As filed with the Securities and Exchange Commission on February 13, 2002
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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Compass Minerals Group, Inc.*
(Exact name of registrant as specified in its charter)
Delaware 1400 48-1135403
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
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8300 College Boulevard
Overland Park, Kansas 66210
(913) 344-9300
(Address, including zip code, and telephone number, including area code, of
each of the co-registrants' principal executive offices)
* The companies listed on the next page are also included in this Form S-4
Registration Statement as co-registrants.
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Robert F. Clark
Chief Executive Officer and President
8300 College Boulevard
Overland Park, Kansas 66210
(913) 344-9300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Gregory A. Ezring, Esq.
Latham & Watkins
885 Third Avenue
New York, New York 10022
(212) 906-1200
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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 any of 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
=================================================================================================
Proposed Maximum Proposed Maximum Amount Of
Title of Each Class of Amount to be Offering Price per Aggregate Offering Registration
Securities to be Registered Registered Exchange Note(1)(2) Price(1)(2) Fee(1)(2)
- -------------------------------------------------------------------------------------------------
10% Senior Subordinated Notes
Due 2011(3)................... $250,000,000 100.0% $250,000,000 $59,750
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Guarantees of the 10% Senior
Subordinated Notes due 2011(4) N/A N/A N/A N/A
=================================================================================================
(1)The registration fee has been calculated pursuant to Rule 457 under the
Securities Act. The Proposed Maximum Aggregate Offering Price is estimated
solely for the purpose of calculating the registration fee.
(2)The Proposed Maximum Aggregate Offering Price is based on the book value of
the notes, as of February 13, 2002, in the absence of a market for them as
required by Rule 457(f)(2) under the Securities Act of 1933.
(3)The 10% Senior Subordinated Notes due 2011 will be the obligations of
Compass Minerals Group, Inc.
(4)Each of Great Salt Lake Minerals Corporation, Carey Salt Company, NAMSCO
Inc., GSL Corporation and North American Salt Company will guarantee on an
unconditional basis the obligations of Compass Minerals Group, Inc. under
the 10% Senior Subordinated Notes due 2011. Pursuant to Rule 457(n), no
additional registration fee is being paid in respect of the guarantees. The
guarantees are not traded separately.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Exact Name of Co-registrants* Jurisdiction of Incorporation I.R.S. Employer Identification No.
----------------------------- ----------------------------- ----------------------------------
Carey Salt Company Delaware 13-3563048
Great Salt Lake Minerals Corporation Delaware 87-0274174
North American Salt Company Delaware 48-1047632
NAMSCO Inc. Delaware 48-1065647
GSL Corporation Delaware 48-1106349
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* The address for each of the co-registrants is c/o Compass Minerals Group,
Inc., 8300 College Boulevard, Overland Park, Kansas 66210, telephone (913)
344-9300. The primary standard industrial classification number for each of
the co-registrants is 1400.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated February 13, 2002
PROSPECTUS
$250,000,000
Compass Minerals Group, Inc.
OFFER TO EXCHANGE
$250,000,000 principal amount of its 10% Senior Subordinated Notes due 2011,
which have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding 10% Senior Subordinated Notes due 2011.
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We are offering to exchange all of our outstanding 10% senior subordinated
notes due 2011, which we refer to as the old notes, for our registered 10%
senior subordinated notes due 2011, which we refer to as the exchange notes. We
refer to the old notes and the exchange notes collectively as the notes. The
terms of the exchange notes are identical to the terms of the old notes except
that the exchange notes have been registered under the Securities Act of 1933
(the "Securities Act") and, therefore, are freely transferable.
Please consider the following:
. Our offer to exchange the old notes for the exchange notes will be open
until 5:00 p.m., New York City time, on , 2002, unless we
extend the offer.
. You should carefully review the procedures for tendering the old notes
beginning on page 27 of this prospectus.
. If you fail to tender your old notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
. No public market currently exists for the notes. We do not intend to list
the exchange notes on any securities exchange and, therefore, no active
public market is anticipated.
Information about the notes:
. The notes will mature on August 15, 2011.
. We will pay interest on the notes semi-annually on February 15 and August
15 of each year at the rate of 10% per year.
. We may redeem the notes on or after August 15, 2006.
. We also have the option until August 15, 2004, to redeem up to 35% of the
aggregate principal amount of the notes with the net proceeds of certain
types of qualified equity offerings.
. We also have the option to redeem the notes, in whole but not in part,
upon a change of control prior to August 15, 2006.
. The notes are unsecured obligations and are subordinated to our senior
indebtedness and the subsidiary guarantees are subordinated to our
subsidiaries senior indebtedness.
. If we undergo a change of control, we may be required to offer to purchase
the notes from you.
Investing in the notes involves risks. See "Risk Factors" beginning on page
14.
We are not making the exchange offer in any state or jurisdiction where it
is not permitted.
Neither the U.S. Securities and Exchange Commission nor any other federal or
state agency has approved or disapproved of these securities to be distributed
in the exchange offer, nor have any of these organizations determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2002.
Each broker-dealer that receives the exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal delivered with this prospectus states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange 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. We have agreed
that, for a period of 180 days after the Expiration Date (as defined herein),
we will make this prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus. You must not rely upon any
information or representation not contained or incorporated by reference in
this prospectus as if we had authorized it. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the registered securities to which it relates, nor does this prospectus
constitute an offer to sell or a solicitation of an offer to buy securities in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA......... ii
MARKET AND INDUSTRY DATA AND FORECASTS......................................... ii
WHERE YOU CAN FIND MORE INFORMATION............................................ iii
PROSPECTUS SUMMARY............................................................. 1
RISK FACTORS................................................................... 14
USE OF PROCEEDS................................................................ 24
THE EXCHANGE OFFER............................................................. 25
CAPITALIZATION................................................................. 32
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION............................. 33
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION............... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................... 43
Page
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BUSINESS....................................................................... 53
MANAGEMENT..................................................................... 68
PRINCIPAL STOCKHOLDERS......................................................... 73
CERTAIN RELATED PARTY TRANSACTIONS............................................. 75
THE NEW CREDIT FACILITIES...................................................... 78
DESCRIPTION OF THE EXCHANGE NOTES.............................................. 80
BOOK-ENTRY; DELIVERY AND FORM.................................................. 123
PLAN OF DISTRIBUTION........................................................... 124
NOTICE TO CANADIAN RESIDENTS................................................... 125
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.......................... 126
LEGAL MATTERS.................................................................. 131
EXPERTS........................................................................ 131
AVAILABLE INFORMATION.......................................................... 131
INDEX TO COMBINED FINANCIAL STATEMENTS......................................... F-1
i
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus, including the sections entitled "Prospectus Summary" and
"Business," contains forward-looking statements. These statements relate to
future events or our future financial performance, and involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed in "Risk
Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined in "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus.
Information regarding market and industry statistics contained in the
Prospectus Summary and Business sections is included based on information
available to us that we believe is accurate. It is generally based on industry,
academic and other publications that are not produced for purposes of
securities offerings or economic analysis. We have not reviewed or included
data from all sources and cannot assure you of the accuracy of the data we have
included.
MARKET AND INDUSTRY DATA AND FORECASTS
This prospectus includes market share and industry data and forecasts that
we obtained from internal company surveys, market research, consultant surveys,
publicly available information and industry publications and surveys. Industry
surveys, publications, consultant surveys and forecasts generally state that
the information contained therein has been obtained from sources believed to be
reliable, but there can be no assurance as to the accuracy and completeness of
such information. We have not independently verified any of the data from
third-party sources nor have we ascertained the underlying economic assumptions
relied upon therein. Similarly, internal company surveys, industry forecasts
and market research, which we believe to be reliable based upon management's
knowledge of the industry, have not been verified by any independent sources.
Forecasts are particularly likely to be inaccurate, especially over long
periods of time. In addition, we do not know what assumptions regarding general
economic growth were used in preparing the forecasts we cite. Except where
otherwise noted, references to North America include only the continental
United States and Canada, and statements as to our position relative to our
competitors or as to market share refer to the most recent available data.
Statements concerning (a) North America general trade salt are generally based
on historical sales volumes, (b) North America highway deicing salt are
generally based on historical production capacity, (c) SOP are generally based
on historical sales volumes, and (d) United Kingdom salt sales (general trade
and highway deicing) are generally based on sales volumes. Except where
otherwise noted, all references to tons refer to "short tons." One short ton
equals 2,000 pounds.
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The following items referred to in this prospectus are fiduciary registered
and other trademarks pursuant to applicable intellectual property laws and are
the property of Compass Minerals Group, Inc. or its subsidiaries: "Sifto(R)",
"American Stockman(R)", "Safe Step(R)", "Winter Storm(R)", "Guardian(R)",
"FreezGard(R)", "Nature's Own(R)" and "K-Life(R)."
ii
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement on Form S-4 (Reg. No. 333- ) with respect to the
securities we are offering. This prospectus does not contain all the
information contained in the registration statement, including its exhibits and
schedules. You should refer to the registration statement including the
exhibits and schedules, for further information about us and the securities we
are offering. Statements we make in this prospectus about certain contracts or
other documents are not necessarily complete. When we make such statements, we
refer you to the copies of the contracts or documents that are filed as
exhibits to the registration statement because those statements are qualified
in all respects by reference to those exhibits. The registration statement,
including exhibits and schedules, is on file at the offices of the SEC and may
be inspected without charge.
Upon effectiveness of the Registration Statement of which this prospectus is
a part, we will file annual, quarterly, special reports and other information
with the SEC. You may read and copy any document we file with the SEC at the
SEC's public reference room at the following address:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference rooms. Our SEC filings are also available at
the SEC's web site at http://www.sec.gov.
You can obtain a copy of any of our filings, at no cost, by writing to or
telephoning us at the following address:
Compass Minerals Group, Inc.
8300 College Boulevard
Overland Park, Kansas 66210
Attention: Vice President, Finance
(913) 344-9300
To ensure timely delivery, please make your request as soon as practicable
and, in any event, no later than five business days prior to the expiration of
the exchange offer.
iii
PROSPECTUS SUMMARY
This summary highlights important information about our business and about
this offering. It does not include all information you should consider before
investing in the exchange notes. Please review this prospectus in its entirety,
including the risk factors and our financial statements and the related notes,
before you decide to invest. Unless otherwise noted, the terms the "Company,"
"Compass Minerals Group," "we," "us" and "our" refer to Compass Minerals Group,
Inc. The term "LTM" means the twelve months ended September 30, 2001.
References to "pro forma," "Adjusted EBITDA," "Adjusted Pro Forma EBITDA" and
other financial terms shall have the meanings set forth on page 11 under
Summary Historical and Pro Forma Combined Financial Information.
Company Overview
We are the second largest producer of salt in North America (30% 2000 market
share), the largest producer of salt in the United Kingdom ("U.K.") (over 50%
2000 market share), and overall, the world's third largest producer of salt. In
addition, in North America we are the largest producer of sulfate of potash
(SOP) which is used in the production of specialty fertilizers. Salt is one of
the most widely used minerals in the world, with North American and U.K.
consumption of over 35 million tons in 2000. Salt has a wide variety of end use
applications, including highway deicing, food grade applications, water
conditioning and various industrial uses. Our business also includes the
following key characteristics:
. We believe that our cash flows are not materially impacted by economic
cycles due to the stable end use markets of salt and the absence of cost
effective alternatives.
. We operate twelve facilities in North America and the U.K., including the
largest rock salt mine in the world in Goderich, Ontario and the largest salt
mine in the U.K. in Winsford, Cheshire.
. We believe that we are the low cost rock salt producer in our markets.
Our cost advantage is due to the size and quality of our reserves, the
strategic location of our facilities and our continued focus on improving
production efficiency. Our salt mines in North America are located near either
rail or water transport systems, thereby minimizing shipping and handling costs
which constitute a significant portion of the overall delivered cost of salt.
For the twelve months ended September 30, 2001, we sold over 13 million tons
of salt and other minerals, generating pro forma revenues of approximately
$398.1 million and Adjusted Pro Forma EBITDA of $118.9 million. We have been
able to increase our trailing twelve months Adjusted Pro Forma EBITDA for each
of the last three quarters, and anticipate that this trend will continue for at
least the next several quarters. This is a result of both improvements in
revenues and cost reduction measures we have taken in both North America and in
the U.K. The improvements in revenues relate to the full effect of price
increases taken in certain of our salt product lines during the summer of 2001
and the 14% price increase we have secured in our North American highway
deicing business (over prices paid by customers in the prior winter season) as
a result of the recently concluded contract bidding for the upcoming 2001/2002
winter season. Based on LTM volumes, such price increases would have increased
revenues and Adjusted Pro Forma EBITDA by more than $13 million, had such price
increases been in effect at the beginning of the LTM period. We have also taken
several measures in the past year to reduce costs, including implementing
energy efficiency programs and manpower productivity projects.
We operate through the following business lines:
Highway Deicing (Pro forma LTM revenues of $165.0 million)
We are the largest producer of rock, or highway deicing, salt in North
America with an estimated 31% market share of the North American highway
deicing salt market in 2000. We also operate the largest highway deicing salt
mine in the U.K. at Winsford, Cheshire and provide an estimated 55% of the
U.K.'s highway deicing
1
salt requirements. We believe we are the only local supplier of highway deicing
salt capable of meeting peak winter demand in the U.K. In addition, our highway
deicing business line includes the following characteristics:
. We sell primarily to state, provincial, county and municipal highway
departments for deicing applications for which demand depends largely on the
number of snowfall days.
. While subject to seasonal variations in demand, highway deicing salt is
not materially affected by an economic downturn as it is an essential part of
highway maintenance to ensure public safety and continued personal and
commercial mobility.
. Due to the lack of cost effective alternatives and the steadily expanding
highway infrastructure, the production of highway deicing salt in the U.S. has
been increasing over time at 1% per annum, while prices have increased by 4%
per annum from 1970 to 2000.
As a result of the contract bidding for the 2001/2002 winter season, we
secured significant price increases in North America of 14% over prices paid by
customers during the prior year period on all of our highway deicing volume. We
were able to achieve these price increases as a result of industry inventory
levels being unusually low following the last season and the effects of several
past successive mild winters that kept price increases at lower than historical
rates. These price increases should positively impact our results of operations
in the future. In addition, we believe approximately 1 million tons of salt
subject to contract bidding were not bid on by any suppliers (representing
approximately 4% of the annual North American highway deicing salt consumption).
General Trade Salt (Pro forma LTM revenues of $186.8 million)
We are the third largest producer of general trade salt in North America and
the second largest in the U.K., serving major retailers, agricultural
cooperatives and food producers. Our general trade salt business line includes
the following key characteristics:
. We offer a full range of salt products distributed to several end use
markets, including consumer applications such as table salt, water
conditioning, consumer ice control, food processing, agricultural applications
and a variety of industrial applications.
. We believe we are the largest private label producer of water
conditioning salt and the largest producer of salt-based agricultural products
in North America based on tonnage.
. We manufacture more than 70 private labels of table salt for grocers and
major retailers and, in Canada, we market salt under the popular Sifto(R)/
brand name. /
. We are the market leader in the U.K. for evaporated salt used for water
conditioning with an estimated 70% market share in 2000.
. Our operations are generally not susceptible to economic cycles as a
result of the non-discretionary need for, and low cost of, salt. From
1970-2000, the production of general trade salt in the U.S. has been increasing
over time at 2% per annum, while prices have been increasing by 5% per annum
during the same period.
Sulfate of Potash (Pro forma LTM revenues of $46.3 million)
We are the market leader in North American sales of SOP with an estimated
56% market share in 2000. Approximately 73% of our SOP sales in 2000 were made
to domestic customers, which include fertilizer manufacturers, dealers and
distributors. Our SOP business line includes the following key characteristics:
. SOP is primarily used as a specialty fertilizer, providing essential
potassium to high-value, chloride-sensitive crops such as certain vegetables
and fruits, tea, tobacco and turf grasses. We believe that there are
significant growth opportunities for SOP both domestically and internationally
because of its favorable impact on crop yield and quality.
2
. We are the low cost producer of SOP in North America. We leverage our
abundant mineral resources and unique low cost manufacturing process to achieve
margins that are attractive compared to other fertilizer products.
We believe that SOP, as a non-core product of IMC Global Inc. ("IMC
Global"), did not receive sufficient focus to realize its full growth
potential. As we pursue our plan to form a dedicated global SOP salesforce, we
believe that we can take advantage of the significant growth opportunities
arising from SOP's superior performance over commodity potash.
Competitive Strengths
Leading Market Position--We have a 30% market share in salt and are among
the three largest salt producers, who together represent over 80% of total
market capacity, in North America. In the U.K., we are the largest highway
deicing salt producer with an estimated 55% market share, and, along with the
next two largest producers, represent over 95% of total production capacity. In
the North American SOP market, we are the leading producer, with an estimated
56% market share in 2000. The top two North American SOP producers together
have approximately 75% of the North American market. Our leadership position in
our key markets has led to stable financial performance and consistently strong
Adjusted EBITDA margins.
Low Cost Producer--We believe that our Goderich, Ontario, Cote Blanche,
Louisiana and Winsford, Cheshire facilities are the lowest cost high volume
rock salt mines in our served markets. This cost advantage is a result of the
size and quality of our reserves, effective mining techniques, low
transportation cost due to proximity to either rail or water transport systems
and efficient production processes. Through our solar evaporation facility in
Ogden, Utah, we believe that we are the low cost solar salt producer in our
North American markets and among the lowest cost producers of SOP in the world.
