the extent contemplated thereby (provided that in no
event shall the Issuer offer to purchase such other Senior Indebtedness of
the Issuer or the Company at a purchase price in excess of 100% of its
principal amount (without premium), plus accrued and unpaid interest
thereon.
If the aggregate purchase price of Notes (and other Senior Indebtedness)
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Notes (and other Senior Indebtedness), the Issuer will apply
the remaining Net Available Cash in accordance with clause (a)(3)(D) of this
covenant. The Issuer will not be required to make an Offer for Notes (and other
Senior Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses
(a)(3)(A) and (B)) is less than $5 million for any particular Asset Disposition
(which lesser amount will be carried forward for purposes of determining whether
an Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) Subsequent to June 18, 2001,
the Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or conduct any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company (an 'Affiliate
Transaction') unless such transaction is on terms:
(1) that are not materially less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained
at the time of such transaction in arm's-length dealings with a Person who
is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $10 million,
(A) are set forth in writing, and
56
(B) have been approved by a majority of the members of the Board of
Directors of the Company having no personal stake in such Affiliate
Transaction and,
(3) that, in the event such Affiliate Transaction involves an amount in
excess of $25 million, have been determined by a nationally recognized
appraisal or investment banking firm to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit or apply
to:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under 'Limitation on Restricted Payments,'
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options, stock ownership and other incentive
compensation plans approved by the Board of Directors of the Company,
(3) the payment of reasonable fees to, and indemnity provided on behalf
of, directors, officers and employees of the Company and its Subsidiaries,
(4) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries,
(5) transactions by the Company or any Restricted Subsidiary with
Equistar or any Subsidiary thereof pursuant to any agreement as in effect as
of June 18, 2001 or any amendment thereto or any similar agreement entered
into after June 18, 2001; provided, however, that any future amendment to
such existing agreement or any such similar agreement shall not be permitted
by this clause (5) to the extent that the terms of any such amendment or
similar agreement are materially less favorable to the Company, any of its
Restricted Subsidiaries or the Holders of the Exchange Notes in any material
respect,
(6) any transaction by the Company or any Restricted Subsidiary with
Equistar or any Subsidiary thereof that, taken as a whole with any other
transactions by the Company or any Restricted Subsidiary with Equistar or
any of its Subsidiaries that is entered into prior to or substantially
concurrently with such transaction, is on terms that are not materially less
favorable to the Company or such Restricted Subsidiary than those that could
be obtained at the time of such transactions in arm's-length dealings with a
Person which is not an Affiliate of the Company, or
(7) any transaction effected as part of a Qualified Receivables
Transaction.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Subsequent to June 18, 2001, the Company will not sell or
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
(other than shares of Capital Stock constituting up to 5% of the outstanding
shares of Capital Stock of La Porte Methanol Company), and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except:
(1) to the Company or a Restricted Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any Capital
Stock of such Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under 'Limitation on Restricted Payments' if made on the
date of such issuance, sale or other disposition (and such Investment shall
be deemed to be an Investment for the purposes of such covenant); or
(4) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would continue to constitute a
Restricted Subsidiary.
57
The proceeds of any sale of such Capital Stock permitted hereby (other than
pursuant to clause (1)) will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under 'Limitation on Sales of Assets and Subsidiary Stock.'
Limitation on Liens. (a) Subsequent to June 18, 2001, the Company will not,
and will not permit any Restricted Subsidiary to, Incur Indebtedness secured by
a Lien upon any Restricted Property ('Secured Debt') without effectively and
concurrently providing that the Exchange Notes (and, if the Company or the
Issuer shall so determine, any other Indebtedness that is not subordinate in
right of payment to the Exchange Notes) shall be secured equally and ratably
with (or prior to) such Indebtedness so long as such Indebtedness shall be so
secured. This restriction will not apply to:
(1) Liens existing on or prior to June 18, 2001 (other than Liens
securing the Bank Indebtedness);
(2) Liens affecting property of a Person existing at the time it becomes
a Restricted Subsidiary or at the time it is merged into or consolidated
with the Company or a Restricted Subsidiary or at the time of a sale, lease
or other disposition of the properties of such Person as an entirety or
substantially as an entirety to the Company or a Restricted Subsidiary;
(3) Liens securing Indebtedness Incurred pursuant to clause (b)(6) or
(e)(iii) of the covenant described under 'Limitation on Indebtedness';
(4) Liens securing Indebtedness of the Company or any Restricted
Subsidiary owing to the Company or to a Restricted Subsidiary;
(5) Liens required by any contract or statute in order to permit the
Company or its Restricted Subsidiaries to perform any contract or
subcontract made by it with or at the request of the United States, any
State of the United States, another country or any department, agency or
instrumentality of the foregoing;
(6) Liens to secure bids, tenders, contracts (other than contracts for
the repayment of borrowed money), leases, statutory obligations, surety and
appeal bonds, performance or return-of-money bonds, progress payments,
customs duties and other obligations of like nature arising in the ordinary
course of business;
(7) Liens on accounts receivable and related assets of the type
specified in the definition of 'Qualified Receivables Transaction' Incurred
in connection with a Qualified Receivables Transaction;
(8) Liens securing Indebtedness of any Foreign Subsidiary Incurred
pursuant to clause (b)(10) of the covenant described under 'Limitation on
Indebtedness'; and
(9) Any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancings, refundings or replacements)
of any Lien or Indebtedness secured by any Lien, in whole or in part, that
is referred to in the foregoing clauses (1) through (8); provided, however,
that the principal amount of Indebtedness so secured pursuant to this clause
(9) shall not exceed the principal amount of Indebtedness so secured (plus
the aggregate amount of premiums, other payments, costs, and expenses
required to be paid or Incurred in connection with such extension, renewal,
refinancing, refunding or replacement) at the time of such extension,
renewal, refinancing, refunding or replacement, and that such extension,
renewal, refinancing, refunding or replacement shall be limited to all or
the part of the property (including improvements, alterations and repairs on
such property) subject to the encumbrance so extended, renewed, refinanced,
refunded or replaced (plus improvements, alterations and repairs on such
property).
(b) In addition, the Company and any Restricted Subsidiary may, without
securing the Exchange Notes, Incur Secured Debt in an aggregate principal amount
which, together with (without duplication) (1) the aggregate principal amount of
all other Secured Debt of the Company and the Restricted Subsidiaries (other
than Indebtedness permitted to be secured under
58
paragraph (a) of this covenant), (2) the aggregate Value of Sale/Leaseback
Transactions of the Company and the Restricted Subsidiaries (other than
Sale/Leaseback Transactions permitted under paragraph (a) of the covenant
described under 'Limitation on Sale/Leaseback Transactions'), and (3) the
aggregate principal amount of all Funded Debt of the Restricted Subsidiaries
(other than Funded Debt permitted to be Incurred under clauses (i) through (iv)
of paragraph (e) of the covenant described under 'Limitation on Indebtedness'),
does not at any one time exceed 15% of Consolidated Net Tangible Assets of the
Issuer.
SEC Reports. Subsequent to June 18, 2001, the Company and the Issuer will
file with the SEC and provide the Trustee and Holders and prospective Holders
(upon request) within 15 days after it files them with the SEC, copies of its
annual report and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act. The Company and the
Issuer also will comply with the other provisions of Section 314(a) of the TIA.
Limitation on Lines of Business. Subsequent to June 18, 2001, the Company
will not, and will not permit any Restricted Subsidiary to, engage in any
business, other than a Permitted Business; provided, however, that the Company
or any of its Restricted Subsidiaries may acquire any Person or business which
is primarily engaged in a Permitted Business notwithstanding that such Person or
business also engages in a business which is not a Permitted Business.
Limitation on Sale/Leaseback Transactions. (a) Subsequent to June 18, 2001,
the Company will not, and will not permit any Restricted Subsidiary to, enter
into any arrangement with any Person (other than the Company or a Restricted
Subsidiary), providing for the leasing to the Company or a Restricted Subsidiary
for a period of more than three years of any Restricted Property 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 (other than the Company or a Restricted
Subsidiary), to which funds have been or are to be advanced by such Person on
the security of the leased property (each such arrangement, a 'Sale/Leaseback
Transaction') unless:
(1) the Company or such Restricted Subsidiary applies or commits to
apply an amount equal to the Value of such Sale/Leaseback Transaction to the
repayment, redemption or retirement (other than any mandatory repayment,
redemption or retirement or by way of payment at maturity) within 185 days
of the effective date of such Sale/Leaseback Transaction of Indebtedness of
the Company or any Restricted Subsidiary which by its terms (A) matures at
(or is extendible or renewable, at the sole option of the obligor without
the consent of the obligee, to) a date more than 12 months after the date of
creation of such Indebtedness, and (B) is not subordinated to the Exchange
Notes or the Note Guarantee; or
(2) the Company or such Restricted Subsidiary applies the net proceeds
of the sale to investment in another Restricted Property within 185 days
prior or subsequent to such sale.
