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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRANS-RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2819 36-2729497
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
9 WEST 57TH STREET
NEW YORK, NY 10019
(212) 888-3044
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LESTER W. YOUNER
TRANS-RESOURCES, INC.
9 WEST 57TH STREET
NEW YORK, NY 10019
(212) 888-3044
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
EDWARD KLIMERMAN, ESQ.
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 698-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1)(2) FEE
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10 3/4% Senior Notes due 2008, Series B........ $100,000,000 100% $100,000,000 $29,500.00
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12% Senior Discount Notes due 2008, Series B... $135,000,000 55.858% $75,408,300 $22,245.45
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(f) and (o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 4, 1998
PROSPECTUS
, 1998
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2008, SERIES A
AND
12% SENIOR DISCOUNT NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
12% SENIOR DISCOUNT NOTES DUE 2008, SERIES A
OF
TRANS-RESOURCES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
Trans-Resources, Inc. (the "Company") hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying related
Letter of Transmittal (which together constitute the "Exchange Offer"), (i) to
exchange $1,000 principal amount of 10 3/4% Senior Notes due 2008, Series B (the
"New Senior Notes") of the Company for each $1,000 principal amount of the
issued and outstanding 10 3/4% Senior Notes due 2008, Series A (the "Old Senior
Notes" and, together with the New Senior Notes, the "Senior Notes") of the
Company and (ii) to exchange $1,000 principal amount at maturity of 12% Senior
Discount Notes due 2008, Series B (the "New Senior Discount Notes") of the
Company for each $1,000 principal amount at maturity of the issued and
outstanding 12% Senior Discount Notes due 2008, Series A (the "Old Senior
Discount Notes" and, together with the New Senior Discount Notes, the "Senior
Discount Notes") of the Company. As of the date of this Prospectus there were
outstanding $100,000,000 principal amount of Old Senior Notes and $135,000,000
principal amount at maturity of Old Senior Discount Notes. The terms of the New
Senior Notes and the New Senior Discount Notes (together the "New Notes") are
identical in all material respects to the Old Senior Notes and the Old Senior
Discount Notes (together the "Old Notes"), respectively, except that the offer
of the New Notes will have been registered under the Securities Act of 1993, as
amended (the "Securities Act") and, therefore, the New Notes will not be subject
to certain transfer restrictions, registration rights and related liquidated
damage provisions applicable to the Old Notes. The Old Notes and the New Notes
are referred to herein collectively as the "Notes."
Interest on the Senior Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1998. The Senior Discount
Notes were issued at a substantial discount from their principal amount at
maturity. Interest on the Senior Discount Notes will accrete from March 16, 1998
and compound semi-annually until March 15, 2003. After March 15, 2003, interest
on the Senior Discount Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 2003. The Notes will mature
on March 15, 2008.
Except as described below, the Company may not redeem the Notes prior to March
15, 2003. On or after such date, the Company may redeem the Notes, in whole or
in part, at any time at the redemption prices set forth herein, plus accrued and
unpaid interest thereon, if any, to the date of redemption. In addition, at any
time and from time to time on or prior to March 15, 2001, the Company may,
subject to certain requirements, redeem in the aggregate up to 33 1/3% of the
originally issued aggregate principal amount of the Senior Notes and up to
33 1/3% of the aggregate principal amount at maturity of the Senior Discount
Notes with the net cash proceeds of one or more Public Equity Offerings (as
defined) by the Company after which there is a Public Market (as defined), at a
redemption price equal to 110.75% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption in the case of
the Senior Notes, or 112% of the Accreted
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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(continued from cover)
Value (as defined) at the date of redemption, in the case of the Senior Discount
Notes, provided, however, that at least 66 2/3% of the originally issued
aggregate principal amount of the Senior Notes must remain outstanding
immediately after each such redemption of Senior Notes and at least 66 2/3% of
the originally issued aggregate principal amount at maturity of the Senior
Discount Notes must remain outstanding immediately after each such redemption of
Senior Discount Notes. See "Description of the New Notes -- Optional
Redemption." The Notes will not be subject to any sinking fund requirement. Upon
the occurrence of a Change of Control (as defined), the Company will be required
to make an offer to purchase the Notes at a price equal to 101% of the principal
amount or Accreted Value thereof, as applicable, plus accrued and unpaid
interest thereon, if any, to the date of purchase. See "Description of the New
Notes -- Offer to Purchase upon Change of Control."
The Notes will be senior unsecured obligations of the Company and will be pari
passu in right of payment with all existing and future unsecured and
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all secured indebtedness of the Company and to all existing and
future indebtedness of the Company's subsidiaries. As of December 31, 1997,
after giving effect to the Refinancing (as defined), including the issuance of
the Old Notes and the application of the net proceeds therefrom, the Company and
its subsidiaries would have had an aggregate of approximately $384.6 million of
indebtedness outstanding, including the Notes, of which approximately $201.4
million would have been indebtedness of subsidiaries which would have been
effectively senior to the Notes. See "Use of Proceeds" and "Risk
Factors -- Holding Company Structure."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the separate Exchange and Registration Rights
Agreement, each dated March 16, 1998, among the Company and the other
signatories thereto (the "Exchange and Registration Rights Agreements"),
relating to the Old Senior Notes and the Old Senior Discount Notes,
respectively. Based upon interpretations contained in letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission"), the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by each holder thereof (other than any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes. Each holder wishing to accept the Exchange Offer must represent to the
Company in the applicable Letter of Transmittal that such conditions have been
met. Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (an "Exchanging Dealer") must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. Each
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date (as defined herein), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes, the Company will promptly return all
previously tendered Old Notes to the holders thereof. See "The Exchange Offer."
Prior to the Exchange Offer, there has been no public market for the Notes. The
Company does not currently intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active public market for the New Notes
will develop. To the extent Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
may be adversely affected.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a registration statement (the
"Registration Statement," which term shall encompass any amendments thereto)
filed by the Company with the Commission under the Securities Act. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information contained in the Registration Statement and the exhibits
and schedules thereto and reference is hereby made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
the Company and the securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules thereto can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
As a result of the Exchange Offer, the Company will again become subject to
the information and reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will file
periodic reports and other information with the Commission. The Company has also
previously filed such periodic reports, whether or not subject to said reporting
requirements. Such reports and other information can be inspected and copied at
the addresses, and may be accessed electronically at the Internet address, set
forth above.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the registered holders of the Notes and,
to the extent permitted by applicable law or regulation, file with the
Commission, all quarterly and annual and other documents that would be required
to be filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act or any successor provision thereto. In addition, for so long as any
of the Notes remain outstanding, the Company has agreed to make available to any
registered holder (and, upon request, certain others) the information required
by Rule 144A(d)(4) under the Securities Act.
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MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD
PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY OR
GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE
COMPANY TO BE RELIABLE AND REFLECTING THE COMPANY'S CURRENT ESTIMATES, HAVE NOT
BEEN VERIFIED BY ANY INDEPENDENT SOURCES. NO ASSURANCE CAN BE GIVEN REGARDING
THE ACCURACY OF SUCH RESEARCH, SURVEYS, STUDIES OR ESTIMATES.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "INDUSTRY" AND
"BUSINESS." ALL THESE FORWARD LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION,
THOSE RELATING TO FUTURE REVENUES (INDUSTRY GROWTH AND COMPANY EXPECTATIONS,
AMONG OTHERS) AND EXPENSES (ANTICIPATED LABOR COST SAVINGS, FUTURE ENVIRONMENTAL
COSTS, EXPANSIONS AND CAPITAL EXPENDITURES, AMONG OTHERS), AND ISRAELI
GOVERNMENT ENTITLEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY
MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE
INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH
ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES
OR STATEMENTS WILL BE REALIZED AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE
SUCH DIFFERENCES INCLUDE: (I) INCREASED COMPETITION; (II) INCREASED COSTS,
INCLUDING RAW MATERIALS COSTS AND AVAILABILITY; (III) POLITICAL INSTABILITY,
INFLATION, CURRENCY RATES AND GENERAL ECONOMIC CONDITIONS IN THOSE FOREIGN
COUNTRIES (INCLUDING, WITHOUT LIMITATION, ISRAEL) IN WHICH THE COMPANY GENERATES
A SIGNIFICANT PORTION OF ITS PRODUCTION, SALES AND EARNINGS; (IV) CURRENT OR
FUTURE ENVIRONMENTAL DEVELOPMENTS OR REGULATIONS WHICH WOULD REQUIRE THE COMPANY
TO MAKE SUBSTANTIAL EXPENDITURES, AND CHANGES IN, OR ANY FAILURE OF THE COMPANY
TO COMPLY WITH, SUCH GOVERNMENT REGULATIONS; (V) THE POTENTIALLY HAZARDOUS
NATURE OF CERTAIN OF THE COMPANY'S PRODUCTS; (VI) THE ABILITY TO ACHIEVE
ANTICIPATED LABOR COST REDUCTIONS IN THE COMPANY'S ISRAELI OPERATIONS; (VII) NEW
PLANT START-UP COSTS; (VIII) THE FINAL OUTCOME OF THE LEGAL PROCEEDINGS TO WHICH
THE COMPANY IS A PARTY (SEE "BUSINESS-LEGAL PROCEEDINGS"); (IX) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; AND (X) DEVELOPMENTS IN COMPETING
TECHNOLOGIES. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK
FACTORS."
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes Trans-Resources, Inc. and all of its subsidiaries. Unless otherwise
indicated, all financial statements used in this Prospectus have been prepared
in conformity with United States generally accepted accounting principles and
all dollar references are to U.S. dollars. Unless otherwise noted, all
references in this Prospectus to tonnage are to "short" tons (2,000 pounds),
rather than "metric" tons (approximately 2,200 pounds).
THE COMPANY
COMPANY OVERVIEW
The Company, operating through its independently managed and financed
subsidiaries, is a leading global developer, producer and marketer of specialty
plant nutrients and specialty industrial and agricultural chemicals. The Company
is the world's largest producer and distributor of agricultural grade potassium
nitrate, the global agricultural industry's leading specialty plant nutrient.
Potassium nitrate is utilized in specialized agricultural applications for the
growth of high-value crops such as fruits, vegetables, flowers and tobacco. The
Company is also: (i) the largest global and sole U.S. producer of propanil, the
world's leading rice herbicide; (ii) the world's largest producer of technical
grade potassium nitrate, used in a variety of industrial applications; (iii) the
sole supplier to the U.S. Air Force of nitrogen tetroxide, an aerospace fuel
additive; and (iv) the only North American producer of 3,4 dichloroanaline
("DCA"), the principal raw material in the production of propanil. The Company
also produces a variety of other chemical products used in agricultural,
industrial and pharmaceutical markets. In addition, the Company utilizes its
production capacity and manufacturing expertise to provide high-value contract
manufacturing services for major multinational companies such as Zeneca, FMC,
B.F. Goodrich and Rhone-Poulenc, all of which have been long-term customers of
the Company. The Company sells its products through an established global sales,
marketing and distribution network to customers in 95 countries and conducts its
operations through three product groups: Specialty Plant Nutrients, Industrial
Chemicals and Organic Chemicals. For the year ended December 31, 1997, the
Company had revenues of $376.5 million and Adjusted EBITDA (as defined) of $54.9
million.
Specialty Plant Nutrients. The Company's Specialty Plant Nutrients consist
of high-value nutrients designed for intensive agriculture, including
greenhouses, nurseries and orchards. The Company's flagship product is potassium
nitrate, which is marketed principally under the brand names K-Power
domestically and Multi-K internationally (collectively referred to as
"K-Power"). Potassium nitrate provides potassium and nitrogen, two of the three
essential plant nutrients, is water soluble and does not contain chlorine or
other environmentally harmful chemical residues that are generally found in
commodity fertilizers. The unique combination of these performance
characteristics allows potassium nitrate to command a price premium over other
potassic plant nutrients and fertilizers and has led to a compound annual growth
rate in tons shipped of approximately 6% for the industry over the past five
years. With current annual production capacity of approximately 630,000 tons,
the Company is the world's largest producer of potassium nitrate. In response to
continued growing demand, the Company is in the process of increasing its annual
potassium nitrate capacity to approximately 770,000 tons by year-end 1999. The
Company believes that it currently accounts for approximately 60% of the world's
production of potassium nitrate and 100% of North American production of
potassium nitrate.
The Company's other Specialty Plant Nutrients include those designed for
highly specialized horticultural applications. These include: (i) Polyfeed, a
fully soluble and chlorine-free blend of varying combinations of plant nutrients
containing the three essential plant nutrients, nitrogen, phosphorus and
potassium; (ii) Magnisal, which acts as a magnesium supplement;
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(iii) monoammonium phosphate, or Multi-MAP, a fully soluble source of nitrogen
and phosphorus; (iv) monopotassium phosphate, or Multi-MKP, a fully soluble,
chlorine-free source of potassium and phosphorus; and (v) Multicote, a polymer
coated specialty plant nutrient which provides for the controlled release of
nutrients over specific periods of time ranging from four to 12 months, which
optimizes plant feeding and minimizes labor requirements. The Company is also
the largest U.S. producer and marketer of high purity liquid fertilizers, which
are sold under its Na-Churs brand name and are used both as a starter nutrient
in growing corn and in growing high-value crops such as fruits, vegetables and
flowers. Specialty Plant Nutrients revenues were approximately $220.5 million
for the year ended December 31, 1997.
Industrial Chemicals. The Company's Industrial Chemicals consist of a broad
variety of specialty and other chemicals with applications in multiple end-use
markets. The Company's Industrial Chemicals products are generally produced as
co-products in the Company's potassium nitrate manufacturing processes. These
products provide the Company with the ability to diversify its revenue base
while maintaining its leadership position in potassium nitrate and to allocate
its fixed costs over a broader base of revenues and products. The Company is the
world's largest manufacturer and marketer of technical grade potassium nitrate,
a high purity product used for many industrial applications, including the
production of television picture tubes, computer screens, other specialty
glasses, ceramics, food additives and explosives. The Company is also a
manufacturer of potassium carbonate, marketed under the brand name K-Carb.
K-Carb is used in the production of television picture tubes, computer screens,
ceramics, detergents, in agricultural applications, and in the production of
other potassic chemicals. In addition, the Company is the sole supplier to the
U.S. Air Force of nitrogen tetroxide, an aerospace fuel additive.
Additional Industrial Chemicals include phosphoric acid and a variety of
phosphate products used in fermentation, food processing and the soft drink
industry, detergents, fire extinguishers, fire retardants, fertilizers, metal
treatment and industrial cleaning solutions. The Company intends to continue to
emphasize the production of high-value phosphate products such as those used in
the food and soft drink industries. The Company also produces chlorine sold to
industrial and chemical manufacturing companies for water purification and
production of paper pulp and PVC pipe. Industrial Chemicals revenues were
approximately $109.0 million for the year ended December 31, 1997.
Organic Chemicals. The Company's Organic Chemicals consist primarily of a
variety of herbicides and other products requiring expertise in complex organic
synthesis. The Company's Organic Chemicals products include propanil, the
world's leading rice herbicide, and DCA, the principal raw material for the
production of propanil. The Company is the sole U.S. producer, and the only
fully integrated producer worldwide, of propanil, and is the sole producer of
DCA in North America. Other Organic Chemicals include Butoxone, a leading peanut
and soybean herbicide; diuron, a broad use herbicide used on various crops,
including alfalfa and cotton; and ethephon, a cotton, fruit and vegetable growth
regulator. The Company also produces and sells a proprietary buffering agent
used in industrial and pharmaceutical applications, including contact lens
solutions. In addition, the Company utilizes its manufacturing expertise and
capacity and serves as a contract manufacturer of organic chemicals for major
multinational chemical companies, including Zeneca, FMC, B.F. Goodrich and
Rhone-Poulenc, all of which have been long-term customers of the Company. The
Company recently formed Riceco LLC ("Riceco") with a strategic partner to market
propanil, combination rice herbicides and other rice-related chemicals (other
than fertilizers) on a worldwide basis. Organic Chemicals revenues were
approximately $47.0 million for the year ended December 31, 1997.
COMPETITIVE STRENGTHS
Leadership Positions in Targeted Markets. The Company believes it holds the
number one position in several agricultural and industrial specialty chemicals
markets for several of its products, including agricultural grade potassium
nitrate, technical grade potassium nitrate, propanil, nitrogen
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tetroxide and DCA. The Company believes its leadership positions will allow it
to successfully: (i) capitalize on the growing demand for both agricultural and
technical grade potassium nitrate; (ii) expand the Company's offerings across
all of its product segments; (iii) introduce new applications for existing
products; and (iv) increase propanil sales as advanced rice growing techniques
utilizing propanil are expected to be increasingly adopted in developing
economies.
Established Global Network and Broad Customer Base. The Company sells its
products through an established global sales, marketing and distribution network
to customers in 95 countries. Approximately 66% of the Company's total sales in
1997 were outside the U.S., with 39% of sales to European markets and 27% of
sales to other international markets including Israeli, African, Australian and
Asian markets. The Company's U.S. and Israeli manufacturing operations provide
it with cost-effective access to major geographic markets. In addition to its
global sales, marketing and distribution network, the Company has a broad
customer base. In 1997 no one customer accounted for over 4.0% of total revenues
and the top 10 customers accounted for less than 18% of total revenues. This
established global network and broad customer base provide the Company with: (i)
the ability to market both existing and newly developed products and
applications on a worldwide basis to multiple end-use markets, and (ii) diverse
sources of revenue and cash flow which minimize exposure to any particular
customer, economic cycle or geographic region.
Manufacturing Expertise. The Company's extensive experience in potassium
nitrate production and complex organic synthesis provide it with several
competitive advantages. The Company is the world's only commercial scale
producer of potassium nitrate using primary synthetic processes. These unique
processes allow the Company to produce high purity products utilizing available
commodity raw materials and also generate highly marketable co-products such as
phosphoric acid and related downstream phosphate products, chlorine and nitrogen
tetroxide. The Company's manufacturing processes provide the Company with the
ability to: (i) expand its product portfolio; (ii) diversify its revenue stream;
(iii) optimize its product mix to target those products currently enjoying
favorable market conditions; and (iv) allocate its fixed costs over additional
products and revenues. In addition, as a result of its proven manufacturing
expertise, the Company has secured ongoing contract manufacturing relationships
with numerous large multinational companies with complex manufacturing needs,
including Zeneca, FMC, B.F. Goodrich and Rhone-Poulenc. Further, the Company's
manufacturing expertise has allowed it to maintain the strict standards
necessary to remain the sole supplier to the U.S. Air Force of nitrogen
tetroxide, an aerospace fuel additive, for over 20 years.
Proven Experience in New Product Development. The Company is a proven
leader in the development of new agricultural and industrial products and
applications. Since the Company's introduction of potassium nitrate in the
1960s, the Company's agronomic research and development staff has conducted
thousands of experiments under a wide range of soil and climatic conditions,
developing a comprehensive agronomic database relating to its products. This
database provides the Company with the ability to demonstrate the efficacy of
its products under specific local climatic conditions, which provides it with a
competitive advantage in developing and marketing new products and applications.
In addition to potassium nitrate, the Company has also developed many other new
products and applications, including: (i) Multicote, a proprietary labor saving
polymer coated specialty plant nutrient which provides for the controlled
release of nutrients over specific periods of time ranging from four to 12
months; (ii) K-Carb, a product that serves the industrial market for
applications in oxidization and cleaning and also serves the agricultural
market; (iii) a group of food grade phosphate products; (iv) several Specialty
Plant Nutrients blends; and (v) a variety of herbicide products. New products
introduced by the Company since 1990 accounted for approximately $50 million of
the Company's total revenues in 1997.
Low Cost Supplier. The Company believes that it is among the lowest cost
suppliers in the major markets in which it competes. The Company believes it is
the lowest cost supplier of potassium nitrate products to North American and
European markets on a delivered cost basis. The Company attributes its low cost
position in potassium nitrate to its long-term experience utilizing two
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unique synthetic production processes, which also generate marketable
co-products, and the strategic location of its production facilities in the U.S.
and Israel relative to its primary markets in North America and Europe. In
addition, the Company believes it is among the lowest cost suppliers of propanil
worldwide due to its position as the world's only fully integrated manufacturer
of this product.
Strong Management Team. The Company has assembled a strong and experienced
management team both at the corporate and operating levels. The Company's top
operating managers have an average of over 20 years of experience in the
chemicals industry. Senior operating managers are eligible to receive a
significant portion of their compensation through an incentive formula based on
economic value added ("EVA") related to the profitability and efficient use of
capital of their respective business units. This EVA compensation structure
consists of both annual and multi-year incentive plans.
BUSINESS STRATEGY
Expand Manufacturing Capacity for High Growth Products. The Company has
invested approximately $300 million in its manufacturing facilities over the
past 10 years to develop sophisticated manufacturing operations, enhance
productivity and increase capacity. The Company is currently investing an
additional $32 million over the next two years to expand potassium nitrate
capacity by over 20% at the Company's facilities in Mishor Rotem, Israel and
Vicksburg, Mississippi. In addition, the Company currently intends to invest an
aggregate of approximately $31 million in its manufacturing facilities over the
next two years to expand capacity for other high growth products. These other
planned expansions include additional food grade phosphates manufacturing
capacity in Mishor Rotem, Israel and the construction of a plant to manufacture
monoammonium phosphate ("MAP") and monopotassium phosphate ("MKP") in Vicksburg,
Mississippi. The Company believes that increased capacity will allow it to
benefit from continued growth in demand for the Company's major products and
allow it to further enhance its market leadership positions.
Increase Sales in Underpenetrated Markets. The Company believes that it has
a significant opportunity to increase sales in underpenetrated geographic
markets. The Company's sales outside the U.S. and Western Europe accounted for
approximately 27% of total revenues in 1997. The Company intends to increase its
penetration in these markets by: (i) opening new marketing offices in targeted
regions; (ii) entering into strategic alliances or joint ventures; and (iii)
pursuing strategic acquisitions. For example, the Company and a strategic
partner recently established Riceco to market rice-related herbicides and other
rice-related agrichemicals (other than fertilizers) globally and the Company has
also recently established new marketing offices in Mexico, South Africa and
China.
Continued Development of New Products and Applications. The Company intends
to continue to leverage its ability to develop and introduce new products and
applications to expand its product portfolio of high-value-added products. The
Company will utilize its extensive agronomic data base, relationships with
professional growers and its technical sales and marketing professionals to
identify the needs of its customers and to develop and introduce products which
satisfy those needs. For example, the Company has recently introduced the
Multicote line of specialty plant nutrients which utilizes polymer coated
technology developed by the Company that allows for the controlled release of
nutrients over specific periods of time ranging from four to 12 months, which
optimizes plant feeding and minimizes labor requirements. Additional new
generations of Multicote technology providing for longer release times are being
developed. Other product development initiatives include various generic
pesticides and herbicides and food phosphates. In addition, the Company is
conducting several agronomic research programs in conjunction with universities,
professional growers and distributors to further develop the market for its
products. These programs include research programs in the U.S., Israel, Italy,
Spain, France, the United Kingdom, Greece, Mexico, Brazil, South Africa, China,
Japan and the Benelux countries.
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Pursue Strategic Acquisitions, Alliances and Joint Ventures. The Company
has successfully grown through acquisitions and alliances and intends to pursue
strategic acquisitions, alliances and joint ventures that will allow it to
further improve its positions in targeted markets. The Company evaluates
opportunities based on their ability to: (i) broaden the Company's product line;
(ii) increase the Company's marketing reach; (iii) generate economies of scale;
and (iv) enhance the Company's product development capabilities. The Company's
acquisition of Na-Churs Plant Food Company ("Na-Churs"), formation of Riceco and
the recent investment in Lego Irrigation Ltd. ("Lego") are examples of the
implementation of this strategy. See "History" and "Recent Developments" below.
HISTORY
In 1986, an investment group led by Mr. Arie Genger, the Company's Chairman
of the Board and Chief Executive Officer, entered the specialty plant nutrients
and industrial chemicals industries. The Company has successfully grown its
business through internal growth, strategic acquisitions and alliances.
During 1986 and 1988, the Company acquired approximately 93% and 7%,
respectively, of the outstanding common stock of Haifa Chemicals Ltd., an
Israeli corporation ("HCL") which focused predominantly on the production of
potassium nitrate, for an aggregate consideration of approximately $55 million.
Since the acquisition of HCL, the Company has significantly increased
manufacturing capacity and expanded HCL's product offerings to include many
other related Specialty Plant Nutrients and Industrial Chemicals, resulting in
an increase in HCL's revenues from $104 million in 1986 to $243 million in 1997,
representing a compound annual growth rate of 8.0%.
In January 1988, the Company acquired the capital stock of Cedar Chemical
Corporation, a Delaware corporation ("Cedar"), for approximately $13 million. At
the time of the acquisition, Cedar's operations were principally focused on
potassium nitrate, propanil and potash. The potash operations were sold in 1996
(see below). Following the acquisition, the Company expanded Cedar's production
of Specialty Plant Nutrients and diversified its Industrial Chemicals product
offerings. In addition, the Company began producing certain other
high-value-added Organic Chemicals, such as diuron, ethephon and
trishydroxyaminomethane ("THAM"). By utilizing the Company's manufacturing
expertise and extensive marketing capabilities, the Company has grown Cedar's
revenues (excluding its potash operations) from $50 million in 1987 to $118
million in 1997, representing a compound annual growth rate of 9.0%.
In June 1988, the Company's wholly-owned subsidiary, Eddy Potash, Inc.
("EDP"), purchased a potash mining operation for approximately $6 million and
the assumption of specified liabilities, which, when combined with Cedar's
potash operation, made the Company the largest producer of potash in the United
States. In order to focus on its core specialty chemicals products, the Company
sold its potash assets during August 1996 for an aggregate consideration of
approximately $56 million, resulting in a gain of approximately $23 million.
In March 1995, the Company acquired the assets of Na-Churs for
approximately $2.6 million and the assumption of specified liabilities, which
expanded the Company's product offerings into the formulation of highly
specialized liquid plant nutrients. Na-Churs' revenues have grown from $18
million in 1994 to $22 million in 1997, representing a compound annual growth
rate of 6.9%.
During August 1997, the Company and a subsidiary of Westrade, Inc., a
privately-held Cayman Islands corporation ("Westrade"), formed Riceco to market
propanil, combination rice herbicides and other rice-related chemicals (other
than fertilizers) on a worldwide basis. Westrade's interest in Riceco is now
held by a corporation (the "Westrade Member") which is 50% owned by E.I. Du pont
de Nemours and Company ("DuPont") and 50% by the private investment group which
currently owns 50% of Westrade. The Company has been advised that DuPont owns
the other 50% of Westrade. Westrade produces, markets and distributes various
agricultural chemicals. The Com-
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pany believes that the creation of Riceco will serve to: (i) expand market share
through the introduction of propanil combination products; (ii) increase
international market share, most notably in the key rice growing regions of Asia
and Latin America; (iii) establish Riceco as the premier distribution channel
for crop protection products to the global rice industry; (iv) provide operating
efficiencies through the elimination of certain selling, general and
administrative costs, which will be incurred by Riceco; and (v) provide for
better utilization of the Company's manufacturing facilities as a result of
increased production of propanil. Under a long-term supply agreement, the
Company will produce all of the propanil required by Riceco. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Riceco" and "Business -- Riceco."
RECENT DEVELOPMENTS
Lego Investment. On February 4, 1998, the Company, through HCL, completed
the purchase of approximately 42% of the equity of Lego, a leading Israeli
developer, manufacturer and marketer of drip irrigation systems, for
approximately $11 million. As a result of their solubility, the Company's
Specialty Plant Nutrients are highly compatible with modern drip irrigation
systems, which are increasingly employed globally to conserve water. The Company
intends to use its relationship with Lego to create an integrated approach to
market both the Company's Specialty Plant Nutrients and Lego's drip irrigation
systems. During 1996, Lego had revenues of approximately $20 million. Under
certain circumstances, the Company could be required to increase its equity
investment in Lego by an additional $11 million.
Potential Acquisitions. During February 1998, the Company entered into
letters of intent to acquire three manufacturers and distributors of specialty
plant nutrients marketed to growers of high-value crops for an aggregate
consideration of approximately $14 million. In addition, during February 1998
the Company entered into a letter of intent to acquire certain organic chemicals
operations for an aggregate consideration of approximately $4 million.
Consummation of such transactions is subject to customary conditions, including,
among others, execution of definitive documentation and satisfactory results of
due diligence investigations, and there can be no assurance that any of the
acquisitions will be consummated.
THE REFINANCING
On March 16, 1998, the Company refinanced its indebtedness under its then
outstanding $115 million aggregate principal amount of 11 7/8% Senior
Subordinated Notes due 2002 (the "11 7/8% Notes") by consummating the Initial
Offering, the Tender Offer and the related Consent Solicitation (each as defined
herein) pertaining to the 11 7/8% Notes, using a substantial portion
(approximately $118 million) of the net proceeds of the March 16, 1998 issuance
and sale of the Old Notes (the "Initial Offering") to repurchase approximately
96% of the 11 7/8% Notes (the "Refinancing").
In the Tender Offer and Consent Solicitation, the Company offered to
purchase up to all (but not less than 66 2/3% in principal amount outstanding)
of its 11 7/8% Notes for an amount in cash based on the yield to the earliest
redemption date for the 11 7/8% Notes, using a specific reference security (the
"Tender Offer"). The Company also solicited consents (the "Consents") from
tendering holders to amend the indenture under which the 11 7/8% Notes were
issued (the "11 7/8% Notes Indenture") to eliminate substantially all of the
restrictive covenants and certain events of default contained therein (the
"Consent Solicitation"), and paid a separate consent fee to holders who tendered
their 11 7/8% Notes and delivered Consents prior to the expiration of the
Consent Solicitation.
The Company received Consents relating to, and tenders of, approximately
96% of the outstanding principal amount of the 11 7/8% Notes. All of the
tendered 11 7/8% Notes were retired and the 11 7/8% Notes Indenture was amended
in accordance with the Consent Solicitation.
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THE EXCHANGE OFFER
Securities Offered......... Up to $100,000,000 principal amount at maturity of
10 3/4% New Senior Notes due 2008 and up to
$135,000,000 principal amount at maturity of 12%
New Senior Discount Notes due 2008. The terms of
the New Senior Notes and the Old Senior Notes and
the terms of the New Senior Discount Notes and the
Old Senior Discount Notes, respectively, are
identical in all material respects, except that the
offer of the New Notes will have been registered
under the Securities Act and, therefore, the New
Notes will not be subject to certain transfer
restrictions, registration rights and related
liquidated damage provisions applicable to the Old
Notes.
The Exchange Offer......... The Company is offering, upon the terms and subject
to the conditions of the Exchange Offer, (i) to
exchange $1,000 principal amount of New Senior
Notes for each $1,000 principal amount of Old
Senior Notes and (ii) to exchange $1,000 principal
amount of New Senior Discount Notes for each $1,000
principal amount of Old Senior Discount Notes. The
Exchange Offer is intended to satisfy obligations
of the Company under the Exchange and Registration
Rights Agreements among the Company and Chase
Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation (collectively, the "Initial
Purchasers") entered into in connection with the
Initial Offering.
Based on interpretations by the staff of the
Commission set forth in certain no-action letters
issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
Each holder wishing to accept the Exchange Offer
must represent to the Company in the applicable
Letter of Transmittal that such conditions have
been met.
Each Exchanging Dealer that receives New Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, an
Exchanging 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 an Exchanging Dealer in connection with
resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
Exchanging Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Expiration Date, it will make this
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Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in such no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying related Letter of Transmittal, or a
facsimile thereof (or, in the case of a book-entry
transfer, transmit an Agent's Message (as defined
herein) in lieu thereof), in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or
such facsimile (or Agent's Message), together with
the Old Notes and any other required documentation
to the Exchange Agent (as defined herein) at the
address set forth herein. By executing such Letter
of Transmittal (or transmitting an Agent's
Message), each holder will represent to the Company
that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, whether or not such
person is the holder, that neither the holder nor
any such other person has any arrangement or
understanding with any person to participate in the
distribution of such New Notes and that neither the
holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of
the Company. See "Exchange and Registration Rights
Agreements; Purpose and Effect of the Exchange
Offer" and "The Exchange Offer -- Procedures for
Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange or registration rights and such
Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected.
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Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) if the Old
Notes are then eligible therefor, pursuant to Rule
144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has satisfied certain conditions relating to
the provision of information to the Company for use
therein, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf
Registration Statement") and to use its reasonable
best efforts to cause it to be declared effective
by the Commission. The Company has also agreed to
file a Shelf Registration Statement under certain
other circumstances. The Company has agreed to
maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such holders.
See "Exchange and Registration Rights Agreements;
Purpose of the Exchange Offer."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the applicable Letter of Transmittal
and delivering its Old Notes, either make
appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time. Certain holders may be able
to tender by complying with the procedures for
book-entry transfer. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
comply with the procedures for book-entry
transfer), the applicable Letter of Transmittal or
any other documents required by such Letter of
Transmittal to the Exchange Agent (or transmit an
Agent's Message in lieu thereof) prior to the
Expiration Date must tender their Old Notes
according to the
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guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company.
THE NEW NOTES
General.................... The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will
not be entitled to certain rights under the
Exchange and Registration Rights Agreements. The
New Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the
applicable Indenture under which the Old Notes were
issued (the "Indentures"). See "Description of the
New Notes."
Issuer..................... Trans-Resources, Inc.
Securities Offered......... $100 million aggregate principal amount of 10 3/4%
Senior Notes due 2008, Series B, and $135 million
aggregate principal amount at maturity of 12%
Senior Discount Notes due 2008, Series B, to be
issued at a substantial discount to their principal
amount at maturity. The issuance of the Old Senior
Discount Notes in the Initial Offering generated
gross proceeds to the Company of approximately
$75.4 million.
Maturity................... March 15, 2008.
Interest Payment Dates..... Interest will accrue on the Senior Notes from the
Issue Date at an annual rate of 10 3/4% and will be
payable semiannually in arrears on March 15 and
September 15 of each year, commencing September 15,
1998.
The Senior Discount Notes were issued at a
substantial discount to their aggregate principal
amount at maturity. See "Certain United States
Federal Income Tax Considerations." The Senior
Discount Notes will accrete to par at March 15,
2003 at a rate of 12% per annum, compounded
semiannually, to an aggregate principal amount at
maturity of $135 million. Cash interest will not be
paid on the Senior Discount Notes prior to
September 15,
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2003. Thereafter, cash interest will be paid at the
rate of 12% per annum and will be payable
semiannually in arrears on March 15 and September
15 of each year, commencing September 15, 2003.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Notes prior to March 15, 2003. On and
after such date, the Company may redeem the Notes,
in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption.
At any time and from time to time on or prior to
March 15, 2001, the Company may redeem up to
33 1/3% of the original aggregate principal amount
of the Senior Notes with the net proceeds of one or
more Public Equity Offerings by the Company after
which there is a Public Market at a redemption
price equal to 110.75% of the principal amount to
be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption;
provided, however, that at least 66 2/3% of the
originally issued aggregate principal amount of the
Senior Notes must remain outstanding immediately
after each such redemption.
In addition, at any time and from time to time on
or prior to March 15, 2001, the Company may redeem
up to 33 1/3% of the originally issued principal
amount at maturity of Senior Discount Notes with
the proceeds of one or more Public Equity Offerings
by the Company after which there is a Public Market
at a redemption price equal to 112% of the Accreted
Value at the redemption date of the Senior Discount
Notes so redeemed; provided, however, that at least
66 2/3% of the originally issued principal amount
at maturity of the Senior Discount Notes must
remain outstanding immediately after each such
redemption. See "Description of the New
Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, the
Company is required to make an offer to repurchase
all or a portion of each holder's Notes at a price
equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any,
to the date of repurchase (or at 101% of the
Accreted Value at such date, as applicable). See
"Description of the New Notes -- Offer to Purchase
upon Change of Control."
Ranking.................... The Notes will be senior unsecured obligations of
the Company and will rank pari passu with all
existing and future unsecured and unsubordinated
indebtedness of the Company, and senior to all
subordinated indebtedness of the Company. The Notes
will be effectively subordinated to all secured
indebtedness of the Company and to all existing and
future indebtedness of the Company's subsidiaries.
As of December 31, 1997, after giving effect to the
Refinancing, the Company and its subsidiaries would
have had an aggregate of approximately $384.6
million of indebtedness outstanding, including the
Notes, of which approximately $201.4 million would
have been indebtedness of subsidiaries which would
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have been effectively senior in right of payment to
the Notes. See "Description of the New
Notes -- Ranking."
Restrictive Covenants...... The indentures contain covenants relating to, among
other things: (i) the incurrence of additional
indebtedness by the Company and the Restricted
Subsidiaries (as defined); (ii) the payment of
dividends on, and redemption of, capital stock of
the Company; (iii) the making of certain
investments by the Company and the Restricted
Subsidiaries; (iv) certain sales of assets; (v)
certain transactions with affiliates; and (vi)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. All of
these limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of the New Notes -- Certain
Covenants."
Transferability; Absence of
a Public Market for
the Notes................ The New Notes have been registered under the
Securities Act and will generally be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for
which there will not initially be a market. In
general, the Old Notes may not be offered or sold
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws. The Old Notes have been
designated for trading in the PORTAL market.
Following the commencement of the Exchange Offer
but prior to its consummation, the Old Notes may
continue to be traded in the PORTAL market.
Following the consummation of the Exchange Offer,
however, the Old Notes will not be eligible for
PORTAL trading. The Company does not intend to
apply for a listing of the New Notes on any
securities exchange or on any automated dealer
quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes.
Use of Proceeds............ There will be no proceeds to the Company from the
issuance of the New Notes pursuant to the Exchange
Offer. The Company used the net proceeds from the
Initial Offering to effect the Refinancing and to
pay related accrued interest, fees and expenses,
and to repay approximately $13.9 million of bank
indebtedness, including $10.9 million of which was
borrowed subsequent to December 31, 1997, and
currently intends to use the balance of the
proceeds from the Initial Offering for working
capital and other general corporate purposes of the
Company and its subsidiaries, including possible
future acquisitions and capital expenditures of
certain Restricted Subsidiaries. See "Recent
Developments" above and "Use of Proceeds."
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RISK FACTORS
Investors should carefully consider all the information set forth in this
Prospectus and, in particular, should evaluate the specific factors set forth
under "Risk Factors" for risks involved with an investment in the Old or New
Notes.
------------------------
The Company, a Delaware corporation, operates through its independently
managed and financed subsidiaries, principally: Cedar and Cedar's wholly-owned
subsidiary, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg");
Na-Churs; and HCL and HCL's wholly-owned Israeli subsidiary, Haifa Chemicals
South Ltd. ("HCSL"). The Company is a wholly-owned subsidiary of TPR Investment
Associates, Inc., a privately-held Delaware corporation ("TPR"), owned by Mr.
Arie Genger and members of his family (see "Security Ownership of Certain
Beneficial Owners and Management"). The principal executive offices of the
Company are located at 9 West 57th Street, New York, New York 10019, and the
Company's telephone number is (212) 888-3044.
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SUMMARY HISTORICAL AND AS ADJUSTED CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data as of December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997 and as adjusted consolidated financial data as of
December 31, 1997 and for the year then ended. The historical consolidated
financial data as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997 have been derived from the Company's
audited consolidated financial statements which are included elsewhere herein.
The unaudited as adjusted Consolidated Statement of Operations Data have been
derived from the Company's historical consolidated financial statements and
gives effect to the Refinancing as if it had occurred as of the beginning of the
period indicated. The unaudited as adjusted Consolidated Balance Sheet Data as
of December 31, 1997 gives effect to the Refinancing as if it had occurred on
that date. The unaudited as adjusted consolidated financial data are not
intended to represent and are not indicative of what the Company's results of
operations actually would have been nor are they intended to project the
Company's results of operations for any future period. The following information
is qualified by reference to, and should be read in conjunction with, "The
Refinancing," "Risk Factors," "Capitalization," "Use of Proceeds," "Selected
Historical Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's consolidated
financial statements and the notes thereto. The 1996 and 1997 results were
significantly affected by a labor dispute (the "Haifa Labor Dispute") at the
Company's facilities located in Haifa, Israel (the "Haifa Facility"). The
Summary Historical and As Adjusted Consolidated Financial Data for the years
ended December 31, 1995 and 1996 include the results of the Company's potash
operations, which were sold in August 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Significant
Developments."
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20
SUMMARY HISTORICAL AND AS ADJUSTED CONSOLIDATED FINANCIAL DATA
AS
HISTORICAL Adjusted(a)
-------------------------------- -------------
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $385,564 $412,305 $376,531 $ 376,531
Operating costs and expenses:
Cost of goods sold........................................ 323,126 343,930 305,588 305,588
General and administrative................................ 43,193 46,419 42,622 42,622
-------- -------- -------- ---------
Operating income............................................ 19,245 21,956 28,321 28,321
Interest expense............................................ (34,498) (32,195) (29,475) (36,223)
Interest and other income-net(b)............................ 9,128 25,448 5,550 5,550
-------- -------- -------- ---------
Income (loss) before income taxes and extraordinary item.... (6,125) 15,209 4,396 (2,352)
Income tax provision........................................ 733 4,016 2,952 2,952
-------- -------- -------- ---------
Income (loss) before extraordinary item..................... (6,858) 11,193 1,444 (5,304)
Extraordinary item-net...................................... (103) (553) -- --
-------- -------- -------- ---------
Net Income (loss)........................................... $ (6,961) $ 10,640 $ 1,444 $ (5,304)
======== ======== ======== =========
OTHER CONSOLIDATED FINANCIAL DATA:
Adjusted EBITDA(c).......................................... $ 39,670 $ 51,464 $ 54,862 $ 54,862
Cash interest expense(d).................................... 31,008 29,597 27,488 22,970
Depreciation and amortization(e)............................ 20,425 21,499 21,208 21,208
Capital expenditures........................................ 35,661 13,570 26,862 26,862
Ratio of net debt to adjusted EBITDA(f)..................... 5.8x
Ratio of adjusted EBITDA to cash interest expense........... 2.4x
CASH PROVIDED (USED) FROM:
Operating activities and working capital management......... $ 1,833 $ 3,358 $ 9,745 $ 12,068
Investment activities....................................... 84,787 35,339 (33,532) (33,532)
Financing activities........................................ (69,319) (42,457) 14,432 65,399
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 32,872 $ 29,112 $ 19,757 $ 64,188
Working capital............................................. 82,011 86,986 73,597 124,564
Total assets................................................ 467,102 426,631 462,016 510,515
Total debt, including current maturities.................... 335,428 299,543 318,674 384,649
Stockholder's equity(g)..................................... 20,675 26,254 23,607 12,668
See Notes to Summary Historical and As Adjusted Consolidated Financial Data
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21
NOTES TO SUMMARY HISTORICAL AND AS ADJUSTED CONSOLIDATED FINANCIAL DATA
(a) The "as adjusted" presentation gives effect to the sale of the Notes offered
hereby and the use of proceeds to the repurchase of $110,090,000 principal
amount of the Existing Notes at the Tender Offer price of 107.1% of
principal amount, plus accrued interest ($6,536,000), and estimated costs
associated with the Refinancing ($6,525,000). The remaining net proceeds
from the sale of the Notes are included in cash and cash equivalents in the
"as adjusted" year ended December 31, 1997. See "Use of Proceeds."
(b) Includes: (i) gains of $18,100,000 and $1,700,000 in the years ended
December 31, 1994 and 1995, respectively, representing the excess of
insurance proceeds over the carrying value of certain HCL property destroyed
in a fire; (ii) security gains (losses) of ($413,000), $341,000 and
$2,713,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, and $2,713,000 for the as adjusted year ended December 31,
1997; (iii) foreign currency gains (losses) of $5,400,000, ($1,600,000) and
$0 for the years ended December 31, 1995, 1996 and 1997, respectively, and
$0 for the as adjusted year ended December 31, 1997; and (iv) a gain of
$22,579,000 for the year ended December 31, 1996 relating to the Company's
sale of its potash operations in 1996.
(c) Adjusted EBITDA represents EBITDA adjusted by the impact of the Haifa Labor
Dispute. EBITDA represents operating income plus depreciation and
amortization. EBITDA and Adjusted EBITDA should not be considered as an
alternative measure of net income or cash flows from operating, investing
and financing activities (all as determined in conformity with generally
accepted accounting principles), but is presented to provide additional
information related to the Company's debt service capability. EBITDA and
Adjusted EBITDA should not be considered in isolation or as a substitute for
other measures of financial performance or liquidity. The primary difference
between EBITDA and cash flows provided by operating activities relates to
changes in working capital requirements and payments made for interest and
income taxes. EBITDA and Adjusted EBITDA as presented may not be comparable
to similarly titled measures reported by other companies, since not all
companies necessarily calculate EBITDA and Adjusted EBITDA in identical
manners, and, therefore, are not necessarily accurate measures of
comparisons between companies.