Over the last 3 years, we have implemented cost-cutting measures including head
count reductions and pursued significant capital investments to improve mining
technology and production efficiencies, as well as to expand and rationalize
production.
Stable Financial Performance--Both the North American highway deicing salt
and the general trade salt business lines enjoy predictable and consistent
annual demand patterns and cash flow as a result of the following:
. Based on the non-discretionary need for salt products and their low cost
nature, our business is less susceptible to economic cycles. For example, even
in the recessionary period between 1990 and 1992, general trade salt production
in the U.S. continued to grow at an annual compound rate of 3% and sales of
highway deicing salt remained consistent with weather patterns during that
period.
. The overriding concern for public safety insulates the demand for salt
used for highway maintenance from economic cycles. Also, in our highway deicing
business line, pricing is set and volume is reserved up to a year in advance
under annual contracts.
. While winter weather conditions in individual locations are difficult to
predict, the overall amount of snowfall and general intensity of winter weather
conditions in our major target markets in the U.S. Upper Midwest and the U.S.
and Canadian Great Lakes region are relatively stable. As a result, over the
last 15 years, we have, on average, sold over 100% of our committed volume.
. In the general trade salt business line, sales are generally secured
through long term customer relationships.
. Our manufacturing costs are relatively stable and have decreased at an
annual compound rate of over 1% per ton over the last 5 years. Our
manufacturing processes do not materially depend on the consumption of raw
materials susceptible to market price fluctuations.
3
Strong Free Cash Flow--We believe our strong free cash flow is a result of
the following business characteristics:
. High margins. Our LTM Adjusted Pro Forma EBITDA margin was approximately
30%. We believe that this is the result of low and stable production costs, our
strong market position and the many end use markets in which we operate.
. Low maintenance capital expenditures. Our low maintenance capital
expenditure requirements of approximately $20 million per annum, coupled with
the non-cyclical nature of our business, provide us with a stable stream of
cash flow to use in our operations, to reduce debt and to reinvest in our
business.
. Completed capacity expansions. Over the past three years, on average we
have spent over $17 million per year in growth capital expenditures for
capacity expansions and productivity enhancements. We believe that our capacity
is sufficient to meet our current growth initiatives without significant
additional spending and that future growth capital will be spent only upon the
expectation of significant returns.
Diversified Customer Base and End-Use Markets--Salt is used in numerous
different products and in a wide variety of consumer and industrial
applications. Due to its unique characteristics and low cost, consumers cannot
cost-effectively substitute any other product for salt, resulting in relatively
stable consumption and growth over the long term as the general population
grows. Salt is the best product available for deicing applications in terms of
cost and efficiency. For example, the next most cost-efficient product to
highway deicing salt, calcium chloride, costs approximately five times more to
purchase. Similarly, there is no cost effective substitute to salt in the water
conditioning and food processing markets. Our presence in different segments of
the general trade market effectively diversifies our exposure to events
affecting any single end market. No single customer accounted for more than 3%
of our 2000 sales while our top ten customers accounted for approximately 16%
of 2000 sales.
Significant Barriers to Entry--Each of the primary North American and U.K.
market participants has a large base of installed assets that would be
extremely expensive and time-consuming for new competitors to replicate. In
addition, our mineral rights are strategically located and we believe it is
unlikely that a new market entrant would be able to locate a mineral reserve in
close proximity to both low cost transportation systems and end-use markets.
Due to the low production cost, transportation and handling tends to be a
significant component of the total delivered cost of salt, making logistics a
key competitive factor in the industry. The higher relative cost associated
with transportation acts as a barrier to entry in favor of salt manufacturers
located within close proximity to their customers. We maintain 87 depots in
North America for storage and distribution of highway deicing salt, and we
consider our salt distribution network to be the most extensive in our served
markets. Our over 35 years of market experience in the highway deicing salt
business, proven customer service, product quality and modeling techniques
enable us to bid selectively on highway deicing salt contracts which have the
most attractive terms. Our long term relationships with major retailers coupled
with the higher standard of care required in handling food grade salt create a
significant deterrent for potential new entrants in the general trade market.
In addition, our customers, specifically government agencies in charge of
maintaining public safety over their road network, have stringent qualification
standards and a strong preference for dealing with existing salt manufacturers
which can handle bulk capacity and have track records for on time delivery.
With respect to SOP, high quality potassium sulfate reserves are scarce, and we
believe that in North America no comparable commercially viable sources are
known other than those currently being extracted.
Business Strategy
Increase revenues--One of our key objectives is to be the market leader with
respect to profitable sales growth. We believe that we can achieve this goal
through the following:
. Leveraging our leading market position. In the highway deicing business
line, we are leveraging our leading market position, distribution
infrastructure and low-cost production capability. We intend to strengthen
4
our leadership position by focusing on the customers strategically located
within our distribution network. We believe that this will allow us to
efficiently grow our business in line with market volume and price growth,
which in the U.S. have over time increased at 1% and 4% per annum,
respectively. We believe we can further increase sales to our existing and new
customers by offering liquid deicing products and other value-added deicing
products that improve the application of the product to roads and permit the
conditioning of roads prior to the impact of snow and ice. In the general trade
salt business line, in addition to participating in underlying market growth,
we plan to improve our market share by focusing on specialty and high
value-added niche products, particularly in food grade and water conditioning
applications. For example, we are in the process of developing new products
such as flake salt, which is preferred for use in the growing salty snack food
market. In our water conditioning business, we intend to expand by focusing on
growing regional brands and private label retail water conditioning sales.
. Increase service offerings. We plan on growing our service offerings,
including managing customer inventory and replenishment systems such as the
deicing management services provided for some U.K. customers. We currently have
several such contracts in place and anticipate entering into various other such
contracts in the future. Also, we continue to develop alternative mine uses
such as waste and document storage. For this purpose, we have already entered
into a joint venture with a subsidiary of Vivendi SA to use the excavated space
in our mine in the U.K. as a document storage site and are awaiting final
permitting to also store inert waste. In addition, we are working with various
third parties to develop several of our North American salt mines as storage
sites for natural gas and waste. We expect to receive ongoing revenue streams
from these alternative uses.
. Increase focus on market development in SOP business line. For the seven
years prior to IMC Global's ownership of the Company, the sales volume of the
SOP business line grew in excess of 25% per annum. However, as a non-core
product of IMC Global, we believe that SOP did not receive sufficient focus to
realize its full growth potential. We intend to increase the focus on this
business line and are in the process of recruiting a new sales manager and a
dedicated global sales force. We will target specific crops where the benefits
of using SOP versus other potassium sources have been scientifically proven,
such as wine grapes, tea, nuts and turf grass. We also plan to differentiate
ourselves from our competitors through unique value added products designed for
specific crop applications. For example, we have targeted the fast-growing
liquid and suspension fertilizer markets that are currently served primarily by
non-SOP potassium sources.
. Supplement growth through tuck-in acquisitions. To supplement internal
growth, we may pursue opportunistic acquisitions of small complementary
businesses in both North America and Europe. There are several smaller
producers of highway deicing salt which could be attractive to further expand
the scope of our operations. There are also several independent salt producers
in various niches of the general trade business market which could broaden both
our geographic coverage and product diversity.
Improve profitability--As an independent entity, we will seek to identify
opportunities to reduce costs which may not have been realized under the
umbrella of a large conglomerate. We intend to continue to focus on
productivity enhancements and on improving our cost platform through the
following:
. Plant consolidation and capacity expansion. Over the last 4 years, we
have successfully implemented manufacturing programs including consolidation of
facilities and over 300,000 tons of capacity expansion while divesting obsolete
operations.
. Increasing productivity. We have increased manpower productivity by over
8% per annum in our general trade salt business line over the last 4 years
through increased automation and capacity increases. We are currently
installing a continuous miner and shaft automation system which will
significantly decrease manufacturing costs and increase manpower productivity
at our Winsford facility.
. Optimizing performance. We monitor the performance of each product line
on a regular basis to aid in meeting target revenue and margin goals. By
maintaining, but not materially growing our share of the highway deicing
market, we believe that we have an opportunity to grow our margin and overall
profitability in this business line by focusing on our ability to increase our
average price levels and improving our customer mix.
5
Maximize cash flow--As an independent operating entity, we intend to manage
our working capital efficiently and generate cash flow from enhanced management
focus. Our annual maintenance capital expenditures have been approximately $20
to $25 million since IMC Global acquired us in 1998, although for the five
years under prior ownership, our annual maintenance capital expenditures were
on average approximately $17 million. In the future, we expect to spend less
than $20 million annually on maintenance capital expenditures. In addition to
maintenance capital expenditures, over the past three years, on average we have
spent in excess of $17 million per year in growth capital expenditures for
capacity expansions and productivity enhancements. We believe that our capacity
is sufficient to meet our current growth initiatives without significant
additional spending and that future growth capital will be spent only upon the
expectation of significant returns. Also, in connection with the
Recapitalization, we are receiving in excess of $114 million of net operating
loss carryforwards, and expect to realize significant cash tax savings as these
carryforwards are utilized. We intend to use our free cash flow to reduce
leverage by reducing indebtedness or by reinvesting in our business.
THE RECAPITALIZATION
On November 28, 2001, Apollo Management V, L.P. ("Apollo"), through its
subsidiary YBR Holdings LLC ("YBR Holdings"), acquired control of Salt Holdings
Corporation ("Salt Holdings"), our parent, from IMC Global pursuant to a
recapitalization of Salt Holdings Corporation. YBR Holdings owns approximately
75%, IMC Global owns approximately 19% and management (through direct
investments, a deferred compensation plan and an option plan) owns
approximately 6% of Salt Holdings' fully-diluted equity. The cash needed to
finance the recapitalization, including related fees and expenses, was provided
by equity contributions, the proceeds from the sale of the old notes and
borrowings under a new $360.0 million credit facility provided by affiliates of
the initial purchasers of the old notes and certain other lenders. The purchase
of equity by YBR Holdings and the subsequent recapitalization and related
financing are collectively referred to throughout this prospectus as the
"Recapitalization."
6
Summary of the Terms of the Exchange Offer
The Exchange Offer.......... $1,000 principal amount of exchange notes will be
issued in exchange for each $1,000 principal
amount of old notes validly tendered.
Resale...................... Based upon interpretations by the staff of the
SEC set forth in no-action letters issued to
unrelated third parties, we believe that exchange
notes may be offered for resale, resold or
otherwise transferred to you without compliance
with the registration and prospectus delivery
requirements of the Securities Act, unless you:
. are an "affiliate" of ours within the meaning
of Rule 405 under the Securities Act;
. are a broker-dealer who purchased the old notes
directly from us for resale under Rule 144A or
any other available exemption under the
Securities Act of 1933;
. acquired the exchange notes other than in the
ordinary course of your business; or
. have an arrangement with any person to engage
in the distribution of exchange notes.
However, we have not submitted a no-action letter
and there can be no assurance that the SEC will
make a similar determination with respect to the
exchange offer. Furthermore, in order to
participate in the exchange offer, you must make
the representations set forth in the letter of
transmittal that we are sending you with this
prospectus.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 2002, unless
we in our sole discretion, extend it (the
"Expiration Date").
Conditions to the Exchange
Offer..................... The exchange offer is subject to certain
customary conditions, some of which may be waived
by us. See "The Exchange Offer--Conditions to the
Exchange Offer."
Procedure for Tendering Old
Notes..................... If you wish to accept the exchange offer, you
must complete, sign and date the letter of
transmittal, or a copy of the letter of
transmittal, in accordance with the instructions
contained in this prospectus and in the letter of
transmittal, and mail or otherwise deliver the
letter of transmittal, or the copy, together with
the old notes and any other required
documentation, to the exchange agent at the
address set forth in this prospectus. If you are
a person holding the old notes through The
Depository Trust Company and wish to accept the
exchange offer, you must do so through The
Depository Trust Company's Automated Tender Offer
Program, by which you will agree to be bound by
the letter of transmittal. By executing or
agreeing to be bound by the letter of
transmittal, you will be making a number of
important representations to us as described
under "The Exchange Offer--Purpose and Effect."
7
We will accept for exchange any and all old notes
that are properly tendered in the exchange offer
prior to the Expiration Date. The exchange notes
issued in the exchange offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Special Procedures for
Beneficial Owners......... If you are the beneficial owner of old notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender in the exchange offer, you
should contact the person in whose name your
notes are registered and promptly instruct the
person to tender on your behalf.
Guaranteed Delivery
Procedures................ If you wish to tender your old notes and time
will not permit your required documents to reach
the exchange agent by the Expiration Date, or the
procedure for book-entry transfer cannot be
completed on time, you may tender your notes
according to the guaranteed delivery procedures.
For additional information, you should read the
discussion under "Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights........... The tender of the old notes pursuant to the
exchange offer may be withdrawn at any time prior
to the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange Notes Subject to customary conditions, we will accept
old notes which are properly tendered in the
exchange offer and not withdrawn prior to the
Expiration Date. The exchange notes will be
delivered as promptly as practicable following
the Expiration Date.
Consequence of Failure to
Exchange.................. Old Notes that are not tendered, or that are
tendered but not accepted, will be subject to
their existing transfer restrictions. We will
have no further obligation to provide for
registration under the Securities Act of such old
notes.
Registration Rights
Agreement; Effect on
Holders................... We sold the old notes in a private placement in
reliance on Section 4(2) of the Securities Act.
The old notes were immediately resold by the
initial purchasers in reliance on Rule 144A and
Regulation S under the Securities Act. On
November 28, 2001, we entered into a registration
rights agreement with the initial purchasers of
the old notes requiring us to make this exchange
offer. The registration rights agreement also
requires us to:
. cause the registration statement filed with
respect to the exchange offer to be declared
effective by May 27, 2002.
. consummate the exchange offer by June 26, 2002.
See "The Exchange Offer--Purpose and Effect." If
we do not do so, liquidated damages will be
payable on the old notes.
8
Certain U.S. Federal Income
Tax Considerations........ The exchange of old notes for exchange notes by
tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
will not recognize any taxable gain or loss or
any interest income for federal income tax
purposes as a result of such exchange. See
"Certain United States Federal Income Tax
Considerations."
Exchange Agent.............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
Use of Proceeds............. We will not receive any proceeds from the
exchange offer.
9
Summary of the Terms of the Exchange Notes
Issuer...................... Compass Minerals Group, Inc.
Securities offered.......... $250,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2011.
Interest.................... The exchange notes will bear interest at an
annual rate of 10%. Interest is payable on
February 15 and August 15 of each year.
Maturity date............... August 15, 2011
Optional Redemption......... Except in the case of certain equity offerings by
us or a change in control, we cannot choose to
redeem the exchange notes until August 15, 2006.
At any one or more times after that date, we may
choose to redeem some or all of the exchange
notes at certain specified prices, plus accrued
and unpaid interest.
Optional Redemption After
Equity Offerings.......... At any one or more times before August 15, 2004,
we may choose to buy back up to 35% of the
original aggregate principal amount of exchange
notes with money that we raise in one or more
equity offerings, as long as we pay 110% of the
principal amount of the exchange notes, plus
interest, and at least 65% of the original
aggregate principal amount of notes remain
outstanding afterwards. See "Description of the
Notes--Redemption--Optional Redemption."
Change in control........... Upon a change in control, we may be required to
make an offer to purchase each holder's exchange
notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase.
In addition, upon a change in control prior to
August 15, 2006, we may redeem the exchange
notes, in whole but not in part, at a redemption
price equal to the principal amount of the
exchange notes plus an applicable premium plus
accrued and unpaid interest.
Subordination............... The exchange notes will be unsecured obligations
of Compass Minerals Group. The exchange notes
will be subordinated in right of payment to all
existing and future senior indebtedness and the
guarantees will be subordinated in right of
payment to all existing and other indebtedness
and other liabilities of our subsidiaries. The
exchange notes will be effectively subordinated
to all existing and other indebtedness and other
liabilities of our non-domestic subsidiaries
which are not guarantors. As of September 30,
2001, assuming the offering of the old notes had
occurred and the proceeds applied on that date,
we had senior indebtedness of approximately
$225.4 million. The indenture governing the
exchange notes will not limit our or our
subsidiaries' ability to incur senior
indebtedness or other debt.
10
Guarantees.................. All of our domestic subsidiaries will guarantee
the exchange notes with unconditional guarantees
of payment that will rank below their senior
debt, but will rank equal to their other
subordinated debt, in right of payment.
Covenants................... The indenture will contain covenants that limit
what we (and most or all of our subsidiaries) may
do. The indenture will contain covenants that
limit our ability to:
. incur additional indebtedness;
. pay dividends on, redeem or repurchase our
capital stock;
. make investments;
. permit payment or dividend restrictions on
certain of our subsidiaries;
. sell assets;
. create certain liens;
. engage in certain transactions with affiliates;
and
. consolidate or merge or sell all or
substantially all of our assets and the assets
of our restricted subsidiaries.
In addition, we will be obligated to offer to
repurchase the exchange notes at 100% of their
principal amount, plus accrued and unpaid
interest, if any, to the date of repurchase, in
the event of certain asset sales.
These restrictions and prohibitions are subject
to a number of important qualifications and
exceptions. See "Description of the Exchange
Notes--Certain Covenants."