(b) In addition, the Company and any Restricted Subsidiary may enter into a
Sale/Leaseback Transaction with a Value which, together with (without
duplication) (1) the aggregate Value of all other Sale/Leaseback Transactions of
the Company and the Restricted Subsidiaries (other than Sale/Leaseback
Transactions permitted under paragraph (a) above), (2) the aggregate principal
amount of all Secured Debt of the Company and the Restricted Subsidiaries (other
than Indebtedness permitted to be secured under clauses (1) through (9) of
paragraph (a) of the covenant described under 'Limitation on Liens'), and (3)
the aggregate principal amount of all Funded Debt of the Restricted Subsidiaries
(other than Funded Debt permitted to be Incurred under clauses (i) through (iv)
of paragraph (e) of the covenant described under 'Limitation on Indebtedness'),
does not at the time of entering into exceed 15% of Consolidated Net Tangible
Assets of the Issuer.
Corporate Existence. Subject to the covenant described under 'Merger and
Consolidation,' subsequent to June 18, 2001, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence and related rights and franchises (charter and statutory) of
the Company and its Restricted Subsidiaries; provided, however, that the Company
and its Restricted Subsidiaries shall not be required to preserve any such right
or franchise or the corporate existence of any such Restricted Subsidiary (other
than
59
the Issuer) if the Board of Directors of the Company shall determine that the
preservation thereof is no longer necessary or desirable in the conduct of the
business of the Company and its Restricted Subsidiaries taken as a whole and
that the loss thereof would not reasonably be expected to have a material
adverse effect on the ability of the Issuer or the Company to perform its
obligations under the Exchange Notes or the Indenture.
Payment of Taxes and Other Claims. Subsequent to June 18, 2001, the Company
shall pay or discharge or cause to be paid or discharged, on or before the date
the same shall become due and payable, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its Restricted
Subsidiaries shown to be due on any return of the Company or any of its
Restricted Subsidiaries or otherwise assessed or upon the income, profits or
property of the Company or any of its Restricted Subsidiaries if failure to pay
or discharge the same could reasonably be expected to have a material adverse
effect on the ability of the Issuer or the Company to perform its obligations
under the Exchange Notes or the Indenture and (b) all lawful claims for labor,
materials and supplies, which, if unpaid, would by law become a Lien upon the
property of the Company or any of its Restricted Subsidiaries, except for any
Lien permitted to be Incurred under the covenant described under ' -- Limitation
on Liens,' if failure to pay or discharge the same could reasonably be expected
to have a material adverse effect on the ability of the Issuer or the Company to
perform its obligations under the Exchange Notes or the Indenture; provided,
however, that the Company or any of the Restricted Subsidiaries shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted and in respect of which appropriate reserves (in the good
faith judgment of management of the Company) are being maintained in accordance
with GAAP.
Maintenance of Properties. Subsequent to June 18, 2001, the Company shall
cause all material properties owned by the Company or any of its Restricted
Subsidiaries or used or held for use in the conduct of their respective
businesses to be maintained and kept in good condition, repair and working order
(ordinary wear and tear excepted) and supplied with all necessary equipment and
will cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the reasonable judgment of the Company may
be consistent with sound business practice and necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this covenant shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the reasonable judgment of the Company, desirable in the conduct of the
business of the Company and its Restricted Subsidiaries, taken as a whole, and
not reasonably expected to have a material adverse effect on the ability of the
Issuer or the Company to perform its obligations under the Exchange Notes or the
Indenture.
Fall-Away of Covenants. After the date (such date, the 'Fall-Away Date') on
which (a) the Exchange Notes have received ratings from both S&P and Moody's of
not lower than BBB- and Baa3, respectively, (b) no Default or Event of Default
has occurred and is continuing under the Indenture and (c) the Issuer has
delivered an Officers' Certificate to the Trustee certifying that the conditions
set forth in clauses (a) and (b) above are satisfied, the Company and the
Restricted Subsidiaries will no longer be subject to the following provisions of
the Indenture (notwithstanding that the Exchange Notes may later cease to have
such ratings):
' -- Limitation on Indebtedness' (other than paragraph (e) thereof and
the clauses of paragraph (b) thereof referred to in paragraph (e)
thereof),
' -- Limitation on Restricted Payments,'
' -- Limitation on Restrictions on Distributions from Restricted
Subsidiaries,'
' -- Limitation on Sales of Assets and Subsidiary Stock,'
' -- Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries,'
' -- Limitation on Transactions with Affiliates,'
60
' -- Limitation on Lines of Business' and
' -- Merger and Consolidation' (only as to clause (3) in respect of
each of the Company and the Issuer).
MERGER AND CONSOLIDATION
Subsequent to June 18, 2001, the Issuer will not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless:
(1) the resulting, surviving or transferee Person (the 'Successor
Company') will be a corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Issuer) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Issuer under the
Exchange Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company, the
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by the Successor Company, the Company or such
Restricted Subsidiary at the time of such transaction), no Default shall
have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under 'Limitation on Indebtedness';
and
(4) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under the Indenture, and the
predecessor Issuer shall be released from all of its obligations thereunder,
except in the case of a lease of all or substantially all its assets in which
case it will not be released from the obligation to pay the principal of and
interest on the Exchange Notes.
In addition, subsequent to June 18, 2001, the Company will not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (the 'Successor
Guarantor') will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia,
and such Person (if not the Company) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Note Guarantee, the Exchange Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Guarantor or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Guarantor or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Guarantor would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under 'Limitation on Indebtedness';
and
(4) the Issuer will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture.
The Successor Guarantor will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, and the
predecessor Company shall be
61
released from all of its obligations thereunder, except in the case of a lease
of all or substantially all its assets in which case it will not be released
from the obligation to pay the principal of and interest on the Exchange Notes.