The Haifa Labor Dispute is estimated by the Company to have adversely
impacted EBITDA by $8,009,000, $5,333,000 and $5,333,000 in the years ended
December 31, 1996 and 1997 and the as adjusted year ended December 31, 1997,
respectively. These amounts are net of proceeds received from the Israeli
manufacturers association fund under HCL's claim for damages, applied for
partial contribution towards the costs suffered during the period of the
labor disruption. The estimated adverse impact of the Haifa Labor Dispute on
EBITDA, excluding the impact of lost revenues, is set forth in table below:
HISTORICAL AS ADJUSTED
----------------------------- ------------
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------- DECEMBER 31,
1995 1996 1997 1997
------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
EBITDA...................................................... $39,670 $43,455 $49,529 $49,529
Impact of Haifa Labor Dispute:
Increased cost of production resulting from reduced
manufacturing during the periods, which affected the fixed
charge component of cost of sales......................... -- 4,110 3,388 3,388
The cost of raw materials destroyed in the production
process during work stoppages and job actions............. -- 1,932 -- --
Lower gross margins resulting from the purchase of finished
goods inventory from third parties to meet certain
customer demand since the HCL plant was not operating
during the labor disruption (HCL generally produces all
its finished goods)....................................... -- 1,326 3,057 3,057
Other increased costs, net of proceeds received from the
Israeli manufacturers association of $2,000,000,
$3,100,000 and $3,100,000, respectively................... -- 641 (1,112) (1,112)
------- ------- ------- -------
Adjusted EBITDA............................................. $39,670 $51,464 $54,862 $54,862
======= ======= ======= =======
Adjusted EBITDA does not reflect the gross margin effect of lost revenues
attributable to a lack of inventory caused by the decrease in production
during the Haifa Labor Dispute. Although it is difficult to precisely
quantify lost revenues attributable to the Haifa Labor Dispute, management
of the Company believes that the gross margin effect of lost revenues
attributable to a lack of inventory during the Haifa Labor Dispute was at
least approximately $1,700,000, $3,400,000 and $3,400,000 for the years
ended December 31, 1996 and 1997 and for the as adjusted year ended December
31, 1997, respectively, which resulted from estimated foregone sales of
approximately $7,600,000, $15,500,000 and $15,500,000 for the years ended
December 31, 1996 and 1997 and for the as adjusted year ended December 31,
1997, respectively. Management of the Company believes, based on the growth
rate in revenues during the nine month period ended September 30, 1996, that
quantities sold during the fourth quarter of 1996 and the first quarter of
1997 would have at least equaled quantities sold in the comparable periods
of the prior year. Accordingly, the above amounts assume that quantities
sold during the fourth quarter of 1996 and the first quarter of 1997 were at
least equal to quantities sold during the fourth quarter of 1995 and the
first quarter of 1996, respectively. Management believes that the effect of
lost revenues attributable to a lack of inventory during the Haifa Labor
Dispute is significantly greater than the estimates reflected above.
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22
Adjusted EBITDA does not reflect an adjustment for the Company's potash
operations which were sold in August 1996. Excluding the revenues and EBITDA
associated with the Company's potash operations, the Company's consolidated
revenues would have been $331,936,000 and $377,001,000 for the years ended
December 31, 1995 and 1996, respectively, and Adjusted EBITDA would have
been $34,952,000 and $50,817,000, for the years ended December 31, 1995 and
1996, respectively. As stated in the paragraph above, the Adjusted EBITDA
amounts set forth herein likewise do not reflect the gross margin effect of
net revenues attributable to a lack of inventory caused by the decrease in
production during the Haifa Labor Dispute.
(d) Cash interest expense excludes: (i) accretion of interest expense on the
Senior Discount Notes; (ii) amortization of deferred financing costs of
$1,984,000, $1,190,000 and $891,000 for the years ended December 31, 1995,
1996 and 1997, respectively, and $886,000 for the as adjusted year ended
December 31, 1997, and is net of interest income of $2,459,000, $1,408,000
and $1,131,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, and $3,353,000 for the as adjusted year ended December 31,
1997. Cash interest expense is inclusive of capitalized interest of
$953,000 and $35,000 for the years ended December 31, 1995 and 1997,
respectively, and $35,000 for the as adjusted year ended December 31, 1997.
(e) Depreciation and amortization excludes amortization of deferred financing
costs, which is included in interest expense.
(f) Net debt represents total debt, including current maturities, less cash and
cash equivalents.
(g) As adjusted includes an extraordinary charge of $10,939,000 (no tax
benefit) relating to the early extinguishment of debt in connection with
the Refinancing.
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23
RISK FACTORS
Investors should consider carefully the following factors, as well as the
other information and data included in this Prospectus, in evaluating an
investment in the Notes.
HOLDING COMPANY STRUCTURE
The Company is a holding company which conducts all of its operations
through its independently managed and financed subsidiaries and currently has no
significant operating assets other than its direct and indirect investments in
its operating subsidiaries. The Company will be the sole obligor on the Notes.
The Notes are not guaranteed by any subsidiary of the Company. All of the
Company's operating income is generated by its subsidiaries. The Company must
rely on dividends and other advances and transfers of funds from its
subsidiaries and earnings from its investments in cash and marketable securities
to provide the funds necessary to meet the Company's debt service obligations,
including payment of principal and interest on the Notes. The ability of the
subsidiaries of the Company to pay dividends or make other payments or advances
to the Company will depend upon their operating results and will be subject to
applicable laws and restrictions contained in agreements governing the
indebtedness of such subsidiaries. Dividends may be paid by an Israeli company
only out of "profits available for distribution" (retained earnings). As of
December 31, 1997, HCL had approximately $47 million of retained earnings
available for dividends. While dividends paid by HCL are subject to withholding
tax, such taxes have not been significant. However, no assurance can be given
that such withholding taxes will continue to be insignificant. Although the
Indentures limit the ability of Restricted Subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other payments, such
limitations are subject to a number of significant qualifications and do not
apply to Unrestricted Subsidiaries (as defined). See "Description of the New
Notes -- Certain Covenants -- Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries." Credit agreements of the
Company's subsidiaries include certain restrictions on dividends and other
payments. See "Description of Certain Indebtedness" and Note G of Notes to
Consolidated Financial Statements. There can be no assurance that the agreements
governing indebtedness of the Company's subsidiaries or any applicable law will
permit such subsidiaries to distribute funds to the Company in amounts
sufficient to pay the interest and principal on the Notes and the other
obligations of the Company. The capital stock of many of the Company's direct
and indirect subsidiaries is pledged to secure credit facilities of the Company
and certain of its subsidiaries.
The only significant assets of the Company (other than cash and marketable
securities) are its investments in the capital stock of its direct subsidiaries.
All of the capital stock of HCL held by the Company is pledged as collateral
under a loan agreement with a bank under which there are commitments to lend up
to $40 million. If the Company were unable to pay the principal or interest on
the Notes, the ability of the holders of the Notes to proceed against the
capital stock of HCL would be subject to the prior satisfaction in full of all
amounts, if any, owing under this loan agreement.
In addition, the Notes will be effectively subordinated to all existing and
future claims of creditors of the Company's subsidiaries. As of December 31,
1997, such subsidiaries had $310.8 million of total liabilities, including
$201.4 million of Indebtedness. The rights of creditors of the Company,
including the holders of the Notes, to realize upon assets of any subsidiary of
the Company upon such subsidiary's liquidation will be subject to the prior
claims of the creditors of such subsidiary, including trade creditors. In such
event, there may not be sufficient assets remaining to pay any or all of the
amounts due on the Notes. See "Description of Certain Indebtedness."
21
24
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company is highly leveraged, with indebtedness that is substantial in
relation to its stockholder's equity. As of December 31, 1997, indebtedness was
$384.6 million and stockholder's equity was $12.7 million, in each case as
adjusted after giving effect to the Refinancing. The Indentures will permit the
Company and its subsidiaries to incur or guarantee certain additional
indebtedness, subject to certain limitations. See "Description of the New
Notes -- Certain Covenants -- Limitation on Additional Indebtedness."
The Company's high degree of leverage could have important consequences to
holders of the Notes, including, but not limited to, the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other purposes may be impaired in the future; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) the
Company is substantially more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (iv) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; and (v)
the Company's high degree of leverage could make it more vulnerable in the event
of a downturn in general economic conditions or its business.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive conditions and
to certain financial, business and other factors, many of which are beyond the
Company's control. These factors could include operating difficulties, increased
operating costs, raw material or product prices, the responses of competitors,
regulatory developments and delays in implementing strategic projects. The
Company's ability to meet its debt service and other obligations may depend in
significant part on the extent to which the Company can successfully implement
its business strategy. There can be no assurance that the Company will be able
to implement its strategy fully or that the anticipated results of its strategy
will be realized. See "Business -- Business Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets or seek to obtain additional equity capital or
to restructure its debt. There can be no assurance that the Company's cash flow
and capital resources will be sufficient for payment of principal of and
interest on its indebtedness in the future, or that any such alternative
measures would be successful or would permit the Company to meet its scheduled
debt service obligations.
The Company's existing bank facility and certain of its subsidiaries' bank
facilities mature prior to the maturity of the Notes. In the event that the
Company and its subsidiaries are unable to refinance these credit facilities at
maturity or repay them with cash on hand, through asset sales, equity issuances
or otherwise, the Company's ability to repay the principal and interest on the
Notes could be adversely affected.
In addition, because obligations under these bank facilities will bear
interest at floating rates, an increase in interest rates could adversely
affect, among other things, the Company's ability to meet its debt service
obligations.
ENVIRONMENTAL MATTERS
The production of chemicals involves the use, handling and processing of
materials that may be considered hazardous within the meaning of applicable
environmental or health and safety laws. Accordingly, the Company's operations
are subject to extensive Federal, state and local environmental regulatory
requirements in the United States and regulatory requirements in Israel
governing, among other things, air emissions, waste water discharge, waste
storage, treatment and disposal, remediation of releases of hazardous or
regulated materials, and the use, handling and processing
22
25
of regulated materials. Operating permits are required for the operation of the
Company's facilities, and these permits are subject to revocation, modification
and renewal. Government authorities have the power to enforce compliance with
these regulations and permits, and violators are subject to civil and criminal
penalties, including civil fines, injunctions or both. Spills or other releases
of regulated materials could result in contamination which may require the
Company to undertake or fund potentially costly response activities. The Company
has entered into consent decrees and administrative orders with certain
governmental authorities relating to environmental matters at certain of its
facilities. While the Company believes it is in substantial compliance with
applicable material environmental requirements, some risk of environmental costs
and liabilities is inherent in the Company's operations and products, as it is
with other companies engaged in similar businesses, and there can be no
assurance that material costs and liabilities will not be incurred by the
Company. Environmental laws and regulations have changed rapidly in recent years
and may become more stringent in the future. During 1996 and 1997, the Company
incurred environmental clean-up costs of approximately $300,000 and $400,000,
respectively. In addition, the plan approved by the Israeli Ministry of
Environment for the disposal of liquid acid effluent and sludge requires HCL to
spend an aggregate of up to approximately $15 million over four and one-half
years, commencing in 1997. See "Business -- Environmental Matters" and Note A of
Notes to Consolidated Financial Statements.
OPERATING HAZARDS AND UNINSURED RISKS
In addition to pollution and other environmental risks (see "Environmental
Matters" above), the Company is subject to risks inherent in the chemical
industry, such as explosions, fires and chemical spills or releases. Any
significant interruption of operations at the Company's principal facilities
could have a material adverse effect on the Company. The Company maintains
general liability insurance and property and business interruption insurance
with coverage limits it believes are adequate. Because of the nature of industry
hazards, it is possible that liabilities for pollution and other damages arising
from a major occurrence may not be covered by the Company's insurance policies
or could exceed insurance coverages or policy limits or that such insurance may
not be available at reasonable rates in the future. Any such liabilities, which
could arise due to injury or loss of life, severe damage to and destruction of
property and equipment, pollution or other environmental damage or suspension of
operations, could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Significant Developments -- 1994 Haifa Fire" and
"Business -- Legal Proceedings."
ISRAELI OPERATIONS
Israeli operations (including HCL's non-Israeli subsidiaries) accounted for
approximately 63% of the Company's consolidated assets as of December 31, 1997
and approximately 63% of its consolidated revenues for the year then ended. The
Company maintains major manufacturing facilities in Israel and plans to expand
its capacity by constructing additional facilities in Israel. Approximately 90%
of HCL's production is exported from Israel, and, accordingly, HCL is dependent
on foreign markets and its ability to reach those markets. Consequently, the
Company is affected by social, political and economic conditions affecting
Israel, and any major hostilities involving Israel or curtailment of trade
between Israel and its current trading partners, either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.
However, since its establishment in 1966, HCL's operations have never been
materially adversely affected by any military action.
The impact of inflation upon HCL's operations is determined by the
relationship between inflation in Israel and the changes in the exchange rate
between the New Israeli Shekel ("NIS") and the U.S. Dollar. Generally, it is
only in circumstances when the rate of Israeli inflation exceeds the rate of NIS
devaluation that the Company is adversely affected. However, since only
approximately $59 million of HCL's 1997 annual operating costs are denominated
in NIS, HCL is exposed to
23
26
inflation in Israel to a limited extent. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Inflation" and
"Conditions in Israel."
ISRAELI LABOR RELATIONS
Most of the Company's employees in Haifa are covered by collective
bargaining agreements. The Company has experienced several work stoppages and
other actions which have adversely affected its Israeli operations. The current
collective bargaining agreement, entered into on March 10, 1997 after an
extended labor dispute and a plant shut-down, expires December 31, 1999. There
can be no assurance as to the terms of any future collective bargaining
agreements, or that such future agreements will be achieved without labor
strife. See "Management's Discussion and Analysis at Financial Condition and
Results of Operations -- Significant Developments -- Haifa Labor Dispute" and
"Business -- Employees."
INTERNATIONAL OPERATIONS; FOREIGN CURRENCY EXPOSURE
The Company currently sells its products in 95 countries and plans to
pursue further international opportunities for growth. However, international
operations generally are subject to risks that are not present in domestic
operations, including restrictions on dividends and the repatriation of funds,
withholding and other taxes, fluctuations in currency exchange rates,
difficulties in collecting accounts receivable, price controls, unexpected
changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, reduced protection for
intellectual property rights and political instability, any of which could
adversely impact the Company's international sales and operations.
More specifically, the Company is exposed to fluctuations in currency
exchange rates through HCL, which receives a substantial portion of its sales
revenue in Western European currencies. Accordingly, to the extent that the U.S.
dollar weakens or strengthens versus the applicable foreign currency, HCL's
results are favorably or unfavorably affected. The Company often manages this
exposure by entering into foreign currency forward exchange contracts. Such
contracts generally are entered into with respect to anticipated revenues
denominated in foreign currencies for which timing of the receipt of payment can
be reasonably estimated. No assurances can be given that such hedging activities
will not result in losses which will have an adverse effect on the Company's
financial condition or results of operations. In addition, there are times when
the Company does not hedge against foreign currency fluctuations and is
therefore subject to the risks associated with fluctuations in currency exchange
rates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Foreign Currencies" and Note A of Notes to Consolidated
Financial Statements.
RAW MATERIALS AND SUPPLIERS
HCL obtains its major raw materials, potash and phosphate rock, in Israel.
HCL purchases potash solely from Dead Sea Works Ltd. ("DSW") in accordance with
two contracts which expire in 1999 and 2005. The contracts provide for prices to
be established quarterly, based on the weighted average of the FOB Israeli port
prices paid to DSW by its overseas customers during the preceding quarter plus
certain adjustments thereto. HCL currently is purchasing phosphate rock from
Rotem Amfert Negev Ltd. ("Rotem") according to the terms of a variable price
contract which expired in 1996, which is currently being renegotiated. DSW and
Rotem, which are affiliated with each other, are the sole suppliers in Israel of
potash and phosphate rock, respectively. While HCL views its current
relationships with both of its principal suppliers to be good, the loss of
supply from either of these sources could have a material adverse effect on the
Company. In addition, another of the Company's primary materials, ammonia, has
experienced significant historical price fluctuations. Significant increases in
the price of ammonia or other commodity raw materials, such as potash, could
have a material adverse effect on the Company's operations. See "Business -- Raw
Materials."
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27
COMPETITION
In Specialty Plant Nutrients, the Company primarily competes with Sociedad
Quimica y Minera de Chile, S.A. ("SQM"), a publicly traded Chilean manufacturer
of potassium nitrate and other chemicals, and to a lesser extent with other
producers, the most recent of which, Norsk Hydro, began production in spring
1997 with a rated capacity of approximately 33,000 tons per annum. A new
prospective Chilean entrant, Minera Yolanda S.A. ("Yolanda"), a subsidiary of
KAP Resources Limited ("KAP"), a publicly traded British Columbia company, has
announced plans to achieve annual production capacity of approximately 275,000
tons of finished nitrate products, which may include potassium nitrate, by
August 1998, after several delays in prior years. Given Yolanda's prior delays,
the Company cannot predict whether or when Yolanda will actually begin
production and, if so, what its actual production levels will be. In addition,
Arab Potash Company ("APC") has announced plans for the construction of 110,000
tons of annual capacity. The Company believes that the announced project by APC
could be delayed beyond 2002. The Company believes that its sales volumes will
not be materially affected by new capacity, due to expected delays and uncertain
product quality from the new entrants, as well as projected growth in global
demand. Competition among producers of agricultural grade potassium nitrate is
primarily driven by customer preferences for quality, reliability, custom
specifications and price.
In Industrial Chemicals, the Company competes with a wide variety of large
and small specialty and commodity chemical companies including SQM, Haldor
Topsoe, Budenheim, Hoechst, Rhone-Poulenc, FMC, Armand Products Company
("Armand"), ASHTA Chemicals Inc. ("ASHTA"), and Vulcan Materials Company
("Vulcan"). The primary competitive factors in the industrial chemicals market
are product quality, technical specifications and price.
In Organic Chemicals, the Company primarily competes with a wide variety of
large and small specialty and commodity chemical companies, including Griffin,
Dow, Monsanto, AgrEvo (joint venture of Hoechst and Schering), Rhone-Poulenc,
Rohm and Haas and Zeneca. Competitive factors in the production of organic
chemicals primarily consist of manufacturing expertise in specific complex
chemical processes, vertical integration, flexible manufacturing facilities and
price. In addition, new biotechnologies, including genetic engineering of crops,
could adversely affect the Company's business in this industry. The Company
cannot predict whether or when its products will be affected by such
technologies, nor what the actual effect might be.
Many of the Company's principal competitors are less highly leveraged than
the Company and have greater financial resources than the Company. In addition,
a number of the Company's niche product applications are customized or sold into
selected specialized markets. There can be no assurance that these specialized
markets will not attract additional competitors that could have greater
financial, technological, manufacturing and marketing resources than the
Company. See "Business -- Competition."
ACQUISITION STRATEGY
As part of its strategy, the Company seeks to acquire businesses. A portion
of the proceeds of the Notes may be used for this purpose. There can be no
assurance that the Company will find attractive acquisition candidates or
succeed at effectively managing the integration of acquired businesses into the
Company's existing structure. If the expected synergies from such transactions
do not materialize or the Company fails to successfully integrate new businesses
into its existing structure, the Company's results of operations could be
adversely affected.
CONTROL BY SOLE STOCKHOLDER
Mr. Arie Genger, Chairman of the Board and Chief Executive Officer of the
Company, and members of his family, directly or indirectly own all of the
capital stock of the Company's parent corporation, TPR. Accordingly, Mr. Genger
controls the election of all of the directors of Trans-
25
28
Resources, Inc. The interests of Mr. Genger and his family may differ from the
interests of the holders of the Notes. The common stock of the Company has been
pledged by TPR to secure the repayment of a $7 million note issued by TPR to a
former indirect stockholder and director of the Company. The Indentures require
the Company to make an offer to repurchase all of the Notes at 101% of principal
amount or Accreted Value, as the case may be, plus accrued interest, if any, to
the date of repurchase in certain circumstances involving a Change of Control of
the Company. There can be no assurance that the Company would have sufficient
funds to pay for all the Notes it might be required to purchase. Certain events
involving a Change of Control may result in an event of default under credit
facilities of the Company and its subsidiaries. See "Management," "Security
Ownership of Certain Beneficial Owners and Management," "Description of Certain
Indebtedness" and "Description of the New Notes -- Offer to Purchase upon Change
of Control."
ABSENCE OF PUBLIC MARKET; ADVERSE EFFECT ON MARKET FOR OLD NOTES
There is no public market for the Old Notes, although the Old Notes are
eligible for trading in PORTAL by "Qualified Institutional Buyers" as defined in
Rule 144A under the Securities Act ("QIBs") until the consummation of the
Exchange Offer. The Initial Purchasers have acted as market makers for the Old
Notes and have advised the Company that they currently intend to make a market
in the New Notes. However, the Initial Purchasers are not obligated to do so and
any market making may be discontinued at any time without notice. In addition,
such market making activity may be limited during the pendency of the Exchange
Offer or the effectiveness of a shelf registration statement in lieu thereof.
The Company does not intend to apply for listing of the New Notes on any
securities exchange or for quotation of the New Notes through any automated
quotation system. Accordingly, there can be no assurance that an active public
market for the New Notes will develop or as to the liquidity of any market that
may develop, the ability of holders of New Notes to sell their New Notes or the
price at which such holders would be able to sell their New Notes. In addition,
to the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for the untendered and tendered but unaccepted Old Notes
could be adversely affected. The liquidity of, and trading market for, both the
Old Notes and the New Notes also may be adversely affected by general declines
in the market or by declines in the market for similar securities. Such declines
may adversely affect such liquidity and trading markets independent of the
financial performance of, and prospects for, the Company.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. Neither the Company nor the Exchange Agent is under any duty to
give notification of defects or irregularities with respect to the tender of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, certain registration rights under the
Exchange and Registration Rights Agreements will terminate.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer -- Consequences
of Failure to Exchange."
26
29
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical facts included in this Prospectus, including, without
limitation, those regarding the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed herein under
"Risk Factors" and elsewhere in this Prospectus including, without limitation,
in conjunction with the forward-looking statements included in this Prospectus.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements.
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30
THE REFINANCING
In the Refinancing, the Company refinanced approximately 96% of its
outstanding indebtedness under the 11 7/8% Notes by consummating the Initial
Offering, the Tender Offer and the related Consent Solicitation.
Pursuant to a separate Offer to Purchase and Consent Solicitation Statement
dated February 12, 1998, the Company offered to repurchase any and all (but not
less than 66 2/3% in principal amount outstanding) of its outstanding 11 7/8%
Notes at a price equal to $1,071.08 per $1,000 principal amount of 11 7/8%
Notes, which was calculated based on: (i) the present value on the payment date
of $1,052.80 per $1,000 principal amount of each 11 7/8% Note (the amount
payable on July 1, 1998, which is the first date on which the 11 7/8% Notes are
redeemable), determined on the basis of the yield to July 1, 1998 equal to the
yield (5.31%) on the 6 1/4% U.S. Treasury Note due June 30, 1998 as of 2:00
p.m., New York City Time, on February 26, 1998, the tenth business day
immediately preceding the expiration date of the Tender Offer, minus (ii) $5 per
$1,000 principal amount of 11 7/8% Notes. Each tendering holder also received
accrued and unpaid interest up to, but not including, the expiration date of the
Tender Offer. In connection with the Tender Offer, the Company also solicited
Consents from the tendering holders of 11 7/8% Notes to certain proposed
amendments (the "Indenture Amendments") to the 11 7/8% Notes Indenture, which
amendments, among other things, eliminated substantially all of the restrictive
covenants and certain events of default contained in the 11 7/8% Notes
Indenture. Holders of 11 7/8% Notes who timely consented to such amendments also
received a consent payment equal to 0.5% of the principal amount of the related
11 7/8% Notes ($5 per $1,000 principal amount). Consummation of the Tender Offer
was conditioned upon receipt of Consents (and related tenders) of more than
66 2/3% of the aggregate principal amount of the 11 7/8% Notes outstanding
(excluding for such purposes any 11 7/8% Notes held at such time by the Company
or any of its affiliates) and the satisfaction of certain other conditions,
including the consummation of the Initial Offering. The Company received tenders
of, and Consents relating to, approximately 96% of the outstanding principal
amount of the 11 7/8% Notes. The Company and the trustee under the 11 7/8% Notes
Indenture executed a supplemental indenture containing the Indenture Amendments.
The Company may repurchase the remaining 11 7/8% Notes in the future in open
market transactions, privately negotiated purchases or otherwise, or may redeem
the remaining 11 7/8% Notes on or after July 1, 1998, in whole or in part, at
the applicable redemption prices set forth in the 11 7/8% Notes.
28
31
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreements. The Company
will not receive any cash proceeds from the issuance of the New Notes offered
hereby. In consideration for issuing the New Notes contemplated in this
Prospectus, the Company will receive Old Notes in like principal amount, the
form and terms of which are identical to the forms and terms of the New Notes
(which replace the Old Notes), except as otherwise described herein. The Old
Notes surrendered in exchange for New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase or decrease in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $169.3 million. Approximately $124.8 million of the net proceeds
were used to fund the Tender Offer and Consent Solicitation with respect to the
approximately 96% of the outstanding 11 7/8% Notes which were tendered and to
pay related accrued interest, fees and expenses. See "The Refinancing." The
Company also used the proceeds from the sale of the Old Notes to repay
approximately $13.9 million of bank indebtedness, including $10.9 million of
which was borrowed subsequent to December 31, 1997, of which $9.0 million was
dividended to TPR. The Company currently intends to use the balance of the
proceeds ($30.6 million) from the sale of the Old Notes for working capital and
other general corporate purposes of the Company and its subsidiaries, which may
include future acquisitions and planned capital expenditures of certain
Restricted Subsidiaries. The Company may repurchase some or all of the remaining
approximately $5 million aggregate principal amount of 11 7/8% Notes in the
future in open market transactions, privately negotiated purchases or otherwise,
or redeem them in accordance with the terms of the 11 7/8% Notes. Proceeds from
the Initial Offering may also be used for this purpose. Pending utilization of
the proceeds of the Initial Offering, the Company currently intends to invest
such proceeds in short-term investments earning interest at rates which
currently are substantially lower than the rates borne by the Notes.
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32
CAPITALIZATION
The following table sets forth the historical cash and cash equivalents and
capitalization of the Company at December 31, 1997, and the cash and cash
equivalents and capitalization of the Company at such date as adjusted to give
effect to the repurchase of $110.1 million aggregate principal amount of the
11 7/8% Notes in the Refinancing. This table should be read in conjunction with
the Company's consolidated financial statements and notes thereto included
elsewhere herein.
DECEMBER 31, 1997
-----------------------
AS
ACTUAL Adjusted(a)
-------- -----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................... $ 19,757 $ 64,188
======== ========
Total debt, including current portion:
Senior Notes.............................................. $ -- $100,000
Senior Discount Notes..................................... -- 75,408
Other Senior indebtedness(b).............................. 204,386 204,386
11 7/8% Notes (net of unamortized discount of $712,000 and
$55,000, respectively)................................. 114,288 4,855
-------- --------
Total debt........................................ 318,674 384,649
Stockholder's equity(c)..................................... 23,607 12,668
-------- --------
Total capitalization.............................. $342,281 $397,317
======== ========
- ---------------
(a) Except as described herein, as adjusted does not give effect to events
occurring after December 31, 1997, including: (i) additional incurrence of
$9 million of long-term debt, principally used to fund a $9.75 million
dividend in February 1998 to TPR; (ii) utilization of a portion of the
Company's existing revolving loan commitments and other credit lines to
finance (a) approximately $14.1 million of seasonal working capital needs,
(b) approximately $5.2 million of capital expenditures pursuant to the
Company's plans to expand its potassium nitrate and MAP/MKP capacity and (c)
approximately $10.5 million relating to financing the acquisitions described
under "Recent Developments"; and (iii) an estimated after-tax gain on the
consummation of the Laser/ESC merger of approximately $22.4 million,
representing the Company's receipt of marketable equity securities of ESC in
the amount of approximately $32.0 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Significant
Developments -- Laser Investment."
(b) Other Senior indebtedness primarily includes approximately $148.5 million of
indebtedness under various bank agreements of HCL and its subsidiaries and
approximately $51.9 million of indebtedness of Cedar under its credit
facility. See Note G of Notes to Consolidated Financial Statements and
"Description of Certain Indebtedness."
(c) As adjusted gives effect to the reduction in stockholder's equity of
approximately $10.9 million from the early extinguishment of debt in
connection with the Refinancing.
30
33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary selected consolidated historical
financial data as of and for each of the five years in the period ended December
31, 1997. The historical consolidated financial data as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997 have
been derived from the Company's audited consolidated financial statements, which
are included elsewhere herein. The following information is qualified by
reference to, and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto. The 1996 and 1997 results
were significantly affected by the Haifa Labor Dispute. The Selected Historical
Consolidated Financial Data for each of the four years in the period ended
December 31, 1996 include the results of the Company's potash operations, which
were sold in August 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Significant Developments."
YEAR END DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................................... $326,315 $334,107 $385,564 $412,305 $376,531
Operating costs and expenses:
Cost of goods sold.......................... 255,563 265,795 323,126 343,930 305,588
General and administrative.................. 38,375 37,780 43,193 46,419 42,622
-------- -------- -------- -------- --------
Operating income.............................. 32,377 30,532 19,245 21,956 28,321
Interest expense.............................. (27,405) (28,369) (34,498) (32,195) (29,475)
Interest and other income - net(a)............ 6,014 15,056 9,128 25,448 5,550
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.......................... 10,986 17,219 (6,125) 15,209 4,396
Income tax provision.......................... 7,920 14,669 733 4,016 2,952
-------- -------- -------- -------- --------
Income (loss) before extraordinary item....... 3,066 2,550 (6,858) 11,193 1,444
Extraordinary item - net...................... (8,830) -- (103) (553) --
-------- -------- -------- -------- --------
Net income (loss)............................. $(5,764) $2,550 $(6,961) $10,640 $1,444
======== ======== ======== ======== ========
OTHER CONSOLIDATED FINANCIAL DATA:
Depreciation and amortization(b).............. $20,027 $19,088 $20,425 $21,499 $21,208
Capital expenditures.......................... 29,056 93,314 35,661 13,570 26,862
Dividends paid................................ 7,508 4,466 1,707 6,059 4,586
Ratio of earnings to fixed charges(c)......... 1.4x 1.4x -- 1.4x 1.1x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents..................... $25,742 $15,571 $32,872 $29,112 $19,757
Working capital............................... 103,776 66,294 82,011 86,986 73,597
Total assets.................................. 365,865 550,954 467,102 426,631 462,016
Total debt, including current maturities(d)... 264,238 408,411 335,428 299,543 318,674
Stockholder's equity.......................... 15,794 20,550 20,675 26,254 23,607
- ---------------
(a) Includes: (i) gains of $18,100,000 and $1,700,000 in the years ended
December 31, 1994 and 1995, respectively, representing the excess of
insurance proceeds over the carrying value of certain HCL property destroyed
in a fire; (ii) security gains (losses) of $2,261,000, ($1,178,000),
($413,000), $341,000 and $2,713,000 for the years ended December 31, 1993,
1994, 1995, 1996 and 1997, respectively; (iii) foreign currency gains
(losses) of $850,000, ($3,800,000), $5,400,000, ($1,600,000) and $0 for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively; and
(iv) a gain of $22,579,000 in the year ended December 31, 1996 relating to
the Company's sale of its potash operations in 1996.
(b) Depreciation and amortization excludes amortization of deferred financing
cost of $4,463,000, $1,771,000, $1,984,000, $1,190,000 and $891,000 for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively,
which is included in interest expense.
(c) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and equity in the earnings
(loss) of Laser Industries Limited and fixed charges and fixed charges
consist of interest (including capitalized interest) on all indebtedness,
amortization of deferred financing costs and that portion of rental expense
that management believes to be representative of interest. The deficiency in
earnings to fixed charges was $6,600,000 for the year ended December 31,
1995.
(d) Total debt in 1994 was collateralized, in part, by $100,000,000 of
certificates of deposit, which were included in "other current assets" in
the December 31, 1994 Consolidated Balance Sheet.
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34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a multinational manufacturer of Specialty Plant Nutrients,
Industrial Chemicals and Organic Chemicals. The Company is the world's largest
producer of potassium nitrate, which is a specialty plant nutrient utilized in
the intensive cultivation of high-value cash crops such as fruits, vegetables
and flowers. The Company is also the world's largest and only fully integrated
producer of propanil, which is the world's leading rice herbicide. Prior to
August 16, 1996 the Company was also the largest U.S. producer of potash (see
"Significant Developments -- Sale of Potash Operations" below). For the year
ended December 31, 1997 the Company's revenues from Specialty Plant Nutrients,
Industrial Chemicals and Organic Chemicals were 58.6%, 28.9% and 12.5%,
respectively, of total revenues.
The Company's operating costs and expenses consist of cost of goods sold
and general and administrative expenses. Cost of goods sold includes raw
material costs, utilities, labor and distribution costs. General and
administrative expenses include costs of the Company's sales force and other
general and administrative functions.
FOREIGN CURRENCIES
The Company has no significant foreign currency denominated revenues except
at HCL. Approximately $135 million of HCL's total sales for the year ending
December 31, 1998 are estimated to be made in currencies other than the U.S.
dollar, principally Western European currencies. Accordingly, to the extent that
the U.S. dollar weakens or strengthens versus the applicable corresponding
foreign currency, HCL's results are favorably or unfavorably affected. In order
to mitigate the impact of currency fluctuations against the U.S. dollar, the
Company has a policy of hedging a significant portion of its foreign revenues
denominated in Western European currencies by entering into forward exchange
contracts. A portion of these contracts qualify as hedges pursuant to Statement
of Financial Accounting Standards No. 52 and, accordingly, applicable unrealized
gains and losses arising therefrom are deferred and accounted for in the
subsequent year as part of revenues. Unrealized gains and losses for the
remainder of the forward exchange contracts are recognized in income currently.
If the Company had not followed such a policy of entering into forward exchange
contracts in order to hedge its foreign revenues, and instead recognized income
based on the then prevailing foreign currency rates, the Company's income before
income taxes for the years ended December 31, 1997, 1996 and 1995 would have
increased (decreased) by approximately ($7.0 million), ($5.3 million) and $11.2
million, respectively.
The principal purpose of the Company's hedging program (which is for other
than trading purposes) is to mitigate the impact of fluctuations against the
U.S. dollar, as well as to protect against significant adverse changes in
exchange rates. Accordingly, the gains and losses recognized relating to the
hedging program in any particular period and the impact on revenues had the
Company not had such a program are not necessarily indicative of its
effectiveness.
The Company determines when to enter into hedging transactions based on its
ongoing review of the currency markets. As of January 26, 1998, and after
considering current market conditions, the Company has hedged approximately 35%
of its expected foreign currency denominated revenues for 1998.
RICECO
During August 1997, the Company and Westrade formed Riceco to market
propanil, combination rice herbicides and other rice-related chemicals (other
than fertilizers) on a worldwide basis. Westrade's interest in Riceco is now
held by the Westrade Member, which is 50% owned by DuPont and 50% by the private
investment group which currently owns 50% of Westrade. The Company has
32
35
been advised that DuPont owns the other 50% of Westrade. Westrade produces,
markets and distributes various agricultural chemicals.
The Company and the Westrade Member each have a 50% equity interest in
Riceco and each exercises equal voting rights. Riceco's profits and losses are
currently allocated 60% to the Company and 40% to the Westrade Member, but under
specified conditions would be adjusted to 50% to each. At closing, both members
contributed product registrations, labels, and customer lists to Riceco and
subsequently each member provided an interim working capital loan of $1.25
million to be repaid in 1998 in accordance with covenants contained in a Riceco
loan agreement. Under a long-term supply agreement, the Company will produce all
of the propanil required by Riceco.
The Company believes that the creation of Riceco will serve to: (i) expand
market share through the introduction of propanil combination products; (ii)
increase international market share, most notably in the key rice growing
regions of Asia and Latin America; (iii) establish Riceco as the premier
distribution channel for crop protection products to the global rice industry;
(iv) provide operating efficiencies through the elimination of certain costs;
and (v) provide for better utilization of the Company's manufacturing facilities
as a result of increased production of propanil.
The Company accounts for its investment in Riceco utilizing the equity
method of accounting.
SIGNIFICANT DEVELOPMENTS
Haifa Labor Dispute. During the fourth quarter of 1996 and the first two
quarters of 1997, the Company's operations were adversely impacted by the Haifa
Labor Dispute.
Most employees at the Haifa Facility are members of the "Histadrut," the
Israeli national labor federation, and are represented by collective bargaining
units. Terms of employment of most employees at the Haifa Facility are currently
governed predominantly by a Specific Collective Agreement ("SCA") negotiated by
the Company with the Histadrut, the respective unions representing the employees
and representatives of the employees.
In 1994, an agreement was signed with the unions and the representatives of
the technicians and engineers at the Haifa Facility for the three year period
ended December 31, 1996. In 1995, an SCA was signed with the unions and
representatives of the other employees for the two year period ended December
31, 1996. In September 1996, the Company announced the cancellation of such
agreements effective upon their expiration dates and its intention to negotiate
a new SCA with basic changes aimed at reducing labor costs and enhancing
operating flexibility for the period following December 31, 1996.
As a result of the announced cancellation of the labor agreements, the
Company suffered several work stoppages and other job actions which adversely
affected productivity at the Haifa Facility during October and November 1996,
including a period of temporary plant shut-down. On December 3, 1996 the plant
was shut down until March 10, 1997 when a new SCA providing for certain wage
freezes and reductions in benefits was signed for the three year period ending
December 31, 1999. Subsequent to March 10, 1997, the Haifa Facility re-opened
and gradually began production. By the end of May 1997 and subsequent thereto,
the Haifa Facility was generally operating at approximately full capacity;
however, there have been several periods of operations at less than full
capacity due to the need for increased maintenance for certain equipment
resulting from the lengthy period of shut-down.
The Company's financial results subsequent to the commencement of the Haifa
Labor Dispute have been adversely affected (particularly in the fourth quarter
of 1996 and the first quarter of 1997) as a result of several factors,
including: (i) the increased cost of production resulting from reduced
manufacturing during the periods which affected the fixed charge component of
cost of sales; (ii) the cost of raw materials destroyed in the production
process during work stoppages and job actions; (iii) lower gross margins due to
inventory shortages which required purchases from third parties at substantially
increased costs compared to the Company's costs; and (iv) increased
33
36
general and administrative expenses arising from higher security and other
costs. These adverse impacts were partially offset by lower labor costs during
the Haifa Labor Dispute. The Haifa Labor Dispute is estimated by the Company to
have adversely impacted EBITDA by approximately $5.3 million and $8.0 million in
the years ended December 31, 1997 and 1996, respectively. These amounts are net
of proceeds received from the Israeli manufacturers association fund under HCL's
claim for damages, applied for partial contribution towards the costs suffered
during the period of the labor disruption. Such reimbursement amounted to $3.1
million and $2.0 million in the years ended December 31, 1997 and 1996,
respectively.
The adverse impact on EBITDA described in the paragraph above does not
reflect the gross margin effect of lost revenues attributable to a lack of
inventory caused by the decrease in production during the Haifa Labor Dispute.
Although it is difficult to precisely quantify lost revenues attributable to the
Haifa Labor Dispute, management of the Company believes that the gross margin
effect of lost revenues attributable to a lack of inventory during the Haifa
Labor Dispute is at least $3.4 million and $1.7 million for the years ended
December 31, 1997 and 1996, respectively, which resulted from estimated foregone
sales of at least $15.5 million and $7.6 million for the years ended December
31, 1997 and 1996, respectively. Management of the Company believes based on the
growth rate in revenues during the nine month period ended September 30, 1996,
that quantities sold during the fourth quarter of 1996 and the first quarter of
1997 would have at least equaled quantities sold in the comparable periods of
the prior year. Accordingly, the above amounts assume that quantities sold
during the fourth quarter of 1996 and the first quarter of 1997 were at least
equal to quantities sold during the fourth quarter of 1995 and the first quarter
of 1996, respectively. Management believes that the effect of lost revenues
attributable to a lack of inventory during the Haifa Labor Dispute is
significantly greater than reflected above.
Management believes that the new SCA will result in substantial cost
savings for the Company compared to the costs it would otherwise have incurred
during the next few years had the Company merely renewed the terms of the prior
SCAs and continued the pattern of increased costs included in recent SCAs.
Further, management believes that the aggregate amount of such cost savings over
the next few years will substantially exceed the incremental costs experienced
during the period of the Haifa Labor Dispute. Such savings commenced during the
second quarter of 1997.
Following the settlement of the Haifa Labor Dispute, the Company achieved
the following objectives: (i) a reduction in absenteeism from about 7% per annum
to about 2% per annum; (ii) greater ability to freely transfer employees between
departments and production units; (iii) increased flexibility regarding the
ability to promote employees and incentivize them based on performance measures
and evaluations developed and implemented by management; (iv) greater ability to
dismiss employees on the basis of poor performance (which has already been
utilized in recent months); (v) on-going and more effective communication
between management and employees; and (vi) increased freedom to use
sub-contractors. In addition, following the settlement of the Haifa Labor
Dispute, the Company significantly restructured its workforce at the Haifa
Facility, with the result being a net 100 person reduction (or 18%) in the
number of its employees at the Haifa Facility, and an approximate 16% reduction
in the average cost per employee. Under the new labor agreement, such reductions
in headcount and in average cost per employee resulted in estimated annual cost
savings of $9 million.
Sale of Potash Operations. On August 16, 1996, the Company sold its potash
producing assets to Mississippi Chemical Corporation ("MCC") for an aggregate
consideration of approximately $56.2 million, including a payment for working
capital of $11.2 million, and the assumption of specified liabilities, excluding
liabilities relating to certain antitrust litigation (see "Business -- Legal
Proceedings"). The sale of the Company's potash operations resulted in a pre-tax
gain of approximately $22.6 million which is included in the caption "Interest
and other income-net" in the Company's Consolidated Statement of Operations for
the year ended December 31, 1996. Approximately 50% of the aggregate sales
proceeds were applied to partially prepay debt secured in part by the assets of
the potash operations. In connection with the sale, the Company entered into a
five-
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37
year potash supply agreement, at prevailing market rates during the period
(subject to certain adjustments), with MCC. During the years ended December 31,
1996 and 1995, the potash operations contributed approximately $35 million (9%)
and $54 million (14%), respectively, to the Company's consolidated revenues,
after eliminating intercompany sales, and approximately $0.6 million and $4.7
million for such respective years to the Company's consolidated EBITDA and
Adjusted EBITDA.
1994 Haifa Fire. On February 7, 1994, the smaller of the Company's two
potassium nitrate production units at its Haifa Facility was damaged by a fire,
causing a temporary reduction of the Company's potassium nitrate production
capacity. The impact of the loss of the production unit, including the effect of
business interruption, was substantially covered by insurance. The insurance
proceeds for the property damage to assets caused by the fire was in amounts
approximating the replacement value of such assets. The replacement value of
such assets substantially exceeded the recorded carrying value of the damaged
assets. As a result, the Company recorded a pre-tax gain of $1.7 million, which
was included in the caption "Interest and other income-net" in the Company's
Consolidated Statements of Operations included elsewhere herein for the year
ended December 31, 1995, which amount was the residual adjustment over and above
the initial gain recorded in 1994. The Company completed the replacement of the
damaged production unit during 1995.
Laser Investment. On November 9, 1997, Laser Industries Limited ("Laser"),
a publicly traded manufacturer of lasers for medical use in which the Company
had an ownership interest accounted for by the equity method, and ESC Medical
Systems Ltd. ("ESC"), signed a definitive agreement (the "Agreement") to combine
the two companies through an exchange of shares. The transaction closed on
February 23, 1998. The Company's ability to sell the ESC shares it will receive
pursuant to the combination will be governed by securities law volume
restrictions.
As of December 31, 1997, the Company carried its investment in the Laser
shares at approximately $9.1 million, which amount is included in the caption
"other assets" in the Consolidated Balance Sheet included elsewhere herein.
Based on the quoted market value of the ESC shares ($35.00 per share) as of
February 20, 1998, the last day of trading before the combination, the Company
will recognize an after-tax gain of approximately $22.4 million which will be
recorded during the first quarter of 1998.
In addition to the ownership of the Laser shares described above, the
Company also owned a warrant (the "Laser Warrant") which enabled the Company to
purchase additional Laser shares. The Laser Warrant, which had a carrying value
of $0.75 million, was distributed to TPR as a dividend in February 1998. The
Company will have the right to transfer the ESC shares it will receive pursuant
to the combination to Unrestricted Subsidiaries (as hereinafter defined).
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38
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items
appearing in the Consolidated Financial Statements.
PERCENTAGE OF REVENUES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----- ----- -----
Revenues:
Specialty Plant Nutrients................................. 49.1% 52.5% 58.6%
Industrial Chemicals...................................... 25.4 28.4 28.9
Organic Chemicals......................................... 11.6 10.6 12.5
Potash.................................................... 13.9 8.5 --
----- ----- -----
Total revenues............................................ 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold........................................ 83.8 83.4 81.2
General and administrative................................ 11.2 11.3 11.3
----- ----- -----
Operating income............................................ 5.0 5.3 7.5
Interest expense............................................ (8.9) (7.8) (7.8)
Interest and other income -- net............................ 2.3 6.2 1.5
----- ----- -----
Income (loss) before income taxes and
extraordinary item........................................ (1.6) 3.7 1.2
Income tax provision........................................ 0.2 1.0 0.8
----- ----- -----
Income (loss) before extraordinary item..................... (1.8) 2.7 0.4
Extraordinary item -- net................................... -- (0.1) --
----- ----- -----
Net income (loss)........................................... (1.8)% 2.6% 0.4%
===== ===== =====
1997 Compared with 1996
Revenues decreased by 8.7% to $376.5 million in 1997 from $412.3 million in
1996, a decrease of $35.8 million. The decrease resulted from a $35.3 million
reduction in sales associated with the Company's sale of its potash operations
and a $3.9 million decrease in sales of Specialty Plant Nutrients and Industrial
Chemicals primarily as a result of the Haifa Labor Dispute and less favorable
currency exchange rates in 1997. These decreases in sales were partially offset
by higher sales of Organic Chemicals of $3.4 million. See "Significant
Developments -- Haifa Labor Dispute" and "Significant Developments -- Sale of
Potash Operations."