Risk Factors
Investment in the exchange notes involves certain risks. You should
carefully consider the information under "Risk Factors" and all other
information included in this prospectus before investing in the notes.
11
Summary Historical and Pro Forma Combined Financial Information
The following table presents summary historical and pro forma combined
financial information. The historical combined statement of operations data for
the fiscal years ended December 31, 1999 and 2000 are derived from our audited
combined financial statements included elsewhere in this prospectus. The
historical combined statement of operations data for the year ended December
31, 1998 and the nine months ended September 30, 2000 and 2001 are derived from
unaudited combined financial statements which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for such periods. The results of
operations for the interim periods are not necessarily indicative of the
operating results for the entire year or any future period.
The Unaudited Pro Forma Combined Balance Sheet data reflects the financial
position of our business as if the Recapitalization had occurred on September
30, 2001. The Unaudited Pro Forma Combined Statements of Operations and related
information reflect the Recapitalization as if it had occurred at the beginning
of the relevant period. The pro forma adjustments were applied to the
historical combined financial statements to reflect and account for the
Recapitalization and, accordingly, do not affect the historical basis of our
assets and liabilities. It is important that you read this information along
with the Unaudited Pro Forma Combined Financial Information and related notes.
We do not claim or represent that the following summary Unaudited Pro Forma
Combined Financial Information is indicative of the results that would have
been reported had the Recapitalization actually occurred on the dates indicated
above, nor is it indicative of our future results. There can be no assurance
that the assumptions used by management (which they believe are reasonable) in
the preparation of the summary Unaudited Pro Forma Combined Financial
Information will prove to be correct. Additionally, pro forma combined
operating results for the nine months ended September 30, 2001 and for the
twelve months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2001. The
following table should also be read in conjunction with "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the audited combined
financial statements and accompanying notes thereto included elsewhere in this
prospectus.
12
Summary Historical and Pro Forma Combined Financial Information
Historical
----------------------------------------------------------------- --------------
For the nine
For the years ended months ended For the fiscal
------------------------------------- -------------------------- year ended
December 31, December 31, December 31, September 30, September 30, December 31,
1998 1999 2000 2000 2001 2000
------------ ------------ ------------ ------------- ------------- --------------
(dollars in millions)
---------------------------------------------------------------------------------
Statement of Operations Data:
Net sales after shipping and
handling costs.................... $ 344.2 $ 367.4 $ 369.2 $241.0 $265.9 $ 374.5
Cost of sales...................... 183.9 213.1 227.8 158.7 165.4 233.1
Depreciation and amortization...... 42.4 55.1 44.2 33.7 24.0 44.2
Selling, general and administrative
expenses.......................... 46.1 37.1 35.5 26.3 28.7 39.0
Goodwill write-down(1)............. -- 87.5 191.0 -- -- 191.0
Restructuring and other
charges(1)(2)..................... 20.3 13.7 425.9 -- -- 425.9
Income (loss) from operations...... 51.6 (39.1) (555.2) 22.3 47.8 (558.7)
Net income (loss).................. 3.1 (67.5) (467.7) 3.1 22.4 (487.9)
Other Financial Data:
Adjusted EBITDA(3)................. $ 114.3 $ 117.2 $ 105.9 $ 56.0 $ 71.8 --
Adjusted EBITDA margin(4).......... 33.2 % 31.9 % 28.7 % 23.2% 27.0% --
Adjusted Pro Forma EBITDA(5)....... -- -- -- -- -- $ 102.4
Adjusted Pro Forma EBITDA
margin(4)......................... -- -- -- -- -- 27.3%
Capital expenditures............... $ 56.7 $ 45.6 $ 33.7 $ 20.7 $ 30.7 $ 33.7
Cash interest expense(6)...........
Net debt to Adjusted Pro Forma
EBITDA(7).........................
Adjusted Pro Forma EBITDA to
cash interest expense.............
Balance sheet data (at period
end):
Total cash and cash equivalents.... $ 4.9 $ 4.3 $ 0.4 $ -- $ 0.7 --
Total assets....................... 1,423.0 1,290.5 636.0 926.7 580.2 --
Total debt......................... 264.7 196.0 152.3 84.4 131.1 --
Net debt(7)........................ 259.8 191.7 151.9 84.4 130.4 --
For the nine For the twelve
months ended months ended
September 30, September 30,
2001 2001
------------- --------------
Statement of Operations Data:
Net sales after shipping and
handling costs.................... $269.4 $ 398.1
Cost of sales...................... 167.5 237.7
Depreciation and amortization...... 24.0 34.6
Selling, general and administrative
expenses.......................... 31.3 41.5
Goodwill write-down(1)............. -- 191.0
Restructuring and other
charges(1)(2)..................... -- 425.9
Income (loss) from operations...... 46.6 (532.6)
Net income (loss).................. 5.8 (470.3)
Other Financial Data:
Adjusted EBITDA(3)................. -- --
Adjusted EBITDA margin(4).......... -- --
Adjusted Pro Forma EBITDA(5)....... $ 70.6 $ 118.9
Adjusted Pro Forma EBITDA
margin(4)......................... 26.2% 29.9%
Capital expenditures............... $ 30.7 $ 43.7
Cash interest expense(6)........... 38.5
Net debt to Adjusted Pro Forma
EBITDA(7)......................... 4.0x
Adjusted Pro Forma EBITDA to
cash interest expense............. 3.1x
Balance sheet data (at period
end):
Total cash and cash equivalents.... -- $ 2.7
Total assets....................... -- 600.2
Total debt......................... -- 475.4
Net debt(7)........................ -- 472.7
- --------
(1)Based on anticipated proceeds from the sale of the Company by IMC Global, we
recorded an asset impairment charge of $616.6 million, $482.1 million after
tax, in the fourth quarter of 2000. In connection with this non cash charge,
goodwill was reduced $191.0 million and mineral properties and rights was
reduced $425.6 million. The goodwill write-down in 1999 was the result of
lowering goodwill to its recoverable value based on estimated future
discounted cash flows of the business.
(2)"Restructuring and Other Charges" include primarily those charges related to
the impairment of certain idled assets in the fourth quarter of 1998, the
restructuring of our business in the fourth quarter of 1999 designed to
reduce employee headcount and an asset impairment in the fourth quarter of
2000 related to the planned disposition of the Company by IMC Global as
described in (1) above. Substantially all cash payments related to these
charges have been made as of December 31, 2000.
(3)"Adjusted EBITDA" represents net income (loss) before income taxes, interest
expense, other income, depreciation and amortization, goodwill write-down
and restructuring and other charges. Adjusted EBITDA is presented because it
is commonly used by investors to analyze and compare operating performance
and to determine a company's ability to service and/or incur debt. However,
Adjusted EBITDA should not be considered in isolation or as a substitute for
net income, cash flows or other income or cash flow data prepared in
accordance with generally accepted accounting principles ("GAAP") or as a
measure of a company's profitability or liquidity. Adjusted EBITDA is not
calculated under GAAP and therefore is not comparable to similarly titled
measures of other companies.
(4)"Adjusted EBITDA margin" is calculated as a percentage of revenues.
"Adjusted Pro Forma EBITDA margin" is calculated as a percentage of pro
forma revenues.
(5)"Adjusted Pro Forma EBITDA" represents pro forma net income (loss) before
income taxes, interest expense, other income, depreciation and amortization,
goodwill write-down, restructuring and other charges, and the annual
management fee to be charged by the new majority shareholder. Pro forma
adjustments related to the Unaudited Pro Forma Combined Statements of Income
have been computed assuming the Recapitalization was consummated at the
beginning of the respective periods presented and generally include (i) the
effect of certain agreements the results of which are not included in our
historical financial statements and (ii) incremental costs we expect as an
independent entity. All pro forma adjustments have been explained in the
Unaudited Pro Forma Combined Financial Information and related notes
thereto. Adjusted Pro Forma EBITDA is not calculated under GAAP and
therefore is not necessarily comparable to similarly titled measures of
other companies.
(6)"Cash interest expense" represents interest expense less amortization of
debt issuance costs.
(7)"Net debt" represents total debt less total cash and cash equivalents.
13
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks and uncertainties not currently known to us or that
we currently deem to be immaterial may also materially and adversely affect our
business operations. Any of the following risks could materially adversely
affect our business, financial condition or results of operations. In such
case, you may lose all or part of your original investment.
Risks Related to the Exchange Notes and the Exchange Offer
If you do not properly tender your old notes, your ability to transfer such old
notes will be adversely affected.
We will only issue exchange notes in exchange for old notes that are timely
received by the exchange agent, together with all required documents, including
a properly completed and signed letter of transmittal. Therefore, you should
allow sufficient time to ensure timely delivery of the old notes and you should
carefully follow the instructions on how to tender your old notes. Neither we
nor the exchange agent are required to tell you of any defects or
irregularities with respect to your tender of the old notes. If you do not
tender your old notes or if we do not accept your old notes because you did not
tender your old notes properly, then, after we consummate the exchange offer,
you may continue to hold old notes that are subject to the existing transfer
restrictions. In addition, if you tender your old notes for the purpose of
participating in a distribution of the exchange notes, you will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the exchange notes. If you are
a broker-dealer that receives exchange notes for your own account in exchange
for old notes that you acquired as a result of market-making activities or any
other trading activities, you will be required to acknowledge that you will
deliver a prospectus in connection with any resale of such exchange notes.
After the exchange offer is consummated, if you continue to hold any old notes,
you may have difficulty selling them because there will be less old notes
outstanding. In addition, if a large amount of old notes are not tendered or
are tendered improperly, the limited amount of exchange notes that would be
issued and outstanding after we consummate the exchange offer could lower the
market price of such exchange notes.
Our substantial indebtedness could adversely affect our financial condition and
prevent us from fulfilling our obligations under the exchange notes.
As of September 30, 2001, we would have had, on a pro forma basis after
giving effect to the Recapitalization, $475.4 million of outstanding
indebtedness, including approximately $225.4 million of indebtedness other than
the notes, all of which would have been senior to the exchange notes, and a
stockholders' deficit of $42.7 million. As a result, we will be a highly
leveraged company. This level of leverage could have important consequences for
you, including the following:
. it may limit our ability to borrow money or sell stock to fund our working
capital, capital expenditures and debt service requirements;
. it may limit our flexibility in planning for, or reacting to, changes in
our business;
. we will be more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage;
. it may make us more vulnerable to a downturn in our business or the
economy;
. the debt service requirements of our other indebtedness could make it more
difficult for us to make payments on the exchange notes;
. a substantial portion of our cash flow from operations could be dedicated
to the repayment of our indebtedness and would not be available for other
purposes; and
14
. there would be a material adverse effect on our business and financial
condition if we were unable to service our indebtedness or obtain
additional financing, as needed.
In addition, the indenture and our new credit facilities contain financial
and other restrictive covenants that will limit our ability to engage in
activities that may be in our long-term best interests. Our failure to comply
with those covenants could result in an event of default which, if not cured or
waived, could result in the acceleration of all of our debts.
Despite our substantial indebtedness, we may still incur significantly more
debt. This could exacerbate the risks described above.
The terms of the indenture and the new credit facilities permit us to incur
significant additional indebtedness in the future. As of September 30, 2001 on
a pro forma basis after giving effect to the Recapitalization, we would have
had $135.0 million available for additional borrowing under the revolving
credit facility, subject to certain conditions. All borrowings under the new
credit facilities will be senior to the exchange notes and the subsidiary
guarantees.
Your right to receive payments on the exchange notes will be junior to the
borrowings under the new credit facilities and possibly all future borrowings.
The exchange notes and the subsidiary guarantees rank behind all of our and
the subsidiary guarantors' existing indebtedness including the new credit
facilities and will rank behind all of our and their future borrowings, except
any future indebtedness that expressly provides that it ranks equal with, or
subordinated in right of payment to, the exchange notes and the guarantees. As
a result, upon any distribution to our creditors or the creditors of the
subsidiary guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the subsidiary guarantors or our or their
property, the holders of senior indebtedness of our company and the subsidiary
guarantors will be entitled to be paid in full in cash before any payment may
be made with respect to the exchange notes or the subsidiary guarantees. In
addition, the new credit facilities will be secured by substantially all of our
assets and the assets of our wholly owned domestic subsidiaries.
In addition, all payments on the exchange notes and the subsidiary
guarantees will be blocked in the event of a payment default on senior debt and
may be blocked for up to 179 consecutive days in the event of certain
non-payment defaults on senior indebtedness.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company or the subsidiary guarantors, holders of the
exchange notes will participate with trade creditors and all other holders of
senior subordinated indebtedness of the Company and the subsidiary guarantors
in the assets remaining after we and the subsidiary guarantors have paid all of
the senior indebtedness. However, because the indenture requires that amounts
otherwise payable to holders of the exchange notes in a bankruptcy or similar
proceeding be paid to holders of senior indebtedness instead, holders of the
exchange notes may receive less, ratably, than holders of trade payables in any
such proceeding. In any of these cases, we and the subsidiary guarantors may
not have sufficient funds to pay all of our creditors and holders of exchange
notes may receive less, ratably, than the holders of senior indebtedness.
Assuming we had completed this offering on September 30, 2001, these
exchange notes and the subsidiary guarantees would have been subordinated to
$225.4 million of senior indebtedness and approximately $135.0 million would
have been available for borrowing as additional senior indebtedness under the
new credit facilities, subject to certain conditions. We will be permitted to
borrow substantial additional indebtedness, including senior indebtedness, in
the future under the terms of the indenture.
15
Restrictive covenants in the new credit facilities and the indenture may
restrict our ability to pursue our business strategies.
The indenture and the new credit facilities limit our ability, among other
things, to:
. incur additional indebtedness or contingent obligations;
. pay dividends or make distributions to our stockholders;
. repurchase or redeem our stock;
. make investments;
. grant liens;
. make capital expenditures;
. enter into transactions with our stockholders and affiliates;
. sell assets; and
. acquire the assets of, or merge or consolidate with, other companies.
In addition, the new credit facilities require us to maintain financial
ratios. We may not be able to maintain these ratios. Covenants in the new
credit facilities may also impair our ability to finance future operations or
capital needs or to enter into acquisitions or joint ventures or engage in
other favorable business activities.
If we default under the new credit facilities, we could be prohibited from
making any payments on the exchange notes. In addition, the lenders under the
new credit facilities could require immediate repayment of the entire
principal. If those lenders require immediate repayment, we will not be able to
repay them and also repay the exchange notes in full.
To service our indebtedness, including the exchange notes, we will require a
significant amount of cash. The ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
the exchange notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and
operating improvements will be realized on schedule or that future borrowings
will be available to us under our new credit facilities in an amount sufficient
to enable us to pay our indebtedness, including the exchange notes, or to fund
our other liquidity needs. If we consummate an acquisition, our debt service
requirements could increase. We may need to refinance all or a portion of our
indebtedness, including the exchange notes on or before maturity. We cannot
assure you that we will be able to refinance any of our indebtedness, including
the new credit facilities and the exchange notes, on commercially reasonable
terms or at all.
Certain subsidiaries are not included as subsidiary guarantors.
The guarantors of the exchange notes will include only our owned domestic
subsidiaries. However, the historical combined financial information (including
our combined financial statements) and the pro forma combined financial
information included in this prospectus are presented on a combined basis,
including both our wholly owned domestic and foreign subsidiaries. The
aggregate revenues and Adjusted EBITDA for the year ended December 31, 2000 of
our subsidiaries that are not guarantors were $148.9 million and $42.9 million,
16
respectively. As of September 30, 2001, those subsidiaries represent 56% of our
total assets based on book value. The indenture permits each of the subsidiary
guarantors to be released from its guarantee of the exchange notes if we
transfer a majority or more of its voting stock to a third party so that it is
no longer "wholly owned". The indenture does not restrict our ability to do so.
See Note 13 to our combined financial statements included in the back of this
prospectus.
Because a substantial portion of our operations are conducted by foreign
subsidiaries, our cash flow and our ability to service debt, including our and
the subsidiary guarantors' ability to pay the interest on and principal of the
exchange notes when due are dependent to a significant extent on interest
payments, cash dividends and distributions and other transfers of cash from our
foreign subsidiaries. In addition, any payment of interest, dividends,
distributions, loans or advances by our foreign subsidiaries to us and the
subsidiary guarantors, as applicable, could be subject to taxation or other
restrictions on dividends or repatriation of earnings under applicable local
law, monetary transfer restrictions and foreign currency exchange regulations
in the jurisdiction in which our foreign subsidiaries operate. Moreover,
payments to us and the subsidiary guarantors by the foreign subsidiaries will
be contingent upon these subsidiaries' earnings.
Our foreign subsidiaries are separate and distinct legal entities and have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
exchange notes, or to make any funds available therefor, whether by dividends,
loans, distributions or other payments. Any right that we or the subsidiary
guarantors have to receive any assets of any of the foreign subsidiaries upon
the liquidation or reorganization of those subsidiaries, and the consequent
rights of holders of exchange notes to realize proceeds from the sale of any of
those subsidiaries' assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors and holders of debt of
that subsidiary.
We may not have the ability to raise the funds necessary to finance any change
of control offer required by the indenture governing the exchange notes.