Notwithstanding anything in the Indenture:
(A) any Restricted Subsidiary may consolidate with, merge into or
convey, lease, sell, assign, transfer or otherwise dispose of all or part
of its properties and assets to the Company or a Restricted Subsidiary;
(B) the Issuer or the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Issuer or the
Company in another jurisdiction to realize tax or other benefits; and
(C) for purposes of this covenant, the sale by the Company or the
Issuer of the equity interests in Millennium Petrochemicals Inc., the
equity interests in the limited liability companies which directly or
indirectly own the Company's equity interests in Equistar, and/or the
Company's equity interests in Equistar will be deemed not to constitute
the conveyance, transfer or lease of all or substantially all the assets
of the Issuer or the Company if any such sale consists of Net Tangible
Assets constituting 33 1/3% or less of the Consolidated Net Tangible
Assets of the Company as of the date of the most recent publicly
available consolidated balance sheet of the Company and its Subsidiaries.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in any payment of interest or any Additional Amounts on
any Note when due and payable or in any payment of liquidated damages
continued for 30 days;
(2) a default in the payment of principal of any Note when due and
payable at its Stated Maturity, upon required redemption or required
repurchase, upon declaration or otherwise;
(3) the failure by the Company or the Issuer to comply with its
obligations described under 'Merger and Consolidation' above;
(4) the failure by the Company or any Restricted Subsidiary to comply
for 30 days after notice with any of its obligations under the covenants
described under 'Change of Control' or 'Certain Covenants' above (in each
case, other than a failure to purchase Notes, which will constitute an Event
of Default under clause (2) above and other than a failure to comply with
the obligations described under 'Merger and Consolidation,' which will
constitute an Event of Default under clause (3) above);
(5) the failure by the Company or any Restricted Subsidiary to comply
for 60 days after notice with its other agreements contained in the Notes or
the Indenture;
(6) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $30 million or its foreign currency equivalent (the 'cross
acceleration provision');
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the 'bankruptcy provisions');
(8) the rendering of any judgment or decree for the payment of money
(other than judgments which are covered by enforceable insurance policies
issued by reputable and creditworthy insurance companies for which coverage
has been acknowledged in writing) in excess of $30 million or its foreign
currency equivalent against the Company or a Restricted Subsidiary if such
judgment or decree remains outstanding for a period of 60 days following
such judgment and is not paid, discharged, waived or stayed and an
enforcement proceeding thereon is commenced by any creditor (the 'judgment
default provision'); or
62
(9) the Note Guarantee ceases to be in full force and effect (except as
contemplated by the Indenture) or the Company or any Person acting on behalf
of the Company denies or disaffirms the Company's obligations under the
Indenture or Note Guarantee and such Default continues for 10 days after
receipt of the notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5) or (9) will not constitute an
Event of Default until the Trustee notifies the Issuer or the Holders of at
least 25% in principal amount of the Notes then outstanding notify the Issuer
and the Trustee of the default and the Issuer or the Company, as applicable,
does not cure such default within the time specified in clauses (4), (5) or (9)
hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company or the Issuer)
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding by notice to the Issuer may
declare the principal of and accrued but unpaid interest on all the Notes then
outstanding to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company or the
Issuer occurs, the principal of and interest on all the Notes then outstanding
will become immediately due and payable without any declaration or other act on
the part of the Trustee or any Holders. Under certain circumstances, the Holders
of a majority in principal amount of the Notes then outstanding may rescind any
such acceleration with respect to the Notes then outstanding and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless:
(1) such Holder gives to the Trustee notice that an Event of Default is
continuing,
(2) Holders of at least 25% in principal amount of the Notes then
outstanding have requested the Trustee in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity, and
(5) the Holders of a majority in principal amount of the Notes then
outstanding have not given the Trustee a direction inconsistent with such
request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the Notes then outstanding will be given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a
63
Default in the payment of principal of, premium (if any) or interest on any Note
(including required payments, if any, pursuant to the redemption provisions of
such Note), the Trustee may withhold notice if and so long as a committee of its
Trust Officers in good faith determines that withholding notice is in the
interests of the Holders. In addition, the Issuer will be required to deliver to
the Trustee, within 120 days after the end of each fiscal year of the Issuer, a
certificate indicating whether the signers thereof know of any Default that
occurred during that fiscal year. The Issuer will also be required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Events of Default, their status and what
action the Issuer is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the Holders of a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes)
and, subject to certain exceptions, any past default or compliance with any
provisions may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes). However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things:
(1) reduce the amount of Notes whose Holders must consent to an
amendment,
(2) reduce the stated rate of or extend the stated time for payment of
interest or any liquidated damages on any Note,
(3) reduce the principal of or extend the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under 'Optional
Redemption' above,
(5) make any Note payable in money other than that stated in the Note,
(6) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes,
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or
(8) modify the Note Guarantee in any manner adverse to the Holders.
Without the consent of any Holder, the Issuer, the Company and the Trustee
may amend the Indenture to, among other things:
cure any ambiguity, omission, defect or inconsistency,
provide for the assumption by a successor corporation of the
obligations of the Issuer or the Company under the Indenture,
provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes
are issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated Notes are described
in Section 163(f)(2)(B) of the Code),
add additional Guarantees with respect to the Notes,
secure the Notes,
add to the covenants of the Company and its Subsidiaries for the
benefit of the Holders or to surrender any right or power conferred
upon the Company or the Issuer,
make any change that does not adversely affect the rights of any
Holder, subject to the provisions of the Indenture,
provide for the issuance of the Exchange Notes,
64
to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture, or
comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
The consent of the Holders will not be necessary to approve the particular
form of any proposed amendment. It will be sufficient if such consent approves
the substance of the proposed amendment.
After an amendment becomes effective, the Issuer is required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect in the notice, will not impair or
affect the validity of the amendment.
DEFEASANCE
The Company and the Issuer may at any time terminate all their obligations
under the Notes and the Indenture ('legal defeasance'), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes.
In addition, the Company and the Issuer may at any time terminate:
(1) their obligations under the covenants described under 'Certain
Covenants,' and
(2) the operation of the cross-acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under 'Defaults' above and the limitations contained in
clause (3) under the first paragraph of 'Merger and Consolidation' above
('covenant defeasance').
In the event that the Company and the Issuer exercise their legal defeasance
option or their covenant defeasance option, the Company will be released from
all of its obligations with respect to the Note Guarantee.
The Company and the Issuer may exercise their legal defeasance option
notwithstanding their prior exercise of the covenant defeasance option. If the
Company and the Issuer exercise their legal defeasance option, payment of the
Notes may not be accelerated because of an Event of Default with respect
thereto. If the Company and the Issuer exercise their covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries) or (8) (with respect only to Significant Subsidiaries) under
'Defaults' above or because of the failure of the Issuer to comply with clause
(3) under the first paragraph of 'Merger and Consolidation' above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of and interest on
which will be sufficient, or a combination thereof sufficient, to pay the
principal, premium (if any) and interest on, and liquidated damages, if any, in
respect of the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that Holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amounts and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred (and, in the case of legal defeasance only, such
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable Federal income tax law).
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuer or
the Company, as such, shall have any liability for any obligations of the Issuer
or the Company under the
65
Exchange Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting an
Exchange Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Exchange Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Issuer as registrar and paying agent with regard to the Notes.
The Bank of New York is a lender under our bank credit agreement and the trustee
under the 7% Senior Notes due November 15, 2006 and the 7 5/8% Senior Debentures
due November 15, 2026 of the Issuer, guaranteed by the Company.
GOVERNING LAW
The Indenture and the Exchange Notes will be governed by, and construed in
accordance with, the laws of the State of New York 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.
CERTAIN DEFINITIONS
'Additional Assets' means:
(1) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clauses (2)
or (3) above is primarily engaged in a Permitted Business.
'Affiliate' of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
'control' when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing. For
purposes of the provisions described under ' -- Certain Covenants -- Limitation
on Transactions with Affiliates' and ' -- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock' only, 'Affiliate' shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or the Issuer or of
rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
'Asset Contribution Agreement' means the asset contribution agreement dated
as of December 1, 1997, between Millennium Petrochemicals Inc., Millennium
Petrochemicals LP LLC and Equistar Chemicals, LP., as amended to June 18, 2001.
'Asset Disposition' means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a 'disposition'), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Restricted Subsidiary),
66
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary, or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary,
other than, in the case of (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary,
(B) for purposes of the provisions described under 'Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock' only, a
disposition subject to the covenant described under 'Certain
Covenants -- Limitation on Restricted Payments,'
(C) a disposition of assets with a Fair Market Value of less than
$100,000,
(D) a disposition of assets in connection with a Sale/Leaseback
Transaction subject to the covenant described under 'Certain
Covenants -- Limitation on Sale/Leaseback Transactions,'
(E) a sale, assignment or other transfer of accounts receivables and
related assets of the type specified in the definition of 'Qualified
Receivables Transaction' to a Receivables Entity,
(F) a sale, assignment or other transfer of accounts receivables and
related assets of the type specified in the definition of 'Qualified
Receivables Transaction' (or a fractional undivided interest therein) by
a Receivables Entity in a Qualified Receivables Transaction,
(G) a disposition of obsolete or worn out equipment or assets that
are no longer useful in the conduct of the business of the Company and
its Restricted Subsidiaries,
(H) the disposition of all or substantially all of the assets of the
Issuer or the Company in a manner permitted pursuant to the provisions
described under 'Merger and Consolidation,' and
(I) an issuance of Capital Stock by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary.
'Average Life' means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
'Bank Indebtedness' means any and all Indebtedness payable under or in
respect of the Credit Agreement and any refinancings (and successive
refinancings) with respect thereto, each as amended from time to time, including
principal, premium (if any), reimbursement obligations and guarantees in respect
thereof. It is understood and agreed that a refinancing (and successive
refinancings) in respect of the Credit Agreement may be Incurred from time to
time after termination of the Credit Agreement.
'Capital Stock' of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents (however
designated) of corporate stock or other equity participations including
Preferred Stock and partnership or membership interests, whether general or
limited of such Person, but excluding any debt securities convertible into such
equity.
'Capitalized Lease Obligations' means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount
67
of such obligation determined in accordance with GAAP; and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be prepaid by
the lessee without payment of a penalty.
'Code' means the Internal Revenue Code of 1986, as amended.
'Commodity Agreement' means, with respect to any Person, any agreement for
the protection against fluctuations in commodity prices or other similar
agreement or arrangement to which such Person is a party or of which it is a
beneficiary.