Cost of goods sold as a percentage of revenues decreased to 81.2% in 1997
compared with 83.4% in 1996. Gross profit was $70.9 million in 1997, or 18.8% of
revenues, compared with $68.4 million in 1996, or 16.6% of revenues. The primary
factors resulting in the increased gross profit were related to higher Organic
Chemicals margins in the 1997 period, lower raw material and energy costs and
increased selling prices for the Company's Specialty Plant Nutrients and
Industrial Chemicals, with such increases partially offset by less favorable
currency exchange rates in the 1997 period of $15.0 million.
Both 1997 and 1996 were adversely affected by the Haifa Labor Dispute. The
adverse effect of the Haifa Labor Dispute related to: (i) a reduction in sales
volume; (ii) the increased cost of production resulting from reduced
manufacturing during the period which affected the fixed charge component of
cost of sales; and (iii) lower gross margins due to inventory shortages which
required purchases from third parties at substantially increased costs compared
to the Company's costs. These adverse impacts were partially offset by lower
labor costs during the Haifa Labor Dispute and the net proceeds received from
the Israeli manufacturers association under HCL's claim for damages, amounting
to $3.1 million and $2.0 million in the years ended December 31, 1997
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and 1996, respectively, applied for partial contribution towards the costs
suffered during the period of the labor disruption.
General and administrative expense decreased by $3.8 million to $42.6
million in 1997, from $46.4 million in 1996, but remained the same as a
percentage of revenues at 11.3%. Most of the decreased expense related to the
Company's potash operations, which were sold in 1996. In addition, during the
1997 period, certain HCL general and administrative expenses declined as a
result of lower wages.
As a result of the matters described above, the Company's operating income
increased by $6.3 million to $28.3 million in 1997 as compared with $22.0
million in 1996. As a percentage of revenues operating income increased to 7.5%
in 1997 from 5.3% in 1996.
Interest expense decreased by $2.7 million to $29.5 million in 1997
compared with $32.2 million in 1996 primarily as a result of: (i) the maturity
of the Company's Senior Subordinated Reset Notes in September 1996 and (ii) the
prepayment of senior bank debt with a portion of the proceeds from the sale of
the Company's potash operations. Interest and other income -- net decreased in
1997 by $19.9 million, principally as the result of the gain on the sale of the
Company's potash operations of $22.6 million in the 1996 period, partially
offset by increased realized gains on sales of marketable securities in the 1997
period.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $10.8 million in 1997. The Company's provisions
for income taxes are impacted by the mix between domestic and foreign earnings
and vary from the U.S. Federal statutory rate principally due to the impact of
foreign operations and certain losses for which there is no current tax benefit.
In the 1996 period the Company acquired $19.1 million principal amount of
its Senior Subordinated Reset Notes, which resulted in a loss of $0.6 million.
Such loss (which has no current tax benefit) is classified as an extraordinary
item in the accompanying Consolidated Statements of Operations. No such debt was
acquired in the 1997 period.
1996 Compared with 1995
Revenues increased by 6.9% to $412.3 million in 1996 from $385.6 million in
1995, an increase of $26.7 million. This increase resulted from increased sales
of Specialty Plant Nutrients and Industrial Chemicals of $45.9 million,
partially offset by a decrease in potash sales of $18.4 million related to the
Company's sale of its potash operations and a decrease in sales of Organic
Chemicals of $0.8 million. Effective August 16, 1996, the Company sold its
potash operations. See Note A of Notes to Consolidated Financial Statements.
Cost of goods sold as a percentage of revenues decreased to 83.4% in 1996
compared with 83.8% in 1995. Gross profit was $68.4 million in 1996, or 16.6% of
revenues, compared with $62.4 million in 1995, or 16.2% of revenues, an increase
of $5.9 million. The primary factors resulting in the increased 1996 gross
profit were: (i) more favorable currency rates; (ii) higher quantities of
potassium nitrate sold; (iii) the inclusion of the results of Na-Churs for the
full year in 1996 as compared with only nine months in 1995; and (iv) lower
ammonia prices in 1996. These increases were partially offset by lower potash
and Organic Chemicals margins in 1996 and the adverse effect of the Haifa Labor
Dispute commencing in October, 1996.
As a result of the Haifa Labor Dispute, the fourth quarter of 1996 was
significantly impacted by: (i) a reduction in sales volume; (ii) increased cost
of production resulting from reduced manufacturing which affected the fixed
charge component of cost of sales; (iii) the cost of raw materials destroyed in
the production process during work stoppages and job actions; (iv) lower gross
margins due to inventory shortages requiring purchases from third parties at
substantially increased costs compared to the Company's cost of production; and
(v) increased general and administrative expenses arising from higher security
and other costs. This adverse impact was partially offset by lower labor costs
during the Haifa Labor Dispute and the net proceeds received from the Israeli
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manufacturers association under HCL's claim for damages, applied for partial
contribution towards the costs suffered during the period of labor disruption.
The negative impact experienced during the fourth quarter of 1996, as described
above, continued into the first quarter of 1997.
General and administrative expense increased to $46.4 million in 1996, or
11.3% of revenues, from $43.2 million in 1995, or 11.2% of revenues, primarily
as a result of: (i) the inclusion of the results of Na-Churs for the full year
in 1996 and (ii) the inclusion in 1995 of a $0.8 million reimbursement of
certain general and administrative expenses incurred in prior years on behalf of
an entity in which the Company has an investment.
As a result of the matters described above, the Company's operating income
increased by $2.7 million to $22.0 million in 1996 as compared with $19.2
million in 1995.
Interest expense decreased by $2.3 million to $32.2 million in 1996
compared with $34.5 million in 1995, primarily as a result of reduced interest
expense resulting from the repurchase and maturity of the Company's outstanding
Senior Subordinated Reset Notes, partially offset by increased interest on the
long-term debt that financed the construction of the Company's facility in
Mishor Rotem, Israel. Interest and other income -- net increased in 1996 by
$16.3 million principally as the result of: (i) the 1996 period including a
$22.6 million gain relating to the sale of the Company's potash operations and
an increase in equity in the earnings of Laser of $2.6 million partially offset
by (ii) the net change in adjustments relating to the marking-to-market of
forward exchange contracts which do not qualify as hedges of $7.0 million and
(iii) the inclusion in 1995 of a $1.7 million gain relating to the February 1994
fire at HCL. See Note K of Notes to Consolidated Financial Statements.
As a result of the above factors, income before income taxes and
extraordinary item increased by $21.3 million in 1996 to $15.2 million as
compared to a loss of $6.1 million in 1995. The Company's provisions for income
taxes are impacted by the mix between domestic and foreign earnings and vary
from the U.S. Federal statutory rate principally due to the impact of foreign
operations and certain losses for which there is no current tax benefit. In
addition, during 1995 HCL recorded a tax benefit for a $1.1 million tax refund
related to prior years. See Note J of Notes to Consolidated Financial Statements
for information regarding effective tax rates.
In 1995 and 1996 the Company acquired $3.3 million and $19.1 million,
respectively, of principal amount of its Senior Subordinated Reset Notes, which
resulted in losses of $0.1 million and $0.6 million, respectively. Such losses
(which have no current tax benefit) are classified as extraordinary items in the
accompanying Consolidated Statements of Operations. See Note G of Notes to
Consolidated Financial Statements.
HISTORICAL CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at December 31, 1997 and
December 31, 1996 was $73.6 million and $87.0 million, respectively.
Operations for the years ended December 31, 1997, 1996 and 1995, after
adding back non-cash items, provided cash of approximately $22.8 million, $11.1
million, and $16.1 million, respectively. During such years, other changes in
working capital used cash of approximately $13.1 million, $7.7 million and $14.3
million, respectively, resulting in cash being provided by operating activities
and working capital management of approximately $9.7 million, $3.4 million and
$1.8 million, respectively.
Investment activities for the years ended December 31, 1997, 1996 and 1995
provided (used) cash of approximately ($33.5 million), $35.3 million and $84.8
million, respectively. These amounts include: (i) additions to property in 1997,
1996 and 1995 of $26.9 million, $13.6 million and $35.7 million, respectively;
(ii) purchases of marketable securities and other short-term investments in
1997, 1996 and 1995 of $7.7 million, $9.4 million and $4.4 million,
respectively; (iii) sales of marketable securities and other short-term
investments in 1997, 1996 and 1995 of $8.0 million,
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$2.0 million, and $132.3 million, respectively, including a 1995 liquidation of
certificates of deposit securing a bank loan, and (iv) other items providing
(using) cash in 1997, 1996 and 1995 of ($6.9 million), $56.4 million and ($7.4
million), respectively, including, in 1996, the gross proceeds relating to the
Company's sale of its potash operations. The property additions in 1995 include
the completion of two major capital projects: (i) replacement of the Company's
potassium nitrate production facility in Haifa, Israel damaged in a fire in
1994; and (ii) construction of the Company's new operating facility in Mishor
Rotem, Israel.
Financing activities for the years ended December 31, 1997, 1996 and 1995
provided (used) cash of approximately $14.4 million, ($42.5 million) and ($69.3
million), respectively. These amounts include: (i) a $100.0 million loan
borrowed from a bank in 1994 and prepaid in 1995; (ii) borrowings to finance the
Company's construction of its Mishor Rotem facility in 1995; (iii) the Company's
acquisition of its Senior Subordinated Reset Notes in 1995 and 1996; and (iv)
the prepayment of certain bank debt in 1996 with a portion of the proceeds from
the sale of the Company's potash operations.
As of December 31, 1997, the Company had outstanding long-term debt
(excluding current maturities) of $269.0 million. The Company's primary source
of liquidity is cash flow generated from operations, its unused credit lines and
its existing cash and marketable securities.
FORWARD-LOOKING LIQUIDITY AND CAPITAL RESOURCES
On March 16, 1998, the Company completed the Initial Offering and the
Refinancing. Interest payments on the Senior Notes and interest and principal
repayments under other indebtedness will represent significant obligations of
the Company and its subsidiaries. For a description of the amortization required
on the Company's other indebtedness see Note G of Notes to Consolidated
Financial Statements and "Description of Certain Indebtedness." In 1997, the
Company spent approximately $26.9 million on capital projects, of which: (i)
approximately $10.8 million relates to the Company's initial capital
expenditures pursuant to its plan to increase capacity for potassium nitrate,
food grade phosphates and the construction of a plant to manufacture MAP and
MKP; and (ii) $3.8 million relates to the Company's construction of a
co-generation facility. In addition, the Company plans to complete its plan to
increase capacity for potassium nitrate and food grade phosphates and the
construction of the MAP and MKP plant by spending approximately $63 million
during 1998 and 1999. Ongoing maintenance capital expenditures are expected to
be approximately $13 million per year.
The Company's primary sources of liquidity will be cash flows from
operations and borrowings under the credit facilities of the Company and its
subsidiaries. As of December 31, 1997, the Company and its subsidiaries had
approximately $72 million of borrowing availability, consisting of $37 million
of borrowing availability of the Company and $35 million of total availability
at the Company's subsidiaries. HCL intends to enter into a new $80 million
credit facility which will be used primarily to finance its planned capacity
expansion at its Mishor Rotem facility. See "Description of Certain
Indebtedness." Dividends and other distributions from the Company's subsidiaries
are, in part, a source of cash flow available to the Company. See "Risk
Factors -- Holding Company Structure." The Company believes that, based on
current and anticipated financial performance, cash flow from operations,
borrowings under the Company's credit facilities and dividends and other
distributions available from the Company's subsidiaries will be adequate to meet
anticipated requirements for capital expenditures, working capital and scheduled
interest payments (including interest payments on the Senior Notes). However,
the Company's capital requirements may change, particularly if the Company would
complete any material acquisitions. The ability of the Company to satisfy its
capital requirements and to repay or refinance the Senior Notes and the Senior
Discount Notes will be dependent upon the future financial performance of the
Company, which in turn will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control. See "Risk Factors -- Substantial Leverage and Debt Service
Obligations."
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INFLATION
Inasmuch as only approximately $59.0 million of HCL's 1997 operating costs
are denominated in NIS, HCL is exposed to inflation in Israel to a limited
extent. The combination of price increases coupled with devaluation of the NIS
have in the past generally enabled HCL to avoid a material adverse impact from
inflation in Israel. However, HCL's earnings increase or decrease to the extent
that the rate of future NIS devaluation differs from the rate of Israeli
inflation. For the years ended December 31, 1997, 1996 and 1995, the inflation
rate of the NIS as compared to the U.S. Dollar was greater (less) than the
devaluation rate in Israel by (1.8%), 6.9% and 4.2%, respectively.
ENVIRONMENTAL MATTERS
See "Business -- Environmental Matters" and Note O of "Notes to
Consolidated Financial Statements" for information regarding environmental
matters relating to the Company's various facilities.
OTHER MATTERS
The Company is evaluating the potential impact of the situation commonly
referred to as the "Year 2000 problem". The Year 2000 problem, which is common
to most corporations, concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information related to the year 2000. Preliminary assessment indicates that
solutions will involve a mix of purchasing new systems and modifying existing
systems and confirming vendor compliance. The Company is currently evaluating
the expected costs to be incurred in connection with the Year 2000 problem, but
expects that such costs will not be significant.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), and SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 131 establishes standards
for reporting financial and descriptive information for reportable segments on
the same basis that is used internally for evaluating segment performance and
the allocation of resources to segments. The Company is evaluating the effect,
if any, of SFAS 131, on its operating segment reporting disclosure. SFAS 130
establishes standards for presenting certain items that are excluded from net
income and reported as components of stockholders' equity, such as foreign
currency translation. These statements are effective for fiscal years beginning
after December 15, 1997. The adoption of these statements will not have a
material effect on the Company's results of operations or financial position.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENTS;
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued and sold by the Company to the Initial Purchasers
on March 16, 1998 (the "Issue Date"). The Initial Purchasers subsequently sold
the Old Notes to qualified institutional buyers ("QIBs") in reliance on Rule 144
under the Securities Act and in offshore transactions to persons other than
"U.S. persons," as defined in Regulation S under the Securities Act ("Non-U.S.
Persons") in reliance on Regulation S. Following the Initial Offering, the Old
Notes were eligible for resale to QIBs pursuant to Rule 144A, to Non-U.S.
Persons in reliance on Regulation S and pursuant to other exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act, including sales to a limited number of institutional "accredited investors"
as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. Because
the Old Notes are subject to certain transfer restrictions, as an inducement to
the Initial Purchasers to purchase the Old Notes, the Company entered into the
Exchange and Registration Rights Agreements, pursuant to which the Company
agreed to: (i) file with the Commission on or
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prior to 60 days after the Issue Date, the Registration Statement of which this
Prospectus is a part (the "Exchange Offer Registration Statement"); (ii) use its
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act within 150 days after the Issue Date; (iii)
as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement, offer to the holders of Transfer Restricted Securities
(as defined below) who are not prohibited by any law or policy of the Commission
from participating in the Exchange Offer the opportunity to exchange their
Transfer Restricted Securities for the New Senior Notes or the New Senior
Discount Notes, as the case may be; (iv) keep the Exchange Offer open for not
less than 20 business days (or longer, if required by applicable law); and (v)
use its reasonable best efforts to cause the Exchange Offer to be consummated no
later than 180 days after the Issue Date.
Pursuant to the Exchange and Registration Rights Agreements the Company
also agreed that if (i) because of any change in law or applicable
interpretations thereof by the staff of the Commission, the Company is not
permitted to effect the Exchange Offer, (ii) any Old Notes validly tendered
pursuant to the Exchange Offer are not exchanged for the applicable New Notes
within 180 days after the Issue Date, (iii) any Initial Purchaser so requests
with respect to any Old Notes not eligible to be exchanged for the applicable
New Notes in the Exchange Offer, (iv) any applicable law or interpretations do
not permit any holder of Old Notes to participate in the applicable Exchange
Offer, (v) any holder of Old Notes that participates in an Exchange Offer does
not receive freely transferable New Notes in exchange for tendered Old Notes
(other than due solely to the status of a holder (other than an Initial
Purchaser) as an affiliate of the Company within the meaning of the Securities
Act, and other than any state or foreign securities law restrictions which,
individually or in the aggregate, do not materially adversely affect the ability
of any such holder to resell the securities held by such holder), or (vi) the
Company so elects, then the Company will file with the Commission a Shelf
Registration Statement to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement; provided, that,
upon the receipt of a notice from the Company to the effect that, in the
reasonable judgment of the Company, use of the Shelf Registration Statement
would materially interfere with a valid business purpose of the Company, the
holders of the Notes shall cease distribution of the Notes under such Shelf
Registration Statement for a period of time not to exceed 60 days in any one
year. For purposes of the foregoing, "Transfer Restricted Securities" means each
Old Note until: (i) the date on which such Note has been exchanged for a freely
transferable New Note in the Exchange Offer; (ii) the date on which such Old
Note has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement; or (iii) the date on which
such Old Note is distributed to the public pursuant to Rule 144 under the
Securities Act or is salable pursuant to Rule 144(k) under the Securities Act.
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date or, in the event that a
Shelf Registration Statement is required, on or prior to the later of (A) 60
days after the Issue Date or (B) 30 days after the obligation to file a Shelf
Registration Statement arises, (ii) the Exchange Offer Registration Statement is
not declared effective within 150 days after the Issue Date or, in the event
that a Shelf Registration Statement is required, such Shelf Registration
Statement is not declared effective on or prior to the later of (A) 150 days
after the Issue Date or (B) 120 days after the obligation to file such Shelf
Registration Statement arises, (iii) the Exchange Offer is not consummated on or
prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement
is filed and declared effective prior to the later of (A) 150 days after the
Issue Date or (B) 120 days after the obligation to file a Shelf Registration
Statement arises, but shall thereafter cease to be effective within two years
after the Issue Date without being succeeded within 15 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to
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$0.192 per week per $1,000 principal amount of the Old Senior Notes constituting
Transfer Restricted Securities and $0.192 per week per $1,000 principal amount
at maturity of Old Senior Discount Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective or again becomes effective, as the case may be. All accrued liquidated
damages shall be paid to holders in the same manner as interest payments on the
Notes on semi-annual payment dates which correspond to interest payment dates
for the Notes for each year (with respect to Senior Discount Notes, whether or
not cash interest is then payable). Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." The Exchange and Registration Rights
Agreements provides that the Company 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 New Notes.
Holders of the Notes will be required to make certain representations to
the Company (as described under the heading "The Exchange Offer -- Procedures
for Tendering" below) in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange and Registration Rights Agreements which
are applicable to such a holder (including certain indemnification obligations).
For so long as Transfer Restricted Securities are outstanding, the Company
will continue to provide to holders of the Transfer Restricted Securities and to
prospective purchasers of the Transfer Restricted Securities the information
required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Exchange and Registration Rights
Agreements is a summary only, does not purport to be complete and is qualified
in its entirety by reference to all provisions of the Exchange and Registration
Rights Agreements. The Company will provide a copy of the applicable Exchange
and Registration Rights Agreement to purchasers of Notes identified to the
Company by an Initial Purchaser upon request.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying related Letters of Transmittal, the Company will accept
any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Senior Notes in exchange for each $1,000 principal amount of
outstanding Old Senior Notes accepted in the Exchange Offer and will issue
$1,000 principal amount at maturity of New Senior Discount Notes in exchange for
each $1,000 principal amount at maturity of outstanding Old Senior Discount
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral principal amount multiples of $1,000.
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The form and terms of the New Senior Notes and New Senior Discount Notes
are the same as the form and terms of the Old Senior Notes and the Old Senior
Discount Notes, respectively, except that (i) the New Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the New Notes
have been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the New Notes will not
be entitled to certain rights under the Exchange and Registration Rights
Agreements, including the provisions providing for liquidated damages in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is consummated. The New Senior Notes and
New Senior Discount Notes will evidence the same debt as the Old Senior Notes
and the Old Senior Discount Notes, respectively, and will be entitled to the
benefits of the applicable Indenture.
As of the date of this Prospectus, $100 million aggregate principal amount
of Old Senior Notes were outstanding and $135 million aggregate principal amount
at maturity of Old Senior Discount Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indentures in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letters
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will either mail to the
registered holders an announcement thereof or issue a press release with respect
thereto, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
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INTEREST ON THE NEW NOTES
Interest on the Senior Notes (including the New Senior Notes) will accrue
at the rate of 10 3/4% per annum and will be payable semi-annually in arrears on
each March 15 and September 15, commencing on September 15, 1998.
The Senior Discount Notes (including the New Senior Discount Notes) were
issued at a substantial discount from their principal amount. Commencing March
15, 2003, cash interest on the Senior Discount Notes will accrue at the rate of
12% per annum and will be payable in cash semi-annually on each March 15 and
September 15, commencing on September 15, 2003. Prior to September 15, 2003,
there will be no periodic payments of interest on the Senior Discount Notes.
Accordingly, no interest will have accrued on the Old Senior Discount Notes on
the date of the exchange for the New Senior Discount Notes.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, one or
more properly completed and duly executed Letters of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of such Letter of Transmittal, and any
other required documents must be received by the Exchange Agent at the address
set forth under "Exchange Agent" prior to 5:00 p.m., New York time, on the
Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the
Expiration Date, either (a) certificates for tendered Old Notes must be received
by the Exchange Agent at such address or (b) such Old Notes must be transferred
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such tender received by the Exchange Agent, including an Agent's
Message if the tendering holder has not delivered a Letter or Transmittal). The
term "Agent's Message" means a message, transmitted by the book-entry transfer
facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), to
and received by the Exchange Agent and forming a party of a book-entry
confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the tendering participant that such participant has
received and agrees to be bound by the applicable Letter of Transmittal and that
the Company may enforce such Letter of Transmittal against such participant.
As contemplated by no-action letters of the staff of the Commission and by
the Exchange and Registration Rights Agreements, each holder accepting the
Exchange Offer is required to represent to the Company in the Letter of
Transmittal that: (i) the New Notes are to be acquired by the holder or the
person receiving such New Notes, whether or not such person is the holder, in
the ordinary course of business; (ii) the holder or any such other person is not
engaging and does not intend to engage in the distribution of the New Notes;
(iii) the holder or any such other person has no arrangement or understanding
with any person to participate in the distribution of the New Notes; (iv)
neither the holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act; and (v) the holder or
any such other person acknowledges that if such holder or other person is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes to the extent applicable. Each Exchanging Dealer that receives a New Note
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes.
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Exchange and Registration Rights Agreements and subject
to certain specified limitations therein, to register or qualify the New Notes
included in a Registration
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Statement for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of Notes reasonably requests in writing.
By executing the applicable Letter(s) of Transmittal (or transmitting an
Agent's Message in lieu thereof), each holder will make to the Company the
foregoing representations.
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the applicable
Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER(S) OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with each Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" in the Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a member
of the NASD or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being an "Eligible
Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Old Notes with the signature
thereon guaranteed by a Medallion Signature Guarantor.
If a Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with such Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu
thereof) and all other required documents must in each case be transmitted to
and received or
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confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letters of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the applicable Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the applicable
Letter of Transmittal (or, in the case of book-entry transfer, an Agent's
Message) or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer (including delivery of an
Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the applicable Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by such Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by such Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date. Upon request to the Exchange Agent,
a Notice of Guaranteed Delivery will be sent to holders who wish to tender
their Old Notes according to the guaranteed delivery procedures set forth
above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must: (i) specify
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited); (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the applicable Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender; and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any injunction, order or decree is issued by, or 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 the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company
or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
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In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the applicable Indenture under the Trust Indenture Act of 1939,
as amended.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letters of Transmittal and
requests for the Notice of Guaranteed Delivery should be directed to the
Exchange Agent addressed as follows:
STATE STREET BANK AND TRUST COMPANY
By Mail or Hand: By Facsimile for Eligible
State Street Bank and Trust Company Institutions:
Corporate Trust Department (212) 612-3202
61 Broadway, 15th Floor For Information Telephone:
New York, NY 10006 (212) 612-3447
Attention: Angelita L. Pena
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying values as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. Certain expenses of the Exchange Offer will be
expensed over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities subject to the restrictions on transfer
thereof set forth in the legend thereon. Accordingly, until the date which is
two years after the later of the date of original issue of the Notes and the
last date that the Company or any affiliate of the Company was the owner of such
Notes (or any predecessor thereto) (the "Resale Restriction Termination Date")
such Old Notes may be resold only: (i) to the Company; (ii) pursuant to a
registration statement that has been declared effective under the Securities
Act; (iii) for so long as the Old Notes are eligible for resale
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pursuant to Rule 144A, to a person it reasonably believes is a QIB that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A; (iv) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act; (v) to an "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
an institutional investor (an "Institutional Accredited Investor") purchasing
for its own account or for the account of such an Institutional Accredited
Investor, in each case in a minimum principal amount of the Old Notes of
$250,000; or (vi) pursuant to any other available exemption from the
registration requirements of the Securities Act. The foregoing restrictions on
resale will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Old Notes is proposed to be made pursuant to
clause (v) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the form
of Annex A hereto to the Company and the applicable Trustee, which shall
provide, among other things, that the transferee is an Institutional Accredited
Investor that is acquiring such Old Notes not for distribution in violation of
the Securities Act. The Company and each Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Old Notes pursuant to clauses (iv), (v) or (vi) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and such Trustee. The Company does not currently
anticipate that it will register the Old Notes under the Securities Act for
resale; but under certain circumstances it would be required to do so. See
"Exchange and Registration Rights Agreements; Purpose of the Exchange Offer"
above.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), in
exchange for Old Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, will be allowed to resell the New Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires New Notes in the Exchange
Offer for the purpose of distributing or participating in a distribution of the
New Notes, such holder cannot rely on the position of the staff of the
Commission enunciated in such no-action letters or any similar interpretive
letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Further, each
Exchanging Dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes.
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INDUSTRY
SPECIALTY PLANT NUTRIENTS
Specialty plant nutrients consist primarily of potassium nitrate and other
products which are marketed worldwide to professional growers of fruits,
vegetables, flowers and tobacco. The potassium nitrate market represents a 1.1
million tons per annum specialty niche segment within an estimated 176.4 million
tons per annum total world fertilizer market. Specialty plant nutrients contain
up to three of the primary plant nutrients: nitrogen, phosphorus and potassium.
Potassium nitrate is the Company's flagship specialty plant nutrient and is
chlorine free, water soluble and residue free, allowing it to be used in
fertigation, the application of nutrients through irrigation. Potassium nitrate
is generally applied directly to the plant rootzone, and is used almost
exclusively in the cultivation of high-value crops, such as fruits, vegetables,
flowers and tobacco. This application profile contrasts with commodity
fertilizers, which are generally applied in large quantities, over wide areas
for mass row-grown crops. Potassium nitrate prices have historically averaged
approximately three times those of commodity potassic fertilizers which
typically contain only one of the three primary nutrients, as well as
potentially harmful chlorine and other chemical residues. According to industry
consultants, approximately 67% of worldwide specialty plant nutrient consumption
is concentrated in Europe and North America, areas characterized by high
disposable incomes and year-round consumer demand for fresh fruits and
vegetables. Used by professional growers for its specialized characteristics,
potassium nitrate has, historically, enjoyed a premium price over possible
substitutes and has not been subject to the same price volatility that generally
characterizes commodity fertilizers. Approximately 80-90% of potassium nitrate
is sold to the specialty plant nutrient market, with the remainder sold as
technical grade product to industrial markets.
Potassium nitrate is produced using either synthetic or Chilean processes,
or to a lesser extent as a by-product of other chemical processes. The synthetic
processes involve the reaction of nitric acid, produced from ammonia, with
potash. In the Chilean process, sodium nitrate is leached from mined caliche
ores, which are currently known to exist only in Chile. Sodium nitrate is mixed
with potash to produce potassium nitrate and sodium chloride ("salt")
by-products. Chilean caliche ores contain low concentrations of sodium nitrate
and require mining over broad areas of land. In addition, Chilean process
producers must ship potassium nitrate over long distances to reach primary end
markets in the U.S. and Western Europe. Consequently, the Company believes
Chilean manufacturers generally face higher costs relative to synthetic
producers on a delivered basis. Other suppliers are economically dependent on
the availability of potassium nitrate as a by-product of other chemical
processes.
The Company believes that significant barriers to entry exist in the
production of potassium nitrate. Utilization of the Chilean process is
restricted by access to caliche ores in Chile, while synthetic production
requires significant experience with various complex chemical processes and a
substantial manufacturing and distribution infrastructure. The Company believes
that it is the only large scale commercial producer of potassium nitrate to
utilize primary synthetic production processes. According to the Company,
additional barriers to entry include customer requirements for extensive
distribution networks, skilled technical sales support with knowledge of
specific plant nutrient needs in the respective local geographic area, and
customer reluctance to switch suppliers due to reliability and quality concerns.
According to industry consultants, the Company and Sociedad Quimica y
Minera de Chile, S.A. ("SQM"), a publicly traded Chilean manufacturer of
potassium nitrate and other chemicals, together represent approximately 90% of
current world capacity of potassium nitrate, which is estimated to be
approximately 1.1 million tons per annum. Industry consultants forecast
additional potassium nitrate capacity of up to approximately 0.6 million tons by
2002. Approximately 275,000 tons of this increase is attributable to a new
prospective Chilean entrant, Minera Yolanda S.A. ("Yolanda"), a subsidiary of
KAP Resources Limited, a publicly traded British Columbia company.
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According to industry consultants, the remaining portion of announced capacity
represents the Company's planned expansions of 140,000 tons to be completed by
1999, up to a 33,000 ton capacity expansion by SQM beginning in 1998 and a new
110,000 ton facility by Arab Potash Company ("APC"), for which construction has
not begun. As a result of the announced new capacity, industry sources believe
that global capacity utilization rates may decline from current levels. However,
Yolanda has publicly announced several construction and manufacturing delays,
and the Company believes that this project may be further delayed. In addition,
the Company believes that the APC project may also be delayed. The Company also
believes that its sales volumes will not be substantially affected by new
capacity, due both to the expected delays and continued growth in forecast
global demand.
Demand for specialty plant nutrients is driven primarily by growth in
high-value crop production, which is influenced by growth in higher income
population segments that demand high-value crops year round. According to the
United Nations, the segment of the world population earning over $15,000
annually is expected to grow to 1.3 billion by 1999, an increase of
approximately 30% compared to 1994. Specialty plant nutrient demand is also
influenced by the increased use of irrigation and more specifically, drip
irrigation systems. The Food and Agriculture Organization of the United Nations
("FAO") reports that world irrigated acreage increased by 5.8% from 1991 to
1995, while the most recent United States census data indicates that the U.S.
area covered by drip irrigation increased 102% from 1988 to 1994. Industry
consultants estimate that global demand for agricultural grade potassium nitrate
will grow at a compound annual growth rate of approximately 6% per annum through
2002.
INDUSTRIAL CHEMICALS
The Company's industrial products include a variety of specialty chemicals
which are used in the production of specialty glass, animal feeds, food
additives, fire retardants and certain other uses.
Specialty Glass Chemicals. Specialty glass chemicals are used as additives
in the manufacture of glass with specialized characteristics and high grade
specifications. Specialty glass chemicals produced by the Company, which include
technical grade potassium nitrate and potassium carbonate, are primarily used as
additives in the production of cathode ray tubes ("CRTs"). CRTs are high
specification glass tubes which serve as the primary components in traditional
television and computer monitors. Demand is largely driven by computer and video
monitor growth trends, related to increases in monitor size and continued growth
in demand for personal computers. Industry consultants expect U.S. CRT related
demand for specialty glass chemicals to grow by approximately 5% per annum
through 2000. In addition, according to the Company, two new CRT glass
manufacturing plants are scheduled to commence operations over the next few
years in North and Central America, which the Company believes should
significantly enhance U.S. demand for technical grade potassium nitrate and
potassium carbonate.
Technical grade potassium nitrate is used in CRTs, the manufacture of
explosives, heat transfer applications, ceramics and food additives. Technical
grade potassium nitrate is formed by recrystallizing agricultural grade
potassium nitrate and, according to industry consultants, has historically
represented approximately 18% of total global potassium nitrate consumption.
Technical grade potassium nitrate manufacturers generally include the same
companies that produce agricultural grade potassium nitrate. Prices of technical
grade potassium nitrate generally have maintained a historic average price
premium over agricultural grade prices, due to higher technical specifications.
The Company also sells potassium nitrate that meets U.S. Pharmaceutical ("USP")
grade specifications for use in toothpaste and other products.
According to industry consultants, CRT glass manufacturing represented
approximately 60-65% of U.S. potassium carbonate consumption in 1996, with other
specialty glass applications representing an additional 5% of consumption.
Potassium carbonate is also used as a chemical
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intermediate in the production of potassium bicarbonate, potassium silicate and
synthetic rubbers. Potassium carbonate is produced by combining either potash or
potassium hydroxide with carbon dioxide in a solution. According to industry
consultants, Armand Products Company is the leading U.S. producer with a 62%
share of U.S. capacity, while the remaining 38% of capacity is divided evenly
between the Company, ASHTA Chemicals Inc. and Vulcan Materials Company. Industry
consultants estimate that U.S. potassium carbonate production grew from
approximately 71,000 tons per annum in 1992 to approximately 90,000 tons per
annum in 1996, representing a compound annual growth rate of 6.1%, principally
driven by increases in demand for computer and video monitors. Pricing has
steadily increased since 1992, except in 1994 and 1996, when capacity expansions
led to lower capacity utilization and slight price declines. Industry
consultants are unaware of any announced capacity expansions and expect the
growth of CRT glass manufacturing, the primary use of potassium carbonate, to be
approximately 5% per annum through 2000.
Industrial Phosphate Chemicals. Industrial phosphate chemicals are used in
a wide variety of applications, including food additives, animal feeds and fire
retardants. They are generally produced in primary production processes and sold
to well developed, specialty markets and include a variety of products with
different chemical structures, properties and physical characteristics, such as
MAP, MKP, sodium acid pyrophosphate ("SAPP"), monosodium phosphate ("MSP") and
disodium phosphate ("DSP").
Industrial uses of MAP include animal feed supplements, fire extinguishers
and flame retardant applications in which demand is generally driven by growth
in the end-use markets served. Industry consultants estimate consumption of
animal feed phosphates to remain at current levels in Western Europe through
2001, while Western European consumption of phosphate flame retardants is
expected to grow between 2.5% and 3.0% per annum through 2000. MSP, DSP, and
SAPP are used in food additives as emulsifiers and preservatives, while MKP is
used as a fermentation ingredient and for enzyme preparation. Worldwide food
additive end-use markets are large and well developed, and are expected to grow
between 2.5% and 4.0% per annum over the next five years, according to industry
sources.
Other Industrial Chemicals. As co-products of specialty plant nutrient
production, the Company also produces other commodity chemical products, such as
sodium tripolyphosphate ("STPP"), chlorine and phosphoric acid. These products
are primarily sold directly to developed merchant markets in which the Company
competes on a limited basis with much larger integrated producers of commodity
and specialty chemicals.
ORGANIC CHEMICALS
Organic chemicals refer to a wide variety of chemicals containing either
hydrogen or carbon. Within this broad category, the Company primarily competes
in the North American generic, or off-patent, agrichemicals market, which
represented approximately 55% by sales value of the total approximately $9
billion North American agrichemical end-user market in 1996. The total worldwide
agrichemicals end-user market in 1996 was approximately $31 billion. Producers
of generic agrichemicals include both original patent holders and post-patent
producers, which industry consultants believe accounted for approximately 74%
and 26%, respectively, of the U.S. generic agrichemicals market in 1996. The
primary barriers to entry in the U.S., the largest global agrichemical market,
include complex manufacturing processes and product registration with the
federal Environmental Protection Agency ("EPA"), which requires marketers of
agrichemicals to pre-register extensive product testing data, which can either
be purchased from the original patent holder or developed directly through
testing. Domestic growth in the generic market segment is primarily driven by
increasing agricultural production and the expiration of patented products.
Industry consultants expect the global and North American agrichemical markets
to grow approximately 0.9% and 2.6% per annum, respectively, through 2002, with
a considerable shift in consumption from the use of patented to generic
products. Generic products are expected to represent approximately 60% of the
North American agrichemicals market by dollar value by 2002.
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Within the generic herbicides segment, the Company, through Riceco,
primarily competes in the market for propanil, a generic post-emergence (after
the weed has germinated) and selective (only targets unwanted weeds and grasses)
herbicide, used in a variety of formulations to control broad-leaved weeds and
grasses in rice production. According to industry consultants, the 1996 global
market for propanil was approximately $106 million, representing approximately
21 million pounds per annum of active ingredient. The main characteristics of
propanil include its selective broad kill spectrum and its low price compared to
newer patented rice herbicides.
According to industry consultants, production of propanil is concentrated,
with the top two of the eleven worldwide producers, the Company and Productos
Fitosanitarios Proficol El Carmen ("Proficol"), accounting for approximately 60%
and 14%, respectively, of total worldwide capacity of approximately 27 million
pounds. Industry consultants expect propanil consumption to decrease
approximately 2% per annum in the 1996-2002 period. However, prices are expected
to increase by at least inflationary rates, and the Company believes additional
price increases may be achieved through introductions of new formulation
technology, such as propanil combination products.
Contract Manufacturing. The Company primarily competes in the market for
outsourced production of agricultural and pharmaceutical chemical intermediates,
which accounts for approximately 80-85% of the $20 billion total contract
manufacturing market, according to industry sources. This market has recently
experienced high growth rates as large pharmaceutical and agrichemical
companies, which have to incur substantial research and development and
marketing costs, continue to seek low cost manufacturing alternatives through
outsourcing their production to contract manufacturers. Industry sources believe
growth rates have approximated 10-15% per annum in recent years. Primary
competitive factors in the contract manufacturing market include a proven track
record, quality, price, chemical process technology and the ability to
economically produce relatively small volumes of chemicals.
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BUSINESS
COMPANY OVERVIEW
The Company, operating through its independently managed and financed
subsidiaries, is a leading global developer, producer and marketer of specialty
plant nutrients and specialty industrial and agricultural chemicals. The Company
is the world's largest producer and distributor of agricultural grade potassium
nitrate, the global agricultural industry's leading specialty plant nutrient.
Potassium nitrate is utilized in specialized agricultural applications for the
growth of high-value crops such as fruits, vegetables, flowers and tobacco. The
Company is also: (i) the largest global and sole U.S. producer of propanil, the
world's leading rice herbicide; (ii) the world's largest producer of technical
grade potassium nitrate, used in a variety of industrial applications; (iii) the
sole supplier to the U.S. Air Force of nitrogen tetroxide, an aerospace fuel
additive; and (iv) the only North American producer of 3,4 dichloroanaline
("DCA"), the principal raw material in the production of propanil. The Company
also produces a variety of other chemical products used in agricultural,
industrial and pharmaceutical markets. In addition, the Company utilizes its
production capacity and manufacturing expertise to provide high-value contract
manufacturing services for major multinational companies such as Zeneca, FMC,
B.F. Goodrich and Rhone-Poulenc, all of which have been long-term customers of
the Company. The Company sells its products through an established global sales,
marketing and distribution network to customers in 95 countries and conducts its
operations through three product groups: Specialty Plant Nutrients, Industrial
Chemicals and Organic Chemicals. For the year ended December 31, 1997, the
Company had revenues of $376.5 million and Adjusted EBITDA of $54.9 million.
COMPETITIVE STRENGTHS
Leadership Positions in Targeted Markets. The Company believes it holds the
number one position in several agricultural and industrial specialty chemicals
markets for several of its products, including agricultural grade potassium
nitrate, technical grade potassium nitrate, propanil, nitrogen tetroxide and
DCA. The Company believes its leadership positions will allow it to
successfully: (i) capitalize on the growing demand for both agricultural and
technical grade potassium nitrate; (ii) expand the Company's offerings across
all of its product segments; (iii) introduce new applications for existing
products; and (iv) increase propanil sales as advanced rice growing techniques
utilizing propanil are expected to be increasingly adopted in developing
economies.
Established Global Network and Broad Customer Base. The Company sells its
products through an established global sales, marketing and distribution network
to customers in 95 countries. Approximately 66% of the Company's total sales in
1997 were outside the U.S., with 39% of sales to European markets and 27% of
sales to other international markets including Israeli, African, Australian and
Asian markets. The Company's U.S. and Israeli manufacturing operations provide
it with cost-effective access to major geographic markets. In addition to its
global sales, marketing and distribution network, the Company has a broad
customer base. In 1997 no one customer accounted for over 4.0% of total revenues
and the top 10 customers accounted for less than 18% of total revenues. This
established global network and broad customer base provide the Company with: (i)
the ability to market both existing and newly developed products and
applications on a worldwide basis to multiple end-use markets, and (ii) diverse
sources of revenue and cash flow which minimize exposure to any particular
customer, economic cycle or geographic region.
Manufacturing Expertise. The Company's extensive experience in potassium
nitrate production and complex organic synthesis provide it with several
competitive advantages. The Company is the world's only commercial scale
producer of potassium nitrate using primary synthetic processes. These unique
processes allow the Company to produce high purity products utilizing available
commodity raw materials and also generate highly marketable co-products such as
phosphoric acid and related downstream phosphate products, chlorine and nitrogen
tetroxide. The Company's manufacturing processes provide the Company with the
ability to: (i) expand its product portfolio;
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(ii) diversify its revenue stream; (iii) optimize its product mix to target
those products currently enjoying favorable market conditions; and (iv) allocate
its fixed costs over additional products and revenues. In addition, as a result
of its proven manufacturing expertise, the Company has secured ongoing contract
manufacturing relationships with numerous large multinational companies with
complex manufacturing needs, including Zeneca, FMC, B.F. Goodrich and
Rhone-Poulenc. Further, the Company's manufacturing expertise has allowed it to
maintain the strict standards necessary to remain the sole supplier to the U.S.
Air Force of nitrogen tetroxide, an aerospace fuel additive, for over 20 years.
Proven Experience in New Product Development. The Company is a proven
leader in the development of new agricultural and industrial products and
applications. Since the Company's introduction of potassium nitrate in the
1960s, the Company's agronomic research and development staff has conducted
thousands of experiments under a wide range of soil and climatic conditions,
developing a comprehensive agronomic database relating to its products. This
database provides the Company with the ability to demonstrate the efficacy of
its products under specific local climatic conditions, which provides it with a
competitive advantage in developing and marketing new products and applications.
In addition to potassium nitrate, the Company has also developed many other new
products and applications, including: (i) Multicote, a proprietary labor saving
polymer coated specialty plant nutrient which provides for the controlled
release of nutrients over specific periods of time ranging from four to 12
months; (ii) K-Carb, a product that serves the industrial market for
applications in oxidization and cleaning and also serves the agricultural
market; (iii) a group of food grade phosphate products; (iv) several Specialty
Plant Nutrients blends; and (v) a variety of herbicide products. New products
introduced by the Company since 1990 accounted for approximately $50 million of
the Company's total revenues in 1997.
Low Cost Supplier. The Company believes that it is among the lowest cost
suppliers in the major markets in which it competes. The Company believes it is
the lowest cost supplier of potassium nitrate products to North American and
European markets on a delivered cost basis. The Company attributes its low cost
position in potassium nitrate to its long-term experience utilizing two unique
synthetic production processes, which also generate marketable co-products, and
the strategic location of its production facilities in the U.S. and Israel
relative to its primary markets in North America and Europe. In addition, the
Company believes it is among the lowest cost suppliers of propanil worldwide due
to its position as the world's only fully integrated manufacturer of this
product.
Strong Management Team. The Company has assembled a strong and experienced
management team both at the corporate and operating levels. The Company's top
operating managers have an average of over 20 years of experience in the
chemicals industry. Senior operating managers are eligible to receive a
significant portion of their compensation through an incentive formula based on
economic value added ("EVA") related to the profitability and efficient use of
capital of their respective business units. This EVA compensation structure
consists of both annual and multi-year incentive plans.
BUSINESS STRATEGY
Expand Manufacturing Capacity for High Growth Products. The Company has
invested approximately $300 million in its manufacturing facilities over the
past 10 years to develop sophisticated manufacturing operations, enhance
productivity and increase capacity. The Company is currently investing an
additional $32 million over the next two years to expand potassium nitrate
capacity by over 20% at the Company's facilities in Mishor Rotem, Israel and
Vicksburg, Mississippi. In addition, the Company currently intends to invest an
aggregate of approximately $31 million in its manufacturing facilities over the
next two years to expand capacity for other high growth products. These other
planned expansions include additional food grade phosphates manufacturing
capacity in Mishor Rotem, Israel and the construction of a plant to manufacture
MAP and MKP in Vicksburg, Mississippi. The Company believes that increased
capacity will allow it to benefit from continued
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growth in demand for the Company's major products and allow it to further
enhance its market leadership positions.
Increase Sales in Underpenetrated Markets. The Company believes that it has
a significant opportunity to increase sales in underpenetrated geographic
markets. The Company's sales outside the U.S. and Western Europe accounted for
approximately 27% of total revenues in 1997. The Company intends to increase its
penetration in these markets by: (i) opening new marketing offices in targeted
regions; (ii) entering into strategic alliances or joint ventures; and (iii)
pursuing strategic acquisitions. For example, the Company and a strategic
partner recently established Riceco to market rice-related herbicides and other
rice-related agrichemicals (other than fertilizers) globally and the Company has
also recently established new marketing offices in Mexico, South Africa and
China.
Continued Development of New Products and Applications. The Company intends
to continue to leverage its ability to develop and introduce new products and
applications to expand its product portfolio of high-value-added products. The
Company will utilize its extensive agronomic database, relationships with
professional growers and its technical sales and marketing professionals to
identify the needs of its customers and to develop and introduce products which
satisfy those needs. For example, the Company has recently introduced the
Multicote line of specialty plant nutrients which utilizes polymer coated
technology developed by the Company that allows for the controlled release of
nutrients over specific periods of time ranging from four to 12 months, which
optimizes plant feeding and minimizes labor requirements. Additional new
generations of Multicote technology providing for longer release times are being
developed. Other product development initiatives include various generic
pesticides and herbicides and food phosphates. In addition, the Company is
conducting several agronomic research programs in conjunction with universities,
professional growers and distributors to further develop the market for its
products. These programs include research programs in the U.S., Israel, Italy,
Spain, France, the United Kingdom, Greece, Mexico, Brazil, South Africa, China,
Japan and the Benelux countries.