If we undergo a change of control (as defined in the indenture governing the
exchange notes) we may need to refinance large amounts of our debt, including
the exchange notes and borrowings under the new credit facilities. If a change
of control occurs, we must offer to buy back the exchange notes for a price
equal to 101% of the principal amount of the exchange notes, plus any accrued
and unpaid interest. We cannot assure you that there will be sufficient funds
available for us to make any required repurchases of the exchange notes upon a
change of control. In addition, our new credit facilities will prohibit us from
repurchasing the exchange notes until we first repay the new credit facilities
in full. If we fail to repurchase the exchange notes in that circumstance, we
will go into default under both the indenture governing the applicable exchange
notes and the new credit facilities. Any future debt which we incur may also
contain restrictions on repayment upon a change of control. If any change of
control occurs, we cannot assure you that we will have sufficient funds to
satisfy all of our debt obligations. The buyback requirements also delay or
make it harder for others to effect a change of control. However, certain other
corporate events, such as a leveraged recapitalization that would increase our
level of indebtedness, would not constitute a change of control under the
indenture governing the exchange notes. See "Description of the Exchange
Notes--Change of Control."
Federal and state laws permit a court to void the exchange notes or the
subsidiary guarantees under certain circumstances.
Our payment of consideration to finance a portion of the Recapitalization
(including our issuance of the notes and the guarantee of the notes by our
domestic subsidiaries) may be subject to review under federal or state
fraudulent transfer laws. While the relevant laws may vary from state to state,
under such laws, the payment of consideration or the issuance of a guarantee
will be a fraudulent conveyance if (1) we paid the consideration, or any of our
subsidiaries issued subsidiary guarantees, with the intent of hindering,
delaying or defrauding creditors, or (2) we or any of the subsidiary guarantors
received less than reasonably equivalent value or fair
17
consideration in return for paying the consideration or issuing their
respective guarantees, and, in the case of (2) only, one of the following is
also true:
. we or any of the subsidiary guarantors were insolvent, or became
insolvent, when we or they paid the consideration;
. paying the consideration or issuing the guarantees left us or the
applicable subsidiary guarantor with an unreasonably small amount of
capital; or
. we or the applicable subsidiary guarantor, as the case may be, intended
to, or believed that we or it would, be unable to pay debts as they
matured.
If the payment of the consideration or the issuance of any guarantee were a
fraudulent conveyance, a court could, among other things, void our obligations
regarding the payment of the consideration or void any of the subsidiary
guarantors' obligations under their respective guarantees, as the case may be,
and require the repayment of any amounts paid thereunder.
Generally, an entity will be considered insolvent if:
. the sum of its debts is greater than the fair value of its property;
. the present fair value of its assets is less than the amount that it will
be required to pay on its existing debts as they become due; or
. it cannot pay its debts as they become due.
We believe, however, that immediately after the issuance of the exchange
notes and the subsidiary guarantees, we and each of the subsidiary guarantors
will be solvent, will have sufficient capital to carry on our respective
businesses and will be able to pay our respective debts as they mature. We
cannot be sure, however, as to what standard a court would apply in making such
determinations or that a court would reach the same conclusions with regard to
these issues.
Because of the lack of a public market for the exchange notes, you may not be
able to sell your exchange notes easily or at an attractive price.
The exchange notes are a new issue of securities with no existing trading
market. We do not intend to have the exchange notes listed on a national
securities exchange. Also, while the initial purchasers of the old notes have
advised us that they currently intend to make a market in the exchange notes,
they are not obligated to do so, and may discontinue market making at any time
without notice. Therefore, we cannot assure you as to the liquidity of the
market for the exchange notes or the prices at which you may be able to sell
the exchange notes.
The market price for the exchange notes may be volatile.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the exchange notes offered hereby. The market for the exchange
notes, if any, may be subject to similar disruptions. Any such disruptions may
adversely affect the value of your exchange notes.
Risks Related to Our Business
The demand for our products changes seasonally and is dependent upon weather
conditions.
Our highway deicing business line is seasonal, with operating results
varying from quarter to quarter. Over the last four years, our North American
highway deicing business line has generated over 70% of its annual sales during
the months of December through March when the need for highway deicing is at
its peak. We need to
18
stockpile sufficient highway deicing salt in the last two fiscal quarters to
meet estimated demand for the winter season. Weather conditions which impact
our highway deicing business line include levels of temperature, precipitation,
snow days and duration and timing of snow fall in our relevant geographic
markets. Lower than expected sales by us during this period could have a
material adverse effect on the timing of our cash flows and therefore our
ability to service our obligations with respect to the exchange notes.
Our SOP operating results are dependent in part upon conditions in the
agriculture markets. The agricultural products business can be affected by a
number of factors, the most important of which for U.S. markets are weather
patterns and field conditions (particularly during periods of traditionally
high crop nutrients consumption) and quantities of crop nutrients imported to
and exported from North America. Much of our SOP sales are made between March
and May in order to meet spring planting season requirements.
Economic and other risks associated with international sales and operations
could adversely affect our business.
Since we manufacture and sell our products primarily in the United States,
Canada and the United Kingdom, our business is subject to certain risks
associated with doing business internationally. Our sales outside the U.S., as
a percentage of our total sales, were 35% and 37% for the year ended December
31, 2000 and the nine months ended September 30, 2001, respectively.
Accordingly, our future results could be harmed by a variety of factors,
including:
. changes in foreign currency exchange rates;
. exchange controls;
. tariffs, other trade protection measures and import or export licensing
requirements;
. potentially negative consequences from changes in tax laws;
. differing labor regulations;
. requirements relating to withholding taxes on remittances and other
payments by subsidiaries;
. restrictions on our ability to own or operate subsidiaries, make
investments or acquire new businesses in these jurisdictions;
. restrictions on our ability to repatriate dividends from our subsidiaries;
and
. unexpected changes in regulatory requirements.
Fluctuations in the value of the U.S. dollar may adversely affect our
results of operations. Because our consolidated financial results are reported
in dollars, if we generate sales or earnings in other currencies the
translation of those results into dollars can result in a significant increase
or decrease in the amount of those sales or earnings. In addition, our debt
service requirements are primarily in U.S. dollars even though a significant
percentage of our cash flow is generated in Canadian dollars and pound
sterling. Significant changes in the value of Canadian dollars and pound
sterling relative to the U.S. dollar could have a material adverse effect on
our financial condition and our ability to meet interest and principal payments
on U.S. dollar denominated debt, including the exchange notes and borrowings
under the new credit facilities.
In addition to currency translation risks, we incur currency transaction
risk whenever we or one of our subsidiaries enter into either a purchase or a
sales transaction using a currency other than the local currency of the
transacting entity. Given the volatility of exchange rates, we cannot assure
you that we will be able to effectively manage our currency transaction and/or
translation risks. It is possible that volatility in currency exchange rates
will have a material adverse effect on our financial condition or results of
operations. We have in the past experienced and expect to continue to
experience economic loss and a negative impact on earnings as a result of
foreign currency exchange rate fluctuations. We expect that the portion of our
revenues denominated in non-dollar currencies will continue to increase in
future periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Effects of Currency Fluctuations and
Inflation."
19
Our overall success as a global business depends, in part, upon our ability
to succeed in differing economic and political conditions. We cannot assure you
that we will continue to succeed in developing and implementing policies and
strategies that are effective in each location where we do business.
We may be adversely affected by the recent terrorist attacks in the United
States.
On September 11, 2001, terrorists carried out attacks that destroyed the
World Trade Center in New York and badly damaged the Pentagon outside of
Washington, D.C. As a result, the United States securities markets were closed
for several days. The impact which these terrorist attacks, or future events
arising as a result of these terrorist attacks, (including military or police
activities in the United States or foreign countries, future terrorist
activities or threats of such activities, biological or chemical weapons
attacks, political unrest and instability, riots and protests) could have on
the United States economy, the global economy, and global financial markets
cannot presently be determined with any accuracy. These conditions could
adversely impact our operations. It is possible that the above factors could
have a material adverse effect on our business, our ability to finance our
business and on our financial condition and results of operations as a whole.
We are a newly formed company with no operating history as a stand-alone
company, which may lead to risks or unanticipated expenses similar to those of
a start-up company.
We were not operated as a stand-alone company for the three years prior to
the closing of the Recapitalization. Prior to the Recapitalization, IMC Global
provided us with a number of support services, including corporate services
such as certain accounting functions, internal audit, treasury, taxation,
company secretarial, legal and intellectual property, property management,
insurance administration, certain human resources functions, credit management
and certain information technology functions. While we believe we will be able
to complete the arrangement of replacement services appropriate for operation
as a stand-alone company, there is a risk that continuity in the performance of
these functions will be affected as a result of our transition.
Our operating earnings are affected by the supply and price levels of natural
gas.
Energy costs represent approximately 13% of the costs of our North American
salt production. Natural gas is a primary fuel source used in the salt
production process. Our profitability is impacted by the price and availability
of the natural gas we purchase from third parties. A significant increase in
the price of natural gas that is not recovered through an increase in the price
of our products or an extended interruption in the supply of natural gas to our
production facilities could have a material adverse effect on our business,
financial condition or results of operations.
We face competition in our markets.
We encounter competition in all areas of our business. Competition in our
business lines is based on a number of considerations including product
performance, cost of transportation in the distribution of salt, brand
reputation, quality of client service and support and price. Additionally,
customers for our products are attempting to reduce the number of vendors from
which they purchase in order to increase their efficiency. Our customers
increasingly demand a broad product range and we must continue to develop our
expertise in order to manufacture and market these products successfully. To
remain competitive, we will need to invest continuously in manufacturing,
marketing, customer service and support and our distribution networks. We may
have to adjust the prices of some of our products to stay competitive. We
cannot assure you that we will have sufficient resources to continue to make
such investments or that we will maintain our competitive position. Some of our
competitors have greater financial and other resources than we do.
We may be adversely affected by the environmental regulations to which we are
subject.
We are subject to numerous environmental, health and safety laws and
regulations in the U.S., Canada and Europe, including laws and regulations
relating to land reclamation and remediation of hazardous substance
20
releases, and discharges to air and water. For example, the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, imposes
liability, without regard to fault or to the legality of a party's conduct, on
certain categories of persons (known as "potentially responsible parties") who
are considered to have contributed to the release of "hazardous substances"
into the environment. Although we are not currently incurring material
liabilities pursuant to CERCLA, we may in the future incur material
liabilities, under CERCLA and other environmental cleanup laws, with regard to
our current or former facilities, adjacent or nearby third party facilities or
off-site disposal locations. Under CERCLA, or its various state analogues, one
party may, under certain circumstances, be required to bear more than its
proportional share of cleanup costs at a site where it has liability if
payments cannot be obtained from other responsible parties. Liability under
these laws involves inherent uncertainties. Violations of environmental, health
and safety laws are subject to civil, and in some cases criminal, sanctions.
We have received notices from governmental agencies that we may be a
potentially responsible party at certain sites under CERCLA or other
environmental cleanup laws. We have entered into "de minimis" settlement
agreements with United States with respect to certain CERCLA sites, pursuant to
which we have made a one-time cash payment and received statutory protection
from future claims arising from those sites. At other sites for which we have
received notice of potential CERCLA liability, we have provided information to
the U.S. Environmental Protection Agency ("EPA") that we believe demonstrates
that we are not liable, and the EPA has not asserted claims against us with
respect to such sites. In some instances, we have agreed, pursuant to consent
orders or agreements with the appropriate governmental agencies, to undertake
certain investigations, which currently are in progress, to determine whether
remedial action may be required to address such contamination. At other
locations, we have entered into consent orders or agreements with appropriate
governmental agencies to perform remedial activities that will address
identified site conditions. At the present time, we are not aware of any
additional sites for which we expect to receive a notice from EPA of potential
CERCLA liability. However, based on past operations there is a potential that
we may receive such notices in the future for sites of which we are currently
unaware. Taking into account established reserves, expenditures for our known
environmental liabilities and site conditions currently are not expected,
individually or in the aggregate, to be material. However, material
expenditures could be required in the future to remediate the contamination at
these or at other current or former sites.
Continued government and public emphasis on environmental issues can be
expected to result in increased future investments for environmental controls
at ongoing operations, which will be charged against income from future
operations. Present and future environmental laws and regulations applicable to
our operations may require substantial capital expenditures and may have a
material adverse effect on our business, financial condition and results of
operations. For more information, see "Business--Environmental, Health and
Safety Matters."
Our business could be adversely affected by the Canadian government's proposal
to designate road salt as a toxic substance.
In December 2001, the Canadian government released a Priority Substances
List Assessment Report for road salt. This report found that road salts are
entering the environment under conditions that may have a harmful effect or
constitute a danger to the environment. Based on this report, the Canadian
government has proposed designating road salt as a "toxic" substance pursuant
to the Canadian Environmental Protection Act. This proposal is now subject to
public comment, and if formalized it will require Environment Canada to develop
a "control instrument" through a multi-stakeholder process to minimize the
impact of road salt on the environment. Given the importance of road salt for
traffic safety and the lack of any practical substitute, we deem it unlikely
that the control instrument would result in a ban on the use of road salt. As
noted in the December 2001 report, the use of road salt and other deicing
agents "is an important component of strategies to keep roadways open and safe
during the winter and minimize traffic crashes, injuries and mortality under
icy and snowy conditions." The report further stated that mitigation measures
"must be based on optimization of winter road maintenance
21
practices so as not to jeopardize road safety, while minimizing the potential
for harm to the environment." Although we cannot predict whether the proposal
will be finalized or the precise form of future regulation, if any, the likely
outcome is that standardized guidelines will be developed for the usage of road
salt. As a result of the adoption of such regulation we could suffer reduced
sales and incur substantial costs and expenses that could have a material
adverse effect on our business, financial condition and results of operation.
We believe that no similar proposals for such designation of road salt are
being considered in either the U.S. or the United Kingdom.
Our operations are dependent on our having received the required permits and
approvals from governmental authorities.
We hold numerous governmental environmental, mining and other permits and
approvals authorizing operations at each of our facilities. A decision by a
governmental agency to deny or delay issuing a new or renewed permit or
approval, or to revoke or substantially modify an existing permit or approval,
could have a material adverse effect on our ability to continue operations at
the affected facility. Expansion of our existing operations also is predicated
upon securing the necessary environmental or other permits or approvals.
Protection of Proprietary Technology--Our intellectual property may be
misappropriated or subject to claims of infringement.
We attempt to protect our intellectual property rights through a combination
of patent, trademark, copyright and trade secret protection, as well as
licensing agreements and third-party nondisclosure and assignment agreements.
We cannot assure you that any of our applications for protection of our
intellectual property rights will be approved or that others will not infringe
or challenge our intellectual property rights. We also rely on unpatented
proprietary technology. It is possible that others will independently develop
the same or similar technology or otherwise obtain access to our unpatented
technology. To protect our trade secrets and other proprietary information, we
require employees, consultants, advisors and collaborators to enter into
confidentiality agreements. We cannot assure you that these agreements will
provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure. If we are unable to maintain the proprietary nature of our
technologies, we could be materially adversely affected.
Our business could suffer if we are unsuccessful in negotiating new collective
bargaining agreements.
As of September 30, 2001, we had 1,569 employees. Approximately 29% of our
U.S. workforce (51% of our global workforce) is represented by labor unions. Of
our eight material collective bargaining agreements, two will expire in 2002,
and four will expire in 2003. Additionally, approximately 13% of our workforce
is employed in Europe where trade union membership is common. Although we
believe that our relations with our employees are good we cannot assure you
that we will be successful in negotiating new collective bargaining agreements,
that such negotiations will not result in significant increases in the cost of
labor or that a breakdown in such negotiations will not result in the
disruption of our operations.
We rely on independent distributors.
In addition to our own direct sales force, we depend on the services of
independent distributors to sell our products and provide service and
aftermarket support to our customers. In 2000, 11% of our revenues were
generated through these independent distributors. Many of these independent
distributors are not bound to us by exclusive distribution contracts and may
offer products and services that compete with ours to our customers. In
addition, the majority of the distribution contracts we have with these
independent distributors are cancelable by the distributor after a short notice
period. The loss of a substantial number of these distributors or the decision
by many of these distributors to offer competitors' products to our customers
could materially reduce our sales and profits.
22
We are controlled by Apollo, whose interests may not be aligned with yours.
A holding company controlled by Apollo and its affiliates own approximately
75% of the fully diluted equity of our parent, Salt Holdings Corporation, and,
therefore, have the power, subject to certain exceptions, to control our
affairs and policies. They also control the election of directors, the
appointment of management, the entering into of mergers, sales of substantially
all of our assets and other extraordinary transactions. The directors so
elected have authority, subject to the terms of our debt, to issue additional
stock, implement stock repurchase programs, declare dividends and make other
decisions about our capital stock. See "The Recapitalization" and "Certain
Related Party Transactions."
The interests of Apollo and its affiliates could conflict with your
interests. For example, if we encounter financial difficulties or are unable to
pay our debts as they mature, the interests of Apollo as equity holder might
conflict with your interests as an exchange note holder. Affiliates of Apollo
may also have an interest in pursuing acquisitions, divestitures, financings or
other transactions that, in their judgment, could enhance their equity
investments, even though such transactions might involve risks to you as a
holder of exchange notes. In addition, our sponsors or their affiliates
currently own, and may in the future own, businesses that directly compete with
ours.
Our business strategy includes acquisitions to supplement internal growth.