'Consolidated Coverage Ratio' as of any date of determination means the
ratio of:
(1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are publicly
available to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of
such period,
(B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or
such Restricted Subsidiary has not earned the interest income actually
earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(C) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount equal to
the EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a
68
business, EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period, and
(E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (C) or (D) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on
the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets or other Investment, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
Officer of the Company and shall comply with the requirements of Rule 11-02 of
Regulation S-X promulgated by the SEC.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
'Consolidated Current Liabilities' as of the date of determination means the
aggregate amount of liabilities of the Company and its consolidated Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating:
(1) all intercompany items between the Company and any Restricted
Subsidiary and
(2) all current maturities of long-term Indebtedness, all as determined
in accordance with GAAP consistently applied.
'Consolidated Interest Expense' means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its consolidated Restricted Subsidiaries
in such period but not included in such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations,
(2) amortization of debt discount and debt issuance costs,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(6) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary (other than any interest in respect of Indebtedness of Equistar
in an aggregate principal amount of $750 million that is Guaranteed on a
limited basis by the Issuer on June 18, 2001 (or any Guarantee on no less
favorable terms that replaces such Guarantee) for so long as Equistar is not
a Subsidiary of the Company),
(7) net costs associated with Interest Rate Agreements (including
amortization of fees),
(8) dividends in respect of all Disqualified Stock of the Company and
all Preferred Stock of any of the Restricted Subsidiaries of the Company, to
the extent held by Persons other than the Company or a Wholly Owned
Subsidiary,
69
(9) interest Incurred in connection with investments in discontinued
operations and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
For purposes of the foregoing, Consolidated Interest Expense will be
determined after giving effect to any net payments made or received by the
Company and its Restricted Subsidiaries with respect to Interest Rate
Agreements.
'Consolidated Net Income' means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries for such period; provided,
however, that there shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clauses (4) and (7)
below, the Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(3) below) and
(B) (i) the Company's equity in a net loss of any such Person for
such period and (ii) the aggregate amount of cash actually distributed by
such Person during such period to the Company or a Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a dividend
or other distribution made to a Restricted Subsidiary, to the limitations
contained in clause (3) below), shall be included in determining such
Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution made to another Restricted Subsidiary, to
the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (loss) realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant to
any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in
the ordinary course of business and any gain (loss) realized upon the sale
or other disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss;
(6) the cumulative effect of a change in accounting principles; and
(7) the Company's equity in the net income (or loss) of Equistar, net of
tax, for so long as Equistar is not a Restricted Subsidiary of the Company.
70
Notwithstanding the foregoing, for the purpose of the covenant described
under 'Certain Covenants -- Limitation on Restricted Payments' only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(4)(C)(iv) thereof.
'Consolidated Net Tangible Assets' of the Issuer means, at any date of
determination, the total amount of assets (less applicable reserves and other
properly deductible items) after deducting therefrom
(1) all current liabilities (excluding any thereof which are by their
terms extendible or renewable at the option of the obligor thereon to a time
more than 12 months after the time as of which the amount thereof is being
computed and excluding current maturities of long term debt), and
(2) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, purchased technology, patents, unamortized debt discount
and other like intangible assets, all as set forth on the most recent
balance sheet of the Issuer and its consolidated Subsidiaries, computed in
accordance with GAAP, and prior to the Fall-Away Date shall exclude the 'net
tangible assets' of all of its Subsidiaries which are not Restricted
Subsidiaries.
'Consolidated Net Tangible Assets' of the Company shall include the Company
and its consolidated Subsidiaries, and prior to the Fall-Away Date shall exclude
the 'net tangible assets' of all of its Subsidiaries which are not Restricted
Subsidiaries, and shall have a correlative meaning.
For purposes of the covenants described under 'Change of Control' and
'Merger and Consolidation,' 'Net Tangible Assets' means, at any date of
determination, the 'net tangible assets' of any Persons being sold, plus the
book value of the investment in Equistar to the extent it is being sold, each as
set forth on the most recent balance sheet of such Persons, computed in
accordance with GAAP.
As used in the definition of each of Consolidated Net Tangible Assets and
Net Tangible Assets, the term 'net tangible assets' of any Person means, at any
date of determination, the total amount of assets (less applicable reserves and
other properly deductible items) after deducting therefrom
(1) all current liabilities (excluding any thereof which are by their
terms extendible or renewable at the option of the obligor thereon to a time
more than 12 months after the time as of which the amount thereof is being
computed and excluding current maturities of long term debt), and
(2) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, purchased technology, patents, unamortized debt discount
and other like intangible assets, all as set forth on the most recent
balance sheet of such Person computed in accordance with GAAP.
'Credit Agreement' means the credit agreement dated as of June 18, 2001,
among the Issuer, Millennium Inorganic Chemicals Limited, the other subsidiaries
of the Company party thereto, the Company, the lenders party thereto, the
issuing banks party thereto, Bank of America, N.A., as syndication agent, and
The Chase Manhattan Bank, as administrative agent and collateral agent, as
amended, restated, supplemented, waived, replaced, renewed, extended, increased,
substituted (whether or not upon termination, and whether with the original
lenders or otherwise), refinanced, restructured or otherwise modified from time
to time (except to the extent that any such amendment, restatement, supplement,
waiver, replacement, renewal, extension, increase, substitution, resubstitution,
refinancing, restructuring or other modification thereto would be prohibited by
the terms of the Indenture, unless otherwise agreed to by the Holders of at
least a majority in aggregate principal amount of Notes at the time
outstanding).
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'Currency Agreement' means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Disqualified Stock' means, with respect to any Person, 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 exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary; provided, however, that
any such conversion or exchange shall be deemed an Incurrence of
Indebtedness or Disqualified Stock, as applicable) or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in the case of each of clauses (1), (2) and (3), on or prior to the
date which is 91 days after the Stated Maturity of the Notes; provided,
however, that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
'asset sale' or 'change of control' occurring prior to the date which is 91
days after the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the 'asset sale' or 'change of control' provisions
applicable to such Capital Stock are not more favorable to the holders of
such Capital Stock than the provisions of the covenants described under
'Change of Control' and 'Limitation on Sale of Assets and Subsidiary Stock.'
'Domestic Subsidiary' means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
'EBITDA' for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(1) income tax expense of the Company and its consolidated Restricted
Subsidiaries,
(2) Consolidated Interest Expense,
(3) depreciation expense of the Company and its consolidated Restricted
Subsidiaries,
(4) amortization expense of the Company and its consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period) and
(5) all other noncash charges (including, without limitation, noncash
charges resulting from any unrealized foreign currency transaction gains or
losses in respect of Indebtedness denominated in currencies other than the
U.S. dollar and noncash charges related to discontinued operations) of the
Company and its consolidated Restricted Subsidiaries (excluding any such
noncash charge to the extent it represents an accrual of or reserve for cash
expenditures in any future period) less all non-cash items of income of the
Company and its Restricted Subsidiaries,
in each case for such period; minus, without duplication, any cash or non-cash
items of income (loss) attributable to the Company's investment in Equistar for
such period for so long as Equistar is not a Restricted Subsidiary of the
Company, to the extent included in Consolidated Net Income.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at
72
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
'Equistar Partnership Agreement' means the Amended and Restated Limited
Partnership Agreement of Equistar Chemicals, LP dated as of May 15, 1998, as in
effect on June 18, 2001, entered into by and among Lyondell Petrochemical G.P.
Inc., Lyondell Petrochemical L.P. Inc., Millennium Petrochemicals GP LLC,
Millennium Petrochemicals LP LLC, PDG Chemical Inc., Occidental Petrochem
Partner 1, Inc. and Occidental Petrochem Partner 2, Inc.
'Equity Offering' means a public or private sale for cash of Capital Stock
(other than Disqualified Stock or Preferred Stock) of the Company.
'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. The Fair Market Value
of property or assets other than cash which involves (1) an aggregate amount in
excess of $10 million, shall be as set forth in a resolution approved by at
least a majority of the Board of Directors of the Company and (2) an aggregate
amount in excess of $25 million, shall have been determined in writing by a
nationally recognized appraisal or investment banking firm.
'Foreign Subsidiary' means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
'Funded Debt' means Indebtedness that by its terms (i) matures more than one
year from the date of original issuance or creation or (ii) matures within one
year from such date, but is renewable or extendible at the option of the obligor
to a date more than one year from such date.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of June 18, 2001, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indenture shall
be computed in conformity with GAAP.