Pursue Strategic Acquisitions, Alliances and Joint Ventures. The Company
has successfully grown through acquisitions and alliances and intends to pursue
strategic acquisitions, alliances and joint ventures that will allow it to
further improve its positions in targeted markets. The Company evaluates
opportunities based on their ability to: (i) broaden the Company's product line;
(ii) increase the Company's marketing reach; (iii) generate economies of scale;
and (iv) enhance the Company's product development capabilities. The Company's
acquisition of Na-Churs, formation of Riceco and the recent investment in Lego
are examples of the implementation of this strategy.
PRODUCTS
The Company develops, produces and distributes a wide range of specialty
chemicals products for a variety of agricultural and industrial end-uses. The
Company has grouped its operations into three general product categories that
reflect the different industries and end-use markets serviced by the Company.
These product groups are: Specialty Plant Nutrients, Industrial Chemicals and
Organic Chemicals.
Specialty Plant Nutrients. The Company's Specialty Plant Nutrients consist
of high-value nutrients designed for intensive agriculture, including
greenhouses, nurseries and orchards. The Company's flagship product is potassium
nitrate, which is marketed principally under the brand names K-Power
domestically and Multi-K internationally (collectively referred to as
"K-Power"). Potassium nitrate provides potassium and nitrogen, two of the three
essential plant nutrients, is water soluble and does not contain chlorine or
other environmentally harmful chemical residues that are generally found in
commodity fertilizers. The unique combination of these performance
characteristics allows potassium nitrate to command a price premium over other
potassic plant nutrients and fertilizers and has led to a compound annual growth
rate in tons shipped of approximately 6%
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for the industry over the past five years. With current annual production
capacity of approximately 630,000 tons, the Company is the world's largest
producer of potassium nitrate. In response to continued growing demand, the
Company is in the process of increasing its annual potassium nitrate capacity to
approximately 770,000 tons by year-end 1999. The Company believes that it
currently accounts for approximately 60% of the world's production of potassium
nitrate and 100% of North American production of potassium nitrate.
The Company's other Specialty Plant Nutrients include those designed for
highly specialized horticultural applications. These include: (i) Polyfeed, a
fully soluble and chlorine-free blend of varying combinations of plant nutrients
containing the three essential plant nutrients, nitrogen, phosphorus and
potassium; (ii) Magnisal, which acts as a magnesium supplement; (iii)
monoammonium phosphate, or Multi-MAP, a fully soluble source of nitrogen and
phosphorus; (iv) monopotassium phosphate, or Multi-MKP, a fully soluble,
chlorine-free source of potassium and phosphorus; and (v) Multicote, a polymer
coated specialty plant nutrient which provides for the controlled release of
nutrients over specific periods of time ranging from four to 12 months, which
optimizes plant feeding and minimizes labor requirements. The Company is also
the largest U.S. producer and marketer of high purity liquid fertilizers, which
are sold under its Na-Churs brand name and are used both as a starter nutrient
in growing corn and in growing high-value crops such as fruits, vegetables and
flowers. Specialty Plant Nutrients revenues were approximately $220.5 million
for the year ended December 31, 1997.
The following table sets forth the Company's principal Specialty Plant
Nutrients products, markets and applications:
PRINCIPAL
PRODUCTS PRIMARY MARKETS APPLICATIONS
--------- --------------- ------------
Potassium Nitrate Fruits, vegetables, flowers, cotton Fertigation, foliar sprays and soil
(K-Power) and tobacco applications
Polyfeed Horticulture Fertigation and foliar sprays
Multi-MAP Horticulture Fertigation and foliar sprays
Multi-MKP Horticulture Fertigation and foliar sprays
Magnisal Vegetables, citrus, tropical fruits Fertigation and foliar sprays
and flowers
Multicote Vegetables, turf, fruit trees and Time release of nutrients
potted plants
Na-Churs Liquid Corn, soybeans, wheat and high-value Furrow applied starter, foliar sprays
Fertilizers crops and fertigation
Industrial Chemicals. The Company's Industrial Chemicals consist of a broad
variety of specialty and other chemicals with applications in multiple end-use
markets. The Company's Industrial Chemicals products are generally produced as
co-products in the Company's potassium nitrate manufacturing processes. These
products provide the Company with the ability to diversify its revenue base
while maintaining its leadership position in potassium nitrate and to allocate
its fixed costs over a broader base of revenues and products. The Company is the
world's largest manufacturer and marketer of technical grade potassium nitrate,
a high purity product used for many industrial applications, including the
production of television picture tubes, computer screens, other specialty
glasses, ceramics, food additives and explosives. The Company is also a
manufacturer of potassium carbonate, marketed under the brand name K-Carb.
K-Carb is used in the production of television picture tubes, computer screens,
ceramics, detergents, in agricultural applications, and in the production of
other potassic chemicals. In addition, the Company is the sole supplier to the
U.S. Air Force of nitrogen tetroxide, an aerospace fuel additive.
Additional Industrial Chemicals produced by the Company include phosphoric
acid, with approximately 66,000 tons of current annual production capacity, used
for metal treatment, industrial cleaning solutions, fermentation and in the food
and fertilizer industries; and a variety of
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phosphate products including: STPP, an ingredient in detergents; MAP, used in
fire extinguishers and fire retardants; MKP, used in the fermentation process;
MSP and DSP, which are used by food processing companies as emulsifiers for
cheese processing and as a buffer in foodstuffs; and SAPP, used by food
processing companies in baking powders and potato processing. The Company
intends to continue to emphasize the production of high-value phosphate products
such as those used in the food and soft drink industries. The Company also
produces chlorine sold to industrial and chemical manufacturing companies for
water purification and production of paper pulp and PVC pipe. Industrial
Chemicals revenues were approximately $109.0 million for the year ended December
31, 1997.
The following table sets forth the Company's principal Industrial Chemicals
products, markets and applications:
PRINCIPAL PRODUCTS PRIMARY MARKETS APPLICATIONS
------------------ --------------- ------------
Technical Grade Potassium Glass, ceramics, explosives, metal, Oxidization and ion
Nitrate petrochemical and heat treatment industries exchange
Potassium Nitrate USP Pharmaceutical industry Ingredient in certain
Grade toothpaste
Potassium Carbonate Glass, detergents and fertilizer industry Oxidization and cleansing
(K-Carb)
Phosphoric Acid Industrial production, food and fertilizer Metal treatment, industrial
industries cleaning and fermentation
Sodium Tripolyphosphate Food processing companies Meat and seafood processing
Food Grade
Sodium Tripolyphosphate Soap and detergent industry Cleansing ingredient
Monoammonium Phosphate Chemical manufacturers Fire retardant formulations
Monopotassium Phosphate Food processing companies Fermentation process
Monosodium Phosphate Food processing companies Emulsifiers and buffers
Disodium Phosphate Food processing companies Emulsifiers and buffers
Sodium Acid Pyrophosphate Food processing companies Baking powders and potato
processing
Chlorine Chemical companies Water purification,
production of paper pulp
and PVC pipe
Nitrogen Tetroxide United States Government Aerospace fuel additive
Organic Chemicals. The Company's Organic Chemicals consist primarily of a
variety of herbicides and other products requiring expertise in complex organic
synthesis. The Company's Organic Chemicals products include propanil, the
world's leading rice herbicide, and DCA, the principal raw material for the
production of propanil. The Company is the sole U.S. producer, and the only
fully integrated producer worldwide, of propanil, and is the sole producer of
DCA in North America. Other Organic Chemicals include Butoxone, a leading peanut
and soybean herbicide; diuron, a broad use herbicide used on various crops,
including alfalfa and cotton; and ethephon, a cotton, fruit and vegetable growth
regulator. The Company also produces and sells THAM, a proprietary buffering
agent used in pharmaceutical applications, including contact lens solutions. In
addition, the Company utilizes its manufacturing expertise and capacity and
serves as a contract manufacturer of organic chemicals for major multinational
chemical companies, including Zeneca, FMC, B.F. Goodrich and Rhone-Poulenc, all
of which have been long-term customers of the Company. The Company recently
formed Riceco with a strategic partner to market propanil, combination rice
herbicides and other rice-related chemicals (other than fertilizers) on a
worldwide basis. Organic Chemicals revenues were approximately $47.0 million for
the year ended December 31, 1997.
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The following table sets forth the Company's principal Organic Chemicals
products, markets and applications:
PRINCIPAL PRODUCTS PRIMARY MARKETS APPLICATIONS
------------------ --------------- ------------
Propanil Rice Broad spectrum weed control
Dichloroanaline Organic chemicals manufacturers Primary propanil raw material
Butoxone Peanuts and soybeans Weed control
Diuron Food crops, alfalfa and cotton Broad use herbicide
Ethephon Cotton, fruit and vegetables Plant growth regulator
THAM Pharmaceutical companies Buffering agent
Contract Various industrial companies Various organic syntheses
Manufacturing
NEW PRODUCT DEVELOPMENT
The Company maintains a strong commitment to new product development,
focusing on expanding applications for its existing products and developing new
products and processes, and as of December 31, 1997 employed approximately 54
research and development scientists, engineers and technicians. The Company's
extensive agronomic data base, which consists of the results of thousands of
experiments under a wide range of soil and climatic conditions, significantly
enhances the Company's ability to develop and introduce new products, as
horticultural and agricultural growers generally require substantial testing
under their own specific climatic, soil and growing conditions before they will
adopt a new plant nutrient. The Company's research and development staff,
utilizing this data base, works together with the Company's sales force and
customers to identify specific customer needs and develop innovative solutions
which satisfy those needs. This method of product development results in close
ongoing working relationships between the Company and its customers and allows
the Company to better anticipate and service customer needs. The Company also
utilizes cooperative agronomic research and development partnerships with
universities to further develop new products and applications. The Company's
research and development staff also seeks to apply new products and applications
resulting from these processes to other end-use markets. New products introduced
by the Company since 1990 accounted for approximately $50 million of revenues in
1997.
For the years ended December 31, 1995, 1996 and 1997, the Company spent
approximately $3.2 million, $2.7 million and $2.4 million, respectively, on
research and development, which have been charged to current operations.
SALES AND MARKETING
The Company utilizes an extensive sales and marketing network for its
Specialty Plant Nutrients, Industrial Chemicals and Organic Chemicals customers.
This network consists of a direct sales force of approximately 115 professionals
as well as over 150 independent agents, distributors and brokers who specialize
in marketing and distributing the Company's products in particular markets. By
utilizing the market specialization and knowledge provided by agents,
distributors and brokers in markets in which the Company does not have a
significant sales and marketing presence, the Company is able to gain access to
a broader range of distribution channels and end-users and increase sales as
well as strengthen its brand name recognition. The Company's sales efforts are
further enhanced by its product development and technical support staff, who
work closely with customers to demonstrate the performance of the Company's
existing products under specific climatic, soil and growing conditions and
develop new products and markets based on customer needs.
The Company's agricultural and horticultural market development activities
are generally conducted with a focus on individual crops. Once target crops are
identified, specific geographical markets are targeted based on their market
potential. The Company will then establish major crop development programs in
these potential markets through working partnerships between its agronomists and
local universities and/or research centers which conduct test programs and field
trials. The Company's agronomists will also work closely with local growers to
demonstrate the efficacy of the Company's products using data generated through
the local test programs and field trials. As a market matures, the Company hires
local agronomists and opens local offices to service
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the market. At present, the Company maintains resident development and technical
support staff in the United States, Israel, Italy, Spain, France, the United
Kingdom, Greece, Mexico, South Africa, China, Japan and the Benelux countries.
The Company is in the process of implementing several agronomic research
programs in conjunction with universities, professional growers and distributors
to further develop the market for its products. These programs include
researching the efficacy of potassium nitrate in the United Kingdom for growing
potatoes, in Spain for growing olives and in the Far East for growing rice. The
Company is also pursuing numerous other research programs in other countries.
The Industrial Chemicals produced by the Company are generally marketed
through the Company's extensive marketing network and through the Company's
subsidiaries throughout the world. Nitrogen tetroxide is primarily sold under a
long-term contract to the U.S. Air Force.
The Company's contract manufacturing business is secured on the basis of:
(i) the Company's reputation for quality, efficiency and speed of execution and
(ii) an aggressive promotional program that includes participation in numerous
trade shows.
In order to provide prompt and responsive service the Company uses
warehouse and distribution facilities which are strategically located throughout
the Company's global network. The Company maintains inventories of its products
internationally to facilitate prompt deliveries to customers.
CUSTOMERS AND MARKETS
The Company's customers include blenders, distributors, professional
growers, agrichemical companies, governmental agencies, and multinational
manufacturers in many geographic markets throughout the world. The following
chart sets forth the breakdown of the Company's sales by geographic market for
the three year period ended December 31, 1997:
1995 1996 1997
------------ ------------ ------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
(DOLLARS IN MILLIONS)
Europe.......................................... $146 38% $160 39% $148 39%
United States................................... 136 35 145 35 128 34
Asia............................................ 34 9 37 9 29 8
Canada and Latin America........................ 22 6 24 6 22 6
Israel.......................................... 21 5 23 6 19 5
Australia....................................... 6 2 6 1 6 2
Africa and other................................ 21 5 17 4 25 6
---- --- ---- --- ---- ---
Total................................. $386 100% $412 100% $377 100%
==== === ==== === ==== ===
The Company's customers are diversified across each of the Company's
product groups. Specialty Plant Nutrients are generally sold through the
Company's network of representative offices and through its sales, technical
support and distribution affiliates who in turn generally sell to blenders,
growers or other end-users. In addition, the Company sells Specialty Plant
Nutrients directly to certain large blenders and end-users. The Company's
Specialty Plant Nutrients are used on a variety of crops, particularly higher
value-added crops, which allow the Company's customers to increase yield and
allow the Company's products to command a premium price. The Company sells its
Industrial Chemicals principally through its own worldwide network of
representative offices and through its sales, support and distribution
affiliates to various industrial consumers. The Company's Organic Chemicals
Group sells its products through large distributors, co-operatives, regional
dealers, international brokers and multinationals, as well as to Riceco (see
"Riceco" below and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Riceco"). In addition, the Company sells its
Organic Chemicals directly to some customers domestically and via a joint
venture partner internationally. During the year ended December 31, 1997, no
customer accounted for more than 4.0% of consolidated revenues and the 10
largest customers accounted for less than 18% of consolidated revenues.
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RAW MATERIALS
The Company's raw materials consist primarily of ammonia, potash and
phosphate rock. Other raw materials include orthodichlorobenzene, propionic acid
and various other chemicals. In the United States, all of the Company's raw
materials are readily available from multiple suppliers. A minimum of
approximately 50% of the Company's potash requirements in the U.S. are required
to be purchased from a subsidiary of MCC at market rates, as defined, subject to
a 5% "cap" on annual market price increases or decreases, under a five-year
contract expiring in 2001. In addition, MCC has the right to supply the
Company's remaining U.S. potash requirements if it can meet market prices and
specified quality standards. The contract is renewable for additional one year
periods if mutually agreed. This contract was entered into in connection with
the Company's 1996 sale of its potash operations to MCC. The remainder of the
Company's U.S. potash requirements are available from multiple suppliers.
Ammonia is generally purchased from a supplier under a renewable contract
expiring in August 1999 at negotiated prices and is also available from multiple
sources.
In Israel, the Company sources its potash exclusively from DSW under two
long-term contracts which expire in 1999 and 2005, and sources its phosphate
rock solely from Rotem according to the terms of a variable price contract which
expired in 1996 and which is currently being renegotiated. The potash contracts
provide for prices to be established quarterly, based on the weighted average of
the FOB Israeli port prices paid to DSW by its overseas customers during the
preceding quarter plus certain adjustments thereto. Both DSW and Rotem are
subsidiaries of Israel Chemicals Ltd., a large Israeli chemical company. While
the Company believes that alternative sources of supply for raw materials
supplied by Rotem and DSW are available, the loss of supply from DSW and Rotem
could have a material impact on the Company's financial performance. Ammonia is
sourced from a European supplier under a one year contract renewable at
negotiated prices and is available from a number of alternative suppliers.
Approximately 85% of the Company's energy requirements and approximately 50% of
the Company's steam requirements at the Haifa Facility are provided by a co-
generation plant owned and operated by a third party under a three year contract
expiring in 2001 and renewable for an additional two years. The remainder of
HCL's steam requirements are supplied by HCL's own steam facility. Such third
party also operates this steam facility for HCL under a contract having a
similar term and at prices generally below those available from alternative
steam sources other than the co-generation plant.
The Company has historically experienced fluctuations in the price of
ammonia. The Company has not generally passed on ammonia price changes to its
customers as price changes have generally been temporary.
MANUFACTURING
The production of Specialty Plant Nutrients, Organic Chemicals and
Industrial Chemicals are each integrated multi-stage processes which in some
cases involve chemical synthesis, formulation and mixing. Following these
processes, the product is packaged based upon customer requirements.
The Company utilizes two unique manufacturing processes in producing
Specialty Plant Nutrients and Industrial Chemicals -- a "solvent extraction"
process in Israel and "direct reaction" process in the U.S. The solvent
extraction process is based on reacting potassium chloride with nitric acid in
the presence of an aqueous recycled brine and an organic solvent, producing
potassium nitrate and hydrochloric acid as co-products. The hydrochloric acid is
used on-site to acidulate phosphate rock and produce phosphoric acid, which in
turn is used to manufacture a variety of phosphate products. The direct reaction
process is based on the reaction of potassium chloride and nitric acid, which
produces potassium nitrate and chlorine and nitrogen tetroxide as co-products.
In the production of the Company's Organic Chemicals and contract manufacturing
products, major processes and chemistries include the complex synthesis of
organic chemicals to produce agrichemicals and pharmaceutical chemicals.
Propanil is produced at the Company's West Helena, Arkansas facility by reacting
DCA with propionic acid and propionic anhydride to produce propanil technical,
the active ingredient in all propanil products. Propanil technical is formulated
into
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emulsifiable concentrate and then sold. The Company also sells propanil
technical in molten form and flake form. The Company believes that its
experience and expertise in manufacturing provide it with a significant
competitive advantage.
RICECO
During August 1997, the Company and Westrade formed Riceco to market
propanil, combination rice herbicides and other rice-related chemicals (other
than fertilizers) on a worldwide basis. Westrade's interest in Riceco is now
held by the Westrade Member, which is owned 50% by DuPont and 50% by the private
investment group which currently owns 50% of Westrade. The Company has been
advised that DuPont owns the other 50% of Westrade.
The Company and the Westrade Member each have a 50% equity interest in
Riceco and each exercises equal voting rights. Riceco's profits and losses are
currently allocated 60% to the Company and 40% to the Westrade Member, but under
specified conditions would be adjusted to 50% to each. At closing, both members
contributed product registrations, labels and customer lists to Riceco and
subsequently each member provided an interim working capital loan of $1.25
million to be repaid in 1998 in accordance with covenants contained in a Riceco
loan agreement. Under a long-term supply agreement, the Company will produce all
of the propanil required by Riceco.
The Company believes that the creation of Riceco will serve to: (i) expand
market share through the introduction of propanil combination products; (ii)
increase international market share, most notably in the key rice growing
regions of Asia and Latin America; (iii) establish Riceco as the premier
distribution channel for crop-protection products to the global rice industry;
(iv) provide operating efficiencies through the elimination of certain costs;
and (v) provide for better utilization of the Company's manufacturing facilities
as a result of increased production of propanil.
INTELLECTUAL PROPERTY
The Company considers its manufacturing processes to be of material
importance to its business and seeks to protect this knowledge by maintaining
these processes as trade secrets. In order to maintain the confidentiality of
such trade secrets the Company has generally not sought patent protection. In
addition, the Company has differentiated its products in the marketplace by
pursuing a branded strategy. As a result, the Company has developed several
brand names, such as K-Power, Magnisal, Polyfeed, Multicote, Poni, K-Carb and
Na-Churs.
COMPETITION
In Specialty Plant Nutrients, the Company primarily competes with SQM, and
to a lesser extent with other producers, the most recent of which, Norsk Hydro,
began production in spring 1997 with a rated capacity of approximately 33,000
tons per annum. A new prospective Chilean entrant, Yolanda, has announced plans
to achieve annual production capacity of approximately 275,000 tons of finished
nitrate products, which may include potassium nitrate, by August 1998, after
several delays in prior years. Given Yolanda's prior delays, the Company cannot
predict whether or when Yolanda will actually begin production and, if so, what
its actual production levels will be. In addition, APC has announced plans for
the construction of 110,000 tons of annual capacity. The Company believes that
the announced project by APC could be delayed beyond 2002. The Company believes
that its sales volumes will not be materially affected by new capacity, due to
expected delays and uncertain product quality from the new entrants, as well as
projected growth in global demand. Competition among producers of agricultural
grade potassium nitrate is primarily driven by customer preferences for quality,
reliability, custom specifications and price.
In Industrial Chemicals, the Company competes with a wide variety of large
and small specialty and commodity chemical companies including SQM, Haldor
Topsoe, Budenheim, Hoechst, Rhone-Poulenc, FMC, Armand, ASHTA and Vulcan. The
primary competitive factors in the industrial chemicals market are product
quality, technical specifications and price.
In Organic Chemicals, the Company primarily competes with a wide variety of
large and small specialty and commodity chemical companies, including Griffin,
Dow, Monsanto, AgrEvo (joint venture of Hoechst and Schering), Rhone-Poulenc,
Rohm and Haas and Zeneca. Competitive
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factors in the production of organic chemicals primarily consist of
manufacturing expertise in specific complex chemical processes, vertical
integration, flexible manufacturing facilities and price.
PROPERTIES
Listed below are the principal manufacturing facilities operated by the
Company:
APPROXIMATE
LOCATION SQUARE FOOTAGE PRODUCTS PRODUCED
-------- -------------- -----------------
Vicksburg,
Mississippi 330,000 Specialty Plant Nutrients, Industrial Chemicals
Haifa, Israel 1,490,000 Specialty Plant Nutrients, Industrial Chemicals
Mishor Rotem, Israel 780,000 Specialty Plant Nutrients, Industrial Chemicals
West Helena, Arkansas 75,000 Organic Chemicals
Marion, Ohio 82,000 Specialty Plant Nutrients
The Company owns the property, plant and equipment located at both its
Vicksburg, Mississippi facility and its West Helena, Arkansas facility. The
Vicksburg plant consists of three manufacturing plants situated on 600
contiguous acres. The West Helena facility is ISO 9002 certified and is located
on a 60 acre site. The plants are encumbered by first mortgages and security
interests securing long-term bank indebtedness. In addition to its corporate
office in New York City, the Company maintains an administrative office in
Memphis, Tennessee. Both offices are in leased facilities.
The Company owns its machinery and equipment and leases the land for its
Haifa, Israel operations from Oil Refineries Ltd. ("ORL"), a corporation which
is majority-owned by the Israeli Government. The leases expire at various dates,
primarily in the years 2015 and 2016. The Company owns the machinery and
equipment and leases the land for its Mishor Rotem, Israel operations from the
Israeli Land Administration Authority under a 49 year lease which commenced in
1994. All of such lease payments for the Mishor Rotem land have already been
paid and were included in the construction costs. The Company also owns ammonia
terminal facilities located on leased property in the port in Haifa and leases
from ORL a pipeline which transports ammonia from the port in Haifa to the
Company's plant. Substantially all of these assets are subject to security
interests in favor of the State of Israel or banks.
Under specific legislation, the land owned by ORL in Haifa Bay, including
the land leased by HCL, was excluded from the jurisdiction of local authorities
until 2003. Accordingly, currently HCL pays no local charges nor betterment
levies with respect to the Haifa Facility. There can be no assurance that such
local charges or betterment levies will not be material if and when demanded by
local authorities.
Management believes that its facilities are in good operating condition and
adequate for its current needs. The Company plans to expand manufacturing
capacity. See "Business Strategy."
EMPLOYEES
As of December 31, 1997 the Company employed approximately 840 people.
Approximately 220 employees have advanced technical and academic qualifications.
Except for certain employees at the Company's Israeli operations, none of the
Company's employees are represented by any collective bargaining unit.
During the fourth quarter of 1996 and the first two quarters of 1997, the
Company's operations were adversely impacted by the Haifa Labor Dispute which
occurred at the Company's Haifa Facility.
Most employees at the Haifa Facility are members of the "Histadrut," the
Israeli national labor federation, and are represented by collective bargaining
units. Terms of employment of most employees at the Haifa Facility are currently
governed predominantly by a Specific Collective Agreement ("SCA") negotiated by
the Company with the Histadrut, the respective unions representing the employees
and representatives of the employees.
In 1994, an agreement was signed with the unions and representatives of the
technicians and engineers at the Haifa Facility for the three year period ended
December 31, 1996. In 1995, an SCA was signed with the unions and
representatives of the other employees for the two year period ended December
31, 1996. In September 1996, the Company announced the cancellation of such
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agreements effective upon their expiration dates and its intention to negotiate
a new SCA with basic changes aimed at reducing labor costs and enhancing
operating flexibility for the period following December 31, 1996.
As a result of the announced cancellation of the labor agreements, the
Company suffered several work stoppages and other job actions which adversely
affected productivity at the Haifa Facility during October and November 1996,
including a period of temporary plant shut-down. On December 3, 1996 the plant
was shutdown until March 10, 1997 when a new SCA providing for certain wage
freezes and reductions in benefits was signed for the three year period ending
December 31, 1999. Subsequent to March 10, 1997, the Haifa Facility re-opened
and gradually began production. By the end of May 1997 and subsequent thereto,
the Haifa Facility was generally operating at approximately full capacity;
however, there have been several periods of operations at less than full
capacity due to the need for increased maintenance for certain equipment
resulting from the lengthy period of shut-down.
Management believes that the new SCA will result in substantial cost
savings for the Company compared to the costs it would otherwise have incurred
during the next few years had the Company merely renewed the terms of the prior
SCAs and continued the pattern of increased costs included in recent SCAs.
Further, management believes that the aggregate amount of such cost savings over
the next few years will substantially exceed the incremental costs experienced
during the Haifa Labor Dispute. Such savings commenced during the second quarter
of 1997.
Following the settlement of the Haifa Labor Dispute, the Company achieved
the following objectives: (i) a reduction in absenteeism from about 7% per annum
to about 2% per annum; (ii) greater ability to freely transfer employees between
departments and production units; (iii) increased flexibility regarding the
ability to promote employees and incentivize them based on performance measures
and evaluations developed and implemented by management; (iv) greater ability to
dismiss employees on the basis of poor performance (which has already been
utilized in recent months); (v) on-going and more effective communication
between management and employees; and (vi) increased freedom to use
sub-contractors. In addition, following the settlement of the Haifa Labor
Dispute, the Company significantly restructured its workforce at the Haifa
Facility, with the result being a net 100 person reduction (or 18%) in the
number of its employees at the Haifa Facility, and an approximate 16% reduction
in the average cost per employee. Under the new labor agreement, such reductions
in headcount and in average cost per employee resulted in estimated annual cost
savings of $9 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Significant Developments -- Haifa Labor
Dispute."
A third party provides operating and management services for the Mishor
Rotem, Israel facility as a subcontractor, and is reimbursed for costs based on
an approved budget plus a variable incentive fee designed to increase
efficiency, volumes produced and quality of production.
ENVIRONMENTAL MATTERS
Cedar and Vicksburg. Vicksburg's plant located in Vicksburg, Mississippi
and Cedar's West Helena, Arkansas plant discharge process waste water and storm
water pursuant to permits issued in accordance with the Federal Clean Water Act
and related state statutes. Air emissions at each plant are regulated by permits
issued pursuant to the Federal Clean Air Act and related state statutes. The
Company believes it is in substantial compliance with these and other applicable
material environmental requirements at these facilities.
The EPA notified Cedar in 1989 that unspecified corrective action will be
required under the Federal Resource Conservation and Recovery Act of 1976, as
amended, to protect against the release of contaminants allegedly present at the
Vicksburg plant as a result of previous pesticide manufacturing operations. As a
result of the notice, an agreement was reached with the EPA and the Department
of Justice on the terms of a Consent Decree which was filed in the United States
District Court at Jackson, Mississippi in January 1992. Pursuant to the Consent
Decree, a facility investigation work plan was submitted to the EPA. Following
its approval, Vicksburg intends to undertake a
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site investigation and corrective measures study, followed by implementation of
appropriate corrective action. Compliance with the Consent Decree is expected to
occur over a five to six year period following the EPA's approval of the
facility investigation work plan.
Cedar's West Helena plant utilizes a surface impoundment for biological
treatment of non-hazardous waste streams which was the subject of an enforcement
proceeding initiated by the Arkansas Department of Pollution Control and Ecology
(the "ADPCE") in 1986 which required Cedar to carry out various studies,
ultimately leading to the implementation of a groundwater monitoring system.
Based in part on the results of groundwater monitoring and in part on the
discovery of a drum burial area on the West Helena plant site, the ADPCE
requested Cedar to initiate an expanded plant-wide investigation pursuant to a
Consent Administrative Order entered in 1991 (the "Order"). In December 1997,
ADPCE accepted the final facility investigation report and requested Cedar to
initiate a corrective measure study to address eight separate locations on
Cedar's West Helena plant site which ADPCE believes may require remedial action.
In addition, ADPCE requested a plan for interim measures to address groundwater
contamination on and adjacent to the West Helena plant.
Cedar removed the buried drums from the West Helena site in accordance with
a work plan incorporated in the Consent Administrative Order and, shortly
thereafter, filed a suit against a former operator of the plant site for
contribution for the costs incurred. In October 1994, Cedar reached a settlement
pursuant to which it recovered a substantial portion of its previously incurred
drum removal and investigative costs. The settlement also provides for binding
arbitration among Cedar and two former operators at the plant site to apportion
future investigative and remedial costs required under the Order.
The Company believes that the future costs required to complete the site
investigation and corrective measures studies at Vicksburg and any supplemental
plant-wide investigation (if required) and the corrective measures studies at
West Helena will be between $500,000 and $1,000,000 and will be expended over
two to three years. Interim corrective measures may also be implemented at one
or both of these locations during this same period. As of December 31, 1997, the
Company has accrued an aggregate of $1,250,000 for these matters. Until these
investigations are completed, it is not possible to determine the costs of any
final corrective actions which will be required. Any such corrective action
costs will be expended over a period of years. There can be no assurance that
such costs will not be material.
In December 1997, the EPA requested 34 companies, including Cedar, to
provide information about their dealings with the previous owners and operators
of a drum reclamation and recycling site known as the W&R Drum Superfund Site in
Memphis, Tennessee. Cedar could have potential liability to share costs of
remediating this site, which is on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended.
HCL. As a result of the production of phosphoric acid, HCL generates acid
sludge and liquid acid effluents. In accordance with a permit issued pursuant to
the Law for the Prevention of Sea Pollution (Disposing of Wastes) of 1983, HCL
is now disposing of the acid sludge in a designated site in the Mediterranean
Sea, situated 20 nautical miles from the Israeli coast. The permit allows for
the disposal of a quantity which is sufficient to satisfy HCL's needs. The
permit is effective until September 30, 1998, after which disposal of acid
sludge to the sea should cease in accordance with the Plan described below.
HCL currently disposes of its liquid acid effluents to the Haifa Bay
through a local river in accordance with a permit issued pursuant to the Law for
the Prevention of Sea Pollution from Land Sources of 1988, effective until
September 30, 1998. Both above-mentioned permits set forth restrictions on
quantities and concentrations, inspection, reporting duties and certain other
conditions. The Company believes HCL is in substantial compliance with these
permits and with other applicable material environmental requirements.
During July 1996 the Ministry of Environment (the "Ministry") approved a
proposed comprehensive land solution plan for the handling and disposal of the
sludge and effluents produced by
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HCL's plant (the "Plan"). The Plan was based on the joint work of HCL and
representatives of the Ministry. In general, the Plan consists of two
objectives: (i) decreasing the quantities and concentrations of the effluents,
and (ii) a permanent land solution for the sludge currently being disposed of in
the Mediterranean Sea, by filtering and purifying same in a special purifying
plant to be built by HCL, and the disposal thereof at a land site to be approved
by the Ministry. The overall time schedule for the complete execution of the
Plan is four and one-half years, with up to an additional one and one-half year
grace period available under certain conditions, with estimated capital
expenditures of up to $15 million commencing in 1997.
In November 1996 HCL signed a settlement agreement (the "Agreement") for
resolution of a private criminal complaint, alleging violation of specified
Israeli environmental laws as a result of HCL's dumping of chemical waste into a
local river without adequate permits, which was submitted against HCL and its
directors on December 21, 1994 by Man, Nature and Law, an Israeli fellowship for
the protection of the environment (the "Society") and six fishing companies
(collectively, the "Petitioners") before the Magistrate's Court of Haifa. On
November 26, 1996 the court approved the Agreement, and the Petitioners withdrew
the complaint.
While the Agreement is consistent with the Plan, it is more specific
regarding prescribed time schedules, concentrations of effluents and the
maintenance of such concentrations. It also establishes a Supervising Committee
to review and supervise HCL's progress in complying with the Agreement and
prescribes enforcement penalty provisions. In addition, HCL compensated the
Petitioners and reimbursed the Society for certain legal expenses and agreed to
contribute to an educational and monitoring fund to be established under the
Agreement. The Society agreed that after implementation of the plans pursuant to
the Agreement, it would not make any further demands on HCL or to any judicial
or administrative body regarding the alleged contamination of water or the sea
unless the Agreement is breached. The Company believes that HCL is in
substantial compliance with the Agreement.
HCSL disposes of liquid effluents in plastic lined evaporation ponds in
accordance with a business license issued under the Business Licenses Act of
1968. Based on recent results of groundwater monitoring in the area, the
Ministry notified of its intention to seek an alternate solution to be
implemented in the future, including the imposition of a requirement to decrease
the concentrations of acid effluents. The Company believes that the solution
used by HCSL heretofore in coordination with the authorities provides adequate
protection to avoid groundwater contamination. HCSL notified of its objection to
the imposition of new purifying requirements.
On March 3, 1998, a criminal proceeding was initiated against HCL and its
Managing Director in the Magistrate's Court of Haifa for alleged 1995 nitrous
oxide air emissions beyond prescribed levels. During 1995, HCL adopted
additional technical and administrative measures to monitor such emissions and
believed that it had resolved this matter with the Ministry in 1995. The Company
believes that even if this proceeding were adversely decided, the penalty would
be a fine which would not have a material adverse effect on its operations or
financial condition.
Appropriate provisions have been made in the consolidated financial
statements with respect to the above matters. See Notes A and O of Notes to
Consolidated Financial Statements.
LEGAL PROCEEDINGS
Beginning in April 1993 a number of class of action lawsuits were filed in
several United States District Courts against the major Canadian and United
States potash producers, including EDP and Cedar's wholly-owned subsidiary, New
Mexico Potash Corporation (name subsequently changed to NMPC, Inc.; "NMPC"). The
purported class actions were filed on behalf of all direct United States
purchasers of potash from any of the named defendants or their respective
affiliates, at any time during the period from April 1987 to the present, and
alleged that the defendants conspired to fix, raise, maintain and stabilize the
prices of potash in the United States purchased by the plaintiffs and the other
members of the class in violation of the United States antitrust laws. The
complaints sought unspecified treble damages, attorneys' fees and injunctive
relief against the defendants. Pursuant to an order of the Judicial Panel for
Multidistrict Litigation, all of the Federal District Court
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actions were consolidated for pretrial purposes in the United States District
Court for Minnesota and captioned In Re Potash Antitrust Litigation. Several
additional and/or amended complaints were filed in the Minnesota Federal
District Courts making substantially the same allegations as the earlier
complaints. These complaints have been superseded by or deemed included in the
Third Amended and Consolidated Class Action Complaint, to which NMPC and EDP
served and filed answers denying all the material allegations thereof on or
about July 22, 1994. On or about January 12, 1995 the Court granted plaintiffs'
motion to certify the plaintiff class. On or about December 21, 1995, the
defendants filed motions for summary judgement. On September 13, 1996 Magistrate
Judge Erickson issued a Report and Recommendation recommending that U.S.
District Court Judge Kyle grant the motions filed by NMPC, EDP and the other
defendants for summary judgment as to all of the plaintiffs' claims. Plaintiffs
filed objections to the Report and Recommendation under Rule 72 F.R.Civ.P. On
January 2, 1997, after written briefs were submitted by plaintiffs and
defendants and after oral argument before Judge Kyle on December 19, 1996, Judge
Kyle issued an order accepting and adopting Magistrate Judge Erickson's Report
and Recommendation and ordering that the motions filed by NMPC, EDP and the
other defendants for summary judgment as to all of the plaintiffs' claims be
granted. Plaintiffs, by Notice of Appeal dated January 31, 1997, appealed Judge
Kyle's order to the U.S. Court of Appeals for the Eighth Circuit, before which
oral argument on the appeal occurred on November 17, 1997.
On or about May 27, 1993 a purported class action captioned Angela Coleman
v. New Mexico Potash Corp., et al. was filed against the major Canadian and
United States potash producers, including EDP and NMPC, and unnamed
co-conspirators in the Superior Court of the State of California for the County
of Los Angeles. The Coleman action was commenced by Angela Coleman on behalf of
a class consisting of all California indirect purchasers of potash, and alleges
that the defendants conspired to fix, raise, maintain and stabilize the prices
of potash indirectly purchased by the members of the class in violation of
specified California antitrust and unfair competition statutes. The complaint in
Coleman seeks unspecified treble damages, attorneys' fees and injunctive relief
against the defendants. In addition, on or about March 29, 1994, a purported
class action captioned Neve Bros. et al. v. Potash Corporation of Saskatchewan,
et. al., was commenced in the Superior Court of the State of California for the
City and County of San Francisco against the major Canadian and United States
potash producers and unnamed co-conspirators. EDP, NMPC, NMPC's parent, Cedar,
Cedar's parent corporation, Nine West Corporation ("Nine West"), and the Company
are among the named defendants in the Neve action. The Neve action, also brought
on behalf of a class of indirect purchasers of potash in California, makes
substantially the same allegations as made in the Coleman action and seeks
substantially the same legal and equitable remedies and relief. Nine West and
the Company have been dismissed from the Neve action, in each case for lack of
personal jurisdiction. Cedar, EDP and NMPC have served and filed answers in the
Neve action, and EDP and NMPC have served and filed answers in the Coleman
action, in each case denying all material allegations of the respective
complaint. The Coleman action has been consolidated with the Neve action in the
Superior Court of the State of California for the City and County of San
Francisco. By stipulation, this consolidated action has been stayed pending the
outcome of the appeal to the Court of Appeals for the Eighth Circuit in the
federal action discussed above.
Management has no knowledge of any conspiracy of the type alleged in these
complaints.
In June 1996, the grand jury authorized by the U.S. Department of Justice
Antitrust Division to investigate possible violations of the antitrust laws in
connection with the allegations made in the civil actions described above closed
its investigation without bringing any action.
On October 24, 1995, several suits were filed in both the State Court in
Bogalusa, Louisiana and in the United States District Court for the Eastern
District of Louisiana, each purporting to be class actions arising out of an
October 23, 1995 explosion of a tank car at a plant of a Vicksburg customer
located in Bogalusa, Louisiana. The tank car contained nitrogen tetroxide which
had been produced and sold by Vicksburg. Subsequently, approximately 146 suits
were filed in the State Court for the 22nd Judicial District, Washington Parish,
Louisiana. The cases have been consolidated in this State Court and the
consolidated suit certified as a class action. The class is estimated to contain
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approximately 8,000 claimants. Vicksburg, Cedar and the Company are included
among the defendants in the class action. In addition, two later suits, one on
behalf of the City of Bogalusa, have been filed in the same court naming, among
the defendants, Vicksburg, Cedar and the Company. Also, 10 separate suits naming
an aggregate of more than 8,000 plaintiffs have been filed in the Circuit Court
of Hinds County, Mississippi naming, among the defendants, Vicksburg, Cedar and
the Company. Among other defendants included in the consolidated Louisiana class
action and in the Mississippi suits are Gaylord Chemical Company and its parent
corporation, Gaylord Container Corporation; Union Tank Car Company; Illinois
Central Railroad; and Kansas City Southern Railroad. The plaintiffs in all of
these suits seek unspecified damages arising out of the alleged exposure to
toxic fumes which were allegedly released as a result of the explosion and the
City of Bogalusa also seeks reimbursement of expenses allegedly resulting from
the explosion. The Company has filed motions and/or exceptions in the
Mississippi and Louisiana actions denying personal jurisdiction, which
motions/exceptions remain pending. The Mississippi court has established a trial
date for an initial group of plaintiffs to be determined for September 1998. The
Louisiana court has established a plan culminating in a trial in October 1998.
The suits have been tendered to the Company's liability insurance carriers for
defense and indemnification. Vicksburg and Cedar have commenced an action in the
22nd Judicial District Court, Washington Parish, Louisiana against their
principal insurance carriers (whose insurance policies also include the Company
as an additional named insured) seeking a declaratory judgment that Cedar and
Vicksburg are entitled to defense costs and indemnification with respect to
these claims. The Company has commenced settlement discussions with
representatives of the Louisiana and Mississippi plaintiffs. There can be no
assurance that a settlement will be achieved.
There are several other legal proceedings pending against the Company and
certain of its subsidiaries arising in the ordinary course of its business which
management does not consider material.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters described or referred to above should not have a material adverse
effect on the financial position, future operations or liquidity of the Company.
However, management of the Company cannot predict with certainty the outcome of
the potash and Louisiana matters described above.
For information relating to certain environmental proceedings affecting the
Company, see "Environmental Matters" above.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Arie Genger 52 Chairman of the Board and Chief Executive Officer
Thomas G. Hardy 52 President and Chief Operating Officer; Director
Gabriel Politzer 48 Senior Vice President
Lester W. Youner 52 Vice President, Treasurer and Chief Financial Officer and
Secretary
John J. Lewandowski 42 Vice President -- Corporate Development
Michael P. Oravec 46 Vice President -- Corporate Taxation
Martin A. Coleman 67 Director
Sash A. Spencer 66 Director
In addition, the following are key employees of the Company's subsidiaries:
NAME AGE POSITION
---- --- --------
Amiad Cohen 60 President of HCL
Esther Eldan 43 Managing Director of HCL
J. Randal Tomblin 55 Senior Vice President of Cedar and President of the
Organic Chemicals Division
Yale L. Schalk 42 President of Vicksburg
The Financial Advisory Committee advises the Board of Directors regarding
financial matters and, when the Committee deems appropriate, make
recommendations to the Board of Directors. The members of the Financial Advisory
Committee are Mr. Lawrence M. Small and Messrs. Hardy and Spencer.
The following are descriptions of the directors, executive officers and key
employees of the Company.
Arie Genger has been a director and Chairman of the Board of Directors and
Chief Executive Officer of the Company since 1986, the sole member of the
Executive Committee since June 1988, and was President of the Company from 1986
to December 1993.
Thomas G. Hardy has been President and Chief Operating Officer of the
Company since December 1993, was Executive Vice President of the Company from
June 1987 to December 1993 and has been a director and member of the Financial
Advisory Committee since October 1992. He was a director of Laser from January
1990 until February 1998 and, since February 1998, has been a director of ESC
(see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Significant Developments -- Laser Investment").
Gabriel Politzer has been a Senior Vice President of the Company since
January 1, 1998, with responsibilities for the Company's worldwide Specialty
Plant Nutrients products. He was Executive Vice President of Vicksburg from
September 1993 to January 1998. From January 1989 through September 1993, he was
Vice President of Sales and Marketing at HCL. From 1983 to 1989 he was Chief
Financial Officer of Negev Phosphates (a major subsidiary of Israel Chemicals
Ltd.).
Lester W. Youner has been Vice President, Treasurer and Chief Financial
Officer of the Company since October 1987 and has been Secretary since December
31, 1996. From June 1979 until October 1987 he was a Partner of Deloitte &
Touche LLP, a public accounting firm. He was a director of Laser from November
1996 to February 1998.
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John J. Lewandowski has been Vice President -- Corporate Development of the
Company since September 1996. From September 1995 until August 1996 he served as
the President of the Company's Potash Group. From January 1995 (when he accepted
a position with the Company) until September 1995 he served as the Company's
Director of Business Development. From 1991 through 1994 he served in a variety
of consulting and business advisory roles for several chemical producers in the
United States and Eastern Europe. From 1983 to 1990 he was employed by Arcadian
Corporation, in positions of increasing responsibility, his last position being
Director -- Nitrogen Products.
Michael P. Oravec has been Vice President -- Corporate Taxation since
January 1997. From December 1994 (when he accepted a position with the Company)
until December 1996 he served as the Company's Director of Taxes. From 1980 to
1994 he was employed by The Mennen Company, in positions of increasing
responsibility, his last position being Director of Taxes.
Martin A. Coleman has been a director since March 1993. Since January 1991
he has been a private investor. Prior to that he was a member of the law firm of
Rubin Baum Levin Constant & Friedman, general counsel to the Company, for more
than five years.
Sash A. Spencer has been a director since October 1992 and a member of the
Financial Advisory Committee since March 1993. He has been an investor and
Chairman of Holding Capital Management Corp., a private investment firm, for
more than five years and is on the board of directors of several private
companies.