Our business strategy is based in part on our ability to supplement internal
growth by pursuing opportunistic acquisitions of small complementary
businesses. We do not know whether in the future we will be able to complete
acquisitions on acceptable terms, identify suitable businesses to acquire or
successfully integrate acquired businesses. We compete with other potential
buyers for the acquisition of other small complementary businesses. This
competition and, due to our position in certain markets, regulatory
considerations may result in fewer acquisition opportunities. If we cannot
complete acquisitions, our financial condition or results of operations may be
adversely affected.
If we lose our senior management, our business may be adversely affected.
The success of our business is dependent on our senior managers, as well as
on our ability to attract and retain other qualified personnel. We cannot
assure you that we will be able to attract and retain the personnel necessary
for the development of our business. The loss of the services of key personnel
or the failure to attract additional personnel as required could have a
material adverse effect on our business, financial condition and results of
operations. We do not currently maintain "key person" life insurance on any of
our key employees.
23
USE OF PROCEEDS
The exchange offer satisfies an obligation under the registration rights
agreement. We will not receive any cash proceeds from the exchange offer.
24
THE EXCHANGE OFFER
Purpose and Effect
Concurrently with the sale of the old notes on November 28, 2001, we entered
into a registration rights agreement with the initial purchasers of the old
notes, which requires us to file the registration statement under the
Securities Act with respect to the exchange notes and, upon the effectiveness
of the registration statement, offer to the holders of the old notes the
opportunity to exchange their old notes for a like principal amount of exchange
notes. The exchange notes will be issued without a restrictive legend and
generally may be reoffered and resold without registration under the Securities
Act. The registration rights agreement further provides that we must cause the
registration statement to be declared effective by May 27, 2002 and must
consummate the exchange offer by June 26, 2002.
Except as described below, upon the completion of the exchange offer, our
obligations with respect to the registration of the old notes and the exchange
notes will terminate. A copy of the registration rights agreement has been
filed as an exhibit to the registration statement of which this prospectus is a
part, and this summary of the material provisions of the registration rights
agreement does not purport to be complete and is qualified in its entirety by
reference to the complete registration rights agreement. As a result of the
timely filing and the effectiveness of the registration statement, we will not
have to pay certain liquidated damages on the old notes provided in the
registration rights agreement. Following the completion of the exchange offer,
holders of old notes not tendered will not have any further registration rights
other than as set forth in the paragraphs below, and the old notes will
continue to be subject to certain restrictions on transfer. Additionally, the
liquidity of the market for the old notes could be adversely affected upon
consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent to
us, among other things, that:
. the exchange notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the holder;
. the holder is not engaging in and does not intend to engage in a
distribution of the exchange notes;
. the holder does not have an arrangement or understanding with any person
to participate in the distribution of the exchange notes; and
. the holder is not an "affiliate," as defined under Rule 405 under the
Securities Act, of Compass Minerals Group.
Under certain circumstances specified in the registration rights agreement,
we may be required to file a "shelf" registration statement for a continuous
offer in connection with the old notes pursuant to Rule 415 under the
Securities Act.
Based on an interpretation by the SEC's staff set forth in no-action letters
issued to third parties unrelated to us, we believe that, with the exceptions
set forth below, exchange notes issued in the exchange offer may be offered for
resale, resold and otherwise transferred by the holder of exchange notes
without compliance with the registration and prospectus delivery requirements
of the Securities Act, unless the holder:
. is an "affiliate" of Compass Minerals Group within the meaning of Rule 405
under the Securities Act;
. is a broker-dealer who purchased old notes directly from us for resale
under Rule 144A or any other available exemption under the Securities Act;
. acquired the exchange notes other than in the ordinary course of the
holder's business; or
. the holder has an arrangement with any person to engage in the
distribution of the exchange notes.
25
Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange notes cannot rely on this
interpretation by the SEC's staff and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives exchange notes
for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. See "Plan of Distribution."
Broker-dealers who acquired old notes directly from us and not as a result of
market making activities or other trading activities may not rely on the
staff's interpretations discussed above or participate in the exchange offer,
and must comply with the prospectus delivery requirements of the Securities Act
in order to sell the old notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on ,
2002, or such date and time to which we extend the offer. We will issue $1,000
in principal amount of exchange notes in exchange for each $1,000 principal
amount of outstanding old 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 multiples of $1,000 in principal
amount.
The exchange notes will evidence the same debt as the old notes and will be
issued under the terms of, and entitled to the benefits of, the indenture
relating to the old notes.
This prospectus, together with the letter of transmittal, is being sent to
the registered holder and to others believed to have beneficial interests in
the old notes. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the SEC promulgated under the Exchange Act.
We will be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to The Bank of New York, the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the exchange notes from us. If any tendered old
notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth under the heading "--Conditions to
the Exchange Offer" or otherwise, certificates for any such unaccepted old
notes will be returned, without expense, to the tendering holder of those old
notes as promptly as practicable after the Expiration Date unless the exchange
offer is extended.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes in the
exchange offer. We will pay all charges and expenses, other than certain
applicable taxes, applicable to the exchange offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The Expiration Date shall be 5:00 p.m., New York City time, on ,
2002, unless we, in our sole discretion, extend the exchange offer, in which
case the Expiration Date shall be the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, we will
notify the exchange agent and each registered holder of any extension by oral
or written notice prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date. We reserve the right, in
our sole discretion:
(A) to delay accepting any old notes, to extend the exchange offer or, if
any of the conditions set forth under "--Conditions to Exchange Offer" shall
not have been satisfied, to terminate the exchange offer, by giving oral or
written notice of that delay, extension or termination to the exchange
agent, or
26
(B) to amend the terms of the exchange offer in any manner.
In the event that we make a fundamental change to the terms of the exchange
offer, we will file a post-effective amendment to the registration statement.
Procedures for Tendering
Only a holder of old notes may tender the old notes in the exchange offer.
Except as set forth under "--Book-Entry Transfer," to tender in the exchange
offer a holder must complete, sign and date the letter of transmittal, or a
copy of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed if required by the letter of transmittal and mail or
otherwise deliver the letter of transmittal or copy to the exchange agent prior
to the Expiration Date. In addition:
. certificates for the old notes must be received by the exchange agent
along with the letter of transmittal prior to the Expiration Date;
. a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the old notes, if that procedure is available, into the
exchange agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") following the procedure for book-entry transfer
described below, must be received by the exchange agent prior to the
Expiration Date; or
. you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the exchange agent at the address set forth under
"--Exchange Agent" prior to the Expiration Date.
Your tender, if not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date, will constitute an agreement between you and us in accordance
with the terms and subject to the conditions set forth herein and in the letter
of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk.
Instead of delivery by mail, it is recommended that you use an 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 us. You may request your broker,
dealer, commercial bank, trust company or nominee to effect these transactions
for you.
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 the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on its own behalf, the beneficial owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
old notes, either make appropriate arrangements to register ownership of the
old notes in the beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act unless old notes tendered
pursuant thereto are tendered:
(A) by a registered holder who has not completed the box entitled
"Special Registration Instruction" or "Special Delivery Instructions" on the
letter of transmittal or
(B) for the account of an eligible guarantor institution.
27
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by any
eligible guarantor institution that is a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the old notes.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal
unless waived by us.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance, and withdrawal of tendered old notes will be determined by
us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all old notes not properly
tendered or any old notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of old notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of old notes, neither we, the exchange agent, nor any other person
shall incur any liability for failure to give that 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 letter of transmittal, as
soon as practicable following the Expiration Date, unless the exchange offer is
extended.
In addition, we reserve the right in our sole discretion to purchase or make
offers for any old notes that remain outstanding after the Expiration Date or,
as set forth under "--Conditions to the Exchange Offer," to terminate the
exchange offer and, to the extent permitted by applicable law, purchase old
notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
By tendering, you will be representing to us that, among other things:
. the exchange notes acquired in the exchange offer are being obtained in
the ordinary course of business of the person receiving such exchange
notes, whether or not such person is the registered holder;
. you are not engaging in and do not intend to engage in a distribution of
the exchange notes;
. you do not have an arrangement or understanding with any person to
participate in the distribution of such exchange notes; and
. you are not an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company.
In all cases, issuance of exchange notes for old notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
exchange agent of certificates for such old notes or a timely Book-Entry
Confirmation of such old notes into the exchange agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal or, with respect to The Depository Trust Company and its
participants, electronic instructions in which the tendering holder
acknowledges its receipt of and agreement to be bound by the letter of
transmittal, and all other required documents. If any tendered old notes are not
28
accepted for any reason set forth in the terms and conditions of the exchange
offer or if old notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder or, in the case of old notes
tendered by book-entry transfer into the exchange agent's account at the
Book-Entry Transfer Facility according to the book-entry transfer procedures
described below, those nonexchanged old notes will be credited to an account
maintained with that Book-Entry Transfer Facility, in each case, as promptly as
practicable after the expiration or termination of the exchange offer.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where those 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 those exchange notes. See "Plan of Distribution."
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of old notes being tendered by
causing the Book-Entry Transfer Facility to transfer such old notes into the
exchange agent's account at the Book-Entry Transfer Facility in accordance with
that Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or copy of the letter
of transmittal, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following
paragraph, be transmitted to and received by the exchange agent at the address
set forth under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
The Depository Trust Company's Automated Tender Offer Program ("ATOP") is
the only method of processing exchange offers through The Depository Trust
Company. To accept the exchange offer through ATOP, participants in The
Depository Trust Company must send electronic instructions to The Depository
Trust Company through The Depository Trust Company's communication system
instead of sending a signed, hard copy letter of transmittal. The Depository
Trust Company is obligated to communicate those electronic instructions to the
exchange agent. To tender old notes through ATOP, the electronic instructions
sent to The Depository Trust Company and transmitted by The Depository Trust
Company to the exchange agent must contain the character by which the
participant acknowledges its receipt of and agrees to be bound by the letter of
transmittal.
Guaranteed Delivery Procedures
If a registered holder of the old notes desires to tender old notes and the
old notes are not immediately available, or time will not permit that holder's
old notes or other required documents to reach the exchange agent prior to 5:00
p.m., New York City time, on the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:
. the tender is made through an eligible guarantor institution;
. prior to 5:00 p.m., New York City time, on the Expiration Date, the
exchange agent receives from that eligible guarantor institution a
properly completed and duly executed letter of transmittal or a facsimile
of duly executed letter of transmittal and notice of guaranteed delivery,
substantially in the form provided by us, by telegram, telex, fax
transmission, mail or hand delivery, setting forth the name and address of
the holder of old notes and the amount of the old notes tendered and
stating that the tender is being made by guaranteed delivery and
guaranteeing that within three New York Stock Exchange, Inc. ("NYSE")
trading days after the date of execution of the notice of guaranteed
delivery, the certificates for all physically
29
tendered old notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, will be deposited by the eligible
guarantor institution with the exchange agent; and
. the certificates for all physically tendered old notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, are received
by the exchange agent within three NYSE trading days after the date of
execution of the notice of guaranteed delivery.
Withdrawal Rights
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of old notes to be effective, a written or, for
The Depository Trust Company participants, electronic ATOP transmission notice
of withdrawal, must be received by the exchange agent at its address set forth
under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must:
. specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
. identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes;
. 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 register the transfer of such old
notes into the name of the person withdrawing the tender; and
. 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, eligibility and time of receipt of
such notices will be determined by us, whose determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any old
notes which have been tendered for exchange, but which are not exchanged for
any reason, will be returned to the holder of those old notes without cost to
that 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 under "--Procedures for
Tendering" at any time on or prior to the Expiration Date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue exchange notes in exchange for,
any old notes and may terminate or amend the exchange offer if at any time
before the acceptance of those old notes for exchange or the exchange of the
exchange notes for those old notes, we determine that the exchange offer
violates applicable law, any applicable interpretation of the staff of the SEC
or any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. The failure by us at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any of those rights and each of those
rights shall be deemed an ongoing right which may be asserted at any time and
from time to time.
30
In addition, we will not accept for exchange any old notes tendered, and no
exchange notes will be issued in exchange for those 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 indenture under the Trust Indenture Act of 1939. In any of
those events we are required to use every reasonable effort to obtain the
withdrawal of any stop order at the earliest possible time.
Exchange Agent
All executed letters of transmittal should be directed to the exchange
agent. The Bank of New York has been appointed as exchange agent for the
exchange offer. Questions, requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent addressed as follows:
By Hand Delivery or By Facsimile
By Registered or Certified Mail: Overnight Courier (Eligible Institutions Only)
The Bank of New York The Bank of New York (212)___________________
[ ] [ ]
Reference: Compass Minerals Reference: Compass Minerals Reference: Compass Minerals
Group, Inc. Group, Inc. Group, Inc.
For Information or Confirmation by Telephone:
(212)_______________________________________________________
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
Fees And Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees. The estimated cash expenses to be incurred in
connection with the exchange offer will be paid by us and will include fees and
expenses of the exchange agent, accounting, legal, printing and related fees
and expenses.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection with that tender or exchange, except that
holders who instruct us to register exchange notes in the name of, or request
that old notes not tendered or not accepted in the exchange offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax on those old notes.
31
CAPITALIZATION
The following table sets forth our combined capitalization as of September
30, 2001, on a historical basis and on a pro forma basis after giving effect to
the Recapitalization and the related financing transactions as if they had
occurred on September 30, 2001. This table should be read in conjunction with
the information contained in "Use of Proceeds," "Unaudited Pro Forma Combined
Financial Information" and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as the
Combined Financial Statements and the notes thereto and the Unaudited Combined
Financial Statements and the notes thereto included in the back of this
prospectus.
As of
September 30, 2001
-----------------
Pro
Actual Forma
------ ------
(in millions)
Cash and cash equivalents............................ $ 0.7 $ 2.7
====== ======
Debt:
New credit facilities
Revolving debt(1)................................. $ -- $ --
Bank term debt.................................... -- 225.0
10% Senior Subordinated Notes..................... -- 250.0
Notes payable to IMC Global and its affiliates..... 130.7 --
Other long-term debt............................... 0.4 0.4
------ ------
Total debt.................................... 131.1 475.4
Total stockholder's equity/(deficit)(2)....... 281.6 (42.7)
------ ------
Total capitalization.......................... $412.7 $432.7
====== ======
- --------
(1)Total availability of $135.0 million for general corporate purposes and
seasonal borrowings, subject to certain conditions. The amount of revolver
borrowings on the closing date will be higher due to seasonal working
capital requirements.
(2)Represents the elimination of amounts owing from and to IMC Global and its
affiliates of $128.6 million and the payment to Salt Holdings Corporation of
$452.9 million as part of the Recapitalization.
32
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Set forth below is certain unaudited pro forma combined financial
information for our company. The Unaudited Pro Forma Balance Sheet as of
September 30, 2001 gives effect to the Recapitalization as if it had occurred
on September 30, 2001. The Unaudited Pro Forma Combined Statements of
Operations for the year ended December 31, 2000, the twelve months ended
September 30, 2001 and the nine months ended September 30, 2001 give effect to
the Recapitalization as if it had occurred at the beginning of the periods
presented.
The unaudited pro forma adjustments, as described in the notes to the
Unaudited Pro Forma Combined Financial Information, are based on available
information and upon certain assumptions that our management believes are
reasonable.
We do not claim or represent that the unaudited pro forma combined statement
of operations information set forth is indicative of the results that would
have been reported had the Recapitalization actually occurred at the beginning
of the period presented nor is it indicative of our future results. There can
be no assurance that the assumptions used in the preparation of the unaudited
pro forma combined financial information will prove to be correct. The
unaudited pro forma combined information should be read in conjunction with our
historical combined financial statements and notes thereto included elsewhere
in this prospectus.
We have prepared the Unaudited Pro Forma Combined Financial Information as
follows:
1. The Unaudited Pro Forma Combined Financial Information consists of an
Unaudited Pro Forma Combined Balance Sheet, Unaudited Pro Forma Combined
Statements of Operations and accompanying explanatory notes.
2. The Unaudited Pro Forma Combined Statements of Operations disclose
income from operations attributable to the Recapitalization. Material
nonrecurring charges or credits and related tax effects which result
directly from the Recapitalization and this offering and which will have
been included in income or expenses within the 12 months succeeding the
Recapitalization have not been included in the Unaudited Pro Forma
Combined Statements of Operations.
3. Pro forma adjustments related to the Unaudited Pro Forma Combined
Statements of Operations have been computed assuming the
Recapitalization was consummated at the beginning of the periods
presented and include adjustments which give effect to the events that
are (i) directly attributable to the Recapitalization, (ii) expected to
have a continuing impact and (iii) factually supportable. Pro forma
adjustments related to the Unaudited Pro Forma Combined Balance Sheet
have been computed assuming the Recapitalization was consummated at
September 30, 2001 and include adjustments which give effect to events
that are directly attributable to the Recapitalization and factually
supportable regardless of whether they have a continuing impact or are
nonrecurring. All pro forma adjustments have been explained in the
related notes to the Unaudited Pro Forma Combined Financial Information.
4. Tax effects of the pro forma adjustments have been calculated at the
statutory rate in effect for the periods presented.