'Guarantee' means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term 'Guarantee' shall not include endorsements for
collection or deposit in the ordinary course of business. The term 'Guarantee'
used as a verb has a
73
corresponding meaning. The term 'Guarantor' shall mean any Person Guaranteeing
any obligation.
'Hedging Agreement' means any Currency Agreement, any Interest Rate
Agreement and any Commodity Agreement.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to any Hedging Agreement.
'Incur' means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
'Indebtedness' means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto) (it being understood that obligations with respect to letters of
credit securing obligations (other than obligations described in clauses
(1), (2) or (5) of this definition of 'Indebtedness') entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon and Guarantees thereof shall not be considered
'Indebtedness' unless and until they are drawn upon and such amounts are
outstanding for 5 days);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than one year after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services;
(5) all Capitalized Lease Obligations of such Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of:
(A) the Fair Market Value of such asset at such date of determination
and
(B) the amount of such Indebtedness of such other Persons;
(8) Hedging Obligations of such Person other than pursuant to Hedging
Agreements entered into for bona fide hedging purposes in the ordinary
course of business; provided, however, that such Hedging Agreements do not
increase the Indebtedness of such Person outstanding at any time other than
as a result of fluctuations in interest rates, exchange rates, commodity
rates or by reason of fees, indemnities and compensation payable thereunder;
(9) prior to the Fall-Away Date only (and not thereafter), the amount
advanced with respect to accounts receivable of such Person sold, assigned
or otherwise transferred by such Person in a receivables financing; and
(10) all obligations of the type referred to in clauses (1) through (9)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is
74
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee.
The amount of Indebtedness of any Person at any date shall be (1) the
outstanding balance at such date of all unconditional obligations as described
above and (2) after the occurrence of the contingency giving rise to an
obligation, the maximum liability of such contingent obligation at such date.
'Interest Rate Agreement' means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is party or of which it is a beneficiary.
'Investment' in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extension of
credit (including by way of guarantee or similar arrangement) 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 of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
'Unrestricted Subsidiary' and the covenant described under 'Certain
Covenants -- Limitation on Restricted Payments':
(1) 'Investment' shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent 'Investment' in an
Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's 'Investment' in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its Fair Market Value at the time of such transfer.
'Lien' means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
'Net Available Cash' from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses (including investment banking and financial advisory fees)
incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition,
75
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
'Net Cash Proceeds,' with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage and sales commissions or fees, consultant and other
fees (including investment banking and financial advisory fees) actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
'Permitted Business' means any business engaged in by the Company or any
Restricted Subsidiary on June 18, 2001 and any Related Business.
'Permitted Investment' means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Permitted Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Permitted
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees, directors and officers made in the
ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary and not exceeding $10 million in the aggregate
outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments or pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of a debtor;
(8) any Person to the extent such Investment represents the noncash
portion of the consideration received for an Asset Disposition that was made
pursuant to and in compliance with the covenant described under 'Certain
Covenants -- Limitation on Sale of Assets and Subsidiary Stock';
(9) a Receivables Entity or any Investment by a Receivables Entity in
any other Person in connection with a Qualified Receivables Transaction,
including Investments of funds held in
76
accounts permitted or required by the arrangements governing such Qualified
Receivables Transaction or any related Indebtedness; provided that any
Investment in a Receivables Entity is in the form of a Purchase Money Note,
contribution of additional receivables or an equity interest;
(10) Hedging Obligations Incurred in compliance with the covenant
described under 'Certain Covenants -- Limitation on Indebtedness';
(11) any Person consisting of Guarantees Incurred in accordance with the
covenant described under 'Certain Covenants -- Limitation on Indebtedness';
(12) any Person provided that the payment for such Investment consists
solely of Capital Stock (other than Disqualified Stock or Preferred Stock)
of the Company or any Restricted Subsidiary;
(13) Investments in prepaid expenses, negotiable instruments held for
collection or lease, workers' compensation, performance and other similar
deposits provided to third parties in the ordinary course of business;
(14) any Person to the extent such Investment represents the noncash
portion of the consideration received for an Asset Disposition that was made
pursuant to and in compliance with the covenant described under 'Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock'; and
(15) Guarantees of Indebtedness of Equistar in an aggregate principal
amount not to exceed $750 million on terms no less favorable (other than an
extension thereof) to the Company than those contained in the Issuer's
limited Guarantee of Indebtedness of Equistar existing on June 18, 2001.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
'principal' of an Exchange Note means the principal of the Exchange Note
plus the premium, if any, payable on the Exchange Note which is due or overdue
or is to become due at the relevant time.
'Purchase Money Indebtedness' means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional
sale obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and
(2) Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset, including additions and improvements;
provided, however, that such Indebtedness is incurred no later than 180 days
after the acquisition by the Company or such Restricted Subsidiary of such
asset.
'Purchase Money Note' means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company to a Receivables Entity in connection with a Qualified
Receivables Transaction, which note
(a) shall be repaid from cash available to the Receivables Entity, other
than
(1) amounts required to be established as reserves,
(2) amounts paid to investors in respect of interest or yield,
(3) principal, fees and other amounts owing to such investors and
(4) amounts paid in connection with the purchase of newly generated
receivables and
(b) may be subordinated to the payments described in clause (a).
77
'Qualified Receivables Transaction' means any transaction or series of
transactions that may be entered into by the Company or any Subsidiary of the
Company pursuant to which the Company or any of its Subsidiaries may sell,
convey or otherwise transfer to:
(a) a Receivables Entity (in the case of a transfer by the Company or
any of its Subsidiaries) or
(b) any other Person (in the case of a transfer by a Receivables
Entity),
or may grant a security interest in, any accounts receivable (whether now
existing or arising in the future) of the Company or any of its Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable, all contracts and all Guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable; provided that:
(1) the Board of Directors of the Company shall have determined in good
faith that such Qualified Receivables Transaction is economically fair and
reasonable to the Company and the Receivables Entity, and
(2) the financing terms, covenants, termination events and other
provisions thereof shall be market terms (as determined in good faith by the
Board of Directors of the Company).
The grant of a security interest in any accounts receivable of the Company
or any of its Restricted Subsidiaries to secure Bank Indebtedness shall not be
deemed a Qualified Receivables Transaction.
'Receivables Entity' means a Wholly Owned Subsidiary of the Company (or
another Person formed for the purposes of engaging in a Qualified Receivables
Transaction with the Company or one of its Subsidiaries in which the Company or
any of its Subsidiaries makes an Investment and to which the Company or any of
its Subsidiaries transfers accounts receivable and related assets) which engages
in no activities other than in connection with the purchase, sale or financing
of accounts receivable of the Company or one of its Subsidiaries, all proceeds
thereof and all rights (contractual or other), collateral and other assets
relating thereto, and any business or activities incidental or related to such
business, and which is designated by the Board of Directors (as provided below)
as a Receivables Entity and
(a) no portion of the Indebtedness or any other obligations (contingent
or otherwise) of which
(1) is Guaranteed by the Company or any Subsidiary of the Company
(excluding Guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization
Undertakings),
(2) is recourse to or obligates the Company or any Subsidiary of the
Company in any way other than pursuant to Standard Securitization
Undertakings or
(3) subjects any property or asset of the Company or any Subsidiary
of the Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings;
(b) with which neither the Company nor any Subsidiary of the Company has
any material contract, agreement, arrangement or understanding other than on
terms which the Company reasonably believes to be no less favorable to the
Company or such Subsidiary than those that might be obtained at the time
from Persons that are not Affiliates of the Company and
(c) to which neither the Company nor any Subsidiary of the Company has
any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors of
78
the Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
'Refinance' means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. 'Refinanced' and
'Refinancing' shall have correlative meanings.
'Refinancing Indebtedness' means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay, amend or extend (including pursuant to any
defeasance or discharge mechanism) any Indebtedness of the Company or any
Restricted Subsidiary existing on June 18, 2001 or Incurred in compliance with
the Indenture (including Indebtedness that Refinances Refinancing Indebtedness);
provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
of the Indebtedness being Refinanced and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the Notes, such Refinancing Indebtedness is subordinated in right
of payment to the Notes at least to the same extent as the Indebtedness
being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that Refinances
Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
'Related Business' means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on June 18, 2001.