Amiad Cohen has been the Managing Director of HCL since 1988. Mr. Cohen has
over thirty years of experience in the chemical industry. Effective April 1,
1998, Mr. Cohen became the President of HCL.
Esther Eldan has been general manager of HCL's Specialty Fertilizer
Division since its inception in January 1996. Previously, she was the Chief
Financial Officer of HCL for more than five years. Ms. Eldan joined HCL in 1981.
Effective April 1, 1998, Ms. Eldan became the Managing Director of HCL.
J. Randal Tomblin has been Senior Vice President of Cedar and President of
its Organics Division since 1989. He was Vice President of NMPC from 1985 to
1986, President and Chief Executive Officer of Vertac Chemical Corporation from
1986 to 1987 and was in private business for a period between 1987 and 1989.
Prior to joining NMPC, he served for 20 years with Hoechst Celanese Corporation,
most recently as a Director of Manufacturing with Hoechst Celanese Chemical
Company, and Director of Strategic Planning and Director of New Business
Development with Hoechst Celanese Fibers Division.
Yale L. Schalk joined the Company in December of 1997 as President of
Vicksburg after over 20 years of experience with Shell Oil Company and DuPont,
where he held a variety of positions in sales, marketing and business
management. Most recently from 1994 to 1997, he was U.S. Marketing Manager,
interim Director of U.S. Business and North American Business Unit Leader of
DuPont's Agricultural Products Division.
Lawrence M. Small, 56, has been Chairman of the Financial Advisory
Committee of the Board of Directors since October 1992. Mr. Small is President
and Chief Operating Officer of Fannie Mae, the country's largest investor in
home mortgages and issuer of mortgage-backed securities, headquartered in
Washington, DC, which he joined in September 1991. Prior to that, he was Vice
Chairman and Chairman of the Executive Committee of the Boards of Directors of
Citicorp and Citibank, N.A., where he was employed for 27 years. He serves as a
director of Fannie Mae, The Chubb Corporation and Marriott International, Inc.
Directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified. There are no arrangements or
understandings between any director or executive officer of the Company and any
other person pursuant to which such person was elected
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as a director or executive officer. The executive officers serve at the
discretion of the Board of Directors.
There are no family relationships among any directors, executive officers
or key employees of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued
by the Company for the past three fiscal years to its Chief Executive Officer
and to other executive officers during the 1997 fiscal year whose annual
compensation exceeded $100,000 for the year ended December 31, 1997:
ANNUAL COMPENSATION(a)
---------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(b)
--------------------------- ---- -------- -------- ---------------
Arie Genger................................ 1997 $750,000 $400,000 $797,000
Chairman of the Board 1996 750,000 750,000 682,000
and Chief Executive Officer 1995 675,000 -- 510,000
Thomas G. Hardy............................ 1997 425,000 150,000 5,000
President and Chief Operating Officer 1996 400,000 175,000 1,405,000
and Director 1995 360,000 130,000 5,000
Lester W. Youner........................... 1997 263,000 75,000 5,000
Vice President, Treasurer and 1996 251,000 100,000 5,000
Chief Financial Officer and Secretary 1995 241,000 65,000 5,000
John J. Lewandowski........................ 1997 125,000 35,000 4,000
Vice President -- Corporate Development 1996 120,000 105,000 4,000
Michael P. Oravec.......................... 1997 118,000 18,000 5,000
Vice President -- Corporate Taxation
- ---------------
(a) During the period covered by the table, the Company did not make any
restricted stock awards and did not have in effect any stock option or stock
appreciation rights plan. See "Compensation Agreements" for Mr. Hardy's
bonus arrangement.
(b) Includes the cost to the Company of split-dollar life insurance policies on
the life of Mr. Genger. The Company paid premiums on these policies of
$286,000 in 1997. The Company is entitled to a refund of the cumulative
annual premiums paid by it to the insurers pursuant to the split-dollar life
insurance arrangements before any benefits are paid by the insurers to the
owner or beneficiaries of the policies. Additionally, for 1997, includes:
(i) in the case of Mr. Genger, $250,000 for an annual premium on ordinary
life insurance, $250,000 for related income tax gross-up, $4,000 for the
Company's matching contribution to a profit sharing thrift plan, and $7,000
for the premium on term life insurance; (ii) in the case of Messrs. Hardy,
Youner, Lewandowski and Oravec, $4,000 each for the Company's matching
contribution to a profit sharing thrift plan; and (iii) $1,000 each for
Messrs. Hardy, Youner and Oravec for the premium on term life and disability
insurance.
Includes the cost to the Company of split-dollar life insurance policies on
the life of Mr. Genger. The Company paid premiums on these policies of
$171,000 in 1996. The Company is entitled to a refund of the cumulative
annual premiums paid by it to the insurers pursuant to the split-dollar life
insurance arrangements before any benefits are paid by the insurers to the
owner or beneficiaries of the policies. Additionally, for 1996, includes:
(i) in the case of Mr. Genger, $250,000 for an annual premium on ordinary
life insurance, $250,000 for related income tax gross-up, $4,000 for the
Company's matching contribution to a profit sharing thrift plan, and $7,000
for the premium on term life insurance; (ii) in the case of Messrs. Hardy,
Youner and Lewandowski, $4,000 each for the Company's matching contribution
to a profit sharing thrift plan; and (iii) $1,000 each for Messrs. Hardy and
Youner for the premium on term life insurance. In the case of Mr. Hardy,
also includes $1,400,000 deposited in trust for Mr. Hardy. See "Compensation
Agreements".
For 1995, consists of: (i) in the case of Mr. Genger, $250,000 for an annual
premium on ordinary life insurance, $250,000 for related income tax
gross-up, $4,000 for the Company's matching contribution to a profit sharing
thrift plan, and $6,000 for the premium on term life insurance; (ii) in the
case of Messrs. Hardy and Youner, $4,000 each for the Company's matching
contribution to a profit sharing thrift plan; and (iii) $1,000 each for
Messrs. Hardy and Youner for the premium on term life insurance.
COMPENSATION AGREEMENTS
Pursuant to an Agreement entered into in March 1994 (the "New Agreement"),
which modified and superseded a 1988 bonus arrangement under which no payments
had been made, the Company was required to irrevocably deposit in trust for the
benefit of Mr. Hardy an aggregate of $2,800,000, of which $1,400,000 was
deposited upon execution of the New Agreement, and the
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remaining $1,400,000 was deposited in March, 1996. The deposited funds are held
under a Trust Agreement (the "Trust Agreement"), which provides that the assets
held thereunder are subject to the claims of the Company's general creditors in
the event of insolvency of the Company. The Trust Agreement provides that the
assets are payable in a lump sum to Mr. Hardy or his beneficiaries upon the
earlier of December 1, 2001 or the termination of his employment with the
Company.
An employment agreement between the Company and Mr. Hardy, effective as of
June 1, 1993, having a primary term of seven years, renewable for 10 additional
years unless either party gives at least 12 months' prior written notice of
termination, provides for an annual salary of $400,000, subject to negotiated
annual increases commencing in the year 2000. With certain restrictions, Mr.
Hardy will be entitled to receive a bonus (the "Bonus") based on a percentage of
the fair market value (the "Value") of the Company's equity at December 31st of
the year Mr. Hardy's employment terminates, he turns 65 or certain acceleration
events, including a change of control of the Company, occur. If the Company and
Mr. Hardy cannot agree on the Value, each may propose an amount. If only one
makes a proposal, that would constitute the Value. If each makes a proposal, an
investment banker would choose between them. The Bonus, generally payable in
installments, would be equal to the excess over $2,800,000 (the aggregate amount
Mr. Hardy received under the New Agreement) of specified percentages of
different ranges of Value. Mr. Hardy is not entitled to the Bonus if he
voluntarily terminates his employment during the primary term (other than by
death or disability) or if Mr. Hardy's employment is terminated for cause (as
defined).
Pursuant to a salary continuation agreement between the Company and Lester
W. Youner, the Company is obligated to pay Mr. Youner a retirement allowance
(the "Allowance") of $100,000 per year for life commencing at age 65. In the
event of Mr. Youner's death after the commencement of the payment of the
Allowance, Mr. Youner's designated beneficiary is to receive the Allowance until
10 annual payments shall have been made to Mr. Youner and his beneficiary. Mr.
Youner became 30% vested in the Allowance on December 31, 1997 and shall
continue to vest at the rate of 5% per year thereafter provided that he remains
in the employ of the Company. Notwithstanding the foregoing, the Allowance will
become 100% vested on the earlier of Mr. Youner's 65th birthday or the
occurrence of an acceleration event, including a change of control of the
Company. Mr. Youner forfeits the Allowance if his employment is terminated for
cause (as defined) or, if within two years after the voluntary termination of
his employment, Mr. Youner engages directly or indirectly in any activity
competitive with the Company or any of its subsidiaries. The agreement further
provides that in the event of Mr. Youner's death prior to his 65th birthday
while in the active employ of the Company, his designated beneficiary is to
receive an annual death benefit of $100,000 for 10 years. Mr. Youner's death
benefit is currently 100% vested.
The Company is also a party to certain split-dollar insurance agreements on
the life of Mr. Genger as described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a Compensation Committee. Executive
officer compensation matters were determined by the Board of Directors, whose
four members currently include Mr. Genger, Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Hardy, President and Chief Operating
Officer of the Company. No director has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
COMPENSATION OF DIRECTORS
Officers of the Company who serve as directors do not receive any
compensation for serving as directors. Martin A. Coleman and Sash A. Spencer
each receive $15,000 annually for serving as directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1998, as
to the beneficial ownership of the Common Stock of the Company, which is the
only outstanding class of voting security of the Company:
SHARES
NAME AND ADDRESS OWNED PERCENT OF CLASS
---------------- ------------ ----------------
Common Stock, $.01 par value(a):
TPR(b).................................................... 3,000 100%
9 West 57th Street
New York, NY 10019
All executive officers and directors as a group (eight
persons)(b)............................................... 3,000 100%
- ---------------
(a) All of the shares of the Common Stock of the Company are pledged to secure
an outstanding TPR note of $7 million issued to a former indirect
stockholder and director of the Company. See "Certain Relationships and
Related Transactions" regarding TPR's ownership of shares of non-voting
preferred stock of the Company.
(b) Mr. Genger and members of his family own all of the capital stock of TPR.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is, for Federal income tax purposes, a member of a consolidated
tax group of which TPR is the common parent. The Company, TPR, EDP, Cedar,
Na-Churs and certain other subsidiaries are parties to a tax sharing agreement,
dated as of December 30, 1991, under which, among other things, the Company and
such other parties have each agreed to pay TPR amounts equal to the amounts of
Federal income taxes that each such party would be required to pay if it filed a
Federal income tax return on a separate return basis (or in the case of Cedar, a
consolidated Federal income tax return for itself and its eligible
subsidiaries), computed without regard to net operating loss carrybacks and
carryforwards. However, TPR may, at its discretion, allow tax benefits for such
losses. See Note A of Notes to Consolidated Financial Statements.
See Notes G and L of Notes to Consolidated Financial Statements for a
description of a 1994 transaction pursuant to which TPR acquired the Company's
outstanding $9.0 million, 9.5% junior subordinated debentures due 2005 (the
"9.5% Debentures") and became the obligor on an outstanding 8.75%, $4.0 million
note due 2005 payable to the Company. Upon TPR's acquisition of the 9.5%
Debentures, TPR exchanged the 9.5% Debentures for a new preferred stock of the
Company described in said Note L. In addition, during 1995 TPR assumed the
Company's obligation for $9.0 million principal amount of outstanding 9.5%
Debentures due in 1998 and Company's liability thereon was extinguished. TPR
pledged the above-mentioned preferred stock to secure TPR's $9.0 million
obligation, which, the Company has been advised, was retired in April 1998.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company and certain of its subsidiaries maintain separate credit
facilities. The following is a summary description of the major credit
facilities.
COMPANY FACILITY
The Company has entered into a Loan Agreement, dated as of December 29,
1995, as amended (the "Company Facility"), with a bank which provides for loans
upon the Company's request prior to December 29, 1998 in an aggregate principal
amount not to exceed $40 million. Indebtedness under this facility is not
guaranteed by any of the Company's subsidiaries. Proceeds may be used for
general corporate purposes, including the acquisition by the Company of
businesses or lines of businesses. As of December 31, 1997, $3 million was
outstanding under the Company Facility. The following summary of the Company
Facility does not purport to be complete and is subject to and qualified in its
entirety by reference to the Company Facility. All capitalized terms used in the
summary below and not otherwise defined in this Prospectus have the meanings
assigned to such terms in the Company Facility.
Security. The Company Facility is secured by a pledge of all of the
outstanding stock of HCL.
Maturity; Prepayment. The Company Facility matures on December 29, 2004.
Advances under the Company Facility are to be repaid in equal quarterly annual
installments, beginning after the second anniversary of the applicable Advance
and ending on the maturity date. Advances under the Company Facility are
prepayable, without penalty, at any time.
Interest Rates. Borrowings under the Company Facility bear interest at the
rate of LIBOR (generally three month LIBOR) plus 2.25%.
Covenants. The Company Facility contains customary covenants, including
maintenance of certain financial ratios and certain limitations on dividends.
Events of Default. The Company Facility contains customary events of
default, including, among others, a change of control (as defined).
CEDAR FACILITY
Cedar has entered into a Credit Agreement, dated as of November 3, 1995 and
Amended and Restated as of July 31, 1997 (as further amended from time to time,
the "Cedar Facility"), among Cedar, the lenders party thereto and The Chase
Manhattan Bank, as Administrative Agent. The following summary of the Cedar
Facility does not purport to be complete and is subject to and qualified in its
entirety by reference to the Cedar Facility. All capitalized terms used in the
summary below and not otherwise defined in this Prospectus have the meanings
assigned to such terms in the Cedar Facility.
The Cedar Facility provides for Tranche A Term Loans, of which $6.2 million
remains outstanding as of December 31, 1997; Tranche B Term Loans, of which
$44.2 million remains outstanding as of December 31, 1997; and revolving credit
Working Capital Loans in an aggregate principal amount not to exceed $26
million, under which $7.5 million is available as a letter of credit
subfacility. As of December 31,1997, $1.5 million of Working Capital loans were
outstanding.
Maturity. The Working Capital Loans mature on October 31, 2001. The Tranche
A Term Loans are payable in full on October 31, 2001. The Tranche B Term Loans
are payable quarterly and amount to $440,000 every year until October 31, 2001,
$20 million in 2002 and approximately $22.5 million in 2003, with the final
installment due October 31, 2003.
Interest. Borrowings under the Cedar Facility bear interest at a rate, at
Cedar's option, equal to (i) the Eurodollar Rate or (ii) the Base Rate, plus an
Applicable Margin. The Applicable Margin ranges from 0.50% to 2.00% for Base
Rate Loans and from 1.75% to 3.25% for Eurodollar Loans.
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Guarantees. Indebtedness under the Cedar Facility is guaranteed by two
Cedar subsidiaries, (Vicksburg and Cedar International, Inc.), and, to a limited
extent, by Nine West.
Security. Cedar's obligations under the Cedar Facility are secured by a
continuing security interest in substantially all of the assets of Cedar and a
pledge of its subsidiaries' capital stock. The guaranty obligations of the
subsidiary guarantors are secured by a continuing security interest in
substantially all of the assets of such subsidiary guarantors. Nine West's
guaranty obligations are secured by a pledge of all of Cedar's capital stock.
Mandatory Prepayments and Cover. Cedar is required to apply all or a
portion of certain proceeds towards prepayment of the Loans (or provide cover
for Letter of Credit Liabilities) under certain circumstances, including the
receipt of certain insurance proceeds or condemnation awards, upon the issuance
of capital stock or the incurrence of indebtedness, upon certain asset
dispositions, the reversion of pension plans and the existence of Excess Cash
Flow. The Working Capital Loans are subject to a Borrowing Base which governs
permitted drawings and is equal to 85% of the aggregate amount of Eligible
Receivables plus 50% of the aggregate amount of Eligible Inventory, provided
that the Eligible Inventory component does not exceed 50% of the Borrowing Base.
Covenants. The Cedar Facility contains customary covenants, including the
maintenance of certain financial ratios and certain limitations on dividends.
Events of Default. The Cedar Facility contains customary events of default,
including, among others, a change of control (as defined).
HCL AND HCSL FACILITIES
HCL is a party to four outstanding long-term bank loan agreements and HCSL
is a party to two outstanding long-term bank loan agreements, in each case with
banks in Israel. Each of the loans is secured by fixed and floating charges on
assets of HCL or HCSL, as applicable. The following summaries of these bank
facilities do not purport to be complete and are subject to and qualified in
entirety by reference to the respective agreements. All capitalized terms used
in the summary below and not otherwise defined in this Prospectus have the
meanings assigned to such terms in the applicable HCL or HCSL credit facility.
The HCL and HCSL long-term credit facilities contain customary covenants,
including maintenance of certain financial ratios and (generally) limitations on
dividends, and customary events of default, including, among others, upon a
change of control (as defined).
$30 Million Loan to HCL
A letter of undertaking, dated December 25, 1995, as amended, from a bank
provided for a loan of $30 million to HCL. As of December 31, 1997, $30.0
million was outstanding under this facility. Repayment of the principal of this
loan is to be made in 10 semi-annual installments, beginning on January 1, 2001.
The loan bears interest at the rate of LIBOR (6 month) plus 1.25%.
$21 Million Loan to HCL
An application dated June 26, 1995 from HCL to a bank provided for a term
loan of $21 million to HCL. As of December 31, 1997, $21.0 million was
outstanding under this facility. The proceeds of the loan may be used only for
investment purposes in Israel. Repayment of the principal of this loan is to be
made in 10 semi-annual installments, beginning in 2015. The loan bears interest
at the rate of 8.36% per annum.
$28 Million HCL Credit Facility
A credit facility, dated June 2, 1993, as amended, from two banks provided
for drawings prior to December 31, 1995 of up to $28 million to HCL. As of
December 31, 1997, $22.4 million was outstanding under this facility. The
proceeds of this loan may be used only for the construction of
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the Mishor Rotem plant. Repayment of the principal of this loan is to be made in
20 semi-annual installments, beginning in March 1996. The loan bears interest at
the rate of LIBOR (6 month) plus 1.3%.
$30 Million HCL Credit Facility
A credit facility, dated November 5, 1989, as amended, from two banks
provided for a $30 million credit facility to HCL. As of December 31, 1997, $6.9
million was outstanding under this facility. A specified portion of the proceeds
may be used only for the import of equipment for the expansion of the Haifa
Facility. Repayment of the principal of this loan is to be made in 13 semi-
annual installments, beginning in June 1993. The loan bears interest at the rate
of LIBOR plus 1.5%.
$24 Million HCSL Credit Facility
A credit agreement, dated June 2, 1993, from two banks provided for a $24
million credit facility to HCSL. Drawings, to be utilized for construction of
the Mishor Rotem plant, were permitted until December 31, 1995. As of December
31, 1997, $19.2 million was outstanding under this facility. Repayment of the
principal of this loan is to be made in 20 semi-annual installments beginning in
March 1996. The loan bears interest at the rate of LIBOR (6 month) plus 1.3%.
$10 Million HCSL Credit Facility
A credit agreement, dated June 2, 1993, from two banks provided for a $10
million credit facility to HCSL. Drawings, to be utilized for working capital,
were permitted until December 31, 1997. As of December 31, 1997, $8.0 million
was outstanding under this facility. Repayment of the principal of this loan is
to be made in 20 semi-annual installments, beginning in March 1996. The loan
bears interest at the rate of LIBOR (6 month) plus 1.3%.
HCL Short-Term Credit Lines
HCL has short-term credit lines from six banks for an aggregate of $44
million, under which approximately $36 million was outstanding at December 31,
1997.
Pledge of Assets to Banks
Substantially all of the assets of HCL and HCSL are pledged by fixed and
floating charges to banks as security for their respective obligations under the
loan agreements as well as, in the case of HCL, under the short-term credit
lines provided by various banks. In addition, substantially all of these assets
are subject to security interests in favor of the State of Israel in connection
with benefits received under the Investment Law (see "Conditions in
Israel -- Investment Incentives").
ANTICIPATED NEW HCL/HCSL FACILITY
HCL and HCSL intend to enter into a new $80 million credit facility which
will be used primarily to finance the planned potassium nitrate and food grade
phosphate capacity expansion in Mishor Rotem. The terms are currently expected
to include: (i) a 13-year maturity, with no amortization of principal during the
first three years; (ii) an interest rate equal to LIBOR plus 0.95%; and (iii)
drawings are to be permitted in U.S. or European currencies. It is currently
anticipated that $37 million of the facility will be available to HCL and $43
million of the facility will be available to HCSL.
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DESCRIPTION OF THE NEW NOTES
The New Senior Notes will be issued as a separate series under the
indenture dated as of March 16, 1998 (the "Senior Notes Indenture") between the
Company and State Street Bank and Trust Company, as trustee (the "Senior Notes
Trustee"), and the New Senior Discount Notes will be issued as a separate series
under the indenture dated as of March 16, 1998 (the "Senior Discount Notes
Indenture" and, together with the Senior Notes Indenture, the "Indentures"),
between the Company and State Street Bank and Trust Company, as trustee (the
"Senior Discount Notes Trustee" and, together with the Senior Notes Trustee, the
"Trustees"). The form and terms of the New Notes are the same as the form and
terms of the Old Notes (which they replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will not be entitled to certain
rights under the Exchange and Registration Rights Agreements. The Old Senior
Notes issued in the Initial Offering and the New Senior Notes offered hereby are
referred to collectively as the "Senior Notes," the Old Senior Discount Notes
issued in the Initial Offering and the New Senior Discount Notes offered hereby
are referred to collectively as the "Senior Discount Notes," and the Old Notes
issued in the Initial Offering and the New Notes offered hereby are referred to
collectively as the "Notes." The following summary of the material provisions of
the Indentures and the Notes does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act") and to the Indentures and the Notes,
including the definitions of certain terms contained therein, and those terms
made a part of the Indentures by reference to the Trust Indenture Act, as in
effect on the date of the Indentures. References in this section to "the
Company" refer only to Trans-Resources, Inc. and not to any of its subsidiaries.
GENERAL
The Notes will be issued only in registered form, without coupons and in
denominations of $1,000 principal amount at maturity and integral multiples
thereof. The Company will appoint each Trustee to serve as registrar and paying
agent under the applicable Indenture at its offices in New York, New York. No
service charge will be made for any registration or transfer or exchange of the
Notes, except for any taxes or other governmental charges that may be imposed in
connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all Subordinated Indebtedness of the Company.
Claims of Holders of the Notes will be effectively subordinated to all secured
indebtedness of the Company and to the claims of creditors of the Company's
subsidiaries. See "Risk Factors -- Holding Company Structure."
MATURITY, INTEREST AND PRINCIPAL
Maturity, Interest and Principal of the Senior Notes. The Senior Notes will
be limited to $100,000,000 aggregate principal amount and will mature on March
15, 2008. Cash interest on the Senior Notes will accrue at the rate of 10 3/4%
per annum and will be payable semi-annually in arrears on each March 15 and
September 15, commencing September 15, 1998 (each, an "Interest Payment Date"),
to the Holders of record of the Senior Notes at the close of business on the
March 1 and September 1 immediately preceding such Interest Payment Date (each,
an "Interest Record Date"). Interest on the Senior Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the original date of issuance of the Notes (the "Issue Date").
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Maturity, Interest and Principal of the Senior Discount Notes. The Senior
Discount Notes will be limited to $135,000,000 aggregate principal amount at
maturity and will mature on March 15, 2008. The Senior Discount Notes were
issued at a discount to their aggregate principal amount at maturity
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to generate gross proceeds of $75,408,300. Based on the issue price thereof, the
yield to maturity of the Senior Discount Notes will be 12% (computed on a
semi-annual bond equivalent basis), calculated from March 16, 1998. See "Certain
United States Federal Income Tax Considerations."
Cash interest on the Senior Discount Notes will accrete and compound
semi-annually until March 15, 2003. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of 12% per annum and will be payable
semi-annually in arrears on each March 15 and September 15, commencing September
15, 2003, to the Holders of record of the Senior Discount Notes at the close of
business on the March 1 and September 1 immediately preceding such Interest
Payment Date. Cash interest will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
ADDITIONAL INTEREST
Pursuant to the Exchange and Registration Rights Agreements, the Company
has agreed to file with the Commission one or more Exchange Offer Registration
Statements and to offer to the Holders of Old Notes who are able to make certain
representations the opportunity to exchange their Old Notes for the applicable
New Notes. In the event that the Company is not permitted to consummate an
Exchange Offer because such Exchange Offer is not permitted by applicable law or
Commission policy or, in certain other circumstances, including if for any
reason an Exchange Offer is not consummated within 180 days after the Issue
Date, the Company will file with the Commission a Shelf Registration Statement
with respect to resales of the applicable Old Notes by the Holders thereof.
Additional interest on the applicable Notes will be payable under certain
circumstances during the period the Company is not in compliance with its
obligations under the Exchange and Registration Rights Agreements. See "Exchange
and Registration Rights Agreements; Purpose of the Exchange Offer."
SINKING FUND
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
OPTIONAL REDEMPTION
Optional Redemption of the Senior Notes. The Senior Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after March 15, 2003, at the redemption prices (expressed as percentages of the
principal amount) set forth below, plus accrued and unpaid interest, if any, to
the redemption date (subject to the rights of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date), if redeemed during the 12-month period beginning on March 15 of the years
indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2003............................................. 105.375%
2004............................................. 103.583%
2005............................................. 101.792%
2006 and thereafter.............................. 100.000%
In addition, at any time and from time to time on or prior to March 15,
2001, the Company may redeem in the aggregate up to 33 1/3% of the aggregate
principal amount of the Senior Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings by the Company after which there
is a Public Market, at a redemption price in cash equal to 110.75% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date); provided, however, that at least 66 2/3% of the aggregate
principal amount of the Senior Notes originally issued must remain outstanding
immediately after giving effect
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to each such redemption (excluding any Notes held by the Company or any of its
Affiliates). Notice of any such redemption must be given within 60 days after
the date of the closing of the relevant Public Equity Offering of the Company.
Optional Redemption of the Senior Discount Notes. The Senior Discount Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after March 15, 2003, at the redemption prices (expressed as a
percentage of principal amount at maturity) set forth below, plus accrued and
unpaid interest thereon, if any, to the redemption date, if redeemed during the
12-month period beginning on March 15 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2003............................................. 106.000%
2004............................................. 104.000%
2005............................................. 102.000%
2006 and thereafter.............................. 100.000%
In addition, at any time and from time to time on or prior to March 15,
2001, the Company may redeem in the aggregate up to 33 1/3% of the aggregate
principal amount at maturity of the Senior Discount Notes originally issued with
the net cash proceeds of one or more Public Equity Offerings by the Company
after which there is a Public Market, at a redemption price in cash equal to
112% of the Accreted Value thereof on the date of redemption; provided, however,
that at least 66 2/3% of the aggregate principal amount at maturity of the
Senior Discount Notes originally issued must remain outstanding immediately
after giving effect to each such redemption (excluding any Notes held by the
Company or any of its Affiliates). Notice of any such redemption must be given
within 60 days after the date of the closing of the relevant Public Equity
Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the applicable Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or by such method as such Trustee shall deem fair and
appropriate; provided, however, that the Notes will only be redeemable in
principal amounts at maturity of $1,000 or an integral multiple of $1,000
principal amount at maturity; provided, further, however, that if a partial
redemption is made with the net cash proceeds of a Public Equity Offering by the
Company, selection of the Senior Notes or Senior Discount Notes, as the case may
be, or portions thereof for redemption will be made by such Trustee only on a
pro rata basis or as nearly a pro rata basis as is practicable (subject to the
procedures of The Depository Trust Company), unless such method is otherwise
prohibited. Notice of redemption will be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note will state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
at maturity equal to the unredeemed portion thereof will be issued in the name
of the Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue and Accreted Value will cease to
accrete, as the case may be, on the Notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent for the
Notes funds in satisfaction of the applicable redemption price pursuant to the
applicable Indenture.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control, the Company will notify
Holders of the Notes of such occurrence in the manner prescribed under the
Indentures and will make an offer to purchase (the "Change of Control Offer"),
on a business day (the "Change of Control Offer Date")
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not later than 60 days following the Change of Control Date, all Notes then
outstanding at a purchase price equal to 101% of the principal amount or
Accreted Value, as the case may be, thereof, plus accrued and unpaid interest,
if any, to the date of purchase.
Notice of a Change of Control Offer will be given to Holders of the Notes,
not less than 25 days nor more than 45 days before the date of purchase. The
Company's obligations may be satisfied if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have sufficient funds available to pay for all of the Notes that
might be tendered by Holders of Notes seeking to accept the Change of Control
Offer. If the Company fails to repurchase all Notes tendered for purchase, such
failure will constitute an Event of Default under the Indentures. See "Events of
Default" below.
If the Company makes a Change of Control Offer, the Company will comply
with all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indentures relating to such Change of Control
Offer occurring as a result of such compliance shall not be deemed an Event of
Default or an event that, with the passing of time or giving of notice, or both,
would constitute an Event of Default.
Except as described above with respect to a Change of Control, the
Indentures do not contain provisions that permit Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Additional Indebtedness. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, Incur, assume,
issue, guarantee or in any manner become directly or indirectly liable for or
with respect to, contingently or otherwise, the payment of any Indebtedness or
issue any Disqualified Equity Interests, except for Permitted Indebtedness,
unless, after giving pro forma effect to such Incurrence of Indebtedness or
issuance of Disqualified Equity Interests and the application of the proceeds
therefrom, the Company's Consolidated Operating Cash Flow Ratio would be greater
than or equal to 2.0 to 1.0.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which will be given
independent effect:
(a) Indebtedness under the Notes and the Indentures;
(b) outstanding Indebtedness on the Issue Date (other than Existing
Notes purchased with the net proceeds of the Notes), and Indebtedness which
may be Incurred pursuant to commitments in effect on the Issue Date;
provided that Indebtedness incurred pursuant to this clause (b) shall not
exceed $280 million (plus the amount of Existing Notes which remain
unpurchased after the Issue Date) in the aggregate at any one time
outstanding (which amount shall be reduced to the extent any such
Indebtedness is refinanced pursuant to clause (f) below (it being
understood that the replacement of a lending commitment (or portion
thereof) to the Company or a Restricted Subsidiary under which (or as to
the portion of which) no Indebtedness is outstanding at the time of such
replacement with another lending commitment to the Company or such
Restricted Subsidiary, respectively, shall not be considered a
"refinancing" reducing such amount of Indebtedness which may be incurred
pursuant to this clause (b));
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(c) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Restricted Subsidiary; provided that the
Indebtedness incurred pursuant to this subclause (y) is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under the Indentures and the Notes; provided,
however, that an Incurrence of Indebtedness that is not permitted by this
clause (c) shall be deemed to have occurred upon (i) any sale or other
disposition of any Indebtedness of the Company or any Restricted Subsidiary
referred to in this clause (c) to a Person (other than the Company or any
Restricted Subsidiary) and (ii) the designation of a Restricted Subsidiary
which holds Indebtedness of the Company or any other Restricted Subsidiary
as an Unrestricted Subsidiary;
(d) Interest Rate Agreements, Commodity Agreements and Currency
Agreements of the Company and the Restricted Subsidiaries;
(e) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company or any Restricted Subsidiary in an amount not to exceed $10.0
million outstanding at any time (which amount shall be reduced to the
extent any such Purchase Money Indebtedness or Capitalized Lease Obligation
is refinanced pursuant to clause (f) below);
(f) Indebtedness of the Company or a Restricted Subsidiary to the
extent representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness Incurred in
compliance with the Consolidated Operating Cash Flow Ratio of the first
paragraph of this covenant or clause (a), (b), (e), (f) or (g) of this
paragraph of this covenant; provided, however, that (i) any such
refinancing shall not exceed the sum of the principal amount (or accreted
amount (determined in accordance with GAAP), if less) of the Indebtedness
or Disqualified Equity Interests being refinanced, plus the amount of
accrued interest or dividends thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and
such reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness of the Company
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced and
(iii)(A) Indebtedness of the Company may only be refinanced with other
Indebtedness or Disqualified Equity Interests of the Company and (B)
Disqualified Equity Interests of the Company may only be refinanced with
other Disqualified Equity Interests of the Company;
(g) Indebtedness not to exceed $80 million outstanding at any time
(which amount shall be reduced to the extent any such Indebtedness is
refinanced pursuant to clause (f) above) to the extent the proceeds thereof
are used to fund capital expenditures at HCL and its Subsidiaries, of which
not more than $50 million will be incurred in any calendar year; and
(h) in addition to the items referred to in clauses (a) through (g)
above, Indebtedness of the Company or any Restricted Subsidiary having an
aggregate principal amount not to exceed $15.0 million outstanding at any
time.
Limitation on Restricted Payments. The Company will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or make any payment or distribution to the
direct or indirect holders (in their capacities as such) of Equity
Interests of the Company (other than any (x) dividend or distribution
consisting of Equity Interests of an Unrestricted Subsidiary or consisting
of property or assets of an Unrestricted Subsidiary which are dividended or
otherwise transferred to the Company contemporaneously with such property
or assets being dividended or distributed by the Company or (y) dividends,
distributions and payments made to any Restricted Subsidiary and dividends
or distributions payable to any person solely in Qualified Equity Interests
of the
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Company or in options, warrants or other rights to purchase Qualified
Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company (other than any such Equity Interests owned
by any Restricted Subsidiary); or
(iii) make any Investment (other than Permitted Investments) in any
person (other than in the Company, any Restricted Subsidiary or a person
that becomes a Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary (provided the
Company or a Restricted Subsidiary is the survivor), as a result of or in
connection with such Investment)
(any such payment or any other action (other than any exception thereto)
described in (i) through (iii), a "Restricted Payment"), unless
(a) no Default has occurred and is continuing at the time of or
immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Operating Cash Flow Ratio
described under "Certain Covenants -- Limitation on Additional
Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum, without
duplication, of (1) 50% of cumulative Consolidated Net Income of the
Company determined for the period (taken as one period) from the beginning
of the fiscal quarter which includes the Issue Date and ending on the last
day of the most recent fiscal quarter immediately preceding the date of
such Restricted Payment for which consolidated financial information of the
Company is available (or if such cumulative Consolidated Net Income shall
be a loss, minus 100% of such loss), plus (2) the aggregate net cash
proceeds received by the Company from contributions to its common equity
capital and from the issue and sale (other than to a Restricted Subsidiary)
of its Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests financed,
directly or indirectly, using funds borrowed from the Company or any
Restricted Subsidiary until and to the extent such borrowing is repaid),
plus (3) the principal amount (or accreted amount (determined in accordance
with GAAP), if less) of any Indebtedness of the Company or any Restricted
Subsidiary incurred after the Issue Date which has been converted into or
exchanged for Qualified Equity Interests of the Company, plus (4) in the
case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date, an amount (to the extent not
included in the computation of Consolidated Net Income) equal to the lesser
of (x) the return of capital with respect to such Investment and (y) the
amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition of such Investment and net of
taxes, plus (5) so long as the Designation thereof was treated as a
Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with "Certain
Covenants -- Limitation on the Limitation on the Designation of
Unrestricted Subsidiaries" described below, the Company's proportionate
interest in an amount equal to the excess of (x) the total assets of such
Subsidiary, valued on an aggregate basis at Fair Market Value, over (y) the
total liabilities of such Subsidiary, determined in accordance with GAAP
(and provided that such amount shall not in any case exceed the Designation
Amount with respect to such Restricted Subsidiary upon its Designation),
minus (6) the greater of (x) $0 and (y) the Designation Amount (measured as
of the date of Designation) with respect to any Subsidiary of the Company
which has been designated as an Unrestricted Subsidiary after the Issue
Date in accordance with "Certain Covenants -- Limitation on the Designation
of Unrestricted Subsidiaries" described below.
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The provisions of this covenant will not prohibit (i) the payment of any
dividend or other distribution (x) within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of the applicable Indenture or (y) consisting of the net proceeds to
the Company or a Restricted Subsidiary from the disposition of the Equity
Interests of an Unrestricted Subsidiary; (ii) so long as no Default has occurred
and is continuing, the purchase, redemption, retirement or other acquisition of
any shares of Equity Interests of the Company (A) in exchange for or conversion
into or (B) out of the net cash proceeds of the substantially concurrent issue
and sale (other than to a Restricted Subsidiary of the Company) of shares of
Qualified Equity Interests of the Company or contributions to the common equity
capital of the Company; provided, however, that any such net cash proceeds and
the value of any Qualified Equity Interests issued in exchange for such retired
Equity Interests are excluded from clause (c)(2) of the preceding paragraph (and
were not included therein at any time); (iii) so long as no Default has occurred
and is continuing, the making of a direct or indirect Investment constituting a
Restricted Payment out of the proceeds from the issue or sale (other than to a
Subsidiary) of Qualified Equity Interests of the Company or contributions to the
common equity capital of the Company; (iv) the purchase, redemption or other
acquisition, cancellation or retirement for value of Equity Interests held by
officers or employees or former officers or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment not to exceed
$1.0 million in any fiscal year; (v) so long as no Default has occurred and is
continuing, dividends to TPR (or its successors) in an amount not to exceed $5.0
million in any year; provided that to the extent such dividends in any year are
less than $5.0 million, the amount less than $5.0 million may be paid in any
subsequent year, but no such dividends paid in any year pursuant to this clause
(v) shall exceed $10.0 million in any year; provided, further, that the
aggregate amount of dividends incurred pursuant to this clause (v) shall not
exceed $20.0 million in the aggregate; and (vi) other Restricted Payments not to
exceed $5.0 million in the aggregate. In determining the amount of Restricted
Payments permissible under this covenant, amounts expended under clauses (i)(x),
(iv), (v) and (vi) of this paragraph after the Issue Date shall (without
duplication) be included as Restricted Payments. The amount of any non-cash
Restricted Payment shall be deemed to be equal to the Fair Market Value thereof
at the date of the making of such Restricted Payment.
Limitation on Liens. The Company will not, directly or indirectly, Incur or
suffer to exist any Liens of any kind against or upon any of its properties or
assets now owned or hereafter acquired, or any proceeds therefrom or any income
or profits therefrom, to secure any Indebtedness unless effective provision is
made contemporaneously therewith to secure the Notes and all other amounts due
under the Indentures, equally and ratably with such Indebtedness (or, in the
event that such Indebtedness is subordinated in right of payment to the Notes,
prior to such Indebtedness) with a Lien on the same properties and assets
securing such Indebtedness for so long as such Indebtedness is secured by such
Lien, except for Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale, unless (a) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the shares or
assets sold or otherwise disposed of and (b) 75% of such consideration consists
of cash, Cash Equivalents or Fully Traded Common Stock; provided, however, that
to the extent that any Fully Traded Common Stock is received pursuant to such
Asset Sale and required to satisfy the 75% requirement of this clause (b), the
Fair Market Value of such Fully Traded Common Stock as of the date of
disposition shall be treated as Net Cash Proceeds for all purposes of this
covenant. The amount of any (i) Indebtedness of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries (but shall
not be deemed Net Cash Proceeds for purposes of this covenant) and (ii) notes or
other similar obligations received by the Company or the Restricted Subsidiaries
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from such transferee that are immediately converted, sold or exchanged by the
Company or the Restricted Subsidiaries into cash shall be deemed to be cash, in
an amount equal to the net cash proceeds realized upon such conversion, sale or
exchange for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply an amount of cash equal to the Net Cash Proceeds of any Asset Sale within
365 days (or 180 days in the case of any amount represented by any Fully Traded
Common Stock that has not been converted into cash by such 180th day) of receipt
thereof to repay Indebtedness of a Restricted Subsidiary, (ii) commit in writing
to acquire, construct or improve operating properties and capital assets to be
used by the Company or a Restricted Subsidiary and so apply an amount of cash
equal to such Net Cash Proceeds within 365 days (or 180 days in the case of any
amount represented by any Fully Traded Common Stock that has not been converted
into cash by such 180th day) after the receipt thereof or (iii) apply an amount
of cash equal to the Net Cash Proceeds of such Asset Sale within 365 days (or
180 days in the case of any amount represented by any Fully Traded Common Stock
that has not been converted into cash by such 180th day) of receipt thereof to
repay Pari Passu Debt not exceeding the Pari Passu Debt Pro Rata Share.
The amount of cash equal to all or part of the Net Cash Proceeds of any
Asset Sale that are not applied within 365 days (or 180 days) of such Asset Sale
as described in clause (i), (ii) or (iii) of the immediately preceding paragraph
shall constitute "Unutilized Net Proceeds." When the aggregate amount of
Unutilized Net Proceeds exceeds $5.0 million, the Company shall make an Offer to
Purchase outstanding Notes up to a maximum principal amount or Accreted Value,
as the case may be, of Notes equal to such Unutilized Net Proceeds, at a
purchase price in cash equal to 100% of the principal amount or Accreted Value,
as the case may be, thereof, plus accrued and unpaid interest thereon, if any,
to the Purchase Date.
To the extent that the aggregate amount of Notes tendered for repayment
pursuant to the Asset Sale Offer is less than the Net Cash Proceeds available
for such offer, such deficiency may be used for general corporate purposes. If
the aggregate amount of Notes validly tendered exceeds the Net Cash Proceeds
available for such offer, Notes to be purchased will be selected on a pro rata
basis or as nearly pro rata as practicable.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the applicable
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount at maturity and subject to any proration
among tendering Holders as described above.
Limitation on the Sale or Issuance of Preferred Equity Interests of
Restricted Subsidiaries. The Company will not sell any Preferred Equity Interest
of a Restricted Subsidiary, and will not cause or permit any Restricted
Subsidiary to issue any of its Preferred Equity Interests or sell any Preferred
Equity Interests of another Restricted Subsidiary (other than to the Company or
to a Wholly Owned Restricted Subsidiary), unless the Company would be permitted
to incur $1.00 of Indebtedness (other than Permitted Indebtedness) under
"Certain Covenants -- Limitation on Additional Indebtedness" above.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit, cause or suffer any Restricted Subsidiary to, conduct any business
or enter into any transaction or series of related transactions with or for the
benefit of any of their respective Affiliates or any beneficial holder
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of 10% or more of any class of Equity Interests of the Company or any officer or
director of the Company or any Restricted Subsidiary (each, an "Affiliate
Transaction"), except on terms that are fair and reasonable to the Company or
such Restricted Subsidiary, as the case may be. Each Affiliate Transaction
involving aggregate payments or other property having a Fair Market Value in
excess of $2.5 million shall be approved by the Board of Directors of the
Company, such approval to be evidenced by a resolution of such Board of
Directors stating that such Board of Directors (including a majority of the
disinterested directors) has determined that such transaction complies with the
foregoing provisions. In addition to the foregoing, with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million or more, the Company must obtain a written opinion from an Independent
Financial Advisor stating that the terms of such Affiliate Transaction to the
Company or the Restricted Subsidiary, as the case may be, are fair from a
financial point of view. Notwithstanding the foregoing, the restrictions set
forth in this covenant shall not apply to (i) transactions with or among the
Company and/or any of the Restricted Subsidiaries; provided, however, in any
such case, no officer, director or beneficial holder of 10% or more of any class
of Equity Interests of the Company shall beneficially own any Voting Stock of
any such Restricted Subsidiary (other than by reason of its ownership of Equity
Interests of the Company), (ii) transactions between or among Restricted
Subsidiaries, (iii) any Restricted Payment permitted under "Certain
Covenants -- Limitation on Restricted Payments" above, (iv) directors' fees,
indemnification and similar arrangements, officers' indemnification, employee
stock option or employee benefit plans, employee salaries and bonuses,
employment agreements or legal fees paid or created in the ordinary course of
business and (v) payments pursuant to arrangements as in effect on the Issue
Date.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise enter into or cause
to become effective any consensual encumbrance or consensual restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash
or otherwise, or make any other distributions on its Equity Interests or any
other interest or participation in, or measured by, its profits owned by the
Company or any Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company or a Restricted Subsidiary, (c) make any Investment in the Company or
any Restricted Subsidiary or (d) transfer any of its property or assets to the
Company or to any Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) any agreement of the Company or
a Restricted Subsidiary existing on the Issue Date, in each case as in effect on
the Issue Date, and any amendments, restatements, renewals, replacements or
refinancings thereof (including with respect to any Indebtedness outstanding on
the Issue Date and any commitment to provide Indebtedness outstanding on the
Issue Date); provided, however, that any such amendment, restatement, renewal,
replacement or refinancing is no more restrictive in the aggregate with respect
to such encumbrances or restrictions than those contained in the agreement being
amended, restated, renewed, replaced or refinanced; (ii) applicable law; (iii)
any agreement of a Person acquired by the Company or any Restricted Subsidiary
as in effect at the time of such acquisition (except to the extent Indebtedness
was incurred by such Person in connection with, as a result of or in
contemplation of such acquisition) and any amendments, extensions, renewals,
replacements or refinancings thereof which are no more restrictive than those in
effect at the time of acquisition; provided, however, that such encumbrances and
restrictions are not applicable to any Restricted Subsidiary, or the properties
or assets of any Restricted Subsidiary, other than the acquired Person; (iv)
customary non-assignment provisions in leases, licenses or similar agreements
entered into in the ordinary course of business; (v) Purchase Money Indebtedness
that only imposes encumbrances and restrictions on the property or Person
acquired or on the stock or assets of a Restricted Subsidiary which owns only
the property or Person acquired; (vi) any agreement for the sale or disposition
of the Equity Interests or assets of any Restricted Subsidiary; provided,
however, that such encumbrances and restrictions described in this clause (vi)
are only applicable to such Restricted Subsidiary or assets, as applicable, and
any such sale or disposition is made in compliance with "Certain Covenants --
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Disposition of Proceeds of Asset Sales" above to the extent applicable thereto;
(vii) refinancing Indebtedness permitted under clause (f) of the second
paragraph of "Certain Covenants -- Limitation on Additional Indebtedness" above;
provided, however, that such encumbrances and restrictions contained in the
agreements governing such Indebtedness are no more restrictive in the aggregate
than those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing; (viii) the Indentures; (ix)
any agreement governing Indebtedness of a Restricted Subsidiary incurred by such
Restricted Subsidiary in connection with an Acquisition or the transaction
pursuant to which it became a Restricted Subsidiary; provided that in
calculating Consolidated Net Income for any purpose under the applicable
Indenture (including for the purpose of determining whether such Indebtedness of
such Restricted Subsidiary can be incurred), the net income of such Restricted
Subsidiary shall be excluded from Consolidated Net Income except to the extent
such net income would be permitted to be distributed to the Company or another
Restricted Subsidiary pursuant to the terms of the agreement governing such
Indebtedness; or (x) contained in any other indenture governing debt securities
that are no more restrictive than those contained in the Indentures.