33
COMPASS MINERALS GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 2001
(dollars in millions)
Historical Pro Forma
Combined(a) Adjustments Pro Forma
----------- ----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 0.7 $ 2.0 (b) $ 2.7
Receivables...................................... 51.5 -- 51.5
Amounts due from IMC Global and its affiliates... 2.1 (2.1)(c) --
Inventories...................................... 99.7 -- 99.7
Deferred income taxes............................ 2.3 -- 2.3
Prepaid expenses and other....................... 1.6 -- 1.6
------ ------- ------
Total current assets......................... 157.9 (0.1) 157.8
Property, plant and equipment, net.................. 421.1 -- 421.1
Deferred financing fees............................. -- 20.1 (d) 20.1
Other assets........................................ 1.2 -- 1.2
------ ------- ------
Total assets........................................ $580.2 $ 20.0 $600.2
====== ======= ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................. $ 43.3 $ -- (e) $ 43.3
Current portion of long-term debt................ 0.2 -- 0.2
Other payables and accruals...................... 13.0 -- 13.0
Notes payable to IMC Global and its affiliates... 130.7 (130.7)(c) --
------ ------- ------
Total current liabilities.................... 187.2 (130.7) 56.5
Deferred income taxes............................... 103.8 -- 103.8
Long-term liabilities............................... 7.4 -- 7.4
Long-term debt...................................... 0.2 475.0 (f) 475.2
Net stockholder's equity/(accumulated deficit)...... 281.6 (324.3)(g) (42.7)
------ ------- ------
Total liabilities and stockholder's equity/(deficit) $580.2 $ 20.0 $600.2
====== ======= ======
34
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 2001
(dollars in millions)
a) Represents our historical unaudited combined balance sheet as of September
30, 2001.
b) Reflects the cash to be used by the business for working capital purposes.
c) Reflects the elimination of all amounts owing to and from IMC Global and
affiliates.
d) Reflects the estimated debt issuance costs of $20.1 associated with the
Recapitalization.
e) The Unaudited Pro Forma Combined Balance Sheet does not reflect a future
increase in accounts payable of approximately $2.0 relating to agreements to
purchase certain salt and potash products from IMC. Prior to the
Recapitalization these costs were settled via intercompany accounts, all of
which will be eliminated upon consummation of the Recapitalization.
f) Reflects the debt incurred in connection with our Recapitalization:
Revolving debt............... $ --
Bank term debt............... 225.0
10% Senior Subordinated Notes 250.0
------
Total debt................... $475.0
======
g) Represents the elimination of amounts owing from and to IMC Global and its
affiliates of $128.6 million and the payment to Salt Holdings Corporation of
$452.9 million as part of the Recapitalization.
35
COMPASS MINERALS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 2000
(dollars in millions)
Pro Forma Pro
Historical(a) Adjustments Forma
------------- ----------- -------
Net sales after shipping and handling costs....... $ 369.2 $ 5.3(b) $ 374.5
Costs and expenses:
Cost of sales.................................. 227.8 5.3(b)(c)(d) 233.1
Depreciation and amortization.................. 44.2 -- 44.2
Selling, general and administrative expenses... 35.5 3.5(b)(d)(e)(f) 39.0
Goodwill write-down............................ 191.0 -- 191.0
Restructuring and other charges................ 425.9 -- 425.9
------- ------ -------
Total operating expenses................... 924.4 8.8 933.2
------- ------ -------
Loss from operations.............................. (555.2) (3.5) (558.7)
Interest expense.................................. 16.4 24.2(g)(h) 40.6
Other expense (income)............................ (0.2) 3.4(h) 3.2
------- ------ -------
Loss before income taxes.......................... (571.4) (31.1) (602.5)
Income taxes...................................... (103.7) (10.9)(i) (114.6)
------- ------ -------
Net loss.......................................... $(467.7) $(20.2) $(487.9)
======= ====== =======
Other Financial Data:
Adjusted EBITDA(j)............................. $ 105.9 $ (3.5) $ 102.4
36
COMPASS MINERALS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Twelve Months Ended September 30, 2001 (dollars in millions)
Pro Forma
Historical(a) Adjustments Pro Forma
------------- ----------- ---------
Net sales after shipping and handling costs..... $ 394.1 $ 4.0 (b) $ 398.1
Costs and expenses:
Cost of sales................................ 234.4 3.3 (b)(c)(d) 237.7
Depreciation and amortization................ 34.6 -- 34.6
Selling, general and administrative expenses. 38.0 3.5 (b)(d)(e)(f) 41.5
Goodwill write-down.......................... 191.0 -- 191.0
Restructuring and other charges.............. 425.9 -- 425.9
------- ------ -------
Total operating expenses................. 923.9 6.8 930.7
------- ------ -------
Loss from operations............................ (529.8) (2.8) (532.6)
Interest expense................................ 13.3 27.3 (g)(h) 40.6
Other expense (income).......................... (3.6) 3.8 (h) 0.2
------- ------ -------
Loss before income taxes........................ (539.5) (33.9) (573.4)
Income taxes.................................... (91.2) (11.9)(i) (103.1)
------- ------ -------
Net loss........................................ $(448.3) $(22.0) $(470.3)
======= ====== =======
Other Financial Data:
Adjusted EBITDA(j)........................... $ 121.7 $ (2.8) $ 118.9
37
COMPASS MINERALS GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2001
(dollars in millions)
Pro Forma
Historical(a) Adjustments Pro Forma
------------- ----------- ---------
Net sales after shipping and handling costs..... $265.9 $ 3.5 (b) $269.4
Costs and expenses:
Cost of sales................................ 165.4 2.1 (b)(c)(d) 167.5
Depreciation and amortization................ 24.0 -- 24.0
Selling, general and administrative expenses. 28.7 2.6 (b)(d)(e)(f) 31.3
------ ------ ------
Total operating expenses................. 218.1 4.7 222.8
------ ------ ------
Income from operations.......................... 47.8 (1.2) 46.6
Interest expense................................ 9.0 21.4 (g)(h) 30.4
Other expense (income).......................... (4.3) 2.9 (h) (1.4)
------ ------ ------
Income before income taxes...................... 43.1 (25.5) 17.6
Income taxes.................................... 20.7 (8.9)(i) 11.8
------ ------ ------
Net income...................................... $ 22.4 $(16.6) $ 5.8
====== ====== ======
Other Financial Data:
Adjusted EBITDA(j)........................... $ 71.8 $ (1.2) $ 70.6
38
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(dollars in millions, except percentages)
a) Represents our historical audited combined statement of operations for the
year ended December 31, 2000 and the historical unaudited combined statement
of operations for the twelve months ended and the nine months ended
September 30, 2001.
b) For the periods presented, the Company sold SOP to IMC Global affiliates,
who marketed, distributed and sold this product on the Company's behalf to
third party customers. The Company was not directly charged for these
services. Instead, the Company received a lower sale price from the IMC
Global affiliates and reflected the same in the Company's historical
financial statements. In connection with the Recapitalization we will begin
marketing, distributing and selling this product directly to our customers.
Accordingly, we have adjusted the historical results of operations as if
these sales were made directly by the Company, including the related selling
and administrative costs. The schedule below presents the incremental
revenues, cost of sales and selling, general and administrative expenses as
if these sales had been made directly by the Company.
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Revenues (net of shipping and handling)..... $5.3 $4.0 $3.5
Cost of sales............................... $2.3 $0.7 $0.6
Selling, general and administrative expenses $1.0 $1.0 $0.8
c) As an integral part of the Recapitalization, we have contractually
negotiated, effective upon the closing of the Recapitalization, to purchase
certain salt and potash product from IMC Global, which effectively would
have increased our costs of sales by $1.5, $1.1 and $0.9 for the fiscal year
ended December 31, 2000, the twelve months ended September 30, 2001 and the
nine months ended September 30, 2001, respectively, if such contracts had
been in place as of the beginning of the relevant period.
d) Prior to the Recapitalization, IMC Global provided certain overhead
functions to us at a cost lower than what we would incur on a stand-alone
basis. Following the Recapitalization, we plan to perform these functions
ourselves and will therefore incur incremental costs. Accordingly, we have
adjusted the historical results of operations as if we had performed these
functions ourselves. The schedule below summarizes the estimated incremental
cost of sales and selling, general and administrative costs as if the
Company had been performing these functions on its own:
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Cost of sales............................ $1.5 $1.5 $0.6
Selling, general and administrative costs $2.1 $1.9 $1.3
e) As an integral part of the Recapitalization, we have contractually
negotiated, effective upon the closing of the Recapitalization, to purchase
SOP products produced at IMC Global's Carlsbad, New Mexico, facility. The
schedule below reflects the purchase discount to be received by us from the
Carlsbad facility:
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Purchase discount $(0.6) $(0.4) $(0.3)
f) Reflects the following:
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Management fee charged to us by the new
majority shareholder in accordance with the
new management agreement................... $1.0 $1.0 $0.8
39
g) Reflects the following:
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Interest expense resulting from $225.0 of new
bank term debt at an interest rate of 5.6%...... $12.6 $12.6 $ 9.5
Interest expense resulting from $250.0 of notes
at an interest rate of 10.0%.................... 25.0 25.0 18.8
Commitment fee charge relating to the nominal
undrawn portion of the revolving credit
facility........................................ 0.5 0.5 0.3
Fees resulting from $5.0 of outstanding letters of
credit at a rate of 3.5%........................ 0.2 0.2 0.1
Amortization of debt issuance costs of $20.1
associated with the term debt, revolver and
the notes over the life of the related debt..... 2.1 2.1 1.6
----- ----- -----
$40.4 $40.4 $30.3
===== ===== =====
A change of .125 percentage points in interest rates on the aggregate amount
outstanding on the term loan would have an incremental effect on annual
interest expense of approximately $0.3.
h) Reflects the following:
Fiscal Year Ended Twelve Months Ended Nine Months Ended
December 31, 2000 September 30, 2001 September 30, 2001
----------------- ------------------- ------------------
Elimination of interest expense resulting from
allocation of intercompany IMC Global debt
and third party debt which will be eliminated
at closing................................... $(16.2) $(13.1) $(8.9)
Elimination of interest income resulting from
intercompany IMC Global debt, which will be
eliminated at closing........................ 3.4 3.8 2.9
i) Reflects the provision for income taxes at the statutory rate.
j) Adjusted EBITDA represents net income (loss) before income taxes, interest
expense, depreciation and amortization, goodwill write-down and
restructuring and other charges. Adjusted EBITDA is presented because it is
commonly used by investors to analyze and compare operating performance and
to determine a company's ability to service and/or incur debt. However,
Adjusted EBITDA should not be considered in isolation or as a substitute for
net income, cash flows or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Adjusted EBITDA is not calculated
under GAAP and therefore is not comparable to similarly titled measures of
other companies.
40
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
The following table presents selected historical and pro forma combined
financial information. The historical statement of operations data for the
fiscal years ended December 31, 1999 and 2000 and the historical balance sheet
data as of December 31, 1998, 1999 and 2000 are derived from our audited
combined financial statements included elsewhere in this prospectus. The
historical statement of operations data for the twelve months ended December
31, 1998 and the nine months ended September 30, 2000 and 2001 and the
historical balance sheet as of September 30, 2000 and 2001 are derived from
unaudited financial statements which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the data for such periods. The results of operations for the
interim periods are not necessarily indicative of the operating results for the
entire year or any future period.
The information included in this table should be read in conjunction with
"Prospectus Summary--Summary Historical and Pro Forma Combined Financial Data,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements and accompanying
notes thereto included elsewhere in this prospectus.
The Unaudited Pro Forma Combined Balance Sheet data reflects the financial
position of our business as if the Recapitalization had occurred on September
30, 2001. The Unaudited Pro Forma Combined Statements of Operations and related
information reflect the Recapitalization as if it had occurred at the beginning
of the relevant period. The pro forma adjustments were applied to the
historical combined financial statements to reflect and account for the
Recapitalization and, accordingly, do not affect the historical basis of our
assets and liabilities. It is important that you read this information along
with the Unaudited Pro Forma Combined Financial Information and related notes.
We do not claim or represent that the Selected Unaudited Pro Forma Combined
Financial Information is indicative of the results that would have been
reported had the Recapitalization actually occurred on the dates indicated
above, nor is it indicative of our future results. There can be no assurance
that the assumptions used by management (which they believe are reasonable) in
the preparation of the Selected Unaudited Pro Forma Combined Financial
Information will prove to be correct. Additionally, pro forma combined
operating results for the nine months ended September 30, 2001 and for the
twelve months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2001.
41
Summary Historical and Pro Forma Combined Financial Information
Historical
-----------------------------------------------------------------
For the nine
For the years ended months ended
------------------------------------- --------------------------
December 31, December 31, December 31, September 30, September 30,
1998 1999 2000 2000 2001
------------ ------------ ------------ ------------- -------------
(dollars in millions)
------------------------------------------------------------------
Statement of Operations Data:
Net sales after shipping and handling
costs............................... $ 344.2 $ 367.4 $ 369.2 $241.0 $265.9
Cost of sales........................ 183.9 213.1 227.8 158.7 165.4
Depreciation and amortization........ 42.4 55.1 44.2 33.7 24.0
Selling, general and administrative
expenses............................ 46.1 37.1 35.5 26.3 28.7
Goodwill write-down(1)............... -- 87.5 191.0 -- --
Restructuring and other charges(1)(2) 20.3 13.7 425.9 -- --
Income (loss) from operations........ 51.6 (39.1) (555.2) 22.3 47.8
Net income (loss).................... 3.1 (67.5) (467.7) 3.1 22.4
Other Financial Data:
Adjusted EBITDA(3)................... $ 114.3 $ 117.2 $ 105.9 $ 56.0 $ 71.8
Adjusted EBITDA margin(4)............ 33.2 % 31.9 % 28.7 % 23.2% 27.0%
Adjusted Pro Forma EBITDA(5)......... -- -- -- -- --
Adjusted Pro Forma EBITDA margin(4).. -- -- -- -- --
Capital expenditures................. $ 56.7 $ 45.6 $ 33.7 $ 20.7 $ 30.7
Cash interest expense(6).............
Net debt to Adjusted Pro Forma
EBITDA(7)...........................
Adjusted Pro Forma EBITDA to cash
interest expense....................
Ratio of earnings to fixed charges(8) -- -- -- 1.75x 4.81x
Balance sheet data (at period end):
Total cash and cash equivalents...... $ 4.9 $ 4.3 $ 0.4 $ -- $ 0.7
Total assets......................... 1,423.0 1,290.5 636.0 926.7 580.2
Total debt........................... 264.7 196.0 152.3 84.4 131.1
Net debt(7).......................... 259.8 191.7 151.9 84.4 130.4
Pro Forma
------------------------------------------
For the
For the fiscal nine months For the twelve
year ended ended months ended
December 31, September 30, September 30,
2000 2001 2001
-------------- ------------- --------------
Statement of Operations Data:
Net sales after shipping and handling
costs............................... $ 374.5 $269.4 $ 398.1
Cost of sales........................ 233.1 167.5 237.7
Depreciation and amortization........ 44.2 24.0 34.6
Selling, general and administrative
expenses............................ 39.0 31.3 41.5
Goodwill write-down(1)............... 191.0 -- 191.0
Restructuring and other charges(1)(2) 425.9 -- 425.9
Income (loss) from operations........ (558.7) 46.6 (532.6)
Net income (loss).................... (487.9) 5.8 (470.3)
Other Financial Data:
Adjusted EBITDA(3)................... -- -- --
Adjusted EBITDA margin(4)............ -- -- --
Adjusted Pro Forma EBITDA(5)......... $ 102.4 $ 70.6 $ 118.9
Adjusted Pro Forma EBITDA margin(4).. 27.3% 26.2% 29.9%
Capital expenditures................. $ 33.7 $ 30.7 $ 43.7
Cash interest expense(6)............. 38.5
Net debt to Adjusted Pro Forma
EBITDA(7)........................... 4.0x
Adjusted Pro Forma EBITDA to cash
interest expense.................... 3.1x
Ratio of earnings to fixed charges(8) -- 1.52x --
Balance sheet data (at period end):
Total cash and cash equivalents...... -- -- $ 2.7
Total assets......................... -- -- 600.2
Total debt........................... -- -- 475.4
Net debt(7).......................... -- -- 472.7
- --------
(1)Based on anticipated proceeds from the sale of the Company by IMC Global, we
recorded an asset impairment charge of $616.6 million, $482.1 million after
tax, in the fourth quarter of 2000. In connection with this non cash charge,
goodwill was reduced $191.0 million and mineral properties and rights was
reduced $425.6 million. The goodwill write-down in 1999 was the result of
lowering goodwill to its recoverable value based on estimated future
discounted cash flows of the business.
(2)"Restructuring and Other Charges" include primarily those charges related to
the impairment of certain idled assets in the fourth quarter of 1998, the
restructuring of our business in the fourth quarter of 1999 designed to
reduce employee headcount and an asset impairment in the fourth quarter of
2000 related to the planned disposition of the Company by IMC Global as
described in (1) above. Substantially all cash payments related to these
charges have been made as of December 31, 2000.
(3)"Adjusted EBITDA" represents net income (loss) before income taxes, interest
expense, other income, depreciation and amortization, goodwill write-down
and restructuring and other charges. Adjusted EBITDA is presented because it
is commonly used by investors to analyze and compare operating performance
and to determine a company's ability to service and/or incur debt. However,
Adjusted EBITDA should not be considered in isolation or as a substitute for
net income, cash flows or other income or cash flow data prepared in
accordance with generally accepted accounting principles ("GAAP") or as a
measure of a company's profitability or liquidity. Adjusted EBITDA is not
calculated under GAAP and therefore is not comparable to similarly titled
measures of other companies.
(4)"Adjusted EBITDA margin" is calculated as a percentage of revenues.