'Restricted Property' means (i) any land, land improvements, buildings and
fixtures (to the extent they constitute real property interests, including any
leasehold interest therein) constituting a principal corporate office or a
manufacturing, distribution or warehouse facility (other than such as are
determined in good faith by the Board of Directors of the Company to be
immaterial to the total business conducted by the Company and the Restricted
Subsidiaries as a whole) and (ii) any shares of Capital Stock or Indebtedness of
a Restricted Subsidiary.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary, except (i) for purposes of the definition of
Consolidated Net Tangible Assets of the Issuer, Restricted Subsidiary means any
Subsidiary of the Issuer other than an Unrestricted Subsidiary and (ii) for
purposes of paragraph (e) of the covenant described under 'Limitation on
Indebtedness' (other than the term Consolidated Net Tangible Assets of the
Issuer, and clauses (v)(b) and (v)(c) thereof), clause (b)(3) of the covenant
described under ' -- Limitation on Liens,' clause (b)(3) of the covenant
described under ' -- Limitation on Sale/Leaseback Transactions' and for all
purposes following the Fall-Away Date, 'Restricted Subsidiary' means any
Subsidiary of the Issuer which owns Restricted Property and is organized under
the laws of a jurisdiction in the United States.
'Senior Indebtedness' of the Issuer or the Company means the principal of,
premium (if any) and accrued and unpaid interest on (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization of
the Issuer or the Company, regardless of whether or not a claim for post-filing
interest is allowed in such proceedings), and fees and other amounts
79
owing in respect of, Bank Indebtedness and all other Indebtedness of the Issuer
or the Company, as applicable, whether outstanding on June 18, 2001 or
thereafter Incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding it is provided that such obligations
are subordinated in right of payment to the Notes or the Company's Note
Guarantee, as applicable; provided, however, that Senior Indebtedness of the
Issuer or the Company shall not include:
(1) any obligation of the Issuer to the Company or any other Subsidiary
of the Company or Equistar or any obligation of the Company to any
Subsidiary of the Company or Equistar;
(2) any liability for federal, state, local or other taxes owed or owing
by the Issuer or the Company, as applicable;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of the Issuer or the Company, as
applicable (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate or junior in any respect to any other Indebtedness
or obligation of the Issuer or the Company, as applicable, including any
Subordinated Obligations of the Issuer or the Company, as applicable;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
'Standard Securitization Undertakings' means representations, warranties,
covenants, repurchase obligations and indemnities entered into by the Company or
any Subsidiary of the Company which are customary in an accounts receivable
securitization transaction.
'Stated Maturity' means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
'Subordinated Obligation' means any Indebtedness of the Issuer (whether
outstanding on June 18, 2001 or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
'Subordinated Obligation' of the Company has a correlative meaning.
'Subsidiary' of any Person means any corporation, association, partnership,
limited liability company, or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
'Temporary Cash Investments' means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations Guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and
80
undivided profits aggregating in excess of $250,000,000 (or the foreign
currency equivalent thereof) and whose long-term debt is rated 'A' (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of 'P-1' (or higher) according to Moody's Investors Service,
Inc. or 'A-1' (or higher) according to Standard and Poor's Ratings Service,
a division of The McGraw-Hill Companies, Inc. ('S&P'), and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least 'A' by
S&P or 'A' by Moody's Investors Service, Inc.
'Trade Payables' means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the Exchange Notes (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to the maturity date of the
Exchange Notes; provided, however, that if the period from the redemption date
to the maturity date of the Exchange Notes 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 States
Treasury securities for which such yields are given, except that if the period
from the redemption date to the maturity date of the Notes 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.
'Unrestricted Subsidiary' means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors of
the Company in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate any Subsidiary of the
Company (including any Subsidiary of the Company acquired or formed after the
date of the Indenture, but excluding the Issuer) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either:
(A) the Subsidiary to be so designated has total consolidated assets of
$1,000 or less or
(B) if such Subsidiary has consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled 'Limitation
on Restricted Payments.'
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The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under ' -- Certain
Covenants -- Limitation on Indebtedness' and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors of the Company shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
'Value' means, with respect to a Sale/Leaseback Transaction, at the time of
determination, the amount equal to the greater of (i) the net proceeds of the
sale or transfer of the property leased pursuant to such Sale/Leaseback
Transaction and (ii) the Fair Market Value of such property at the time of
entering into such Sale/Leaseback Transaction.
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BOOK-ENTRY PROCEDURES
Upon issuance, all book-entry exchange notes will be represented by one or
more fully registered global notes, without coupons. Each global note will be
deposited with, or on behalf of, DTC, and will be registered in the name of DTC
or a nominee of DTC.
DTC has advised Millennium America that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a 'banking
organization' within the meaning of the New York Banking Law, (iii) a member of
the Federal Reserve System, (iv) a 'clearing corporation' within the meaning of
the Uniform Commercial Code, as amended, and (v) a 'clearing agency' registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies, or indirect participants that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Investors who
are not participants may beneficially own securities held by or on behalf of DTC
only through participants or indirect participants. The ownership interest and
transfer of ownership interest of each actual purchaser of each security held by
or on behalf of DTC are recorded on the records of the participants and the
indirect participants.
We expect that pursuant to procedures established by DTC
(1) upon deposit of the global notes, DTC or its custodian will credit
on its internal system portions of the global notes which shall be comprised
of the corresponding respective amount of the global notes to the respective
accounts of persons who have accounts with such depositary and
(2) ownership of the exchange notes will be shown on, and the transfer
of ownership of the exchange notes will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants and the indirect participants (with respect
to interests of persons other than participants).
Noteholders may hold their interests in a global note directly through DTC
if they are participants in such system, or indirectly through organizations
which are participants in such system.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in exchange notes represented by a global note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner or holder of any of
the exchange notes, DTC or such nominee will be considered the sole owner or
holder of such exchange notes represented by such global notes for all purposes
under the indenture and under the exchange notes represented thereby. No
beneficial owner of an interest in the global notes will be able to transfer
such interest except in accordance with the applicable procedures of DTC in
addition to those provided for under the indenture.
Payments of the principal, premium, if any, and interest on the exchange
notes represented by the global notes will be made to DTC or its nominee, as the
case may be, as the registered owner of the exchange notes represented by the
global notes. Neither we or the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
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We expect that DTC or its nominee, upon receipt of any payment of the
principal, premium or interest on the exchange notes represented by the global
notes, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the global notes as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global notes held through such
participants will be governed by standing instructions and customary practice as
is now the case with securities held for the accounts of customers registered in
the names of nominees for such customers. Such payment will be the
responsibility of such participants. Transfers between participants in DTC will
be effected in accordance with DTC rules and procedures and will be settled in
same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes (including the presentation of exchange notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the global notes are credited and only in
respect of the aggregate principal amount of as to which such participant or
participants has or have given such direction.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the global notes among participants of DTC,
DTC is under no obligation to perform such procedures, and such procedures may
be discontinued at any time. Neither we or the trustee will have any
responsibility for the performance by DTC or its direct or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
Interests in the global notes will be exchanged for physical delivery of
certificates only if
(1) DTC is at any time unwilling or unable to continue as depositary for
the global notes, or DTC ceases to be registered as a clearing agency under
the Exchange Act and a successor depositary is not appointed by us within
90 days; or
(2) an event of default with respect to the exchange notes will have
occurred and be continuing; or
(3) Millennium America, at its option, notifies the trustee in writing
that it elects to cause the issuance of exchange notes in definitive form
under the indenture.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for the accuracy of that information.
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CERTAIN INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences and, in the case of a holder that is a non-U.S. holder (as
defined below), the United States federal estate tax consequences, of
purchasing, owning and disposing of the exchange notes.
This summary deals only with notes held as capital assets (generally,
investment property) and does not deal with special tax situations such as:
dealers in securities or currencies;
traders in securities;
United States holders (as defined below) whose functional currency is not
the United States dollar;
persons holding notes as part of a hedge, straddle, conversion or other
integrated transaction;
certain United States expatriates;
financial institutions;
insurance companies; and
entities that are tax-exempt for United States federal income tax purposes.
This summary does not discuss all of the aspects of United States federal
income and estate taxation that may be relevant to you in light of your
particular investment or other circumstances. In addition, this summary does not
discuss any United States state or local income or foreign income or other tax
consequences. This summary is based on United States federal income tax law,
including the provisions of the Internal Revenue Code of 1986, as amended,
Treasury regulations, administrative rulings and judicial authority, all as in
effect as of the date of this offering memorandum. Subsequent developments in
United States federal income tax law, including changes in law or differing
interpretations, which may be applied retroactively, could have a material
effect on the United States federal income tax consequences of purchasing,
owning and disposing of exchange notes as set forth in this summary. You should
consult your own tax advisor regarding the particular United States federal,
state and local and foreign income and other tax consequences of acquiring,
owning and disposing of the exchange notes that may be applicable to you.