Limitation on the Designation of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the applicable Indenture (a "Designation") only if:
(i) no Default has occurred and is continuing at the time of or after
giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could incur $1.00 of additional Indebtedness under the Consolidated
Operating Cash Flow Ratio described under "Certain Covenants -- Limitation
on Additional Indebtedness" above;
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of such Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Certain Covenants -- Limitation on Restricted Payments" above in an amount
(the "Designation Amount") equal to the Fair Market Value of the Company's
aggregate Investment in such Subsidiary on such date; and
(iv) such Designation would not relate to all or substantially all of
the assets of the Company and the Restricted Subsidiaries (determined on a
consolidated basis).
Notwithstanding the foregoing provisions of this covenant, the Company
shall be permitted to designate any Subsidiary which owns only Equity Interests
of Laser (or the securities of ESC receivable upon exchange thereof) to be an
Unrestricted Subsidiary and the Designation Amount with respect thereto shall be
zero. Neither the Company nor any Restricted Subsidiary will at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guaranty, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the Holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for any
non-recourse guaranty given solely to support the pledge by the Company or any
Restricted Subsidiary of the capital stock of any Unrestricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default has occurred and is continuing at the time of and after
giving effect to such Revocation;
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(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted under "Certain
Covenants -- Limitation on Transactions with Affiliates" above as if such
transaction (or series or related transactions) had occurred at the time of
such Revocation.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provisions
thereto, the Company will file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would be required to file with the SEC pursuant to
such Section 13(a) or 15(d) (each, an "Exchange Act Report"), or any successor
provision thereto, if the Company were so subject, such documents to be filed
with the SEC on or prior to the respective dates (the "Required Filing Dates")
by which the Company would be required to file such documents if the Company
were so subject. If, at any time prior to the consummation of the Exchange
Offers when the Company is not subject to such Section 13(a) or 15(d), the
information which would be required in an Exchange Act Report is included in a
public filing of the Company under the Securities Act at the applicable Required
Filing Date, such public filing will fulfill the filing requirement with the SEC
with respect to the applicable Exchange Act Report. The Company will also in any
event (a) within 15 days after each Required Filing Date (whether or not
permitted or required to be filed with the SEC) (i) transmit (or cause to be
transmitted) by mail to all Holders, as their names and addresses appear in the
Notes register, without cost to such Holders, and (ii) file with the Trustees,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted (or, prior to the consummation of the
Exchange Offers, when the Company is not subject to Section 13(d) or 15(d) of
the Exchange Act), information and data of a similar nature, and (b) if,
notwithstanding the preceding sentence, filing such documents by the Company
with the SEC is not permitted by SEC practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any Holder. In
addition, for so long as any Notes remain outstanding, the Company will furnish
to the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, and, to any beneficial holder of Notes, if not
obtainable from the SEC, information of the type that would be filed with the
SEC pursuant to the foregoing provisions, upon the request of any such Holder.
Limitation on Status as Investment Company. The Company will not, and will
not permit any of the Restricted Subsidiaries or controlled Affiliates to,
conduct its business in a fashion that would cause the Company to be required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act")), or otherwise
become subject to regulation under the Investment Company Act. For purposes of
establishing the Company's compliance with this provision, any exemption which
is or would become available under Section 3(c)(1) or Section 3(c)(7) of the
Investment Company Act will be disregarded.
Merger, Sale of Assets, Etc. The Company will not consolidate with or merge
with or into (whether or not the Company is the Surviving Person) any other
entity and the Company will not and will not cause or permit any Restricted
Subsidiary to, sell, convey, assign, transfer, lease or otherwise dispose of all
or substantially all of the Company's and the Restricted Subsidiaries'
properties and assets (determined on a consolidated basis for the Company and
the Restricted Subsidiaries) to any entity in a single transaction or series of
related transactions, unless: (i) either (x) the Company shall be the Surviving
Person or (y) the Surviving Person (if other than the Company) shall be a
corporation organized and validly existing under the laws of the United States
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of America or any State thereof or the District of Columbia, and shall, in any
such case, expressly assume by a supplemental indenture, the due and punctual
payment of the principal of, premium, if any, and interest on the Notes and the
performance and observance of every covenant of the Indentures and the Exchange
and Registration Rights Agreements to be performed or observed on the part of
the Company; (ii) immediately thereafter, no Default has occurred and is
continuing; and (iii) immediately after giving effect to any such transaction
including the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the four quarter period immediately preceding such transaction for
which consolidated financial statements of the Company are available, at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under the
Consolidated Operating Cash Flow Ratio of the first paragraph of "Certain
Covenants -- Limitation on Additional Indebtedness" above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or to a
Restricted Subsidiary.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company is not the Surviving Person and the Surviving Person is to
assume all the Obligations of the Company under the Notes, the Indentures and
the Exchange and Registration Rights Agreements, pursuant to a supplemental
indenture, such Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, the Company and the Company shall be
discharged from its Obligations under the Indentures and the Notes.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustees, in form and substance reasonably satisfactory to
the applicable Trustee, an officers' certificate and an opinion of counsel, each
stating that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indentures in respect thereof comply with the
requirements under the Indentures.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under each Indenture with respect to the Notes issued under such
Indenture: (a) default in the payment of the Accreted Value or principal, as the
case may be, of or premium, if any, on the Notes when due, at maturity, upon
redemption or otherwise (including pursuant to a Change of Control Offer or an
Asset Sale Offer); (b) default in the payment of interest on the Notes when it
becomes due and payable and continuance of such default for a period of 30 days
or more; (c) (i) failure to comply with the covenant described under "Certain
Covenants -- Merger, Sale of Assets, Etc." above or (ii) failure to comply with
any other covenant or other term in the Indentures (other than those specified
in clause (a) or (b)) and such default, in the case of this clause (c),
continues for a period of 45 days after notice to the Company thereof by the
applicable Trustee or to the Company and the applicable Trustee by Holders of at
least 25% of the aggregate principal amount at maturity of the Notes then
outstanding; (d) (i) failure to pay, following any applicable grace period, any
installment of principal due (whether at maturity or otherwise) under one or
more classes or issues
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of Indebtedness of the Company or any Restricted Subsidiary in an aggregate
principal amount of $5.0 million or more or (ii) failure by the Company or any
Restricted Subsidiary to perform any other term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an aggregate
principal amount of the equivalent of $5.0 million or more and, in the case of
this clause (ii), such failure results in an acceleration of the maturity
thereof; (e) one or more final non-appealable judgments, orders or decrees for
the payment of money shall be entered in an amount or amounts of $5.0 million or
more, either individually or in the aggregate, against the Company or any
Restricted Subsidiary or any of their respective properties and shall not be
discharged or satisfied within 45 days; or (f) certain events of bankruptcy,
dissolution, insolvency, reorganization, administration, sequestration or
similar proceedings involving the Company or a Significant Restricted
Subsidiary.
If an Event of Default (other than those covered by clause (f) above with
respect to the Company) occurs and is continuing, the Trustee under the
applicable Indenture, by notice to the Company, or the Holders of at least 25%
in aggregate principal amount of the Senior Notes then outstanding, or the
Holders of at least 25% in aggregate principal amount at maturity of the Senior
Discount Notes then outstanding, as the case may be, by notice to the applicable
Trustee and the Company, may declare the Default Amount on all of the
outstanding Senior Notes or Senior Discount Notes, as the case may be, due and
payable immediately, upon which declaration, the Default Amount shall be
immediately due and payable. If an Event of Default specified in clause (f)
above with respect to the Company occurs and is continuing, then the Default
Amount on the outstanding Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the applicable
Trustee or any Holder of Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding
applicable Notes upon the conditions provided in the Indenture. For information
as to waiver of defaults, see "Modification and Waiver" below.
Each Indenture provides that the applicable Trustee shall, within 30 days
after the occurrence of any Default or Event of Default with respect to the
applicable Notes, give the Holders of such Notes notice of all uncured Defaults
or Events of Default known to it; provided, however, that, except in the case of
a Default or an Event of Default in payment with respect to the Notes or a
Default or Event of Default in complying with "Certain Covenants -- Merger, Sale
of Assets, Etc." above, the Trustee shall be protected in withholding such
notice if and so long as a committee of its trust officers in good faith
determines that the withholding of such notice is in the interest of the Holders
of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to an Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the applicable Trustee written notice of a continuing
Event of Default thereunder and unless the Holders of at least 25% of the
aggregate principal amount of the outstanding applicable Notes shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as the Trustee, and the Trustee shall have not have received
from the Holders of a majority in aggregate principal amount of such outstanding
Notes a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a Holder of such a Note for enforcement of payment of
the Accreted Value or principal of and premium, if any, or interest on such Note
on or after the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by it of certain of its obligations under each Indenture
and as to any default in such performance.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indentures or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURES; DEFEASANCE
The Company may terminate its substantive obligations in respect of the
Notes by delivering all outstanding Notes to the applicable Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (f) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day) under the Indentures, terminate its
substantive obligations in respect of the Notes (except for its obligations to
pay the principal of, premium, if any, and the interest on the Notes) by (i)
depositing with such Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining Indebtedness on such Notes; (ii) delivering to such Trustee
either an Opinion of Counsel or a ruling directed to such Trustee from the
Internal Revenue Service to the effect that the Holders of the Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and termination of obligations; (iii) delivering to such Trustee an
Opinion of Counsel to the effect that the Company's exercise of its option under
this paragraph will not result in any of the Company, such Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act; and
(iv) complying with certain other requirements set forth in the Indentures.
MODIFICATION AND WAIVER
Modifications and amendments to each Indenture may be made by the Company
and the applicable Trustee with the consent of the Holders of a majority in
aggregate principal amount at maturity of the outstanding Notes under such
Indenture (including consents obtained in connection with a tender offer or
exchange offer for the Notes); provided, however, that no such modification or
amendment to either Indenture may, without the consent of the Holder of each
Note affected thereby, (a) change the maturity of the principal of or any
installment of interest on any such Note or alter the optional redemption or
repurchase provisions of any such Note or Indenture in a manner adverse to the
Holders of the Notes; (b) reduce the principal amount or Accreted Value of (or
the premium) of any such Note; (c) reduce the rate of or extend the time for
payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of either Indenture relating to the waiver of past defaults
(other than to add sections to either Indenture or the Notes subject thereto) or
the right of the Holders of Notes to institute suit for the enforcement of any
payment on or with respect to any such Note in respect thereof or the
modification and amendment provisions of either Indenture and the Notes (other
than to add sections to either Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder therein affected); (f)
reduce the percentage of the principal amount at maturity of outstanding Notes
necessary for amendment to or waiver of compliance with any provision of either
Indenture or the Notes or for waiver of any Default in respect thereof; (g)
waive a default in the payment of principal or Accreted Value of, interest on,
or redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in each Indenture
and a waiver of the payment default that resulted from such acceleration); (h)
modify the ranking of any Note in any manner adverse to the
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Holders of the Notes; or (i) modify the provisions of any covenant (or the
related definitions) in either Indenture requiring the Company to make an Offer
to Purchase following an event or circumstance which may give rise to the
requirement to make an Offer to Purchase in a manner materially adverse to the
Holders of Notes affected thereby otherwise than in accordance with each
Indenture.
Each Indenture provides that the Holders of a majority in aggregate
principal amount of the outstanding Notes under such Indenture, on behalf of all
Holders of such Notes, may waive compliance by the Company with certain
restrictive provisions of the Indenture. Each Indenture provides that subject to
certain rights of the applicable Trustee, as provided in such Indenture, the
Holders of a majority in aggregate principal amount of the Notes under such
Indenture, on behalf of all Holders, may waive any past default under such
Indenture (including any such waiver obtained in connection with a tender offer
or exchange offer for the Notes), except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any Notes
tendered pursuant to an Offer to Purchase, or a default in respect of a
provision that under such Indenture cannot be modified or amended without the
consent of the Holder of each Note that is affected.
THE TRUSTEES
Each Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in such Indenture. During the existence of a Default,
each Trustee will exercise such rights and powers vested in it under the
applicable Indenture and use the same degree of care and skill in its exercise
as a prudent person would exercise under the circumstances in the conduct of
such person's own affairs.
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of each Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. Each Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest (as defined in such Act) it must eliminate such conflict or resign.
Such a conflicting interest could occur if the Company were to default on the
Senior Notes and not on the Senior Discount Notes or on the Senior Discount
Notes and not on the Senior Notes.
GOVERNING LAW
The Indentures and the Notes will be governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
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CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), with respect
to each $1,000 principal face amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------------------------------------------------------ ---------
March 16, 1998.............................................. $ 558.58
September 15, 1998.......................................... 591.90
March 15, 1999.............................................. 627.42
September 15, 1999.......................................... 665.06
March 15, 2000.............................................. 704.96
September 15, 2000.......................................... 747.26
March 15, 2001.............................................. 792.10
September 15, 2001.......................................... 839.62
March 15, 2002.............................................. 890.00
September 15, 2002.......................................... 943.40
March 15, 2003.............................................. 1,000.00
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the Semi-Annual Accrual Date
immediately following the Specified Date less the Accreted Value for the
Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a
fraction, the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of
which is 180; and
(iii) if the Specified Date is on or after March 15, 2003, $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitutes substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in the applicable Exchange
and Registration Rights Agreement.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the
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possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) beneficial ownership of 15.0% or more of the then outstanding Equity
Interests of a Person shall be deemed to be control for purposes of compliance
with the covenant described under "Certain Covenants -- Limitation on
Transactions with Affiliates" above; and (ii) no individual, other than a
director of the Company or an officer of the Company with a policy making
function, shall be deemed an Affiliate of the Company or any of its
Subsidiaries, solely by reason of such individual's employment, position or
responsibilities by or with respect to the Company or any of its Subsidiaries.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary; (ii) any material license, franchise or other authorization of the
Company or any Restricted Subsidiary; (iii) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iv) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants -- Merger, Sale of
Assets, Etc." above and the creation of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; provided, however, that any transaction
consummated in compliance with "Certain Covenants -- Merger, Sale of Assets,
Etc." above involving a sale, conveyance, assignment, transfer, lease or other
disposal of less than all of the properties or assets of the Company shall be
deemed to be an Asset Sale with respect to the properties or assets of the
Company and the Restricted Subsidiaries that are not so sold, conveyed,
assigned, transferred, leased or otherwise disposed of in such transaction; (b)
sales of property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary; (c) any transaction consummated in compliance with
"Certain Covenants -- Limitation on Restricted Payments" above; and (d) sales of
accounts receivable for cash at fair market value.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indentures, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars and any other currency that is
convertible into U.S. dollars without legal restrictions and which is utilized
by the Company or any of the Restricted Subsidiaries in the ordinary course of
its business; (b) securities issued or directly and fully guarantied or insured
by the U.S. government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition; (c)
certificates of deposit and time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
six months and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million (or the foreign currency
equivalent thereof); (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (b) and
(c) above entered into with any financial institution meeting the qualifications
specified in clause (c) above; and (e) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's Investors Service, Inc. or Standard &
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Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of at least 40% of the total voting power of the then
outstanding Voting Equity Interests of the Company and the Permitted Holders, as
a group, do not own a greater percentage of the total voting power of such
Voting Equity Interests; (ii) the Company consolidates with, or merges with or
into, another Person or the Company or the Restricted Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of the
assets of the Company and the Restricted Subsidiaries (determined on a
consolidated basis) to any Person (other than the Company), other than any such
transaction where immediately after such transaction the Person or Persons that
"beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) immediately prior to
such transaction, directly or indirectly, the then outstanding Voting Equity
Interests of the Company "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding Voting
Equity Interests of the surviving or transferee Person; or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
"Commodity Agreements" means agreements relating to commodity hedges
designed to protect against fluctuation in commodity prices.
"Consolidated EBITDA" of any Person means, for any period, the Consolidated
Net Income of such Person for such period, minus any non-cash item increasing
such Consolidated Net Income during such period, plus the following to the
extent deducted in calculating such Consolidated Net Income: (i) Consolidated
Income Tax Expense of such Person for such period; (ii) Consolidated Interest
Expense of such Person for such period; (iii) depreciation expense of such
Person for such period; (iv) amortization expense of such Person for such
period; and (v) all other non-cash items reducing Consolidated Net Income of
such Person for such period (other than any non-cash item requiring an accrual
or a reserve for cash disbursements in any future period).
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for Federal, state, local and foreign income taxes payable
by such Person and the Restricted Subsidiaries of such Person for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and the Restricted Subsidiaries of such Person for such period as determined on
a consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Agreements (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect
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to letters of credit and bankers' acceptance financing and (e) all capitalized
interest and all accrued interest, (ii) the interest component of Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and the Restricted Subsidiaries of such Person during such period as determined
on a consolidated basis in accordance with GAAP and (iii) dividends and
distributions in respect of Disqualified Equity Interests of such Person and the
Disqualified Equity Interests and Preferred Equity Interests of the Restricted
Subsidiaries of such Person during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
consolidated net income (loss) of such Person and the Restricted Subsidiaries of
such Person; provided, however, that there shall not be included in such
Consolidated Net Income: (i) any net income (loss) of any other Person if such
person is not a Restricted Subsidiary of such Person, except that (A) subject to
the limitations contained in clause (iv) below, such Person's equity in the net
income of any such other Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such other Person during such period to such Person or a Restricted
Subsidiary of such Person as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary of such
Person, to the limitations contained in clause (iii) below) and (B) such
Person's equity in a net loss of any such other Person (other than an
Unrestricted Subsidiary of such Person) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any such
other person acquired by such Person or a Restricted Subsidiary of such Person
in a pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary of such
Person 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 such Person (other than any
restriction permitted by the covenant "Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries") except that (A) subject to the
limitations contained in (iv) below, such Person's equity in the net income of
any such Restricted Subsidiary of such Person for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to such
Person or another Restricted Subsidiary of such Person as a dividend (subject,
in the case of a dividend that could have been made to another Restricted
Subsidiary of such Person, to the limitation contained in this clause) and (B)
such Person's equity in a net loss of any such Restricted Subsidiary of such
Person for such period shall be included in determining such Consolidated Net
Income; (iv) any gain or loss realized upon the sale or other disposition of any
asset of such Person or the Restricted Subsidiaries (including pursuant to any
sale leaseback transaction) of such Person that is not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Equity Interests of any other Person;
(v) any extraordinary gain or loss; and (vi) the cumulative effect of a change
in accounting principles.
"Consolidated Operating Cash Flow Ratio" of any Person as of any date of
determination means the ratio of (i) the aggregate amount of Consolidated EBITDA
of such Person for the four quarter period of the most recent four consecutive
fiscal quarters ending prior to the date of such determination for which
consolidated financial statements of such Person are available (or which would
be required to be filed by such Person with the Commission, if such Person were
subject to the reporting requirements of the Exchange Act) (the "Four Quarter
Period") to (ii) Consolidated Interest Expense of such Person for such Four
Quarter Period; provided, however, that (1) if such Person or any Restricted
Subsidiary of such Person has incurred any Indebtedness since the beginning of
such Four Quarter Period that remains outstanding on such date of determination
or if the transaction giving rise to the need to calculate the Consolidated
Operating Cash Flow Ratio is an Incurrence of Indebtedness, Consolidated EBITDA
and Consolidated Interest Expense for such Four Quarter 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 Four Quarter
Period, and the discharge of any other Indebtedness repaid, repurchased or
otherwise discharged during the Four
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Quarter Period (or thereafter but prior to the date of determination) or to be
repaid, repurchased or otherwise discharged with the proceeds of such new
Indebtedness (or otherwise in connection with the transaction giving rise to the
need to calculate the Consolidated Operating Cash Flow Ratio) shall be given pro
forma effect as if such repayment, repurchase or discharge had occurred on the
first day of such Four Quarter Period, (2) if since the beginning of such Four
Quarter Period such Person or any Restricted Subsidiary of such Person shall
have made any Asset Sale, the Consolidated EBITDA for such Four Quarter Period
shall be reduced by an amount equal to the Consolidated EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset Sale for
such Four Quarter Period or increased by an amount equal to the Consolidated
EBITDA (if negative) directly attributable thereto for such Four Quarter Period
and Consolidated Interest Expense for such Four Quarter Period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of such Person or any Restricted Subsidiary of such Person
repaid, repurchased or otherwise discharged with respect to such Person and its
continuing Restricted Subsidiaries in connection with such Asset Sale for such
Four Quarter Period (or, if the Equity Interests of any Restricted Subsidiary of
such Person are sold, the Consolidated Interest Expense for such Four Quarter
Period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent such Person and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the beginning
of such Four Quarter Period such Person or any Restricted Subsidiary (by merger
or otherwise) of such Person shall have made an Investment in any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) of such Person
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 business, or made
a Revocation, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter 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 Four Quarter Period and (4) if
since the beginning of such Four Quarter Period any other Person (that
subsequently became a Restricted Subsidiary of such Person or was merged with or
into such Person or any Restricted Subsidiary of such Person since the beginning
of such Four Quarter Period) shall have made any Asset Sale or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(2) or (3) above if made by such Person or a Restricted Subsidiary of such
Person during such Four Quarter Period, Consolidated EBITDA and Consolidated
Interest Expense for such Four Quarter Period shall be calculated after giving
pro forma effect thereto as if such Asset Sale, Investment or acquisition of
assets occurred on, with respect to any Investment or acquisition, the first day
of such Four Quarter Period and, with respect to any Asset Sale, the day prior
to the first day of such Four Quarter Period (the adjustments referred to in
clauses (1) through (4) are referred to as the "Pro Forma Adjustments"). For
purposes of the Pro Forma Adjustments, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings and any cost
savings 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. 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 agreement under which Currency and Interest Rate Agreements relating
to interest are outstanding applicable to such Indebtedness if such agreement
under which such Currency and Interest Rate Agreements are outstanding has a
remaining term as at the date of determination in excess of 12 months).
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill and other intangibles (determined in accordance with
Accounting Principles Board Opinion No. 17), shown on the balance sheet of the
Company and its Restricted Subsidiaries as of the most recent date for which
such a balance sheet is available, determined on a consolidated basis in
accordance with GAAP.
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"Currency Agreements" means the obligations of any Person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Default Amount" means (a), with respect to the Senior Notes, the principal
amount thereof plus accrued and unpaid interest, if any, or (b), with respect to
the Senior Discount Notes, the Accreted Value thereof, plus accrued and unpaid
interest, if any.
"Designation" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the maturity
date of the Notes.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Notes" means the Company's 11 7/8% Senior Subordinated Notes due
2002.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) 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 which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the applicable
Trustee.
"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.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Operating Cash Flow Ratio" above.
"Fully Traded Common Stock" means Equity Interests issued by any
corporation which are listed on either the New York Stock Exchange or the
American Stock Exchange or included for trading privileges in the National
Market System of the National Association of Securities Dealers Automated
Quotation System; provided, however, that (a) either such Equity Interests are
freely tradable under the Securities Act (including pursuant to Rule 145(d)(1)
thereunder) upon issuance or the holder thereof has contractual registration
rights that will permit the sale of such
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Equity Interests pursuant to an effective registration statement not later than
nine months after issuance to the Company or one of its Subsidiaries and (b)
such Equity Interests are also so listed or included for trading privileges.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States of America which are applicable at the
date of determination and which are consistently applied for all applicable
periods.
"Holder" means the registered Holder of any Note.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guaranty or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding (x) earnout or other similar obligations
until such time as the amount of such obligation is capable of being determined,
(y) trade accounts payable incurred in the ordinary course of business and
payable in accordance with industry practices, or (z) other accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith); (e) every Capitalized Lease Obligation of such
Person; (f) every net obligation under Currency Agreements, Commodity Agreements
and Interest Rate Agreements of such Person; (g) every obligation of the type
referred to in clauses (a) through (f) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable for, directly or indirectly, as obligor, guarantor
or otherwise; and (h) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (g) above. Indebtedness
(a) shall never be calculated taking into account any cash and cash equivalents
held by such Person; (b) shall not include obligations of any Person (x) arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within two Business Days of their incurrence, (y) resulting from the endorsement
of negotiable instruments for collection in the ordinary course of business and
consistent with past business practices and (z) under standby letters of credit
to the extent collateralized by cash or Cash Equivalents; (c) which provides
that an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination; and (d) shall include the liquidation preference and any
mandatory redemption payment obligations in respect of any Disqualified Equity
Interests of the Company or any Restricted Subsidiary. For purposes of
determining compliance with any U.S. dollar-denominated restriction on the
Incurrence of Indebtedness denominated in a foreign currency, the U.S.
dollar-equivalent
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principal amount of such Indebtedness Incurred pursuant thereto shall be
calculated based on the relevant currency exchange rate in effect on the date
that such Indebtedness was Incurred if such Indebtedness is Incurred to
refinance other Indebtedness denominated in a foreign currency, and if such
refinancing would cause the applicable U.S. dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness Incurred
to refinance other Indebtedness, if Incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Interest Rate Agreements" means the obligations of any Person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guaranty or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. Investment
also means, in any event, the obligations of any Person pursuant to any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement the value of which is based on fluctuations in currency values, as
well as the obligations of any Person pursuant to any interest rate swap
agreement, interest rate collar agreement or other similar agreement or
arrangement the value of which is based on fluctuations in interest rates. In
determining the amount of any Investment involving a transfer of any property or
asset other than cash, such property shall be valued at its fair market value at
the time of such transfer, as determined in good faith by the Board of Directors
(or comparable body) of the Person making such transfer.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means March 15, 2008.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be
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provided as a reserve, in accordance with GAAP, against any liabilities
associated with such assets which are the subject of such Asset Sale (provided
that the amount of any such reserves shall be deemed to constitute Net Cash
Proceeds at the time such reserves shall have been released or are not otherwise
required to be retained as a reserve); and (e) with respect to Asset Sales by
Restricted Subsidiaries, the portion of such cash payments attributable to
Persons holding a minority interest in such Restricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the applicable Trustee at least five Business Days (or such shorter
period as is acceptable to the applicable Trustee) prior to the mailing of the
Offer of the Company's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Company or, at the Company's request, by the applicable
Trustee in the name and at the expense of the Company. The Offer shall contain
all the information required by applicable law to be included therein. The Offer
shall also contain (or incorporate by reference) information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture
pursuant to which the Offer to Purchase is being made; (2) the Expiration Date
and the Purchase Date; (3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue, as the case may be; (8) that
on the Purchase Date the Purchase Price will become due and payable upon each
Note being accepted for payment pursuant to the Offer to Purchase and that
interest thereon shall cease to accrue on and after the Purchase Date; (9) that
each Holder electing to tender all or any portion of a Note pursuant
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to the Offer to Purchase will be required to surrender such Note at the place or
places specified in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Company or the applicable Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and such Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing); (10) that Holders will be
entitled to withdraw all or any portion of Notes tendered it the Company (or its
Paying Agent) receives, not later than the close of business on the fifth
Business Day next preceding the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder tendered, the certificate number of the Note the
Holder tendered and a statement that such Holder is withdrawing all or a portion
of his tender; (11) that (a) if Notes in an aggregate Accreted Value or
principal amount, as the case may be, less than or equal to the Purchase Amount
are duly tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase all such Notes and (b) if Notes in an aggregate Accreted
Value or principal amount, as the case may be, in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase Notes having an aggregate Accreted Value or principal amount, as
the case may be, equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Note so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Debt" means Indebtedness of the Company (other than the Senior
Notes or Senior Discount Notes, as the case may be) that does not constitute
Subordinated Indebtedness.
"Pari Passu Debt Pro Rata Share" means the amount of the applicable Net
Cash Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Pari Passu Debt outstanding at the
time of the applicable Asset Sale with respect to which the Company is required
to use Net Cash Proceeds to repay or make an offer to purchase or repay and (ii)
the denominator of which is the sum of (a) the aggregate principal amount of all
Notes outstanding at the time of the applicable Asset Sale and (b) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
Pari Passu Debt outstanding at the time of the applicable Offer to Purchase with
respect to which the Company is required to use the applicable Net Cash Proceeds
to offer to repay or make an offer to purchase or repay.
"Permitted Holder" means (i) each of Arie Genger, his estate, his spouse
and his children, (ii) each trust, a majority of whose beneficiaries-in-interest
include one or more persons named in clause (i) of this definition and (iii) any
Person controlled by one or more persons named in clause (i) of this definition.
"Permitted Indebtedness" has the meaning set forth in "Certain
Covenants -- Limitation on Additional Indebtedness" above.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $2.0
million in the aggregate at any one time outstanding; (d) Currency Agreements,
Commodity Agreements and Interest Rate Agreements; (e) so long as no Default has
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occurred and is continuing, investments in non-cash consideration made pursuant
to and in compliance with "Certain Covenants -- Dispositions of Proceeds of
Asset Sales" above; (f) so long as no Default has occurred and is continuing,
any Investment (including minority interests and Investments in Unrestricted
Subsidiaries) such that, after giving effect to such Investment, the aggregate
amount (at cost) of all outstanding Investments made pursuant to this clause
would not exceed 5% of the Company's Consolidated Tangible Assets as of the date
of the most recent consolidated balance sheet of the Company; (g) Investments
existing as of the Issue Date and any amendment, extension, renewal or
modification thereof to the extent that any such amendment, extension, renewal
or modification does not require the Company or any Restricted Subsidiary to
make any additional cash or non-cash payments or provide additional services in
connection therewith; (h) any Investment made with the proceeds from an
Investment of the type set forth in clauses (f) and (g) above, and any
Investment made with the proceeds from an Investment made pursuant to this
clause (h); (i) any Investment to the extent that the consideration therefor
consists of Qualified Equity Interests of the Company; and (j) any Investment in
non-U.S. currencies received or utilized by the Company or a Restricted
Subsidiary in the ordinary course of business.
"Permitted Liens" means (a) Liens imposed by law such as carriers',
warehousemen's and mechanics' Liens and other similar Liens arising in the
ordinary course of business which secure payment of obligations not more than 60
days past due or which are being contested in good faith and by appropriate
proceedings; (b) Liens existing on the Issue Date; (c) Liens securing only the
Notes pursuant to the terms of the Indentures as in effect on the Issue Date;
(d) Liens in favor of the Company; (e) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, however, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (f) easements, reservation of rights of way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (g) Liens resulting from the deposit of cash or notes
in connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law and public and statutory obligations or obligations under franchise
arrangements entered into in the ordinary course of business; (h) Liens securing
Indebtedness consisting of Capitalized Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of the Company or the Restricted Subsidiaries, or repairs,
additions or improvements to such assets, provided, however, that (i) such Liens
secure Indebtedness in an amount not in excess of the original purchase price or
the original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (ii) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (iii) the Incurrence of such Indebtedness is permitted by "Certain
Covenants -- Limitation on Additional Indebtedness" above and (iv) such Liens
attach within 90 days of such purchase, construction, installation, repair,
addition or improvement; (i) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancing") (or
successive refinancings), in whole or in part, of any Indebtedness (or
commitments to lend) secured by Liens referred to in the clauses above so long
as such Lien does not extend to any other property (other than improvements
thereto); (j) Liens securing letters of credit entered into in the ordinary
course of business and consistent with past business practice; (k) Liens on and
pledges of the Equity Interests of any Unrestricted Subsidiary; and (l) Liens on
the Equity Interests of Haifa Chemicals Ltd., an Israeli corporation ("HCL");
provided that at the time of the incurrence of any
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such Lien, the aggregate amount of Indebtedness secured by such Equity Interests
shall not exceed the amount equal to (x) if prior to December 31, 2001, $40.0
million or (y) if on or after December 31, 2001, the greater of (i) $40.0
million or (ii) the Consolidated EBITDA of HCL for the four quarter period of
the most recent four fiscal quarters ending prior to the date of determination
for which financial statements are available (or which would be required to be
filed by HCL with the Commission if HCL were subject to the reporting
requirements of the Exchange Act), giving effect to the adjustments to
Consolidated EBITDA referred to in clauses (2) through (4) of the Pro Forma
Adjustments.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Pro Forma Adjustments" has the meaning set forth in the definition of
"Consolidated Operating Cash Flow Ratio."
"Public Equity Offering" means, with respect to the Company, an
underwritten primary public offering of Qualified Equity Interests of the
Company pursuant to an effective registration statement filed under the
Securities Act (excluding registration statements filed on Form S-8).
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding Qualified
Equity Interests of the Company has been distributed by means of an effective
registration statement under the Securities Act.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Redemption Date" means the date fixed for redemption of the applicable
Notes.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the applicable Trustee, as an
Unrestricted Subsidiary pursuant to "Certain Covenants -- Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the applicable
Trustee, subject to the provisions of such covenant.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Significant Restricted Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" within the meaning of Article 1, Rule 1-02 of
Regulation S-X under the Securities Act.
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"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants -- Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the applicable Trustee, subject to the
provisions of such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the Holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
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BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NEW NOTES
The New Senior Notes and the New Senior Discount Notes will each be
represented by one or more fully-registered global notes (collectively, the
"Global New Notes"). The Global New Notes will be deposited upon issuance with,
or on behalf of, The Depository Trust Company ("DTC") and registered in the name
of DTC or a nominee of DTC. Except as set forth below, a Global New Note may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The applicable Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
All interests in the Global New Notes may be subject to the procedures and
requirements of DTC. This applies to Global New Notes held directly through DTC
or indirectly through organizations (such as Morgan Guaranty Trust Company of
New York, Brussels Office, as operator of the Euroclear System ("Euroclear") or
Cedel Bank, societe anonyme ("Cedel")), which are participants in the DTC
system. Those interests held through Euroclear or Cedel may also be subject to
the procedures and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NEW NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. The
Company takes no responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
DTC has advised the Company 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 (collectively, the "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 (collectively, the
"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 Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global New Notes, DTC will credit the accounts of Participants
with the respective principal amounts of their beneficial interests in the
applicable Global Note and (ii) ownership of the New Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interests of Participants) and the
records of Participants and the Indirect Participants (with respect to the
interests of persons other than Participants).
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 New Notes represented by a
Global New Note to such persons may be limited. In addition, because DTC
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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 New Notes represented by a Global New 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 of a Global New Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the New Notes represented by such Global New Note for all purposes
under the Indentures. Except as provided below, owners of beneficial interests
in a Global New Note will not be entitled to have New Notes represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated New Notes, and will not be considered
the owners or holders thereof under the Indentures for any purpose, including
with respect to the giving of any direction, instruction or approval to the
Trustees thereunder. Accordingly, each holder owning a beneficial interest in a
Global New Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a holder
of New Notes under the Indentures or such Global New Note. The Company
understands that under existing industry practice, in the event that the Company
requests any action of holders of New Notes, or a holder that is an owner of a
beneficial interest in a Global New Note desires to take any action that DTC, as
the holder of such Global New Note, is entitled to take, DTC would authorize the
Participants to take such action and the Participants would authorize holders
owning through such Participants to take such action or would otherwise act upon
the instruction of such holders. Neither the Company nor the Trustees will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such New Notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any New Notes represented by a Global New Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the applicable Trustee to or at the direction of DTC or its
nominee in its capacity as the registered holder of the Global New Note
representing such New Notes under the applicable Indenture. Under the terms of
each Indenture, the Company and the Trustee may treat the persons in whose names
the New Notes, including the Global New Notes, are registered as the owners
thereof for the purpose of receiving payment thereon and for any and all other
purposes whatsoever. Accordingly, neither the Company nor the Trustees have or
will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a Global New Note (including principal,
premium, if any, liquidated damages, if any, and interest). Payments by the
Participants and the Indirect Participants to the owners of beneficial interests
in a Global New Note will be governed by standing instructions and customary
industry practice and will be the responsibility of the Participants or the
Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global New Notes in DTC, and making or receiving payment in
accordance with normal procedures
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for same-day funds settlement applicable to DTC. Euroclear participants and
Cedel participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global New Note from a Participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of an interest in a Global New Note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global New Notes among participants
in DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustees will have any responsibility for
the performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NEW NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies a Trustee in writing that it elects to cause the applicable
issuance of New Notes in definitive form under the applicable Indenture or (iii)
upon the occurrence of certain other events as provided in the Indentures, then,
upon surrender by DTC of the applicable Global New Notes, Certificated New Notes
of the applicable issue will be issued to each person that DTC identifies as the
beneficial owner of the applicable New Notes represented by the applicable New
Global Notes. Upon any such issuance, the applicable Trustee is required to
register such Certificated New Notes in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustees shall be liable for any delay by DTC
or any Participant or Indirect Participant in identifying the beneficial owners
of the related New Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the New Notes to be issued).
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a general discussion of certain material U.S. federal
income tax considerations to holders of Notes of the Exchange Offer and the
purchase, ownership and disposition of the Notes. The summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect as of the date hereof and all of which
are subject to change (possibly on a retroactive basis). The following
discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to a particular investor in light of such
investor's personal investment circumstances, nor does the discussion address
special rules applicable to certain types of investors subject to special
treatment under the Code (including, without limitation, financial institutions,
broker-dealers, regulated investment companies, life insurance companies,
tax-exempt organizations, foreign corporations and non-resident aliens).
Moreover, the discussion is generally limited to investors who purchased the Old
Notes upon original issuance at their original issue price and who will hold the
New Notes as capital assets (generally, property held for investment) within the
meaning of Section 1221 of the Code. No consideration of any aspects of state,
local or foreign taxation is included herein.
As used herein, a "U.S. Holder" means a holder of a Note who or that is for
U.S. federal income tax purposes (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is subject to U.S. federal income tax regardless of
its source or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust. A "Foreign Holder" is a holder of Notes who or that is not a U.S. Holder.
EACH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE
OWNERSHIP AND DISPOSITION OF THE NEW NOTES IN LIGHT OF SUCH HOLDER'S OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF THE CODE, AS
WELL AS STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE OFFER
The exchange of Old Senior Notes for New Senior Notes and of Old Senior
Discount Notes for New Senior Discount Notes pursuant to the Exchange Offer will
not constitute a material modification of the terms of the Old or New Senior
Notes or of the Old or New Senior Discount Notes and, accordingly, such exchange
will not constitute an exchange for federal income tax purposes. Accordingly,
such exchange will have no federal income tax consequences to a holder,
regardless of whether such holder participates in the Exchange Offer, and a
holder will continue to be required to include interest (including, in the case
of the Old or New Senior Discount Notes, Original Issue Discount, or "OID") on
such Old or New Note in its gross income in accordance with such holder's method
of accounting for federal income tax purposes and in accordance with the rules
regarding the inclusion in income of OID as discussed below. The Company
intends, to the extent required, to treat the Exchange Offer for federal income
tax purposes in accordance with the position described above.
STATED INTEREST
Stated interest paid or accrued on the New Senior Notes will be taxable to
a holder as ordinary income in accordance with the holder's method of accounting
for federal income tax purposes. The receipt of cash in respect of the stated
interest on the New Senior Discount Notes will not be taxable
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to the holders but, rather, such stated interest will be included in income as
original issue discount ("OID") on a daily economic accrual basis as described
below.
ORIGINAL ISSUE DISCOUNT
General. Because the New Senior Discount Notes are being issued with more
than a de minimis amount of discount from their stated redemption price at
maturity and no interest will be paid on the Senior Discount Notes prior to
September 15, 2003, the New Senior Discount Notes will be considered to have
been issued with OID for federal income tax purposes. The OID on a Senior
Discount Note will be the excess of its "stated redemption price at maturity"
(as defined below) over its "issue price."
The stated redemption price at maturity of a New Senior Discount Note will
be equal to the sum of the stated principal amount of the New Senior Discount
Note, plus the amount of all stated interest due and payable on such New Senior
Discount Note. The issue price of the New Senior Discount Notes will be the
first price to the public (excluding bond houses and brokers) at which a
substantial amount of the Old Senior Discount Notes were sold. Accordingly, each
New Senior Discount Note received pursuant to the Exchange Offer generally will
bear OID in an amount equal to the excess of (i) the sum of its principal amount
and all stated interest payments over (ii) the issue price of the Old Senior
Discount Notes.
A U.S. Holder will be required to include OID in gross income on a daily
economic accrual basis over the term of a New Senior Discount Note, regardless
of such U.S. Holder's method of tax accounting and in advance of the receipt of
the cash attributable to such interest income. In general, a U.S. Holder must
include in income the sum of the daily portions of OID with respect to a New
Senior Discount Note for each day during the taxable year on which the U.S.
Holder holds the New Senior Discount Note, including the purchase date and
excluding the disposition date. The daily portion of OID is determined by
allocating to each day of any accrual period (which may be of any length and may
vary over the term of a New Senior Discount Note, at the option of the holder,
provided that each accrual period is not longer than one year and each scheduled
payment of principal or interest on the New Senior Discount Note occurs on the
first or last day of an accrual period) within a taxable year a pro rata portion
of an amount equal to the adjusted issue price of a New Senior Discount Note at
the beginning of the accrual period multiplied by the yield to maturity of such
New Senior Discount Note. For purposes of computing OID, the Company will use
six-month accrual periods that end on the days in the calendar year
corresponding to the maturity date of the New Senior Discount Notes and the date
six months prior to such maturity date, with the exception of an initial short
accrual period. The adjusted issue price of a New Senior Discount Note at the
beginning of any accrual period is the issue price of the New Senior Discount
Note increased by the accrued OID for all prior accrual periods (less any cash
payments received on such Senior Discount Notes). The yield to maturity of a New
Senior Discount Note is the discount rate that, when used in computing the
present value of all principal and interest payments to be made under a New
Senior Discount Note, produces an amount equal to the issue price of the New
Senior Discount Note.
Under these rules, U.S. Holders will have to include in gross income
increasingly greater amounts of OID in such successive accrual period. Each
payment made under a New Senior Discount Note will be treated first as a payment
of OID which was previously includible in gross income (to the extent of OID
that has accrued as of the date of payment and has not been allocated to prior
payments) and second as a payment of principal (which generally is not
includible in income).
Optional Redemption. The Company's option to redeem the New Senior Discount
Notes at any time on or after March 15, 2003, at a premium declining to par
(after 2006) plus accrued interest will be treated as a call option. See
"Description of the New Notes -- Optional Redemption." Because any exercise by
the Company of this option would not decrease the yield on the New Senior
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Discount Notes, the Company will not be presumed to exercise the option for
purposes of the OID rules.
In addition to the optional redemption described above, the Company will
have the right to redeem up to 33 1/3% in aggregate face amount of the
outstanding Notes out of the net cash proceeds of one or more Public Equity
Offerings on or prior to March 15, 2001. See "Description of the New
Notes -- Optional Redemption." Furthermore, a U.S. Holder will have the right to
tender Notes to the Company for redemption should the Company experience a
Change of Control. See "Description of the New Notes -- Offer to Purchase upon
Change of Control." Such additional redemption rights should not affect, and
will not be treated by the Company as affecting, the determination of the yield
or maturity of the New Senior Discount Notes.
The tax treatment of a redemption of the New Notes generally should be
governed by the rules for dispositions thereof as described below.
If a Holder tenders New Notes for redemption as a result of a Change of
Control, the Holder may be required to include as ordinary income any amount the
Holder is entitled to receive in excess of the accreted value of a Note on the
date of the redemption. Holders should consult their own tax advisors regarding
the treatment of payments received upon any optional redemptions.
DISPOSITION OF THE NEW NOTES
Generally, upon the sale or redemption of a New Note, a U.S. Holder will
realize taxable gain or loss equal to the difference between the amount of cash
or other property received by the U.S. Holder in exchange for such New Note
(except to the extent such amount realized is characterized as accrued but
unpaid interest that such holder has not included in gross income previously)
and such holder's adjusted tax basis in such New Note. A U.S. Holder's adjusted
tax basis in a New Note will initially equal the cost of the New Note to such
holder and will be increased by any accrued OID includible in such holder's
gross income and decreased by the amount of any payments received by such holder
in respect of such New Note regardless of whether such payments are denominated
as principal or interest. Any gain or loss upon a sale or other disposition of a
New Note will generally be capital gain or loss. At the time of sale or
redemption any such gain will be taxed to a U.S. Holder who is a natural person
at a maximum rate of 20 percent (10 percent, if such holder is in a 15 percent
bracket) if the New Note is held for more than 18 months. If the U.S. Holder has
held the New Note more than 12 months but not more than 18 months, any gain
recognized on a sale of the New Notes will be taxed for federal income tax
purposes at a maximum rate of 28 percent (15 percent if such holder is in a 15
percent bracket).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
The New Senior Discount Notes will constitute "applicable high yield
discount obligations" ("AHYDOs") if the yield to maturity of the New Senior
Discount Notes will be equal to or greater than the sum of the relevant
applicable federal rate ("AFR") in effect for debt instruments issued in March
1998 (5.83% compounded semi-annually), plus 5 percentage points. If the New
Senior Discount Notes constitute AHYDOs, the Company will not be entitled to
deduct any interest on the New Senior Discount Notes until it pays such interest
in cash or other property (other than stock or debt instruments of the Company
or related party). In addition, if the yield to maturity of the New Senior
Discount Notes exceeds the sum of the relevant AFR plus six percentage points
(the "Excess Yield"), the "disqualified portion" of the OID accruing on the New
Senior Discount Notes will be characterized as a non-deductible dividend with
respect to the Company to the extent of the Company's current and accumulated
earnings and profits, and also may be treated as a dividend distribution solely
for purposes of the dividends received deduction of Sections 243, 246 and 246A
of the Code with respect to holders that are U.S. corporations. In general, the
"disqualified portion" of OID for any accrual period will be equal to the
product of (i) a percentage determined by dividing the Excess Yield by the yield
to maturity and (ii) the OID for the accrual period.