"Adjusted Pro Forma EBITDA margin" is calculated as a percentage of pro
forma revenues.
(5)"Adjusted Pro Forma EBITDA" represents pro forma net income (loss) before
income taxes, interest expense, other income, depreciation and amortization,
goodwill write-down, restructuring and other charges, and the annual
management fee to be charged by the new majority shareholder. Pro forma
adjustments related to the Unaudited Pro Forma Combined Statements of Income
have been computed assuming the Recapitalization was consummated at the
beginning of the respective periods presented and generally include (i) the
effect of certain agreements the results of which are not included in our
historical financial statements and (ii) incremental costs we expect as an
independent entity. All pro forma adjustments have been explained in the
Unaudited Pro Forma Combined Financial Information and related notes
thereto. Adjusted Pro Forma EBITDA is not calculated under GAAP and
therefore is not necessarily comparable to similarly titled measures of
other companies.
(6)"Cash interest expense" represents interest expense less amortization of
debt issuance costs.
(7)"Net debt" represents total debt less total cash and cash equivalents.
(8)For the purposes of computing the ratios of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of net interest expense including the amortization of
deferred debt issuance costs, and the interest component of its operating
rents. The ratio of earnings to fixed charges on a historical basis is not
meaningful because the Company participated in a credit facility with IMC
Global and its affiliates, and the level of third-party debt was not
comparable to the level of third-party debt in place upon consummation of
the Recapitalization. Earnings were insufficient to cover fixed charges by
approximately $1.5 million, $55.6 million, and $572.5 million, respectively,
for the fiscal years ended December 31, 1998, 1999 and 2000. Pro forma
earnings for the year ended December 31, 2000, and for the twelve-month
period ended September 30, 2001, were insufficient to cover fixed charges by
approximately $603.6 million and $574.5 million, respectively.
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements in this discussion regarding the industry outlook, our
expectations regarding the future performance of our business, and the other
non-historical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties
described in the "Risk Factors" section. You should read the following
discussion together with the section entitled "Risk Factors" and the Combined
Financial Statements and notes thereto included elsewhere in this prospectus.
Company Overview
We are the second largest producer of salt in North America (30% 2000 market
share), the largest producer of salt in the United Kingdom ("U.K.") (over 50%
2000 market share), and overall, the world's third largest producer of salt. In
addition, in North America we are the largest producer of sulfate of potash
(SOP) which is used in the production of specialty fertilizers. Salt is one of
the most widely used minerals in the world, with North American and U.K.
consumption of over 35 million tons in 2000. Salt has a wide variety of end use
applications, including highway deicing, food grade applications, water
conditioning and various industrial uses. Our business also includes the
following key characteristics:
. We believe that our cash flows are not materially impacted by economic
cycles due to the stable end use markets of salt and the absence of cost
effective alternatives.
. We operate twelve facilities in North America and the U.K., including the
largest rock salt mine in the world in Goderich, Ontario and the largest
salt mine in the U.K. in Winsford, Cheshire.
. We believe that we are the low cost rock salt producer in our markets. Our
cost advantage is due to the size and quality of our reserves, the
strategic location of our facilities and our continued focus on improving
production efficiency. Our salt mines in North America are located near
either rail or water transport systems, thereby minimizing shipping and
handling costs which constitute a significant portion of the overall
delivered cost of salt.
For the twelve months ended September 30, 2001, we sold over 13 million tons
of salt and other minerals, generating pro forma revenues of approximately
$398.1 million and Adjusted Pro Forma EBITDA of $118.9 million. We have been
able to increase our trailing twelve months Adjusted Pro Forma EBITDA for each
of the last three quarters, and anticipate that this trend will continue for at
least the next several quarters. This is a result of both improvements in
revenues and cost reduction measures we have taken in both North America and in
the U.K. The improvements in revenues relate to the full effect of price
increases taken in certain of our salt product lines during the summer of 2001
and the 14% price increase we have secured in our North American highway
deicing business (over prices paid by customers in the prior winter season) as
a result of the recently concluded contract bidding for the upcoming 2001/2002
winter season. Based on LTM volumes, such price increases would have increased
revenues and Adjusted Pro Forma EBITDA by more than $13 million, had such price
increases been in effect at the beginning of the LTM period. We have also taken
several measures in the past year to reduce costs, including implementing
energy efficiency programs and manpower productivity projects.
Stand-Alone Company
The historical combined financial information included in this prospectus
has been derived from the historical consolidated financial statements of IMC
Global. The preparation of this information was based on certain assumptions
and estimates including allocations of costs from IMC Global which we believe
are reasonable. This financial information may not, however, necessarily
reflect the results of operations, financial positions and cash flows that
would have occurred if we had been a separate, stand-alone entity during the
periods presented or our future results of operations, financial position and
cash flows.
43
We believe that there are opportunities to improve performance on both the
revenue and cost sides of our business. For example, we believe that our new
management focus on operating efficiencies and monitoring capital expenditures
following the consummation of the Recapitalization will lead to reductions in
our operating costs and maintenance capital expenditures. After the
Recapitalization, we intend to continue to complete the expansion of our Lyons,
Kansas evaporation facility and focus on growing our SOP business.
In connection with the Recapitalization, we have incurred substantial
indebtedness, interest expense and repayment obligations. The interest expense
relating to this debt will adversely affect our net income. Upon consummation
of the Recapitalization, we have incurred a number of one-time fees and
expenses incurred at the closing of the Recapitalization of approximately $31.7
million. See "Certain Related Party Transactions."
Results of Operations
The following table sets forth certain combined historical financial
information, in both dollars and percentages of net sales after shipping and
handling costs, for the years ended December 31, 1998, 1999 and 2000 and the
nine months ended September 30, 2000 and 2001. The following table and
discussion should be read in conjunction with the information contained in our
combined financial statements and the notes thereto included elsewhere in this
prospectus. However, our historical combined results of operations set forth
below and elsewhere in this prospectus may not necessarily reflect what would
have occurred if we had been a separate, stand-alone entity during the periods
presented or what will occur in the future. See "Risk Factors--We are a newly
formed company with no operating history as a stand-alone company, which may
lead to risks or unanticipated expenses similar to those of a start-up company."
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------- -----------------------------
1998 1999 2000 2000 2001
- - ------------ -------------- --------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
(Dollars in Millions, Except Percentages)
Net sales after shipping and handling costs. $344.2 100.0% $ 367.5 100.0% $ 369.2 100.0% $241.0 100.0% $265.9 100.0%
Cost of sales............................... 226.3 65.7% 268.2 73.0% 271.9 73.7% 192.4 79.9% 189.4 71.2%
------ ----- ------- ----- ------- ------ ------ ----- ------ -----
Gross profit................................ 117.9 34.3% 99.2 27.0% 97.2 26.3% 48.6 20.7% 76.5 28.8%
Selling, general and administrative expenses 46.1 13.4% 37.2 10.1% 35.5 9.6% 26.3 10.9% 28.7 10.8%
Goodwill write-down......................... -- 0.0% 87.5 23.8% 191.0 51.7% -- 0.0% -- 0.0%
Restructuring and other charges............. 20.3 5.9% 13.7 3.7% 425.9 115.4% -- 0.0% -- 0.0%
------ ----- ------- ----- ------- ------ ------ ----- ------ -----
Operating income............................ 51.6 15.0% (39.1 ) (10.6)% (555.2) (150.4)% 22.3 9.2% 47.8 18.0%
Interest expense............................ 23.2 6.8% 19.0 5.2% 16.4 4.4% 12.1 5.0% 9.0 3.4%
Other (income) expense...................... 2.8 0.8% (3.0 ) (0.8)% (0.2) (0.1)% (1.1) (0.5)% (4.3) (1.6)%
------ ----- ------- ----- ------- ------ ------ ----- ------ -----
Income (loss) before taxes and extraordinary
item....................................... 25.6 7.4% (55.1 ) (15.0)% (571.4) (154.8)% 11.3 4.7% 43.1 16.2%
Provision for income taxes.................. 18.9 5.5% 12.4 3.4% (103.7) (28.1)% 8.2 3.4% 20.7 7.8%
Income (loss) before extraordinary item..... 6.6 1.9% (67.5 ) (18.4)% (467.7) (126.7)% 3.1 1.3% 22.4 8.4%
Extraordinary Item.......................... 3.5 1.0% -- 0.0% -- 0.0% -- 0.0% -- 0.0%
------ ----- ------- ----- ------- ------ ------ ----- ------ -----
Net income (loss)........................... $ 3.1 0.9% $ (67.5) (18.4)% $(467.7) (126.7)% $ 3.1 1.3% $ 22.4 8.4%
====== ===== ======= ===== ======= ====== ====== ===== ====== =====
Net Sales by Segment:
Salt........................................ $265.0 77.0% $ 321.7 87.5% $ 325.1 88.1% $208.6 86.6% $235.0 88.4%
Specialty potash fertilizers................ 79.3 23.0% 45.8 12.5% 44.1 11.9% 32.4 13.4% 31.0 11.6%
------ ----- ------- ----- ------- ------ ------ ----- ------ -----
Total....................................... $344.3 100.0% $ 367.5 100.0% $ 369.2 100.0% $241.0 100.0% $265.9 100.0%
====== ===== ======= ===== ======= ====== ====== ===== ====== =====
44
Nine Months Ended September 30, 2001 Compared to the Nine Months Ended
September 30, 2000
Net Sales after Shipping and Handling Costs
Net sales after shipping and handling costs for the nine months ended
September 30, 2001 of $265.9 million increased $24.9 million, or 10.3% compared
to $241.0 million for 2000. Net sales after shipping and handling costs of salt
for the nine months ended September 30, 2001 of $235.0 million increased $26.4
million, or 12.7% compared to $208.6 million for 2000. This increase was
primarily the result of the mild winter weather that negatively impacted sales
volume in the first nine months of 2000. In particular, highway deicing net
sales after shipping and handling costs for the nine months ended September 30,
2001 increased 27%, contributing approximately $21 million of additional net
sales after shipping and handling costs while consumer deicing net sales after
shipping and handling costs increased approximately $5 million over the prior
year period.
SOP net sales after shipping and handling costs for the nine months ended
September 30, 2001 of $31.0 million decreased $1.4 million, or 4.4% compared to
$32.4 million for 2000. SOP sales volumes for the nine months ended September
30, 2001 declined approximately 23.3% as compared to 2000 as a result of lower
demand for fertilizers and reduced marketing of SOP as part of IMC Global|s
broader potash marketing strategy. This decline was partially offset by a 4.6%
increase in the price of SOP.
Gross Margins
Gross margins for the nine months ended September 30, 2001 of $76.5 million
increased $28.0 million, or 57.6% compared to $48.6 million for 2000. This
improvement in gross margin primarily reflects the impact of stronger sales of
our winter deicing products during the first quarter of 2001. In addition,
reduced SOP sales were more than offset by cost reductions, primarily in the
form of lower consumption of purchased raw materials at our Ogden solar
evaporation facility. Purchased raw materials are used to supplement SOP
production when SOP sales volumes exceed the SOP volumes that can be achieved
from the annual potash harvest. Furthermore, as a result of asset impairment
charges recorded in the fourth quarter of 2000, margins during the first nine
months of 2001 were favorably impacted by reduced depreciation and amortization
expenses of $8.1 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
September 30, 2001 of $28.7 million increased $2.4 million, or 9.1% compared to
$26.3 million for 2000 reflecting higher sales related charges.
Other Income/Expense
Other income for the nine months ended September 30, 2001 of $4.3 million
increased $3.1 million compared to $1.1 million for 2000. This increase was
largely the result of a $2.0 million non-cash foreign exchange gain, primarily
relating to the translation of certain United States dollar-denominated
accounts of our Canadian subsidiary into Canadian dollars. In addition,
interest income on intercompany loans to IMC Global was higher in the first
nine months of 2001 as compared to the 2000 period.
Interest Expense
Interest expense for the nine months ended September 30, 2001 of $9.0
million decreased $3.1 million, or 25.6% compared to $12.1 million for 2000.
This decrease was primarily the result of lower average borrowings from IMC
Global and its affiliates during the first nine months of 2001 as compared to
the prior year period.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2001 of $20.7
million increased $12.4 million compared to $8.2 million for 2000. This was
primarily due to our higher income before taxes in 2001. Our
45
income tax provision differs from the U.S. statutory federal income tax rate
primarily due to U.S. statutory depletion, state income taxes (net of federal
tax benefit), foreign income tax rate differentials, foreign mining taxes and
amortization of goodwill not deductible for tax purposes.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Net Sales after Shipping and Handling Costs
Net sales after shipping and handling costs for 2000 of $369.2 million
increased $1.7 million, or 0.5% compared to $367.5 million for 1999. Net sales
after shipping and handling costs of salt of $325.1 million increased $3.4
million, or 1.0% compared to $321.7 million for 1999. Net sales after shipping
and handling costs of salt were favorably impacted by an 8.0% increase in
deicing volumes in 2000 compared to 1999. Non-deicing sales volumes, excluding
bulk chemical customers, in North America were higher by 5.0%, resulting in an
increase of approximately $3.0 million in net sales after shipping and handling
costs. This increase reflects moderate growth in agricultural and water
conditioning salt products, as new capacity additions allowed us to increase
our sales in the Great Lakes and Midwest regions. Offsetting these increases
was a decline in sales of bulk salt to chemical customers.
SOP net sales after shipping and handling costs of $44.1 million for 2000
decreased $1.7 million, or 3.7% compared to $45.8 million for 1999. SOP sales
volumes were lower in 2000 compared to 1999 by 8.0%, due to reductions
experienced in both the domestic and export markets. SOP export sales were
lower primarily due to capacity additions by our competitors in Southeast Asia.
Average sales prices for SOP were also down, reflecting the weak demand in the
specialty fertilizer markets.
Gross Margins
Gross margins for 2000 of $97.2 million decreased $2.0 million, or 2.0%
compared to $99.2 million for 1999. Margins were unfavorably impacted during
2000 by a partial curtailment in highway deicing production resulting from the
unseasonably mild weather experienced during the 1999/2000 winter season.
Higher inventories following that winter season resulted in reduced production
during the second and third quarters of 2000. Offsetting this impact was lower
consumption of purchased raw material in 2000 as compared to 1999 at our SOP
facility in Ogden. Higher costs in 1999 resulted from supplementary purchases
of higher cost raw material as a result of the poor 1998/1999 SOP harvest. In
2000, the SOP harvest was sufficient to significantly reduce the amount of
purchased raw material.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2000 of $35.5 million
decreased $1.6 million, or 4.6% compared to $37.2 million for 1999. The decline
is primarily due to a reduction in professional services and consulting costs
for a variety of projects, including Y2K planning.
Goodwill write-down, Restructuring and Other Charges
During 2000 and 1999 the Company recorded goodwill write-down, restructuring
and other charges of $616.9 million and $101.2 million, respectively. The 2000
charges comprised a $191.0 million write-down of goodwill and $425.9 million of
restructuring and other charges, which were recorded in the fourth quarter.
Substantially all these charges were non-cash charges and reflected the amount
by which our net book value exceeded IMC Global's anticipated proceeds from the
disposition of the Company. The 1999 charges comprised a $87.5 million goodwill
write-down and $13.7 million of restructuring and other charges, and were
recorded in the fourth quarter. The goodwill write-down in 1999 related to the
lower recoverability of goodwill by estimating future discounted cash flows of
the business. The 1999 restructuring charge reflected a cost reduction program
the Company implemented, primarily related to the closing of certain operations.
46
Other Income/Expense
Other income for 2000 of $0.2 million decreased $2.8 million compared to
$3.0 million for 1999. This decrease was largely the result of a $2.3 million
non-cash foreign exchange loss, primarily relating to the translation of
certain United States dollar-denominated accounts of our Canadian subsidiary
into Canadian dollars.
Interest Expense
Interest expense for 2000 of $16.4 million decreased $2.6 million, or 13.7%
compared to $19.0 million for 1999. This was primarily the result of lower
average borrowings from IMC Global and its affiliates for 2000 as compared to
1999.
Income Tax Expense
An income tax benefit of $103.7 million was recorded in 2000, primarily
reflecting a $134.6 million tax benefit resulting from our asset impairment and
restructuring charges. The tax provision in 1999 was $12.4 million. Our income
tax provision differs from the U.S. statutory federal income tax rate primarily
due to U.S. statutory depletion, state income taxes (net of federal tax
benefit), foreign income tax rate differentials, foreign mining taxes and
amortization of goodwill not deductible for tax purposes.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Net Sales after Shipping and Handling Costs
Net sales after shipping and handling costs for 1999 of $367.5 million
increased $23.3 million, or 6.7% compared to $344.2 million for 1998. Net sales
after shipping and handling costs of salt for 1999 of $321.7 million increased
$56.7 million or 21.4% compared to $265.0 million for 1998. More severe winter
weather in the U.S. and the U.K. increased sales of highway deicing salt by
43.0%. Additionally, we experienced an increase in sales of consumer deicing
products and evaporated salt products. These increases were primarily the
result of IMC Global's contribution to the Company of a consumer deicing
product line and the expansion of our evaporated salt market share in the Great
Lakes region. The expansion in the Great Lakes region resulted from the
start-up of IMC Global's new salt and potash facility in Michigan, from which
we purchase general trade salt. These increases were partially offset by lower
net sales prices in the highway deicing business and lower bulk chemical
customer sales volumes.