UNITED STATES HOLDERS
The following summary applies to you only if you are a United States holder
(as defined below).
DEFINITION OF A UNITED STATES HOLDER
A 'United States holder' is a beneficial owner of an exchange note or notes
who or which is for United States federal income tax purposes:
an individual citizen or resident of the United States;
a corporation or partnership (or other entity classified as a corporation
or partnership for these purposes) created or organized in or under the
laws of the United States or of any political subdivision of the United
States, including any State;
an estate, the income of which is subject to United States federal income
taxation regardless of the source of that income; or
a trust, if, in general, a United States court is able to exercise primary
supervision over the trust's administration and one or more United States
persons (within the meaning of the Internal Revenue Code) has the authority
to control all of the trust's substantial decisions.
The exchange of the outstanding unregistered notes for the exchange notes in
the exchange offer will not constitute a taxable event to you. Consequently,
(1) you will not recognize any gain
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or loss upon receipt of an exchange note; (2) the holding period of the exchange
note will include the holding period of the outstanding unregistered note
exchanged for the exchange note; and (3) the adjusted tax basis of the exchange
note will be the same as the adjusted tax basis of the outstanding unregistered
note exchanged for the exchange note immediately before the exchange.
PAYMENTS OF INTEREST
Interest on your exchange notes will be taxed as ordinary interest income.
In addition:
if you use the cash method of accounting for United States federal income
tax purposes, you will have to include the interest on your exchange notes
in your gross income at the time you receive the interest; and
if you use the accrual method of accounting for United States federal
income tax purposes, you will have to include the interest on your exchange
notes in your gross income at the time the interest accrues.
MARKET DISCOUNT
If you purchased an outstanding unregistered note for an amount that is less
than its principal amount, the amount of the difference will be treated as
'market discount' for United States federal income tax purposes, unless the
difference is less than a specified de minimis amount. Under the market discount
rules, you will be required to treat any principal payment, on, or any gain on
the sale, exchange, retirement or other disposition of, an exchange note as
ordinary income to the extent of the market discount that you have not
previously included in income and are treated as having accrued on the exchange
note at the time of its payment or disposition. In addition, you may be required
to defer, until the maturity of the exchange note or its earlier disposition in
a taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness attributable to the exchange note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the exchange note, unless
you elect to accrue on a constant yield method. You may elect to include market
discount in income currently as it accrues, on either a ratable or constant
yield method, in which case the rule described above regarding deferral of
interest deduction will not apply. Your election to include market discount in
income currently, once made, applies to all market discount obligations acquired
by you on or after the first taxable year to which your election applies and may
not be revoked without the consent of the Internal Revenue Service. You should
consult your own tax advisor before making this election.
AMORTIZABLE BOND PREMIUM
If you purchased an outstanding unregistered note for an amount in excess of
the sum of all amounts payable on the note after the purchase date other than
stated interest, you will be considered to have purchased the note at a
'premium.' You generally may elect to amortize the premium over the remaining
term of the exchange note on a constant yield method as an offset to interest
when includible in income under your regular accounting method. If you do not
elect to amortize bond premium, that premium will decrease the gain or increase
the loss you would otherwise recognize on disposition of the exchange note. Your
election to amortize premium on a constant yield method will also apply to all
debt obligations held or subsequently acquired by you on or after the first day
of the first taxable year to which the election applies. You may not revoke the
election without the consent of the Internal Revenue Service. You should consult
your own tax advisor before making this election.
SALE OR OTHER DISPOSITION OF NOTES
Your tax basis in your notes generally will be their cost, increased by the
amount of any market discount that you previously included in income, and
reduced by the amount of any
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amortizable bond premium applied to reduce, or allowed as a deduction against,
interest on the notes. You generally will recognize taxable gain or loss when
you sell or otherwise dispose of your exchange notes equal to the difference, if
any, between: the amount realized on the sale or other disposition and your
adjusted tax basis in the exchange notes.
Your gain or loss generally will be capital gain or loss (except with
respect to amounts attributable to accrued but unpaid interest or accrued market
discount not previously included in income, which in either case will be taxable
as ordinary income). This capital gain or loss will be long-term capital gain or
loss if at the time of the sale or other disposition you have held the exchange
notes for more than one year. Subject to limited exceptions, your capital losses
cannot be used to offset your ordinary income. If you are a non-corporate United
States holder, your long-term capital gain generally will be subject to a
maximum tax rate of 20%.
BACKUP WITHHOLDING
In general, 'backup withholding' at a rate of 30% may apply:
to any payments made to you of principal of and interest on your exchange
note, and
to payment of the proceeds of a sale or other disposition of your exchange
note before maturity,
if you are a non-corporate United States holder and fail to provide a correct
taxpayer identification number or otherwise comply with applicable requirements
of the backup withholding rules.
The backup withholding tax is not an additional tax and may be credited
against your United States federal income tax liability, provided that correct
information is provided to the Internal Revenue Service.
NON-U.S. HOLDERS
The following summary applies to you if you are a beneficial owner of an
exchange note who or which is not a United States holder (as defined above) (a
'non-U.S. holder'). An individual may, subject to exceptions, be deemed to be a
resident alien, as opposed to a non-resident alien, by among other ways being
present in the United States:
on at least 31 days in the calendar year, and
for an aggregate of at least 183 days during a three-year period ending in
the current calendar year, counting for such purposes all of the days
present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year.
Resident aliens are subject to United States federal income tax as if they
were United States citizens.
UNITED STATES FEDERAL WITHHOLDING TAX
Under current United States federal income tax laws, and subject to the
discussion below, United States federal withholding tax will not apply to
payments by us or our paying agent (in its capacity as such) of principal of and
interest on your exchange notes under the 'portfolio interest' exception of the
Internal Revenue Code, provided that in the case of interest:
you do not, directly or indirectly, actually or constructively, own ten
percent or more of the total combined voting power of all classes of our
stock entitled to vote within the meaning of section 871(h)(3) of the
Internal Revenue Code and the Treasury regulations thereunder;
you are not (i) a controlled foreign corporation for United States federal
income tax purposes that is related, directly or indirectly, to us through
sufficient stock ownership (as provided in the Internal Revenue Code), or
(ii) a bank receiving interest described in section 881(c)(3)(A) of the
Internal Revenue Code;
such interest is not effectively connected with your conduct of a United
States trade or business; and
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you provide a signed written statement, under penalties of perjury, which
can reliably be related to you, certifying that you are not a United States
person within the meaning of the Internal Revenue Code and provide your
name and address to:
(A) us or our paying agent; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds your exchange notes on your behalf and
that certifies to us or our paying agent under penalties of perjury that
it, or the bank or financial institution between it and you, has
received from you your signed, written statement and provides us or our
paying agent with a copy of this statement.
Treasury regulations provide alternative methods for satisfying the
certification requirement described in this section. In addition, under these
Treasury regulations:
if you are a foreign partnership, the certification requirement will
generally apply to partners in you, and you will be required to provide
certain information;
if you are a foreign trust, the certification requirement will generally be
applied to you or your beneficial owners depending on whether you are a
'foreign complex trust,' 'foreign simple trust,' or 'foreign grantor trust'
as defined in the Treasury regulations; and
look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.
If you are a foreign partnership or a foreign trust, you should consult your
own tax advisor regarding your status under these Treasury regulations and the
certification requirements applicable to you.
UNITED STATES FEDERAL INCOME TAX
Except for the possible application of United States withholding tax and
backup withholding tax, you generally will not have to pay United States federal
income tax on payments of principal of and interest on your exchange notes, or
on any gain or income realized from the sale, redemption, retirement at maturity
or other disposition of your exchange notes (provided that, in the case of
proceeds representing accrued interest, the conditions described in
' -- Non-U.S. Holders -- United States Federal Withholding Tax' are met) unless:
in the case of gain, you are an individual who is present in the United
States for 183 days or more during the taxable year of the sale or other
disposition of your exchange notes, and specific other conditions are met;
or
the gain is effectively connected with your conduct of a United States
trade or business, and, if an income tax treaty applies, is generally
attributable to a United States 'permanent establishment' maintained by
you.