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Subject to otherwise applicable limitations, holders that are U.S.
corporations will be entitled to a dividends received deduction (generally at a
70% rate) with respect to the disqualified portion of the accrued OID if the
Company has sufficient current or accumulated "earnings and profits." If the
disqualified portion exceeds the Company's current and accumulated earnings and
profits, the excess will continue to be taxed as ordinary OID income in
accordance with the rules described above in "Original Issue Discount."
Treatment of the New Notes as AHYDOs will not disqualify interest or OID with
respect to New Notes from the portfolio interest exception described below under
"Foreign Holders," provided all applicable requirements for the exception are
otherwise satisfied.
BACKUP WITHHOLDING
A U.S. Holder may be subject, under certain circumstances, to backup
withholding at a 31 percent rate with respect to payments received with respect
to New Notes. This withholding generally applies only if the U.S. Holder (i)
fails to furnish his social security or taxpayer identification number ("TIN"),
(ii) furnishes an incorrect TIN, (iii) is notified by the Internal Revenue
Service that he has failed to report properly payments of interest and dividends
and the service has notified the Company that he is subject to withholding or
(iv) fails under certain circumstances to provide a certified statement, signed
under penalty of perjury, that the TIN provided is his correct number and that
he is not subject to backup withholding. Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is allowable as a credit against
such holder's federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service. Certain holders
(including, among others, corporations and foreign individuals who comply with
certain certification requirements described below under "Foreign Holders") are
not subject to backup withholding. U.S. Holders should consult their tax
advisors as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
The Company will furnish to the IRS and to record holders of the New Notes
information (to whom it is required to furnish such information) relating to the
amount of interest and OID, as applicable.
FOREIGN HOLDERS
The following discussion is a summary of certain U.S. federal income tax
consequences to a Foreign Holder that holds a New Note. If income or gain on the
New Note would be "effectively connected with the conduct of a trade or business
within the United States," then such holder will generally be subject to tax on
such income or gain in essentially the same manner as a U.S. Holder, as
discussed above, and in the case of a foreign corporation, may also be subject
to U.S. branch profits tax.
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and OID paid to a Foreign Holder, a Foreign
Holder will not be subject to U.S. tax (or to withholding) on interest or OID on
a New Note, provided that (i) the Foreign Person does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (ii) the Foreign Holder is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the Foreign Holder is not a bank receiving interest on a loan
entered into in the ordinary course of business and (iv) the Company, its paying
agent or the person who would otherwise be required to withhold tax receives
either (A) a properly completed Form W-8 (or substitute Form W-8) signed under
penalties of perjury by the beneficial owner of the Note in which the owner
certifies that the owner is not a U.S. person and which provides the owner's
name and address or (B) a statement signed under penalties of perjury by the
"Financial Institution" holding the New Note on behalf of the beneficial owner
to the effect that a Form W-8 (or substitute Form W-8) has been filed on behalf
of the beneficial owner, together with a copy of the Form W-8 (or substitute
Form W-8). The term "Financial Institution" means a securities
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clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a New
Note on behalf of the owner of the New Note. A Foreign Holder who does not
qualify for the "portfolio interest" exception would generally be subject to
U.S. withholding tax at a flat rate of 30% (or a lower applicable treaty rate)
on interest payments and payments (including redemption proceeds) attributable
to OID on the New Notes. A Foreign Holder entitled to the benefits of an income
tax treaty must provide to the Company, its paying agent or the person who would
otherwise be required to withhold tax a properly completed Form 1001 (or
substitute Form 1001).
The U.S. Treasury Department recently adopted final regulations governing
U.S. federal withholding taxes, information reporting and backup withholding
rules (the "Final Regulations") which are generally effective for payments of
interest, OID and principal made after December 31, 1999, subject to certain
transition rules. In general, the Final Regulations continue to require that
Foreign Holders provide a Form W-8 (or substitute Form W-8) in order to
establish their eligibility for the exemption from U.S. federal withholding tax
described in the preceding paragraph; however, Form W-8 may in some
circumstances require additional information not required on current Form W-8.
The Final Regulations generally require that Foreign Holders provide a Form W-8
(or substitute Form W-8), rather than Form 1001, to establish eligibility for an
exemption from, or a reduction of, U.S. federal withholding tax that is based on
an income tax treaty.
In general, gain recognized by a Foreign Holder upon the redemption, sale
or exchange of a New Note will not be subject to U.S. tax. However, a Foreign
Holder may be subject to United States tax at a flat rate of 30% on any such
gain if the Foreign Holder is an individual present in the United States for 183
days or more during the taxable year in which the New Note is redeemed, sold or
exchanged, and certain other requirements are met.
A New Note held by a Foreign Holder will not be includible in such holder's
gross estate subject to U.S. federal estate tax as a result of such holder's
death provided that the individual did not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote.
Information reporting and backup withholding will not apply to payments
made on a New Note to a Foreign Person provided that the certification described
in clause (iv) of the second paragraph in this "Foreign Holders" section is
received, and provided further that the payor does not have actual knowledge
that the information is false. The Final Regulations do not significantly alter
the substantive backup withholding or information reporting requirements but
rather unify current certification procedures and forms and clarify reliance
standards. Foreign Holders should consult their own tax advisors with respect to
the impact, if any, of the Final Regulations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998 (90 days after the date of this Prospectus) all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
112
115
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 New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letters of Transmittal state that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
CONDITIONS IN ISRAEL
The following information discusses certain conditions in Israel that could
affect the Company's Israeli subsidiary, HCL. As of December 31, 1997 and for
the year then ended, Israeli operations (including HCL's non-Israeli
subsidiaries) accounted for approximately 63% of the Company's consolidated
assets and approximately 63% of its consolidated revenues. All figures and
percentages are approximate. A portion of the information with respect to Israel
presented hereunder and under "Risk Factors -- Israeli Operations" has been
taken from Annual Reports of the Bank of Israel and publications of the Israeli
General Bureau of Statistics. No independent verification has been made of such
information or of other information taken from other Israeli government
publications.
POLITICAL CONDITIONS
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and the
Palestine Liberation Organization ("PLO") -- Palestinian Authority
representatives have been signed. In addition, Israel and several other Arab
States have announced their intention to establish trade and other relations and
are discussing certain projects. As of the date hereof, Israel has not entered
into any peace agreement with Syria or Lebanon. Recently there is stagnation in
the peace process in the Middle East. There can be no assurance as to whether or
how the "peace process" will develop or what effect it may have upon the
Company.
Beginning in 1948, nearly all Arab countries formally adhered to a boycott
of Israel and Israeli companies and, since the early 1950s, of non-Israeli
companies doing business in Israel or with such companies. Despite measures to
counteract the boycott, including anti-boycott legislation in the U.S., the
boycott has had an indeterminate negative effect upon trade with and foreign
investment in Israel. The Company does not believe that the boycott has had a
material adverse effect on the Company, but there can be no assurance that
restrictive laws, policies or practices directed toward Israel or Israeli
businesses will not have an adverse impact on the operation or expansion of the
Company's business.
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116
ARMY SERVICE
Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military service
duty annually. Additionally, all such residents are subject to being called to
active duty at any time under emergency circumstances. Some of the employees of
HCL currently are obligated to perform annual reserve duty. While HCL has
operated effectively under these and similar requirements in the past, no
assessment can be made of the full impact of such requirements on the Company in
the future, particularly if emergency circumstances occur.
ECONOMIC CONDITIONS
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s that reached
an annual peak of 445%, low foreign exchange reserves, fluctuations in world
commodity prices, military conflicts, civil unrest and for the past five years,
expansion. From 1992 through 1997, Israel's GDP increased 6.6%, 3.5%, 6.8%,
7.1%, 4.4% and 2.1%, respectively. The Israeli government has, for these and
other reasons, intervened in the economy by utilizing, among other means, fiscal
and monetary policies, import duties, foreign currency restrictions and control
of wages, prices and exchange rates. The Israeli government's monetary policy
contributed to relative price and exchange rate stability during most of 1992 to
1997 despite fluctuating rates of economic growth and unemployment. The Israeli
government periodically changes its policies in all these areas.
Israel has high balance of payments deficit, primarily as a result of its
defense burden, the absorption of immigrants, especially from the former Soviet
Union, the provision of a minimum standard of living for lower income segments
of the community and the maintenance of a minimum level of net foreign reserves.
In order to finance this deficit, Israel must sustain an adequate inflow of
capital from abroad. The main sources of the country's capital imports are U.S.
military and economic aid, personal remittances from abroad, sales of Israeli
government bonds (primarily in the United States) and loans from foreign
governments, international institutions and the private sector.
ASSISTANCE FROM THE UNITED STATES
The State of Israel receives significant amounts of economic and military
assistance from the United States, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States approved
the issuance of up to $10 billion of loan guarantees during United States fiscal
years 1993-1998 to help Israel absorb a large influx of new immigrants,
primarily from the republics of the former Soviet Union. Under the loan
guarantee program, Israel may issue up to $2 billion in principal amount of
guaranteed loans each year, subject to reduction in certain circumstances. There
is no assurance that foreign aid from the United States will continue at or near
amounts received in the past. If the grants for economic and military assistance
or the United States loan guarantees are eliminated or reduced significantly,
the Israeli economy could suffer material adverse consequences.
TRADE AGREEMENTS
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.
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117
Israel and the European Union concluded a Free Trade Agreement in July,
1975 which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from these countries over a number of years.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA"). Under the FTA, most products received
immediate duty-free status, and by 1995 all other tariffs and certain non-tariff
barriers on most trade between the two countries were ultimately eliminated.
On January 1, 1993, an agreement between Israel and the EFTA, which at
present includes Norway, Switzerland, Iceland and Liechtenstein, established a
free-trade zone between Israel and the EFTA nations.
In recent years, Israel has established commercial and trade relations with
a number of other nations, including Russia, China and nations in Eastern
Europe, with which Israel had not previously had such relations.
EMPLOYEES
Most of HCL's employees are members of the Histadrut (the General
Federation of Labor in Israel), and are represented by collective bargaining
units. HCL is subject to various Israeli labor laws, collective bargaining
agreements entered into from time to time between the Manufacturers Association
(an employers' organization of which HCL is a member) and the Histadrut,
collective bargaining agreements between the Histadrut and the Coordinating
Bureau of Economic Organizations (a federation of employers' organizations which
includes the Manufacturers Association) and specific collective agreements
entered into from time to time by HCL, the Histadrut and the respective unions
representing HCL's employees. Such laws and agreements cover a wide range of
areas, including hiring practices, wages, promotions, employment conditions
(such as working hours, overtime payment, vacations, sick leave and severance
pay), benefits programs (such as pension plans and education funds) and special
issues, such as equal pay for equal work, equal opportunity in employment and
employment of women and youth. The collective agreements also cover the
relations between management and the employees' representatives, including the
unions' involvement in certain aspects of hiring and dismissing employees and
procedures for settling labor disputes. Certain employees of HCL are covered by
individual employment agreements.
In addition to labor laws, labor relations at HCL are currently governed
predominantly by a specific collective agreement ("SCA") for the three year
period ending December 31, 1999, executed on March 10, 1997 following a major
labor dispute. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Significant Developments -- Haifa Labor Dispute"
and "Business -- Employees."
Israeli employers and employees are required to pay predetermined sums to
the National Insurance Institute, an organization similar to the United States
Social Security Administration. These contributions entitle the employees to
receive a range of medical services and other benefits.
INVESTMENT INCENTIVES
Certain of the Israeli production facilities of the Company have been
granted Approved Enterprise status pursuant to the Law for the Encouragement of
Capital Investments, 1959 (the "Investment Law"), and consequently may enjoy
certain tax benefits and investment grants. Taxable income of HCL derived from
these production facilities is subject to a lower rate of Company Tax than the
normal rate applicable in Israel. Dividends distributed by HCL out of the same
income are subject to lower rates of withholding tax than the rate normally
applicable to dividends distributed by an Israeli company to a non-resident
corporate shareholder. The grant available to newly approved Approved
Enterprises was decreased throughout recent years. Certain of the Israeli
production facilities of the Company further enjoyed accelerated depreciation
under
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118
regulations extended from time to time and other deductions. There can be no
assurance that the Company will, in the future, be eligible for or receive such
or similar grants.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Rubin Baum Levin Constant & Friedman (a partnership which includes
professional corporations), New York, New York.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries,
except Cedar and its subsidiaries, as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement. The consolidated financial statements of Cedar (a
wholly-owned subsidiary of the Company) and its subsidiaries (consolidated with
those of the Company), not separately presented in this Prospectus, have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
appears herein. Such consolidated financial statements of the Company and its
subsidiaries and such consolidated financial statements of Cedar and its
subsidiaries, to the extent they have been included in the consolidated
financial statements of the Company and its subsidiaries, have been so included
in reliance upon the respective reports of such firms given upon their authority
as experts in accounting and auditing.
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119
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of Trans-Resources, Inc. and Subsidiaries
as of December 31, 1996 and 1997 and the years ended December 31, 1995, 1996 and
1997:
Independent Auditors' Report................................ F-2
Report of Independent Accountants........................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholder's Equity............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
120
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Trans-Resources, Inc.
New York, New York
We have audited the accompanying consolidated financial statements of
Trans-Resources, Inc. (a wholly-owned subsidiary of TPR Investment Associates,
Inc.) and Subsidiaries as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the consolidated financial statements of Cedar Chemical Corporation, a
wholly-owned subsidiary, which statements reflect total assets constituting 22
percent and 20 percent of consolidated total assets as of December 31, 1997 and
1996, respectively, and total revenues constituting 31 percent, 33 percent and
34 percent of consolidated total revenues for the years ended December 31, 1997,
1996 and 1995, respectively. Such financial statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Cedar Chemical Corporation, is based solely
on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Trans-Resources, Inc. and Subsidiaries as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 25, 1998
(except as to Note G,
the date of which is March 16, 1998)
New York, New York
F-2
121
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of Cedar Chemical Corporation:
In our opinion, the consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows (not
presented separately herein) present fairly, in all material respects, the
financial position of Cedar Chemical Corporation (a wholly-owned subsidiary of
Trans-Resources, Inc.) and its subsidiaries ("Cedar") at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Cedar's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Memphis, Tennessee
January 30, 1998
F-3
122
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 29,112 $ 19,757
Accounts receivable....................................... 71,551 82,551
Inventories............................................... 51,207.. 60,126
Other current assets...................................... 24,664 33,578
Prepaid expenses.......................................... 14,635 16,122
-------- --------
Total Current Assets.............................. 191,169 212,134
PROPERTY, PLANT AND EQUIPMENT -- net........................ 200,774 207,487
OTHER ASSETS................................................ 34,688.. 42,395
-------- --------
Total............................................. $426,631.. $462,016
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,481 $ 13,080
Short-term debt........................................... 15,348 36,580
Accounts payable.......................................... 38,033 58,662
Accrued expenses and other current liabilities............ 33,321 30,215
-------- --------
Total Current Liabilities.............................. 104,183 138,537
-------- --------
LONG-TERM DEBT -- net:
Senior indebtedness, notes payable and other
obligations............................................ 152,539 154,726
Senior subordinated debt -- net........................... 114,175 114,288
-------- --------
Long-Term Debt -- net.................................. 266,714 269,014
-------- --------
OTHER LIABILITIES........................................... 29,480 30,858
-------- --------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding..................... 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 8,682 8,682
Retained earnings......................................... 9,345 6,203
Cumulative translation adjustment......................... (367) (67)
Unrealized gain on marketable securities.................. 634 829
-------- --------
Total Stockholder's Equity............................. 26,254 23,607
-------- --------
Total............................................. $426,631 $462,016
======== ========
See notes to consolidated financial statements.
F-4
123
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
REVENUES................................................ $385,564 $412,305 $376,531
OPERATING COSTS AND EXPENSES:
Cost of goods sold.................................... 323,126 343,930 305,588
General and administrative............................ 43,193 46,419 42,622
-------- -------- --------
OPERATING INCOME........................................ 19,245 21,956 28,321
Interest expense...................................... (34,498) (32,195) (29,475)
Interest and other income--net........................ 9,128 25,448 5,550
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.................................................. (6,125) 15,209 4,396
INCOME TAX PROVISION.................................... 733 4,016 2,952
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. (6,858) 11,193 1,444
EXTRAORDINARY ITEM--Loss on repurchase of debt (no
income tax benefit)................................... (103) (553) --
-------- -------- --------
NET INCOME (LOSS)....................................... $ (6,961) $ 10,640 $ 1,444
======== ======== ========
See notes to consolidated financial statements.
F-5
124
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
ADDITIONAL CUMULATIVE UNREALIZED
PREFERRED COMMON PAID-IN RETAINED TRANSLATION GAIN (LOSS)
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT ON SECURITIES TOTAL
--------- ------ ---------- -------- ----------- ------------- -----
(IN THOUSANDS)
BALANCE, JANUARY 1, 1995......... $7,960 -$- $ 505 $13,432 $(360) $(987) $20,550
Net loss....................... (6,961) (6,961)
Dividends:
Common stock................ (856) (856)
Preferred stock............. (851) (851)
Capital contribution by parent
company upon assumption of
9 1/2% junior subordinated
debentures.................. 8,177 8,177
Net change during year......... (234) 850 616
------ -- ------ ------- ----- ----- -------
BALANCE, DECEMBER 31, 1995....... 7,960 -- 8,682 4,764 (594) (137) 20,675
Net income..................... 10,640 10,640
Dividends:
Common stock................ (5,208) (5,208)
Preferred stock............. (851) (851)
Net change during year......... 227 771 998
------ -- ------ ------- ----- ----- -------
BALANCE, DECEMBER 31, 1996....... 7,960 -- 8,682 9,345 (367) 634 26,254
Net income..................... 1,444 1,444
Dividends:
Common stock................ (3,736) (3,736)
Preferred stock............. (850) (850)
Net change during year......... 300 195 495
------ -- ------ ------- ----- ----- -------
BALANCE, DECEMBER 31, 1997....... $7,960 $-- $8,682 $ 6,203 $ (67) $ 829 $23,607
====== == ====== ======= ===== ===== =======
See notes to consolidated financial statements.
F-6
125
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT:
Operations:
Net income (loss)................................ $ (6,961) $ 10,640 $ 1,444
Items not requiring (providing) cash:
Depreciation and amortization.................. 22,409 22,689 22,099
Increase (decrease) in other liabilities....... (37) 236 (1,043)
Deferred taxes and other--net, including gain
on sale of potash operations in 1996........ 688 (22,488) 281
--------- --------- --------
Total....................................... 16,099 11,077 22,781
Working capital management:
Accounts receivable and other current assets... 15,585 (3,912) (20,153)
Inventories.................................... (11,274) 5,603 (8,919)
Prepaid expenses............................... (443) 469 (1,487)
Accounts payable............................... (7,753) (11,239) 20,629
Accrued expenses and other current
liabilities................................. (10,381) 1,360 (3,106)
--------- --------- --------
Cash provided by operations and working capital
management.................................. 1,833 3,358 9,745
--------- --------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment.......... (35,661) (13,570) (26,862)
Sales of marketable securities and short-term
investments, including in 1995 liquidation of
CD's securing a bank loan........................ 132,260 1,965 7,982
Purchases of marketable securities and short-term
investments...................................... (4,371) (9,432) (7,743)
Other--net, including proceeds from sale of potash
operations in 1996............................... (7,441) 56,376 (6,909)
--------- --------- --------
Cash provided by (used in) investment
activities.................................. 84,787 35,339 (33,532)
--------- --------- --------
FINANCING ACTIVITIES:
Increase in long-term debt.......................... 101,616 44,168 12,000
Repurchases, payments and current maturities of
long-term debt................................... (141,452) (89,769) (14,214)
Increase (decrease) in short-term debt.............. (27,776) 9,203 21,232
Dividends to stockholders........................... (1,707) (6,059) (4,586)
--------- --------- --------
Cash provided by (used in) financing
activities.................................. (69,319) (42,457) 14,432
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 17,301 (3,760) (9,355)
CASH AND CASH EQUIVALENTS:
Beginning of year................................... 15,571 32,872 29,112
--------- --------- --------
End of year......................................... $ 32,872 $ 29,112 $ 19,757
========= ========= ========
See notes to consolidated financial statements.
F-7
126
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements of Trans-Resources, Inc. ("TRI"),
include TRI and its direct and indirect wholly-owned subsidiaries, after
elimination of intercompany accounts and transactions. TRI's principal
subsidiaries are Cedar Chemical Corporation ("Cedar"), and Cedar's two
wholly-owned subsidiaries, NMPC, Inc. (name changed from New Mexico Potash
Corporation upon completion of the sale of its potash operations in August,
1996; "NMPC"); and Vicksburg Chemical Company ("Vicksburg"); EDP, Inc. (name
changed from Eddy Potash, Inc. upon completion of the sale of its potash
operations in August, 1996; "EDP"); Na-Churs Plant Food Company ("Na-Churs");
and Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned subsidiary, Haifa
Chemicals South, Ltd. ("HCSL"). TRI is a wholly-owned subsidiary of TPR
Investment Associates, Inc. ("TPR"). As used herein, the term "the Company"
means TRI together with its direct and indirect subsidiaries.
On August 16, 1996 NMPC and EDP sold their potash producing assets for an
aggregate consideration of $56,154,000, including a payment for working capital
of $11,154,000, and the assumption of specified liabilities (but excluding,
among other things, certain antitrust litigation -- see "Business -- Legal
Proceedings"). The sale of the Company's potash operations resulted in a pre-tax
gain, after considering certain costs relating thereto, of $22,579,000. Such
gain is included in "Interest and other income -- net" in the accompanying
Consolidated Statements of Operations (see Note K).
During the years ended December 31, 1995 and 1996, the potash operations
contributed approximately $54,000,000 (14%) and $35,000,000 (9%), respectively,
to the Company's consolidated revenues, after eliminating intercompany sales.
Approximately 50% of the aggregate sales proceeds were applied to prepay
debt secured by the assets of NMPC or EDP. In connection with the sale,
Vicksburg entered into a five year potash supply agreement, at prevailing market
rates during the period (subject to certain adjustments), with the buyer.
Substantially all of the companies' revenues, operating profits and
identifiable assets are related to the chemical industry. The Company is a
global developer, producer and marketer of specialty plant nutrients and
specialty industrial and agricultural chemicals and distributes its products
internationally.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Management believes that the
estimates used are reasonable.
F-8
127
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating Data
The Company's revenues by region for the years ended December 31, 1995,
1996 and 1997 are set forth below:
1995 1996 1997
---- ---- ----
(IN MILLIONS)
Europe.............................................. $146 $160 $148
United States....................................... 136 145 128
Asia................................................ 34 37 29
Canada and Latin America............................ 22 24 22
Israel.............................................. 21 23 19
Australia........................................... 6 6 6
Africa and other.................................... 21 17 25
---- ---- ----
Total..................................... $386 $412 $377
==== ==== ====
As of December 31, 1996 and 1997, the Company's assets were located in the
United States (36% and 37%, respectively) and abroad (principally Israel) (64%
and 63%, respectively). The Company has no single customer accounting for more
than 10% of its revenues.
HCL leases land and buildings from Oil Refineries Ltd. ("ORL"), a
corporation which is majority-owned by the Israeli Government. The leases expire
at various dates, principally in the years 2015 and 2016. HCL also has a lease
from ORL of a pipeline which transports ammonia from the port in Haifa to HCL's
plant. HCSL leases its land from the Israeli government under a 49 year lease
which commenced in 1994.
HCL obtains its major raw materials, potash and phosphate rock, in Israel.
Potash is purchased solely from Dead Sea Works, Ltd. ("DSW") in accordance with
two supply contracts which expire in 1999 and 2005. HCL currently sources
phosphate rock from Rotem Amfert Negev Ltd. ("Rotem") according to the terms of
a variable price contract which expired in 1996, which is currently being
renegotiated. DSW and Rotem are subsidiaries of Israel Chemicals Ltd., a large
Israeli chemical company, and are the sole suppliers in Israel of potash and
phosphate rock, respectively. While management views its current relationships
with both of its principal suppliers to be good, the loss of supply from either
of these sources could have a material adverse effect on the Company.
Functional Currency and Transaction Gains and Losses
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 40% are in U.S. dollars, with the remainder
principally in Western European currencies. Accordingly, to the extent the U.S.
dollar weakens or strengthens versus the applicable corresponding currency,
HCL's results are favorably or unfavorably affected. In order to mitigate the
impact of currency fluctuations against the U.S. dollar, the Company has a
policy of hedging a significant portion of its foreign sales denominated in
Western European currencies by entering into forward exchange contracts. A
portion of these contracts qualify as hedges pursuant to Statement of Financial
Accounting Standards No. 52 and, accordingly, unrealized gains and losses
arising therefrom are deferred and accounted for in the subsequent year as part
of sales. Unrealized gains and losses for the remainder of the forward exchange
contracts are recognized in operations currently. At December 31, 1996 and 1997,
there were outstanding contracts to purchase $53 million and $27 million,
respectively, in various European currencies, principally Deutsche Marks and
Italian Lira in 1996 and British Pounds and Spanish Pesetas in 1997. In
addition, at December 31, 1996 there were outstanding contracts to purchase 26
million Deutsche Marks and to sell a correspond-
F-9
128
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ing aggregate amount of Italian Lira and Spanish Pesetas. No gains or losses
were deferred at December 31, 1996 and 1997 for foreign exchange contracts which
qualify as hedges.
If the Company had not followed such a policy of entering into forward
exchange contracts in order to hedge its foreign sales, and instead recognized
income based on the then prevailing foreign currency rates, the Company's
operating income for the years ended December 31, 1995, 1996 and 1997 would have
increased (decreased) by $16,600,000, ($6,900,000) and ($7,000,000),
respectively, and income before income taxes would have increased (decreased) by
approximately $11,200,000, ($5,300,000) and ($7,000,000), respectively.
The Company determines when to enter into hedging transactions based on its
ongoing review of the currency markets. The principal purpose of the Company's
hedging program (which is for other than trading purposes) is to mitigate the
impact of fluctuations against the U.S. dollar, as well as to protect against
significant adverse changes in exchange rates. Accordingly, the gains and losses
recognized relating to the hedging program in any particular period and the
impact on revenues had the Company not had such a program are not necessarily
indicative of its effectiveness.
Raw materials purchased in Israel are mainly quoted at prices linked to the
U.S. dollar. The U.S. dollar is the functional currency and accordingly the
financial statements of HCL are prepared, and the books and records of HCL
(except for a subsidiary described below) are maintained, in U.S. dollars.
The assets, liabilities and operations of one of HCL's foreign subsidiaries
are measured using the currency of the primary economic environment in which the
subsidiary operates. Assets and liabilities are translated at the exchange rate
as of the balance sheet date. Revenues, expenses, gains and losses are
translated at the weighted average exchange rate for the period. Translation
adjustments, resulting from the process of translating such subsidiary's
financial statements from its currency into U.S. dollars, are recorded as a
separate component of stockholder's equity.
Inventories
Inventories are carried at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation is recorded under the straight-line
method at generally the following annual rates:
Buildings...................................... 3 -- 8%
Machinery, plant and equipment................. 5 -- 25%
Office furniture and equipment................. 6 -- 20%
Expenditures for maintenance and repairs are charged to expense as
incurred. Investment grants from the Israeli Government are initially recorded
as a reduction of the capitalized asset and are recognized in income over the
estimated useful life of the respective asset. HCL recorded investment grants
for the years ended December 31, 1995, 1996 and 1997 amounting to $995,000,
$248,000 and $1,646,000, respectively.
Investments In Marketable Securities and Other Short-Term Investments
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"),
the Company classifies its equity
F-10
129
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and fixed maturity securities as available-for-sale and reports such securities
at fair value, with unrealized gains and losses recorded as a separate component
of stockholder's equity.
Income Taxes
The Company is included in the consolidated Federal income tax return of
TPR. Under the tax allocation agreement with TPR, the annual current Federal
income tax liability for the Company and each of its domestic subsidiaries
reporting profits is determined as if such entity had filed a separate Federal
income tax return; no tax benefits are given for companies reporting losses.
However, TPR may, at its discretion, allow tax benefits for such losses.
For purposes of the consolidated financial statements, taxes on income have
been computed as if the Company and its domestic subsidiaries filed its own
consolidated Federal income tax return without regard to the tax allocation
agreement. Payments to TPR, if any, representing the excess of amounts
determined under the tax allocation agreement over amounts determined for the
purposes of consolidated financial statements are charged to retained earnings.
During the three years in the period ended December 31, 1997, TPR did not
require payment of amounts different from that which was computed as if the
Company and its consolidated subsidiaries filed its own consolidated income tax
returns.
The Company accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates that are expected to be in
effect when the differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Environmental Costs
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations (including fines levied under environmental laws,
reclamation costs and litigation costs), and which do not contribute to current
or future revenue generation ("environmental clean-up costs"), are expensed.
Such environmental clean-up costs do not encompass ongoing operating costs
relating to compliance with environmental laws, including disposal of waste.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, the cost can be reasonably estimated and the Company's
responsibility is established. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action. Accruals relating to costs to be
incurred, if any, at the end of the useful life of equipment, facilities or
other assets are made over the useful life of the respective assets.
During 1995, 1996 and 1997 the Company incurred environmental clean-up
costs of approximately $300,000, $300,000 and $400,000, respectively. In
addition, at both December 31, 1996 and 1997, the Company has accrued
approximately $1,600,000 related to the estimated costs to be incurred for
various environmental liabilities.
In October, 1996 the AICPA Accounting Standards Executive Committee issued
Statement of Position 96-1, "Environmental Remediation Liabilities", which
required adoption in 1997. The adoption of this pronouncement did not have a
material effect on the Company's consolidated financial condition or results of
operations.
F-11
130
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Research and Development Costs
Research and development costs are charged to expense as incurred and
amounted to $3,158,000, $2,693,000 and $2,421,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
Risk Management Derivatives
Amounts receivable or payable under interest rate swap agreements are
recognized as interest expense.
Long-Lived Assets
Management evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances indicate that a recorded asset might not be
recoverable by taking into consideration such factors as recent operating
results, projected undiscounted cash flows and plans for future operations. At
December 31, 1996 and 1997 there were no impairments of the Company's assets.
Cash and Cash Equivalents
Investments with original maturities of three months or less are classified
as cash equivalents by the Company.
Concentration of Credit Risk
The Company believes no significant concentration of credit risk exists
with respect to investments and accounts receivable. The Company places its cash
investments with high quality financial institutions, and the Company's
receivables are diversified across a diverse customer base and geographical
regions.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), and SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 131 establishes standards
for reporting financial and descriptive information for reportable segments on
the same basis that is used internally for evaluating segment performance and
the allocation of resources to segments. The Company is evaluating the effect,
if any, of SFAS 131, on its operating segment reporting disclosure. SFAS 130
establishes standards for presenting certain items that are excluded from net
income and reported as components of stockholders' equity, such as foreign
currency translation. These statements are effective for fiscal years beginning
after December 15, 1997. The adoption of these statements will not have a
material effect on the Company's results of operations or financial position.
Reclassifications
Certain prior year amounts have been reclassified to conform to the manner
of presentation in the current year.
F-12
131
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. OTHER CURRENT ASSETS AND INVESTMENT IN LASER INDUSTRIES LIMITED
Other Current Assets
Other current assets consist of the following at December 31, 1996 and
1997:
1996 1997
------- -------
(IN THOUSANDS)
Marketable securities (carried at market).............. $ 8,557 $ 6,523
Miscellaneous receivables, other securities, deferred
income taxes, etc.................................... 16,107 27,055
------- -------
Total........................................ $24,664 $33,578
======= =======
The Company classifies all of its marketable securities (including U.S.
Government obligations) as available-for-sale securities as of December 31, 1996
and 1997:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
(IN THOUSANDS)
December 31, 1996
- ----------------------
Foreign Government obligations........ $1,005 $ -- $ 10 $ 995
Other debt securities................. 432 41 -- 473
------ ------ ---- ------
Total debt securities....... 1,437 41 10 1,468
------ ------ ---- ------
Common stocks and mutual funds
investing primarily therein......... 6,099 505 -- 6,604
Preferred stocks...................... 387 98 -- 485
------ ------ ---- ------
Total equity securities..... 6,486 603 -- 7,089
------ ------ ---- ------
Total....................... $7,923 $ 644 $ 10 $8,557
====== ====== ==== ======
December 31, 1997
- ----------------------
Foreign Government obligations........ $ 866 $ -- $ 17 $ 849
Other debt securities................. 492 29 -- 521
------ ------ ---- ------
Total debt securities....... 1,358 29 17 1,370
------ ------ ---- ------
Common stocks and mutual funds
investing primarily therein......... 4,383 1,009 239 5,153
Preferred stocks...................... -- -- -- --
------ ------ ---- ------
Total equity securities..... 4,383 1,009 239 5,153
------ ------ ---- ------
Total....................... $5,741 $1,038 $256 $6,523
====== ====== ==== ======
The cost and estimated fair value of debt securities at December 31, 1997,
by contractual maturity, are as follows:
ESTIMATED
COST FAIR VALUE
------ ----------
(IN THOUSANDS)
Due in one year or less..................................... $ 408 $ 407
Due after one year through three years...................... 592 576
Due after three years....................................... 358 387
------ ------
Total............................................. $1,358 $1,370
====== ======
F-13
132
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1995, the gross realized gains on sales of securities totaled
approximately $555,000 and the gross realized losses totaled approximately
$968,000; during 1996, the gross realized gains on sales of securities totaled
approximately $411,000 and the gross realized losses totaled approximately
$70,000; during 1997 the gross realized gains on sales of securities totaled
approximately $3,052,000 and the gross realized losses totaled approximately
$339,000 (see Note K).
Investment in Laser Industries Limited ("Laser")
On November 9, 1997, Laser, a publicly traded manufacturer of lasers for
medical use in which the Company had an ownership interest accounted for by the
equity method, and ESC Medical Systems Ltd. ("ESC"), signed a definitive
agreement (the "Agreement") to combine the two companies through an exchange of
shares. The transaction closed on February 23, 1998. The Company's ability to
sell the ESC shares it will receive pursuant to the combination will be governed
by securities law volume restrictions.
As of December 31, 1997, the Company carried its investment in the Laser
shares at approximately $9,100,000, which amount is included in the caption
"other assets" in the accompanying Consolidated Balance Sheet. Based on the
quoted market value of the ESC shares ($35.00 per share) as of February 20,
1998, the last day of trading before the combination, the Company will recognize
an after-tax gain of approximately $22,400,000 which will be recorded during the
first quarter of 1998.
In addition to the ownership of the Laser shares described above, the
Company also owned a warrant (the "Laser Warrant") which enabled the Company to
purchase additional Laser shares. The Laser Warrant, which had a carrying value
of $750,000, was distributed to TPR as a dividend in February 1998 prior to
Laser's combination with ESC.
During the years ended December 31, 1995, 1996 and 1997, the Company
recorded equity in Laser's earnings (losses), inclusive of goodwill
amortization, of ($478,000), $2,280,000 and $1,558,000, respectively. Such
amounts are included in "Interest and other income-net" in the accompanying
Consolidated Statements of Operations (see Note K).
ESC develops, manufactures and markets medical devices utilizing both
state-of-the-art lasers and proprietary intense pulsed light source technology
for non-invasive treatment of varicose veins and other benign vascular lesions,
as well as for hair removal, skin cancer, skin rejuvenation and other clinical
applications. ESC shares are traded in the United States on the NASDAQ National
Market System. The Company's investment in ESC will be accounted for pursuant to
SFAS 115.
C. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997:
1996 1997
------- -------
(IN THOUSANDS)
Raw materials.......................................... $17,589 $13,362
Finished goods......................................... 33,618 46,764
------- -------
Total........................................ $51,207 $60,126
======= =======
F-14
133
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT--NET
Property, plant and equipment at December 31, 1996 and 1997 consists of the
following:
1996 1997
-------- --------
(IN THOUSANDS)
Land................................................. $ 4,272 $ 4,272
Buildings............................................ 22,178 22,416
Machinery, plant and equipment....................... 262,763 279,734
Office furniture, equipment and water rights......... 8,731 9,714
Construction-in-progress............................. 13,927 20,339
-------- --------
Total, at cost..................................... 311,871 336,475
Less accumulated depreciation and amortization....... 111,097 128,988
-------- --------
Property, plant and equipment--net................. $200,774 $207,487
======== ========
The Company capitalized interest costs aggregating $953,000, $0 and $35,000
during the years ended December 31, 1995, 1996 and 1997, respectively, with
respect to several construction projects. Certain property, plant and equipment
has been pledged as collateral for long-term debt (see Note G).
On February 7, 1994, the smaller of HCL's two potassium nitrate production
units was damaged by a fire, causing a temporary reduction of the Company's
potassium nitrate production capacity. The Company completed the replacement of
the damaged unit during 1995. The impact of the loss of the facility, including
the effect of business interruption, was substantially covered by insurance. The
insurance proceeds relating to the property damage was for replacement value,
which was greater than the recorded carrying value of the damaged assets.
Accordingly, during the year ended December 31, 1995 HCL recorded a pre-tax gain
of approximately $1,700,000, (which amount was the residual adjustment over and
above the initial gain recorded in 1994). Such pre-tax gain is included in the
caption "Interest and other income-net" in the accompanying Consolidated
Statements of Operations (see Note K).
E. SHORT-TERM DEBT AND UNUSED CREDIT LINES
The weighted average interest rates for short-term debt outstanding at
December 31, 1996 and 1997 were 5.9% and 6.4%, respectively.
As of December 31, 1997, the Company and its subsidiaries have unused
revolving loan commitments and other credit lines from banks aggregating
approximately $72,000,000.
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 31, 1996 and 1997:
1996 1997
------- -------
(IN THOUSANDS)
Compensation and payroll taxes......................... $ 9,241 $ 7,104
Interest............................................... 10,229 10,455
Income taxes........................................... 840 607
Other.................................................. 13,011 12,049
------- -------
Total........................................ $33,321 $30,215
======= =======
F-15
134
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LONG-TERM DEBT -- NET
Long-term debt consists of the following at December 31, 1996 and 1997:
PAYABLE
DESCRIPTION INTEREST RATE* THROUGH 1996 1997
- ----------- -------------- ------- -------- --------
(IN THOUSANDS)
TRI:
Bank loans(1)............................. Various 2004 $ -- $ 3,000
$115,000,000 principal amount of 11.875%
Senior subordinated notes, net of
unamortized debt discount of $825,000
and $712,000 (effective interest rate of
12.1%)(2)............................... 11.875% 2002 114,175 114,288
Subsidiaries:
Bank loans and other financing............ Various 2020 170,020 164,806
-------- --------
Total................................... 284,195 282,094
Less current portion.................... 17,481 13,080
-------- --------
Long-term debt -- net................... $266,714 $269,014
======== ========
- ---------------
* As prevailing on respective balance sheet dates. Such rates (other than the
subordinated debt) generally "float" according to changes in the Prime or
LIBOR rates. At December 31, 1997 such rates were approximately 8.25% and
5.80%, respectively.
1. As of December 29, 1995, the Company entered into a Loan Agreement with a
bank for borrowings upon the Company's request prior to December 29, 1998 in
the aggregate principal amount not to exceed $40,000,000. The loan matures on
December 29, 2004. The Company pledged all of the capital stock of HCL to
secure its obligations under the Loan Agreement.
2. The 11 7/8% senior subordinated notes (the "11 7/8% Notes") mature July 1,
2002 and are redeemable at the option of the Company at any time after July
1, 1998 at stipulated redemption prices. There are no mandatory sinking fund
requirements. On March 11, 1998, the Company commenced the sale in a private
placement of $100,000,000 principal amount of 10 3/4% Senior Notes due 2008
(the "Senior Notes") and $135,000,000 principal amount of 12% Senior Discount
Notes due 2008 to provide gross proceeds to the Company of approximately
$75,400,000 (the "Senior Discount Notes"). The sale of the Senior Notes and
the Senior Discount Notes closed on March 16, 1998. A substantial portion
(approximately $118,000,000) of the net proceeds from the sale was used to
purchase (pursuant to a tender offer) approximately $110,000,000 principal
amount of the 11 7/8% Notes (the "Refinancing"), resulting in an
extraordinary charge for the early extinguishment of debt of approximately
$10,900,000 (no tax effect) which will be recorded in the first quarter of
1998.
The Senior Notes and the Senior Discount Notes are unsecured obligations of
the Company and are pari passu in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the Company and senior in right to
payment of all subordinated indebtedness of the Company. Interest on the Senior
Notes is payable semi-annually. Interest on the Senior Discount Notes will
accrue and compound semi-annually but will not be payable until 2003, after
which interest will be payable semi-annually.
The Company intends to use the balance of the proceeds from the sale of the
Senior Notes and Senior Discount Notes for working capital, general corporate
purposes, and the repayment of $13,900,000 of borrowings (of which $10,900,000
was borrowed subsequent to December 31, 1997, of which $9,000,000 was dividended
to TPR) under the Loan Agreement discussed above.
F-16
135
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------
On November 28, 1986, the Company issued junior subordinated debentures
(the "9.5% Debentures") in the aggregate principal amount of $9,000,000, with
interest payable quarterly. The 9.5% Debentures were initially recorded at
$6,700,000, the estimated value on the date of issue, and were scheduled to
mature in 1998.
During 1991, the Company's then outstanding redeemable preferred stock was
converted into another $9,000,000 principal amount of the Company's 9.5%
Debentures. Subsequently, during 1991, the then holder of this $9,000,000
principal amount of 9.5% Debentures agreed to extend the maturity date of such
principal amount by seven years to the year 2005. The carrying value of the 9.5%
Debentures issued upon conversion of the redeemable preferred stock was
equivalent to the previous carrying value of the preferred stock. During 1994,
as a result of the settlement of certain litigation with a former indirect
stockholder and director of the Company, TPR acquired the 9.5% Debentures then
held by the wife of such stockholder. Upon TPR's acquisition of such 9.5%
Debentures, TPR exchanged these 9.5% Debentures for a new Company preferred
stock (see Note L). Also as part of the settlement of such litigation, TPR
assumed a $4,000,000 obligation that was previously owed to the Company by the
wife of the former indirect stockholder and director. Such obligation, which is
included in "other assets" in the accompanying Consolidated Balance Sheets,
bears interest at the rate of 8.75% per year and is due in the year 2005.
During 1995, TPR assumed the Company's obligation for the remaining
outstanding 9.5% Debentures and the Company's liability thereon was
extinguished. The Company recorded such assumed obligation as an $8,177,000
capital contribution by TPR, the amount equivalent to the then net carrying
value of the 9.5% Debentures.
Certain of the Company's and its subsidiaries' loan agreements and its
Indentures require the Company and/or the respective subsidiary to, among other
things, maintain various financial ratios including minimum net worth, ratios of
debt to net worth, interest and fixed charge coverage tests and current ratios.
In addition, there are certain limitations on the Company's ability make certain
Restricted Payments and Restricted Investments (each as defined), etc. In the
event of a Change in Control (as defined), the Company is required to offer to
purchase all the Senior Notes and Senior Discount Notes as well as to repay
certain bank loans. Certain of the respective instruments also limit the payment
of dividends, capital expenditures and the incurring of additional debt and
liens by both the Company and its subsidiaries. As of December 31, 1997, the
Company and its subsidiaries are in compliance with the covenants of each of the
respective loan agreements and the Indenture then in effect.
The aggregate maturities of long-term debt at December 31, 1997 (after
giving effect to the Refinancing of the 11 7/8% Notes) are set forth below.
YEARS ENDING
DECEMBER 31,
------------ (IN THOUSANDS)
1998....................................... $ 13,080
1999....................................... 15,433
2000....................................... 13,685
2001....................................... 13,840
2002....................................... 38,081
Thereafter................................. 187,975
--------
Total............................ $282,094
========
Substantially all of the assets of HCL and HCSL are subject to security
interests in favor of the State of Israel and/or banks. In addition,
substantially all of the assets of the Company's United States subsidiaries are
subject to security interests in favor of banks pursuant to loan agreements. The
capital stock of HCL and Cedar have also been pledged to the banks pursuant to
these
F-17
136
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreements. The Company's common stock is pledged to secure the repayment
obligations of TPR under a note issued by it to a former indirect shareholder of
the Company.
During 1995 and 1996, the Company acquired $3,250,000 and $19,122,000,
respectively, principal amount of its senior subordinated reset notes (the
"Reset Notes") prior to their scheduled maturity of September 1, 1996. In
connection with such acquisitions of the Reset Notes, the Company has recorded
extraordinary losses of $103,000 and $553,000, respectively. Such losses had no
current tax benefit.
Interest paid, net of capitalized interest, totaled $33,445,000,
$31,672,000 and $28,193,000 for the years ended December 31, 1995, 1996 and
1997, respectively.
H. OTHER LIABILITIES
Under Israeli law and labor agreements, HCL is required to make severance
and pension payments to dismissed employees and to employees leaving employment
in certain other circumstances. These liabilities are covered by regular
deposits to various severance pay funds and by payment of premiums to an
insurance company for officers and non-factory personnel under approved plans.