If you are engaged in a trade or business in the United States and interest,
gain or any other income in respect of your exchange notes is effectively
connected with the conduct of your trade or business, and, if an income tax
treaty applies, you maintain a United States 'permanent establishment' to which
the interest, gain or other income is generally attributable, you may be subject
to United States income tax on a net basis on the interest, gain or income
(although interest is exempt from the withholding tax discussed in the preceding
paragraphs provided that you provide a properly executed applicable Internal
Revenue Service form on or before any payment date to claim the exemption).
In addition, if you are a foreign corporation, you may be subject to a
branch profits tax equal to 30% of your effectively connected earnings and
profits for the taxable year, as adjusted for certain items, unless a lower rate
applies to you under a United States income tax treaty with your country of
residence. For this purpose, you must include interest, gain or income on your
exchange notes in the earnings and profits subject to the branch tax if these
amounts are effectively connected with the conduct of your United States trade
or business.
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UNITED STATES FEDERAL ESTATE TAX
If you are an individual and are not a United States citizen or a resident
of the United States (as specially defined for United States federal estate tax
purposes) at the time of your death, your exchange notes will generally not be
subject to the United States federal estate tax, unless, at the time of your
death
you directly or indirectly, actually or constructively, own ten percent or
more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Internal
Revenue Code and the Treasury regulations thereunder; or
your interest on the exchange notes is effectively connected with your
conduct of a United States trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by us or our paying agent (in its
capacity as such) to you if you have provided the required certification that
you are a non-U.S. holder as described in ' -- Non-U.S. Holders -- United States
Federal Withholding Tax' above, and provided that neither we nor our paying
agent has actual knowledge that you are a United States holder (as described in
' -- United States Holders' above). We or our paying agent may, however, report
payments of interest on the exchange notes.
The gross proceeds from the disposition of your exchange notes may be
subject to information reporting and backup withholding tax at a rate of 30%. If
you sell your exchange notes outside the United States through a non-U.S. office
of a non-U.S. broker and the sales proceeds are paid to you outside the United
States, then the U.S. backup withholding and information reporting requirements
generally will not apply to that payment. However, U.S. information reporting,
but not backup withholding, will apply to a payment of sales proceeds, even if
that payment is made outside the United States, if you sell your exchange notes
through a non-U.S. office of a broker that
is a United States person (as defined in the Internal Revenue Code);
derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
is a 'controlled foreign corporation' for U.S. federal income tax purposes;
or
is a foreign partnership, if at any time during its tax year:
one or more of its partners are U.S. persons who in the aggregate hold
more than 50% of the income or capital interests in the partnership; or
the foreign partnership is engaged in a U.S. trade or business,
unless the broker has documentary evidence in its files that you are a non-U.S.
person and certain other conditions are met or you otherwise establish an
exemption. If you receive payments of the proceeds of a sale of your exchange
notes to or through a U.S. office of a broker, the payment is subject to both
U.S. backup withholding and information reporting unless you provide a
Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish
an exemption.
You should consult your own tax advisor regarding application of backup
withholding in your particular circumstance and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations. Any amounts withheld under the backup withholding rules
from a payment to you will be allowed as a refund or credit against your United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
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 outstanding
unregistered notes where such outstanding unregistered notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until 40 days after the later
of the commencement of the offering and the issue date, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
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 market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such 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 commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We and Millennium Chemicals have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the outstanding unregistered notes) other than commissions or
concessions of any broker-dealers and will indemnify the holders of the
outstanding unregistered notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity and enforceability of the exchange notes and the note guarantee
of Millennium Chemicals will be passed upon for us by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York. Martin D. Ginsburg, a director on Millennium Chemicals' board of
directors, is of counsel to Fried, Frank, Harris, Shriver & Jacobson.
INDEPENDENT EXPERTS
The consolidated financial statements of Millennium Chemicals and Equistar
incorporated in this prospectus by reference to the Millennium Chemicals Inc.
Annual Report on Form 10-K for the year ended December 31, 2001, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Millennium Chemicals files annual, quarterly and special reports, proxy
statements and other information with the SEC under the Exchange Act. The SEC
allows us to incorporate by
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reference the information Millennium Chemicals files with them, which means that
we can disclose important business and financial information to you that is not
included in or delivered with this prospectus by referring you to those publicly
filed documents containing the information. We provide a list of all documents
we incorporate by reference in this prospectus under 'Incorporation by
Reference' below.
You may read and copy the information that we incorporate in this prospectus
by reference as well as other reports, proxy statements and other information
that Millennium Chemicals files with the SEC at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain copies from the public reference room by calling the SEC at (800)
732-0330. In addition, Millennium Chemicals is required to file electronic
versions of those materials with the SEC through the SEC's EDGAR system. The SEC
maintains a web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the SEC. You may also review reports and other information concerning
Millennium Chemicals at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Each person to whom a prospectus is delivered may also request a copy of
those materials, free of cost, by writing or telephoning Millennium Chemicals at
the following address:
Millennium Chemicals Inc.
230 Half Mile Road
Red Bank, New Jersey 07701
(732) 933-5000
Attention: Corporate Secretary
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. If you receive any other information, you should not rely
on it. You should not assume that the information contained in this prospectus
is accurate as of any date other than the date on the front cover of this
prospectus or, with respect to information incorporated by reference from
reports or documents filed with the SEC, as of the date such report or document
was filed. We are not making an offer to sell these securities in any state
where the offer is not permitted.
In this prospectus (including the documents incorporated by reference), we
make reference to information regarding Equistar. Equistar is subject to the
informational requirements of the Exchange Act and, under the Exchange Act,
files reports and other information with the SEC. The reports and other
information filed with the SEC may be inspected and copied at the public
reference facilities maintained by the SEC, as described above. The information
concerning Equistar set forth or incorporated by reference in this prospectus is
based entirely on information Equistar has made publicly available.
INCORPORATION BY REFERENCE
We incorporate by reference in this prospectus the information contained in
the following documents:
Annual Report on Form 10-K for the fiscal year ended December 31, 2001 of
Millennium Chemicals, as amended by Amendment No. 1 on Form 10-K/A of
Millennium Chemicals filed with the SEC on August 14, 2002 and Amendment
No. 2 on Form 10-K/A of Millennium Chemicals, filed with the SEC on
November 26, 2002;
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 of
Millennium Chemicals, as amended by Amendment No. 1 on Form 10-Q/A of
Millennium Chemicals filed with the SEC on August 14, 2002;
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 of
Millennium Chemicals, filed with the SEC on August 14, 2002;
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 of
Millennium Chemicals, filed with the SEC on November 14, 2002;
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Current Report on Form 8-K of Millennium Chemicals dated June 19, 2002;
Current Report on Form 8-K of Millennium Chemicals dated November 26,
2002; and
all documents that Millennium Chemicals files with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act until we complete the
exchange offer.
You may obtain copies of those documents from us, free of cost, by
contacting us at the address or telephone number provided in 'Where You Can Find
More Information.'
Information that Millennium Chemicals files with the SEC after the date of
this prospectus and that is incorporated by reference in this prospectus will
automatically update and supersede information contained in this prospectus. You
will be deemed to have notice of all information incorporated by reference in
this prospectus as if that information were included in this prospectus.
FORWARD LOOKING STATEMENTS
The statements contained or incorporated by reference in this prospectus
that are not historical facts are or may be deemed to be 'forward-looking
statements.' Some of these statements can be identified by the use of
forward-looking terminology such as 'prospects,' 'outlook,' 'believes,'
'estimates,' 'intends,' 'may,' 'will,' 'should,' 'anticipates,' 'expects' or
'plans,' or the negative or other variation of these or similar words, or by
discussion of trends and conditions, strategy or risks and uncertainties. In
addition, from time to time we, Millennium Chemicals or our representatives have
made or may make forward-looking statements orally or in writing. Furthermore,
such forward-looking statements may be included in various filings that we or
Millennium Chemicals make with the SEC, or press releases or oral statements
made by or with the approval of one of our authorized executive officers.
Forward-looking statements contained or incorporated by reference in this
prospectus include, among others, statements regarding:
our anticipated growth and business strategies;
anticipated trends and conditions in the chemical industry;
our future capital needs;
the cost and availability of raw materials; and
our ability to compete.
These statements are only present expectations and assumptions about future
events. Actual events or results may differ materially. Factors that could cause
such a difference include those discussed under the heading 'Risk Factors' in
this prospectus.
We undertake no obligation to update any forward-looking statement, whether
as a result of new information, future events or otherwise. All subsequent
written and oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements contained in this prospectus.
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STATEMENT OF DIFFERENCES
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