"Other liabilities" in the Consolidated Balance Sheets as of December 31, 1996
and 1997 include accruals of $2,731,000 and $1,653,000, respectively, for the
estimated unfunded liability of complete severance of all HCL employees. Costs
incurred were approximately $2,060,000, $2,629,000 and $1,912,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
No information is available regarding the actuarial present value of HCL's
pension plans and the plans' net assets available for benefits, as these plans
are multi-employer, external and independent of HCL.
Cedar has a defined benefit pension plan which covers all of the full-time
employees of Cedar and Vicksburg. Funding of the plan is made through payment to
various funds managed by a third party and is in accordance with the funding
requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").
Cedar's net pension cost for the years ended December 31, 1995, 1996 and
1997 included the following benefit and cost components:
1995 1996 1997
----- ------ -------
(IN THOUSANDS)
Service cost........................................... $ 603 $ 796 $ 819
Interest cost.......................................... 844 1,014 1,133
Amortization of unrecognized prior service cost........ 109 109 109
Actual return on plan assets........................... (793) (904) (1,091)
Amortization of unrecognized net transition
obligation........................................... 59 59 59
----- ------ -------
Net pension cost............................. $ 822 $1,074 $ 1,029
===== ====== =======
F-18
137
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status and the amounts recognized in the Company's December 31,
1996 and 1997 Consolidated Balance Sheets for Cedar's benefit plan was as
follows:
1996 1997
------- -------
(IN THOUSANDS)
Plan assets at market value................................. $12,157 $14,239
Actuarial present value of projected benefit obligation..... 15,140 18,215
------- -------
Funding status.............................................. (2,983) (3,976)
Unrecognized net transition obligation...................... 293 234
Unrecognized prior service cost............................. 843 734
Unrecognized net loss....................................... 1,754 2,418
------- -------
Prepaid (accrued) pension cost.............................. $ (93) $ (590)
======= =======
At December 31, 1996 and 1997 the actuarial present value of Cedar's vested
benefit obligation was $10,666,000 and $12,865,000 and the accumulated benefit
obligation was $11,304,000 and $13,614,000, respectively.
Actuarial assumptions used at December 31, 1996 and 1997 were as follows:
1996 1997
---- ----
Discount rate -- projected benefit obligation............... 7.5% 7.0%
Rate of increase in compensation levels..................... 5.0% 5.0%
Expected long-term rate of return on assets................. 9.0% 9.0%
The unrecognized net transition obligation is being amortized on a
straight-line basis over fifteen years beginning January 1, 1987.
Certain of the Company's United States subsidiaries have profit sharing
thrift plans designed to conform to Internal Revenue Code Section 401(k) and to
the requirements of ERISA. The plans, which cover all full-time employees (and
one of which includes Company headquarters employees), allow participants to
contribute as much as 15% of their annual compensation, up to a maximum
permitted by law, through salary reductions. The companies' contributions to the
plans are based on a percentage of the participant's contributions, and the
companies may make additional contributions to the plans at the discretion of
their respective Boards of Directors. The contribution expense relating to the
profit sharing thrift plans totaled $559,000, $505,000 and $202,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
F-19
138
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. OPERATING LEASES
The Company and its subsidiaries are obligated under non-cancelable
operating leases covering principally land, office facilities and equipment. At
December 31, 1997, minimum annual rental commitments under these leases are:
YEARS ENDING
DECEMBER 31,
------------ (IN THOUSANDS)
1998....................................... $ 3,664
1999....................................... 2,544
2000....................................... 1,589
2001....................................... 1,099
2002....................................... 1,041
Thereafter................................. 8,360
-------
Total............................ $18,297
=======
Rent expense for 1995, 1996 and 1997 was $5,308,000, $4,683,000 and
$4,489,000, respectively, covering land, office facilities and equipment.
J. INCOME TAXES
The Company's income tax provision for the years ended December 31, 1995,
1996 and 1997 consist of the following:
1995 1996 1997
----- ------ ------
(IN THOUSANDS)
Current expense (benefit):
Federal............................................... $-- $ -- $ --
Foreign............................................... (364) 3,146 652
State................................................. 392 (121) 570
----- ------ ------
Total current................................. 28 3,025 1,222
----- ------ ------
Deferred expense:
Foreign............................................... 507 385 1,647
State................................................. 198 606 83
----- ------ ------
Total deferred................................ 705 991 1,730
----- ------ ------
Total......................................... $ 733 $4,016 $2,952
===== ====== ======
The provision for income taxes for the years ended December 31, 1995, 1996
and 1997 amounted to $733,000, $4,016,000 and $2,952,000, respectively,
representing effective income tax rates of 12.0%, 26.4% and 67.2%, respectively.
These amounts differ from the amounts of ($2,144,000), $5,323,000 and
$1,539,000, respectively, computed by applying the statutory Federal
F-20
139
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
income tax rates to income (loss) before income taxes and extraordinary item.
The reasons for such variances from statutory rates were as follows:
1995 1996 1997
----- ----- -----
Statutory Federal rates.................................... (35.0)% 35.0% 35.0%
Increase (decrease) in income tax rate resulting from:
Israeli operations -- net impact of Israeli statutory
rate, effects of "inflation allowances", withholding
taxes, etc............................................ (53.5) 0.5 (33.9)
Net losses without current tax benefit and other......... 96.1 13.4 56.5
Utilization of capital loss carryforwards................ -- (22.6) --
Additional depletion expense............................. (1.9) (2.0) --
State and local income taxes -- net...................... 6.3 2.1 9.6
----- ----- -----
Effective income tax rates................................. 12.0% 26.4% 67.2%
===== ===== =====
At December 31, 1996 and 1997, deferred tax assets (liabilities) consisted
of the following:
1996 1997
-------- --------
(IN THOUSANDS)
Depreciation and property and equipment basis differences... $(29,981) $(33,534)
Nondeductible reserves...................................... 5,695 4,582
Net operating loss carryforwards............................ 20,244 28,744
Foreign tax credit carryovers............................... 4,753 5,427
Alternative minimum tax credit carryovers................... 5,401 5,401
Investment tax credit carryovers............................ 200 200
Other....................................................... 1,320 392
-------- --------
Deferred taxes -- net, exclusive of valuation allowance..... 7,632 11,212
Valuation allowance......................................... (28,384) (33,694)
-------- --------
Deferred taxes -- net....................................... $(20,752) $(22,482)
======== ========
At December 31, 1996, deferred tax assets of $2,563,000 are classified as
"other current assets" and deferred tax liabilities of $23,315,000 are
classified as "other liabilities". At December 31, 1997, deferred tax assets of
$3,325,000 are classified as "other current assets" and deferred tax liabilities
of $25,807,000 are classified as "other liabilities".
F-21
140
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the Company had various tax loss and credit
carryovers which expire as follows:
U.S. FEDERAL
-------------------------------------------------
INVESTMENT NET ALTERNATIVE STATE NET FOREIGN NET
FOREIGN TAX OPERATING MINIMUM OPERATING OPERATING
EXPIRATION TAX CREDIT CREDIT LOSS TAX CREDIT LOSS LOSS
---------- ---------- ---------- --------- ----------- --------- -----------
(IN THOUSANDS)
1998.................... $2,053
1999.................... 3,265
2000.................... 41
2001.................... 32 $200
2002.................... 36
2010.................... $22,208 $15,600
2011.................... 17,442 11,200
2012.................... 9,313 9,600
Unlimited............... $5,401 $38,013
------ ---- ------- ------ ------- -------
Total......... $5,427 $200 $48,963 $5,401 $36,400 $38,013
====== ==== ======= ====== ======= =======
Income taxes paid, including prepaid amounts, totaled approximately
$3,700,000, $3,100,000 and $3,800,000, respectively, during the years ended
December 31, 1995, 1996 and 1997. These amounts are exclusive of a prior year
tax refund received by HCL in 1995 of approximately $4,000,000.
No taxes on income have been provided on approximately $47,000,000 of
undistributed earnings of foreign subsidiaries as of December 31, 1997, since
management believes these amounts to be permanently invested.
K. INTEREST AND OTHER INCOME -- NET
Interest and other income -- net for the years ended December 31, 1995,
1996 and 1997 consists of the following:
1995 1996 1997
------ ------- ------
(IN THOUSANDS)
Interest and dividend income.......................... $2,459 $ 1,408 $1,131
Security gains (losses) -- net (see Note B)........... (413) 341 2,713
Gain on involuntary conversion (see Note D)........... 1,700 -- --
Gain on sale of potash operations (see Note A)........ -- 22,579 --
Equity on earnings (losses) of Laser -- net (see Note
B).................................................. (478) 2,280 1,558
Other, including gains (losses) of $5,400,000 and
($1,600,000) in 1995 and 1996, respectively,
relating to foreign currencies (see Note A)......... 5,860 (1,160) 148
------ ------- ------
Total....................................... $9,128 $25,448 $5,550
====== ======= ======
L. PREFERRED STOCK
As discussed in Note G, preferred stock was issued to TPR in December,
1994. The dividend on the preferred stock is cumulative at the rate of $8.50 per
share per annum. The preferred shares are non-voting and were recorded at
$7,960,000, TRI's carrying value of the 9.5% Debentures held by TPR on the date
of conversion. The preferred shares are redeemable, at the option of the
Company,
F-22
141
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at any time, at a redemption price of $79.60 per share, plus an amount equal to
cumulative dividends, accrued and unpaid thereon up to the date of redemption.
M. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In connection with a credit agreement, Cedar has entered into five
three-year interest rate swap agreements with a bank to effectively convert a
portion of its floating rate debt to fixed, thereby managing its credit risk. An
interest rate swap generally involves the exchange of fixed for floating rate
interest payment streams on specified notional principal amounts for an
agreed-upon period of time, without the exchange of the underlying principal
amounts. Notional amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk are much
smaller. Cedar's credit risk involves the possible default of the counter party
(the bank). No collateral requirements are imposed.
Cedar entered into the following interest rate swap agreements which are
used to manage its interest-rate risk. Cedar receives variable rate payments and
pays fixed rate payments. The following is a summary of the contracts
outstanding (in thousands of dollars) at December 31, 1997:
VARIABLE
NOMINAL FIXED RATE RATE MATURITY
AMOUNT PAID RECEIVED DATE
- ------- ---------- -------- --------
$10,000 6.17% 5.78% 10/98
10,000 6.04% 5.78% 10/98
7,500 5.99% 5.78% 10/98
5,000 5.27% 5.81% 2/99
15,000 6.70% 5.81% 10/01
The variable rate received is tied to the three-month LIBOR rate.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments". The estimated fair value amounts have been determined by
the Company, using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
F-23
142
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
DECEMBER 31, 1996 DECEMBER 31, 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
Assets:
Marketable securities (included
within "other current
assets")....................... $ 8,557 $ 8,557 $ 6,523 $ 6,523
Investments in certain securities
(included within "other assets"
and accounted for by the equity
method)........................ 8,290 13,454 9,848 38,824
Liabilities:
Long-term debt.................... 284,195 285,020 282,094 288,556
Off-balance sheet financial
instruments:
Foreign currency contracts........ 659 659 503 503
Risk management derivatives....... -- (44) -- (317)
Cash and Cash Equivalents, Accounts Receivable, Short-Term Debt and
Accounts Payable -- The carrying amounts of these items are a reasonable
estimate of their fair value.
Investments in Securities -- The fair value of these securities is
estimated based on quoted market prices.
Long-Term Debt -- Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used on a discounted cash flow basis to estimate fair value for debt issues for
which no market quotes are available.
Foreign Currency Contracts -- The fair value of foreign currency purchase
contracts is estimated by obtaining quotes from brokers. The contractual amount
of these contracts totals approximately $70,000,000 and $27,000,000 as of
December 31, 1996 and 1997, respectively.
Risk Management Derivatives -- The fair value generally reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996 and 1997. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
O. CONTINGENT LIABILITIES AND OTHER MATTERS
For a description of certain pending legal proceedings, see
"Business -- Legal Proceedings", which is an integral part of these financial
statements. The Company is vigorously defending against the allegations
described therein.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters referred to above should not have a material adverse effect on
the financial position, future operations or liquidity of the Company. However,
management
F-24
143
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the Company cannot predict with certainty the outcome of the potash and
Louisiana matters described in "Business -- Legal Proceedings".
The production of fertilizers and chemicals involves the use, handling and
processing of materials that may be considered hazardous within the meaning of
applicable environmental or health and safety laws. Accordingly, the Company's
operations are subject to extensive Federal, state and local regulatory
requirements in the United States and regulatory requirements in Israel relating
to environmental matters. Operating permits are required for the operation of
the Company's facilities, and these permits are subject to revocation,
modification and renewal. Government authorities have the power to enforce
compliance with these regulations and permits, and violators are subject to
civil and criminal penalties, including civil fines, injunctions or both. The
Company has entered into consent decrees and administrative orders with certain
governmental authorities which are expected to result in unspecified corrective
actions -- see "Business -- Environmental Matters". There can be no assurance
that the costs of such corrective actions will not be material.
The Company has accrued for the estimated costs of facility investigations,
corrective measures studies and known remedial measures relating to
environmental clean-up costs. However, the Company has been unable to ascertain
the range of reasonably possible costs that may be incurred for environmental
clean-up costs pending completion of investigations and studies.
Based on currently available information, Management believes that the
Company's expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection
and other expenditures for the resolution of environmental actions will not have
a material adverse effect on the Company's liquidity and capital resources,
competitive position or financial statements. However, Management cannot assess
the possible effect of compliance with future requirements.
During the fourth quarter of 1996 and the first two quarters of 1997, the
Company's operations were adversely impacted by a labor dispute at HCL (the
"Haifa Labor Dispute").
Most employees at HCL's manufacturing facility (the "Haifa Facility") are
members of the "Histradrut," the Israeli national labor federation, and are
represented by collective bargaining units. Terms of employment of most
employees at the Haifa Facility are currently governed predominantly by a
Specific Collective Agreement ("SCA") negotiated by the Company with the
Histadrut, the respective unions representing the employees and representatives
of the employees.
In 1994, an agreement was signed with the unions and the representatives of
the technicians and engineers at the Haifa Facility for the three year period
ended December 31, 1996. In 1995, an SCA was signed with the unions and
representatives of the other employees for the two year period ended December
31, 1996. In September 1996, the Company announced the cancellation of such
agreements effective upon their expiration dates and its intention to negotiate
a new SCA with basic changes aimed at reducing labor costs and enhancing
operating flexibility for the period following December 31, 1996.
As a result of the announced cancellation of the labor agreements, the
Company suffered several work stoppages and other job actions which adversely
affected productivity at the Haifa Facility during October and November 1996,
including a period of temporary plant shut-down. On December 3, 1996 the plant
was shut down until March 10, 1997 when a new SCA providing for certain wage
freezes and reductions in benefits was signed for the three year period ending
December 31, 1999. Subsequent to March 10, 1997, the Haifa Facility re-opened
and gradually began production. By the end of May 1997 and subsequent thereto,
the Haifa Facility was generally operating at approximately full capacity;
however, there have been several periods of operations at
F-25
144
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
less than full capacity due to the need for increased maintenance for certain
equipment resulting from the lengthy period of shut-down.
The Company's financial results subsequent to the commencement of the Haifa
Labor Dispute have been adversely affected (particularly in the fourth quarter
of 1996 and the first quarter of 1997) as a result of several factors,
including: (i) the increased cost of production resulting from reduced
manufacturing during the periods which affected the fixed charge component of
cost of sales; (ii) the cost of raw materials destroyed in the production
process during work stoppages and job actions; (iii) lower gross margins due to
inventory shortages which required purchases from third parties at substantially
increased costs compared to the Company's costs; and (iv) increased general and
administrative expenses arising from higher security and other costs. These
adverse impacts were partially offset by lower labor costs during the Haifa
Labor Dispute.
Management believes that the new SCA will result in substantial cost
savings for the Company compared to the costs it would otherwise have incurred
during the next few years had the Company merely renewed the terms of the prior
SCAs and continued the pattern of increased costs included in recent SCAs.
Further, management believes that the aggregate amount of such cost savings over
the next few years will substantially exceed the incremental costs experienced
during the period of the Haifa Labor Dispute. Such savings commenced during the
second quarter of 1997.
Prior to 1996, HCL's last major labor dispute took place in July 1991 and
related to negotiations of the SCA for 1990 and 1991. As a result of this
dispute, HCL's employees went on strike for approximately four weeks during the
third quarter of 1991. Prior to that, the last major labor dispute took place in
1983, which resulted in a strike of approximately two weeks.
F-26
145
ANNEX A TO PROSPECTUS
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Trans-Resources, Inc.
c/o State Street Bank and Trust Company
Corporate Trust Division, 15th Floor
61 Broadway
New York, New York 10006
Dear Sirs:
This certificate is delivered to request a transfer of $ principal
amount of the 10 3/4% Senior Notes due 2008 (the "Senior Notes") or a transfer
of $ principal amount at maturity of the 12% Senior Discount Notes due
2008 (the "Senior Discount Notes" and, together with the Senior Notes, the
"Notes"), as the case may be, of Trans-Resources, Inc. (the "Company"). Upon
transfer, the Notes would be registered in the name of the new beneficial owners
as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule 501
(a) (1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Senior Notes or $250,000 Accreted Value of the Senior Discount Notes, as the
case may be, and we are acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act. We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes and we
invest in or purchase securities similar to the Notes in the normal course of
our business. We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of Rule 501 (a)
(1), (2), (3) or (7) under the Securities Act that is purchasing for its own
account or for the account of such an institutional "accredited investor," in
each case in a minimum principal amount of Senior Notes of $250,000 or $250,000
Accreted Value of the Senior Discount Notes, as the case may be, or (f) pursuant
to any other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement of law
that the disposition of our property or the property of such investor account or
accounts be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on sale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the applicable Trustee which shall provide, among other things, that
the transferee is an institutional "accredited investor" within the meaning of
Rule 501(a) (1), (2), (3) or (7) under the Securities Act and that it is
acquiring such Notes for investment purposes and not for distribution in
violation of the Securities Act. Each purchaser acknowledges that the Company
and the applicable Trustee reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the Notes pursuant
to clause (d), (e) or (f) to require the delivery of an opinion of counsel,
certificates and/or other information satisfactory to the Company and the
applicable Trustee.
Dated: TRANSFEREE:
-------------------------------
BY:
-------------------------------------
146
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information........................... 2
Summary......................................... 4
Risk Factors.................................... 21
The Refinancing................................. 28
Use of Proceeds................................. 29
Capitalization.................................. 30
Selected Historical Consolidated Financial
Data.......................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 32
Exchange and Registration Rights Agreements;
Purpose of the Exchange Offer................. 40
The Exchange Offer.............................. 42
Industry........................................ 50
Business........................................ 54
Management...................................... 69
Security Ownership of Certain Beneficial Owners
and Management................................ 73
Certain Relationships and Related
Transactions.................................. 73
Description of Certain Indebtedness............. 74
Description of the New Notes.................... 77
Book Entry; Delivery and Form................... 105
Certain United States Federal Income Tax
Considerations................................ 108
Plan of Distribution............................ 112
Conditions in Israel............................ 113
Legal Matters................................... 116
Experts......................................... 116
Index to Consolidated Financial Statements...... F-1
Annex A -- Form of Transferee Letter of
Representation................................ A-1
============================================================
============================================================
TRANS-RESOURCES, INC.
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2008, SERIES A
AND
12% SENIOR DISCOUNT NOTES DUE 2008, SERIES B
FOR ANY AND ALL OUTSTANDING
12% SENIOR DISCOUNT NOTES DUE 2008, SERIES A
[TRANSRESOURCES LOGO]
--------------------
PROSPECTUS
--------------------
, 1998
============================================================
147
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148
[TRANSRESOURCES LOGO]
149
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for the unlawful payment
of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL empowers a corporation to indemnify, subject to the
standards set forth therein, any person in connection with any action, suit or
proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such corporation, or is or was
serving as such with respect to another entity at the request of such
corporation. The DGCL also provides that the corporation may purchase insurance
on behalf of any such director, officer, employee or agent.
Article Seventh of the Certificate of Incorporation of the Company provides
as follows:
SEVENTH: (d) Each Director, officer and employee, past or present, of the
Corporation, and each person who serves or may have served at the request of the
Corporation as a Director, Trustee, officer or employee of another corporation,
association, trust or other entity and their respective heirs, administrators
and executors, shall be indemnified by the Corporation in accordance with, and
to the fullest extent permitted by, the provisions of the General Corporation
Law of the State of Delaware as it may from time to time be amended. Each agent
of the Corporation and each person who serves or may have served at the request
of the Corporation as an agent of another corporation, or as an employee or
agent of any partnership, joint venture, trust or other enterprise may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
same extent as provided herein with respect to Directors, officers and employees
of the Corporation. The provisions of this paragraph (d) shall apply to any
member of any Committee appointed by the Board of Directors as fully as though
such person shall have been an officer or Director of the Corporation.
(e) A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
personal benefit.
(f) The provisions of this Article Seventh shall be in addition to and not
in limitation of any other rights, indemnities, or limitations of liability to
which any Director or officer may be entitled, as a matter of law or under any
By-Law, agreement, vote of stockholders or otherwise.
Article VIII of the Company's By-Laws contains the following provisions:
Each director, officer and employee, past or present of the corporation,
and each person who serves or may have served at the request of the corporation
as a director, officer or employee of another corporation and their respective
heirs, administrators and executors, shall be indemnified by the corporation in
accordance with, and to the fullest extent permitted by, the provisions of the
General Corporation Law of the State of Delaware as it may from time to time be
amended. Each agent of the corporation and each person who serves or may have
served at the request of the corporation as an agent of another corporation, or
as an employee or agent of any partnership, joint
II-1
150
venture, trust or other enterprise may, in the discretion of the board of
directors, be indemnified by the corporation to the same extent as provided
herein with respect to directors, officers and employees of the corporation. The
provisions of this Article VIII shall apply to any member of any committee
appointed by the board of directors as fully as though such person shall have
been an officer or director of the corporation.
The board of directors may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the Certificate of Incorporation, By-Laws, or the General Corporation Law.
The provisions of this Article VIII shall be in addition to and not in
limitation of any other rights, indemnities, or limitations of liability to
which any person may be entitled, as a matter of law or under the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT DESCRIPTION
- ------- -----------
2.1 Asset Purchase Agreement dated as of May 21, 1996, by and
among Mississippi Chemical Corporation, Mississippi
Acquisition I, Inc., Mississippi Acquisition II, Inc., New
Mexico Potash Corporation and Eddy Potash, Inc., filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K for
August 16, 1996 (the "Form 8-K"), which is incorporated
herein by reference. The Company hereby agrees to furnish
supplementally to the Securities and Exchange Commission
upon request a copy of any omitted schedule or exhibit, all
of which are listed at the end of the Table of Contents to
the Asset Purchase Agreement. *
2.2 Amendment to Asset Purchase Agreement, dated August 16,
1996, filed as Exhibit 2.2 to the Form 8-K, which is
incorporated herein by reference. The Company hereby agrees
to furnish supplementally to the Securities and Exchange
Commission upon request a copy of any omitted exhibit, all
of which are referenced on the first page of the Amendment. *
3.1 Certificate of Incorporation of the Company, as amended (in
restated form), filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(the "1994 Form 10-K"), which is incorporated herein by
reference. *
3.2 By-laws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991 (the "1991 Form 10-K"), which is
incorporated herein by reference. *
4.1 Indenture, dated as of March 30, 1993 between the Company
and Regions Bank (formerly First Alabama Bank), as Trustee
("Regions Bank"), relating to the 11 7/8% Senior
Subordinated Notes due 2002 (the "11 7/8% Notes"), filed as
Exhibit 4.1 to the Registration Statement of the Company on
Form S-1, filed on April 16, 1993, as amended, Registration
No. 33-61158, which is incorporated herein by reference. *
4.2 Form of 11 7/8% Senior Subordinated Notes due 2002, Series A
and Series B (contained in Exhibit 4.1 as Exhibit A and B
thereto, respectively) *
4.3 First Supplemental Indenture, dated as of February 27, 1998,
between the Company and Regions Bank, relating to the
11 7/8% Notes, filed as Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K"), which is incorporated herein by
reference. *
II-2
151
EXHIBIT DESCRIPTION
- ------- -----------
4.4 Indenture, dated as of March 16, 1998, between the Company
and State Street Bank and Trust Company ("State Street"), as
Trustee, relating to the 10 3/4% Senior Notes due 2008 (the
"10 3/4% Notes"), filed as Exhibit 4.4 to the 1997 Form
10-K, which is incorporated herein by reference. *
4.5 Form of 10 3/4% Senior Notes due 2008, Series A and Series B
(contained in Exhibit 4.4 as Exhibit A and B thereto,
respectively).
4.6 Indenture, dated as of March 16, 1998, between the Company
and State Street, as Trustee, relating to the 12% Senior
Discount Notes due 2008 (the "12% Notes"), filed as Exhibit
4.6 to the 1997 Form 10-K, which is incorporated herein by
reference. *
4.7 Form of 12% Senior Discount Notes due 2008, Series A and
Series B (contained in Exhibit 4.6 as Exhibit A and B
thereto, respectively). *
4.8 Exchange and Registration Rights Agreement, dated March 16,
1998, among the Company, Chase Securities Inc. ("CSI") and
Donaldson Lufkin & Jenrette Securities Corporation ("DLJ"),
relating to the 10 3/4% Notes, filed as Exhibit 4.8 to the
1997 Form 10-K, which is incorporated herein by reference. *
4.9 Exchange and Registration Rights Agreement, dated March 16,
1998, among the Company, CSI and DLJ, relating to the 12%
Notes, filed as Exhibit 4.9 to the 1997 Form 10-K, which is
incorporated herein by reference. *
4.10 Credit Agreement, dated as of November 3, 1995 and Amended
and Restated as of July 31, 1997 (the "Cedar Credit
Agreement"), among Cedar Chemical Corporation, the Lenders
listed on the signature pages thereof and the Chase
Manhattan Bank, as Administrative Agent (exhibits and
schedules omitted), filed as Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, which is incorporated herein by reference. *
4.11 Amendment No. 1, dated as of February 26, 1998, to the Cedar
Credit Agreement, filed as Exhibit 4.11 to the 1997 Form
10-K, which is incorporated herein by reference. *
Certain instruments which define the rights of holders of
long-term debt of the Company and its consolidated
subsidiaries have not been filed as Exhibits to this
Registration Statement since the total amount of securities
authorized under any such instrument does not exceed 10% of
the total assets of the Company and its subsidiaries on a
consolidated basis, as of December 31, 1997. For a
description of such indebtedness see Note G of Notes to
Consolidated Financial Statements. The Company agrees to
furnish copies of such instruments to the Securities and
Exchange Commission upon its request.
5.1 Opinion of Rubin Baum Levin Constant & Friedman. **
10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead
Sea Works Limited, dated as of January 1, 1990, concerning
the supply of potash, filed as Exhibit 10.1 to the 1997 Form
10-K, which is incorporated herein by reference. *
10.2 Agreement of Use of Ammonia Pipeline between Haifa Chemicals
Ltd. and Oil Refineries Ltd., dated August 7, 1977, as
amended, concerning the use of an ammonia pipeline, filed as
Exhibit 10.8 to the Registration Statement of the Company on
Form S-1, filed on January 30, 1987, as amended,
Registration No. 33-11634 (the "1987 Form S-1") which is
incorporated herein by reference. *
10.3 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated December 20, 1968, concerning real property, filed as
Exhibit 10.9 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.4 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated March 31, 1974, concerning real property, filed as
Exhibit 10.10 to the 1987 Form S-1, which is incorporated
herein by reference. *
II-3
152
EXHIBIT DESCRIPTION
- ------- -----------
10.5 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated April 5, 1978, concerning real property, filed as
Exhibit 10.11 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.6 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated June 25, 1978, concerning real property, filed as
Exhibit 10.12 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.7 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated September 25, 1986, concerning real property, filed as
Exhibit 10.13 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.8 Agreement between the Company and Thomas G. Hardy, dated
March 22, 1994, concerning incentive bonus compensation,
including, as Exhibit A thereto, the related Trust
Agreement, filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
which is incorporated herein by reference. *
10.9 Employment Agreement between the Company and Thomas G.
Hardy, dated as of June 1, 1993, filed as Exhibit 10.11 to
the 1994 Form 10-K, which is incorporated herein by
reference. *
10.10 Salary Continuation Agreement between the Company and Lester
W. Youner, dated as of August 24, 1994, filed as Exhibit
10.12 to the 1994 Form 10-K, which is incorporated herein by
reference. *
10.11 Tax Sharing Agreement, dated as of December 30, 1991, among
TPR Investment Associates, Inc., the Company, EDP, Inc.,
Nine West Corporation, TR Media Corporation and Cedar
Chemical Corporation, filed as Exhibit 10.23 to the 1991
Form 10-K, which is incorporated herein by reference. *
10.12 Split Dollar Insurance Agreement, entered into as of August
26, 1988, between the Company and Arie Genger, filed as
Exhibit 10.27 to the Registration Statement of the Company
on Form S-1, filed on October 20, 1992, as amended,
Registration No. 33-53486, which is incorporated herein by
reference. *
10.13 Split Dollar Agreement and Collateral Assignment, made as of
December 31, 1996, between the Company and the trustees of
the Arie Genger 1995 Life Insurance Trust, filed as Exhibit
10.13 to the 1997 Form 10-K, which is incorporated herein by
reference. *
10.14 Lease contract between Haifa Chemicals South, Ltd. and
Israel Land Administration Authority, dated as of March 6,
1995, concerning real property, filed as Exhibit 10.14 to
the 1997 Form 10-K, which is incorporated herein by
reference. *
10.15 Potash Sales Agreement between Haifa Chemicals South, Ltd.
and Dead Sea Works Limited, dated April 24, 1995, concerning
the supply of potash, filed as Exhibit 10.15 to the 1997
Form 10-K, which is incorporated herein by reference. *
12.1 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Company, filed as Exhibit 21 to the 1997
Form 10-K, which is incorporated herein by reference. *
23.1 Consent of Deloitte & Touche LLP and Report on Financial
Statement Schedule.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Rubin Baum Levin Constant & Friedman (to be
included in Opinion to be filed as Exhibit 5.1). **
24 Power of Attorney authorizing Lester W. Youner to sign this
Registration Statement and any amendments hereto on behalf
of the principal executive officer and the directors.
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal for 10 3/4% Notes with respect
to the Exchange Offer.
II-4
153
EXHIBIT DESCRIPTION
- ------- -----------
99.2 Form of Letter of Transmittal for 12% Notes with respect to
the Exchange Offer.
99.3 Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
99.4 Form of Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Beneficial Owner relating to the
10 3/4% Notes.
99.5 Form of Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Beneficial Owner relating to the
12% Notes.
99.6 Form of Letter to clients.
99.7 Form of Letter to Registered Holders and The Depository
Trust Company.
- ---------------
* Incorporated by reference
** To be filed by Amendment
(b) Financial Statement Schedule:
PAGE
----
Schedule I -- Condensed Financial Information of Registrant,
as of December 31, 1996 and 1997 and for the Years Ended
December 31, 1995, 1996 and 1997.......................... S-1
Certain schedules, other than as listed above, are omitted because of the
absence of the conditions under which they are required or because the
information required therein is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to Section 13 or 15(d) of
II-5
154
the Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
155
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THE 4TH DAY OF MAY, 1998.
Trans-Resources, Inc.
(Registrant)
By /s/ LESTER W. YOUNER
------------------------------------
Lester W. Youner
Vice President, Treasurer
and Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED:
PRINCIPAL EXECUTIVE OFFICER:
ARIE GENGER
Chairman of the Board and Chief
Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
LESTER W. YOUNER
Vice President, Treasurer and Chief
Financial Officer and Secretary
By /s/ LESTER W. YOUNER
-----------------------------------------
Lester W. Youner
For Himself and As Attorney-In-Fact
Directors:
Arie Genger Dated: May 4, 1998
Thomas G. Hardy
Martin A. Coleman
Sash A. Spencer
POWERS OF ATTORNEY AUTHORIZING LESTER W. YOUNER TO SIGN THIS REGISTRATION
STATEMENT AND ANY FURTHER AMENDMENTS TO THE REGISTRATION STATEMENT ON BEHALF OF
THE PRINCIPAL EXECUTIVE OFFICER AND THE DIRECTORS ARE BEING FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION HEREWITH.
II-7
156
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
BALANCE SHEETS
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 20,261 $ 12,924
Receivables and other assets.............................. 8,925 8,854
Prepaid expenses.......................................... 466 2,741
-------- --------
Total Current Assets.............................. 29,652 24,519
INVESTMENTS IN SUBSIDIARIES................................. 91,363 93,363
DUE FROM SUBSIDIARIES -- net................................ 5,699 4,894
OTHER ASSETS................................................ 26,650 28,393
-------- --------
Total............................................. $153,364 $151,169
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES --
Accrued expenses and other current liabilities............ $ 9,899 $ 7,203
-------- --------
LONG-TERM DEBT -- net:
Senior indebtedness, notes payable and other
obligations............................................ -- 3,000
Senior subordinated debt -- net........................... 114,175 114,288
-------- --------
Long-Term Debt -- net (Note)...................... 114,175 117,288
-------- --------
OTHER LIABILITIES........................................... 3,036 3,071
-------- --------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding..................... 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 8,682 8,682
Retained earnings......................................... 9,345 6,203
Cumulative translation adjustment......................... (367) (67)
Unrealized gain on marketable securities.................. 634 829
-------- --------
Total Stockholder's Equity............................. 26,254 23,607
-------- --------
Total............................................. $153,364 $151,169
======== ========
- ---------------
Note -- The aggregate maturities of long-term debt during the next five years,
after giving effect to the Refinancing of the 11 7/8% Notes referred to
in Note G of Notes to Consolidated Financial Statements is approximately
as follows: 1998 -- $0; 1999 -- $0; 2000 -- $1,000,000;
2001 -- $1,000,000 and 2002 -- $1,000,000.
S-1
157
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
REVENUES -- EQUITY IN NET EARNINGS OF SUBSIDIARIES:
Dividends received from subsidiaries.................. $ 8,609 $ 76,556 $ 13,400
Undistributed (dividends in excess of) earnings of
subsidiaries....................................... 7,021 (55,685) 1,693
-------- -------- --------
Total.............................................. 15,630 20,871 15,093
COSTS AND EXPENSES...................................... (4,148) (4,559) (6,142)
INTEREST EXPENSE........................................ (22,250) (15,568) (14,324)
INTEREST AND OTHER INCOME -- Net........................ 1,868 2,024 3,666
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.................................................. (8,900) 2,768 (1,707)
INCOME TAX BENEFIT...................................... 2,042 8,425 3,151
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. (6,858) 11,193 1,444
EXTRAORDINARY ITEM -- Loss on repurchase of debt (no
income tax benefit)................................... (103) (553) --
-------- -------- --------
NET INCOME (LOSS)....................................... $ (6,961) $ 10,640 $ 1,444
======== ======== ========
S-2
158
SCHEDULE I
(CONCLUDED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
-------- -------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT:
Operations:
Net income (loss).................................. $ (6,961) $ 10,640 $ 1,444
Items not requiring (providing) cash:
Unremitted earnings of subsidiaries.............. (7,021) 55,685 (1,693)
Depreciation and amortization.................... 1,147 478 1,363
Increase in other liabilities.................... 31 33 35
Deferred taxes and other -- net.................. (1,064) (4,314) (1,148)
-------- -------- -------
Total.............................................. (13,868) 62,522 1
Working capital management:
Receivables and other current assets............... 6,115 (546) (312)
Prepaid expenses................................... (251) (175) (2,275)
Accrued expenses and other current liabilities..... (4,118) (1,066) (2,696)
-------- -------- -------
Cash provided by (used in) operations and working
capital management................................. (12,122) 60,735 (5,282)
-------- -------- -------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment............ (3) (21) (29)
Sales of marketable securities and short-term
investments, including in 1995 liquidation of CD's
securing a bank loan............................... 132,436 1,987 8,035
Purchases of marketable securities and short-term
investments........................................ (4,371) (9,354) (7,652)
Other -- net.......................................... 7,207 6,213 (823)
-------- -------- -------
Cash provided by (used in) investment activities...... 135,269 (1,175) (469)
-------- -------- -------
FINANCING ACTIVITIES:
Increase in long-term debt............................ -- -- 3,000
Repurchases, payments and current maturities of long-
term debt.......................................... (113,250) (51,000) --
Dividends to stockholders............................. (1,707) (6,059) (4,586)
-------- -------- -------
Cash provided by (used in) financing activities....... (114,957) (57,059) (1,586)
-------- -------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 8,190 2,501 (7,337)
CASH AND CASH EQUIVALENTS:
Beginning of year..................................... 9,570 17,760 20,261
-------- -------- -------
End of year........................................... $ 17,760 $ 20,261 $12,924
======== ======== =======
Interest paid........................................... $ 23,289 $ 16,446 $13,666
======== ======== =======
Income taxes paid....................................... $ 3,255 $ 2,268 $ 3,339
======== ======== =======
S-3
159
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
- ------- -----------
2.1 Asset Purchase Agreement dated as of May 21, 1996, by and
among Mississippi Chemical Corporation, Mississippi
Acquisition I, Inc., Mississippi Acquisition II, Inc., New
Mexico Potash Corporation and Eddy Potash, Inc., filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K for
August 16, 1996 (the "Form 8-K"), which is incorporated
herein by reference. The Company hereby agrees to furnish
supplementally to the Securities and Exchange Commission
upon request a copy of any omitted schedule or exhibit, all
of which are listed at the end of the Table of Contents to
the Asset Purchase Agreement. *
2.2 Amendment to Asset Purchase Agreement, dated August 16,
1996, filed as Exhibit 2.2 to the Form 8-K, which is
incorporated herein by reference. The Company hereby agrees
to furnish supplementally to the Securities and Exchange
Commission upon request a copy of any omitted exhibit, all
of which are referenced on the first page of the Amendment. *
3.1 Certificate of Incorporation of the Company, as amended (in
restated form), filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(the "1994 Form 10-K"), which is incorporated herein by
reference. *
3.2 By-laws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991 (the "1991 Form 10-K"), which is
incorporated herein by reference. *
4.1 Indenture, dated as of March 30, 1993 between the Company
and Regions Bank (formerly First Alabama Bank), as Trustee
("Regions Bank"), relating to the 11 7/8% Senior
Subordinated Notes due 2002 (the "11 7/8% Notes"), filed as
Exhibit 4.1 to the Registration Statement of the Company on
Form S-1, filed on April 16, 1993, as amended, Registration
No. 33-61158, which is incorporated herein by reference. *
4.2 Form of 11 7/8% Senior Subordinated Notes due 2002, Series A
and Series B (contained in Exhibit 4.1 as Exhibit A and B
thereto, respectively) *
4.3 First Supplemental Indenture, dated as of February 27, 1998,
between the Company and Regions Bank, relating to the
11 7/8% Notes, filed as Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K"), which is incorporated herein by
reference. *
4.4 Indenture, dated as of March 16, 1998, between the Company
and State Street Bank and Trust Company ("State Street"), as
Trustee, relating to the 10 3/4% Senior Notes due 2008 (the
"10 3/4% Notes"), filed as Exhibit 4.4 to the 1997 Form
10-K, which is incorporated herein by reference. *
4.5 Form of 10 3/4% Senior Notes due 2008, Series A and Series B
(contained in Exhibit 4.4 as Exhibit A and B thereto,
respectively).
4.6 Indenture, dated as of March 16, 1998, between the Company
and State Street, as Trustee, relating to the 12% Senior
Discount Notes due 2008 (the "12% Notes"), filed as Exhibit
4.6 to the 1997 Form 10-K, which is incorporated herein by
reference. *
4.7 Form of 12% Senior Discount Notes due 2008, Series A and
Series B (contained in Exhibit 4.6 as Exhibit A and B
thereto, respectively). *
160
4.8 Exchange and Registration Rights Agreement, dated March 16,
1998, among the Company, Chase Securities Inc. ("CSI") and
Donaldson Lufkin & Jenrette Securities Corporation ("DLJ"),
relating to the 10 3/4% Notes, filed as Exhibit 4.8 to the
1997 Form 10-K, which is incorporated herein by reference. *
4.9 Exchange and Registration Rights Agreement, dated March 16,
1998, among the Company, CSI and DLJ, relating to the 12%
Notes, filed as Exhibit 4.9 to the 1997 Form 10-K, which is
incorporated herein by reference. *
4.10 Credit Agreement, dated as of November 3, 1995 and Amended
and Restated as of July 31, 1997 (the "Cedar Credit
Agreement"), among Cedar Chemical Corporation, the Lenders
listed on the signature pages thereof and the Chase
Manhattan Bank, as Administrative Agent (exhibits and
schedules omitted), filed as Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, which is incorporated herein by reference. *
4.11 Amendment No. 1, dated as of February 26, 1998, to the Cedar
Credit Agreement, filed as Exhibit 4.11 to the 1997 Form
10-K, which is incorporated herein by reference. *
Certain instruments which define the rights of holders of
long-term debt of the Company and its consolidated
subsidiaries have not been filed as Exhibits to this
Registration Statement since the total amount of securities
authorized under any such instrument does not exceed 10% of
the total assets of the Company and its subsidiaries on a
consolidated basis, as of December 31, 1997. For a
description of such indebtedness see Note G of Notes to
Consolidated Financial Statements. The Company agrees to
furnish copies of such instruments to the Securities and
Exchange Commission upon its request.
5.1 Opinion of Rubin Baum Levin Constant & Friedman. **
10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead
Sea Works Limited, dated as of January 1, 1990, concerning
the supply of potash, filed as Exhibit 10.1 to the 1997 Form
10-K, which is incorporated herein by reference. *
10.2 Agreement of Use of Ammonia Pipeline between Haifa Chemicals
Ltd. and Oil Refineries Ltd., dated August 7, 1977, as
amended, concerning the use of an ammonia pipeline, filed as
Exhibit 10.8 to the Registration Statement of the Company on
Form S-1, filed on January 30, 1987, as amended,
Registration No. 33-11634 (the "1987 Form S-1") which is
incorporated herein by reference. *
10.3 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated December 20, 1968, concerning real property, filed as
Exhibit 10.9 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.4 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated March 31, 1974, concerning real property, filed as
Exhibit 10.10 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.5 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated April 5, 1978, concerning real property, filed as
Exhibit 10.11 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.6 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated June 25, 1978, concerning real property, filed as
Exhibit 10.12 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.7 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated September 25, 1986, concerning real property, filed as
Exhibit 10.13 to the 1987 Form S-1, which is incorporated
herein by reference. *
161
10.8 Agreement between the Company and Thomas G. Hardy, dated
March 22, 1994, concerning incentive bonus compensation,
including, as Exhibit A thereto, the related Trust
Agreement, filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
which is incorporated herein by reference. *
10.9 Employment Agreement between the Company and Thomas G.
Hardy, dated as of June 1, 1993, filed as Exhibit 10.11 to
the 1994 Form 10-K, which is incorporated herein by
reference. *
10.10 Salary Continuation Agreement between the Company and Lester
W. Youner, dated as of August 24, 1994, filed as Exhibit
10.12 to the 1994 Form 10-K, which is incorporated herein by
reference. *
10.11 Tax Sharing Agreement, dated as of December 30, 1991, among
TPR Investment Associates, Inc., the Company, EDP, Inc.,
Nine West Corporation, TR Media Corporation and Cedar
Chemical Corporation, filed as Exhibit 10.23 to the 1991
Form 10-K, which is incorporated herein by reference. *
10.12 Split Dollar Insurance Agreement, entered into as of August
26, 1988, between the Company and Arie Genger, filed as
Exhibit 10.27 to the Registration Statement of the Company
on Form S-1, filed on October 20, 1992, as amended,
Registration No. 33-53486, which is incorporated herein by
reference. *
10.13 Split Dollar Agreement and Collateral Assignment, made as of
December 31, 1996, between the Company and the trustees of
the Arie Genger 1995 Life Insurance Trust, filed as Exhibit
10.13 to the 1997 Form 10-K, which is incorporated herein by
reference. *
10.14 Lease contract between Haifa Chemicals South, Ltd. and
Israel Land Administration Authority, dated as of March 6,
1995, concerning real property, filed as Exhibit 10.14 to
the 1997 Form 10-K, which is incorporated herein by
reference. *
10.15 Potash Sales Agreement between Haifa Chemicals South, Ltd.
and Dead Sea Works Limited, dated April 24, 1995, concerning
the supply of potash, filed as Exhibit 10.15 to the 1997
Form 10-K, which is incorporated herein by reference. *
12.1 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Company, filed as Exhibit 21 to the 1997
Form 10-K, which is incorporated herein by reference. *
23.1 Consent of Deloitte & Touche LLP and Report on Financial
Statement Schedule.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Rubin Baum Levin Constant & Friedman (to be
included in Opinion to be filed as Exhibit 5.1). **
24 Power of Attorney authorizing Lester W. Youner to sign this
Registration Statement and any amendments hereto on behalf
of the principal executive officer and the directors.
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal for 10 3/4% Notes with respect
to the Exchange Offer.
99.2 Form of Letter of Transmittal for 12% Notes with respect to
the Exchange Offer.
99.3 Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
99.4 Form of Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Beneficial Owner relating to the
10 3/4% Notes.
99.5 Form of Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Beneficial Owner relating to the
12% Notes.
99.6 Form of Letter to clients.
99.7 Form of Letter to Registered Holders and The Depository
Trust Company.
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* Incorporated by reference
** To be filed by Amendment