SOP net sales after shipping and handling costs for 1999 of $45.8 million
decreased $33.5 million, or 42.2% compared to $79.3 million for 1998. A
significant portion of this decline is the result of reduced export shipments
due to production capacity additions by our competitors in Southeast Asia and
the lack of sufficient focus to realize the business line's potential.
Additionally, domestic fertilizer sales fell as a result of declining demand
from the North American agricultural sector.
Gross Margins
Gross margins for 1999 of $99.2 million decreased $18.7 million, or 15.9%
compared to $117.9 million for 1998. Gross margins in 1999 were negatively
impacted by a $5.6 million nonrecurring charge relating primarily to a write
down of certain inventory and operating assets. Additionally, depreciation and
amortization increased $5.9 million in 1999 as a result of the increased asset
basis following IMC Global's purchase of the Company. Finally, approximately
$8.0 million of the gross margin decline was related to lower sales of SOP and
higher usage of purchased raw materials at the Ogden facility. The higher raw
material usage was due to a lower product harvest following poor 1997/1998 and
1998/1999 solar evaporation seasons.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1999 of $37.2 million
decreased $8.9 million, or 19.3% compared to $46.1 million for 1998. The
reduction relates to the closure of our former headquarters in New York
47
as well as a reduction in direct selling, general and administrative expenses
of the SOP business when that operation was absorbed by IMC Global's potash
business. Both of these reductions followed IMC Global's acquisition of the
Company in April 1998.
Goodwill write-down, Restructuring and Other Charges
During 1999 and 1998 the Company recorded goodwill write-down, restructuring
and other charges of $101.2 million and $20.3 million, respectively. The 1999
charges comprised a $87.5 million write-down of goodwill and $13.7 million of
restructuring and other charges, which were recorded in the fourth quarter. The
goodwill write-down in 1999 related to the lower recoverability of goodwill by
estimating future discounted cash flows of the business. The 1998 charges
related to asset impairment and post-closure liabilities incurred in connection
with the closing of certain operations.
Other Income/Expense
Other income for 1999 of $3.0 million increased $5.8 million compared to
other expense of $2.8 million for 1998. The primary reason for the increase was
a $4.0 million non-cash foreign exchange gain relating to the translation of
certain United States dollar-denominated accounts of our Canadian subsidiary
into Canadian dollars. In addition, interest income on intercompany loans was
$1.5 million higher in 1999 than in the comparable 1998 period.
Interest Expense
Interest expense for 1999 of $19.0 million decreased $4.2 million, or 18.1%
compared to $23.2 million for 1998. This decrease was primarily the result of
lower average borrowings from IMC Global and its affiliates for 1999 as
compared to 1998.
Income Tax Expense
Income tax expense for 1999 of $12.4 million decreased $6.5 million, or
34.4% compared to $18.9 million for 1998. This was primarily due to the lower
earnings of the business, excluding non-tax deductible asset impairments. Our
income tax provision differs from the U.S. statutory federal income tax rate
primarily due to U.S. statutory depletion, state income taxes (net of federal
tax benefit), foreign income tax rate differentials, foreign mining taxes and
amortization of goodwill not deductible for tax purposes.
Liquidity and Capital Resources
Historical Cash Flow
Historically, we have used cash generated from operations to meet our
working capital needs and to fund capital expenditures. In North America we
participated in IMC Global's centralized treasury management system whereby all
of our cash receipts were remitted to IMC Global and all of our cash
disbursements were paid by IMC Global. In the U.K. we obtained a (Pounds)4.0
million revolving credit facility to manage daily cash receipts and
disbursements. Following the consummation of the Recapitalization, we will no
longer be participating in IMC Global's centralized treasury management system.
For the Nine Months ended September 30, 2001
Net cash flow generated by operating activities was $79.7 million for the
nine months ended September 30, 2001. Of this amount $26.2 million was
generated by working capital reductions. The largest working capital items, all
reflective of our seasonality, were $72.4 million generated by receivable
collections, $27.5 million used
48
for payables and accrued liabilities (primarily freight and distribution costs)
and $14.0 million used for the increase of inventory levels.
Net cash flow used by investing activities was $31.4 million for the nine
months ended September 30, 2001, primarily representing capital expenditures of
the business. As part of these capital expenditures, we incurred $5.2 million
in completing the new mine shaft, mill and headframe at the Cote Blanche,
Louisiana facility. The remaining capital expenditures included $19.6 million
of expenditures to maintain our facilities and $5.9 million of growth and cost
reduction capital expenditures. The significant growth and cost reduction
projects related to the continuing expansion of our Lyons, Kansas evaporation
facility and the purchase of a continuous miner at our Winsford facility.
Net cash flow used by financing activities was $47.7 million for the nine
months ended September 30, 2001. Approximately $26.7 million represents
distributions to IMC Global and their affiliates, $70.7 million represents the
net repayment of third-party debt, including a (Pounds)45.0 million bank
facility for the U.K. operations. These amounts were partially offset by $49.6
million of borrowings from IMC Global and its affiliates, primarily to replace
the U.K. bank loan.
For the year ended December 31, 2000
Net cash flow generated from operating activities was $72.1 million for the
year ended December 31, 2000, mainly from the results of our operations.
Net cash flow used by investing activities was $34.0 million for the year
ended December 31, 2000 primarily representing capital expenditures of the
business. Included in this amount was $9.4 million related to the construction
of the new mine shaft, mill and headframe at our Cote Blanche, Louisiana
facility. The remaining capital expenditures primarily relate to $18.8 million
of expenditures to maintain our facilities and $5.5 million of growth and cost
reduction capital expenditures. The significant growth and cost reduction
projects related to the completion of the rationalization of our facilities in
Hutchinson and Lyons, Kansas as well as energy and manpower efficiency projects
at our evaporation facilities.
Net cash used by financing activities was $43.3 million for the year ended
December 31, 2000, of which $39.6 million was repayments of borrowings from IMC
Global and its affiliates. The remaining $3.6 million related to the net
repayment of third-party debt, which included capital leases.
For the year ended December 31, 1999
Net cash flow generated from operating activities was $78.3 million for the
year ended December 31, 1999, mainly from the results of our operations.
Net cash flow used by investing activities was $48.1 million for the year
ended December 31, 1999, primarily representing capital expenditures of the
business. Included in this amount was $9.5 million related to the construction
of the new mine shaft, mill and head frame at our Cote Blanche, Louisiana
facility. The remaining capital expenditures included $22.3 million of
expenditures to maintain our facilities and $13.8 million of growth and cost
reduction capital expenditures. The significant growth and cost reduction
projects related to the rationalization of our facilities in Hutchinson and
Lyons, Kansas. During 1999 we also sold assets for $5.5 million, the largest of
which was the sale of an office building. Additionally, we purchased two
businesses to facilitate the distribution of our products for approximately
$8.0 million.
Net cash used by financing activities was $33.5 million for the year ended
December 31, 1999, of which $33.9 million was repayments of borrowings from IMC
Global and its affiliates. An additional $23.3 million related to the net
repayment of third-party debt, which included capital leases. These amounts
were partially offset by a $23.0 million capital contribution from IMC Global.
49
Post-Recapitalization
Following the Recapitalization, our primary sources of liquidity will
continue to be cash flow from operations and borrowings under our new revolving
credit facility. We expect that ongoing requirements for debt service and
capital expenditures will be funded from these sources.
We have incurred substantial indebtedness in connection with the
Recapitalization. On a pro forma basis, after giving effect to the
Recapitalization as if it had occurred on September 30, 2001, we would have had
$475.4 million of indebtedness. Our significant debt service obligations
following the Recapitalization could, under certain circumstances, have
material consequences to you. See "Risk Factors--Our substantial indebtedness
could adversely affect our financial condition and prevent us from fulfilling
our obligations under the notes."
Concurrent with the Recapitalization, we issued the old notes and entered
into the new credit facilities. The term loan facility provides for a term loan
in the principal amount of $225.0 million. The revolving credit facility
provides revolving loans in an aggregate amount of up to $135.0 million. Upon
consummation of the Recapitalization, we borrowed the full amount available
under the term loan facility and will make borrowings under the revolving
credit facility depending upon our working capital needs. The borrowings under
the revolving credit facility will be available to fund our working capital
requirements, capital expenditures and for other general corporate purposes.
Borrowings under the term loan are due and payable in quarterly installments
beginning in 2002. The term loan amortization payments due before 2009 are
nominal. The remaining balance of the term loan will amortize in equal
quarterly installments in the eighth year of the term loan facility. The
revolving credit facility is available until 2008. See "The New Credit
Facilities."
Over the past three years, on average, we have spent $17.0 million per year
in growth and cost reduction capital expenditures to upgrade our core operating
facilities, expand and rationalize production capacities and improve operating
efficiencies. The majority of these improvements are now completed. Our largest
planned capital expenditure necessary over the next two years relates to an
investment in our Kansas production facility to establish necessary incremental
capacity and to begin production of a specialty food grade product. We would
expect to spend less than our historical average on capital expenditures over
the next three years.
Our ability to make scheduled payments of principal of, to pay the interest
on, or to refinance our indebtedness, including the exchange notes, or to fund
planned capital expenditures will depend on our ability to generate cash in the
future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Based on our current level of operations, we believe that cash flow from
operations and available cash, together with available borrowings under our new
credit facilities, will be adequate to meet our short-term liquidity needs.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our new credit facilities in an amount sufficient to enable us to pay our
indebtedness, including the exchange notes, or to fund our other liquidity
needs. If we consummate an acquisition, our debt service requirements could
increase. We may need to refinance all or a portion of our indebtedness,
including the exchange notes on or before maturity. We cannot assure you that
we will be able to refinance any of our indebtedness, including the new credit
facilities and the exchange notes, on commercially reasonable terms or at all.
Also, in connection with the Recapitalization, we are receiving in excess of
$114.0 million of net operating loss carryforwards, and expect to realize
significant cash tax savings as these carryforwards are utilized.
Effects of Currency Fluctuations and Inflation
We conduct operations in Canada, the United Kingdom and the United States.
Therefore, our results of operations are subject to both currency transaction
risk and currency translation risk. We incur currency
50
transaction risk whenever we or one of our subsidiaries enter into either a
purchase or sales transaction using a currency other than the local currency of
the transacting entity. With respect to currency translation risk, our
financial condition and results of operations are measured and recorded in the
relevant local currency and then translated into U.S. dollars for inclusion in
our historical combined financial statements. Exchange rates between these
currencies and U.S. dollars in recent years have fluctuated significantly and
may do so in the future. The majority of our revenues and costs are denominated
in U.S. dollars, with pound sterling, Canadian dollars and other currencies
also being significant. We generated 40.3% of our 2000 net sales in foreign
currencies, and we incurred 41.8% of our 2000 total operating expenses in
foreign currencies. The net depreciation of the pound sterling and Canadian
dollar against the U.S. dollar and other world currencies over the 1998 to 2000
period has had a negative impact on our sales and EBITDA, as reported in U.S.
dollars in our historical combined financial statements. Significant changes in
the value of the Canadian dollar, the euro or pound sterling relative to the
U.S. dollar could have a material adverse effect on our financial condition and
our ability to meet interest and principal payments on U.S. dollar denominated
debt, including the notes and borrowings under the new credit facilities.
Seasonality
We experience a substantial amount of seasonality in sales. The result of
this seasonality is that net sales and operating income are generally higher in
the first and fourth quarters and lower during the second and third quarters of
each year. In particular, sales of highway and consumer deicing salt products
are seasonal as they vary based on the severity of the winter conditions in
areas where the product is used. Following industry practice in North America,
we and our customers stockpile sufficient quantities of deicing salt in the
second, third and fourth quarters to meet the estimated requirements for the
winter season. Most of our SOP sales are made between March and May in order to
meet the spring planting season requirements.
Market Risk
Interest Rate Risk
On a pro forma basis, assuming the Recapitalization had closed as of
September 30, 2001, we would have had approximately $225.0 million of debt
outstanding under the new term loan and nothing outstanding under our new
revolving credit facility. Both the term loan and revolving credit facility are
subject to variable rates. Accordingly, our earnings and cash flow are affected
by changes in interest rates. Assuming the pro forma level of borrowings at
variable rates and assuming a one percentage point increase in the average
interest rate under these borrowings, it is estimated that our interest expense
for the nine months ended September 30, 2001, would have increased by
approximately $1.7 million. In the event of an adverse change in interest
rates, management would likely take hedging actions that would mitigate our
exposure to interest rate risk. We will not engage in hedging for speculative
purposes. Due to the uncertainty of the actions that would be taken and their
possible effects, this analysis assumes no such action.
Foreign Currency Risk
We conduct our business primarily in the U.K. and North America and export
some products to Europe and Southeast Asia. Our operations may, therefore, be
subject to volatility because of currency fluctuations, inflation changes and
changes in political and economic conditions in these countries. Sales and
expenses are frequently denominated in local currencies, and results of
operations may be affected adversely as currency fluctuations affect our
product prices and operating costs or those of our competitors. We may engage
in hedging operations, including forward foreign exchange contracts, to reduce
the exposure of our cash flows to fluctuations in foreign currency rates. We
will not engage in hedging for speculative investment reasons. Our historical
results do not reflect any foreign exchange hedging activity. There can be no
assurance that our hedging operations will eliminate or substantially reduce
risks associated with fluctuating currencies. See "Risk Factors--Risks related
to our business--Economic and other risks associated with international sales
and operations could adversely affect our business."
51
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities" (SFAS 133), as subsequently amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of Elective Date of FASB Statement No. 133" and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
This standard requires entities to recognize all derivatives on the statement
of financial position as assets or liabilities and to measure the instruments
at fair value. Accounting for gains and losses from changes in those fair
values are specified in the standard depending on the intended use of the
derivative and other criteria. SFAS 133 was effective for us beginning January
1, 2001. Our adoption of these new standards on January 1, 2001 did not impact
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). This bulletin summarizes
certain views of the SEC in applying accounting principles generally accepted
in the United States to revenue recognition in financial statements. SAB 101
was effective for us beginning in the fourth quarter of 2000. We have completed
a thorough review of our revenue recognition policies and determined that our
policies are consistent with SAB 101.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. Application of the non-amortization
provisions of the Statement is not expected to result in a material impact on
net income as the Company, in the fourth quarter of 2000, recorded a charge to
reduce goodwill to zero and has no material other intangibles with indefinite
lives.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The objective of this statement is to provide accounting guidance
for legal obligations associated with the retirement of long-lived assets by
requiring the fair value of a liability for the asset retirement obligation to
be recognized in the period in which it is incurred. When the liability is
initially recognized, the asset retirement costs should also be capitalized by
increasing the carrying amount of the related long-lived asset. The liability
is then accreted to its present value each period and the capitalized costs are
depreciated over the useful life of the associated asset. This statement is
effective for fiscal years beginning after June 15, 2002.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for fiscal
years beginning after December 15, 2001. This new standard, when in effect,
will supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for the Long-Lived Assets to be Disposed Of", providing one
accounting model for the review of asset impairment. SFAS No. 144 retains much
of the recognition and measurement provisions of SFAS No. 121, but removes
goodwill from its scope. It also requires long-lived assets to be disposed of
other than by sale to be considered as held and used until disposed of,
requiring the depreciable life to be adjusted as an accounting change. Criteria
to classify long-lived assets to be disposed of by sale has changed from SFAS
No. 121, but these costs will continue to be reported at the lower of their
carrying amount or fair value less cost to sell, and will cease to be
depreciated.
SFAS No. 144 will also supercede the section of the Accounting Principles
Board Opinion No. 30, which prescribes reporting for the effects of a disposal
of a segment of a business. This statement retains the basic presentation
provisions of the opinion, but requires losses on a disposal or discontinued
operation to be recognized as incurred. It also broadens the definition of a
discontinued operation to include a component of an entity.
52
BUSINESS
Company Overview
We are the second largest producer of salt in North America (30% 2000 market
share), the largest producer of salt in the United Kingdom ("U.K.") (over 50%
2000 market share), and overall, the world's third largest producer of salt. In
addition, in North America we are the largest producer of sulfate of potash
(SOP) which is used in the production of specialty fertilizers. Salt is one of
the most widely used minerals in the world, with North American and U.K.
consumption of over 35 million tons in 2000. Salt has a wide variety of end use
applications, including highway deicing, food grade applications, water
conditioning and various industrial uses. Our business also includes the
following key characteristics:
. We believe that our cash flows are not materially impacted by economic
cycles due to the stable end use markets of salt and the absence of cost
effective alternatives.
. We operate twelve facilities in North America and the U.K., including the
largest rock salt mine in the world in Goderich, Ontario and the largest salt
mine in the U.K. in Winsford, Cheshire.
. We believe that we are the low cost rock salt producer in our markets.
Our cost advantage is due to the size and quality of our reserves, the
strategic location of our facilities and our continued focus on improving
production efficiency. Our salt mines in North America are located near either
rail or water transport systems, thereby minimizing shipping and handling costs
which constitute a significant portion of the overall delivered cost of salt.
For the twelve months ended September 30, 2001, we sold over 13 million tons
of salt and other minerals, generating pro forma revenues of approximately
$398.1 million and Adjusted Pro Forma EBITDA of $119.9 million. We have been
able to increase our trailing twelve months Adjusted Pro Forma EBITDA for each
of the last three quarters, and anticipate that this trend will continue for at
least the next several quarters. This is a result of both improvements in
revenues and cost reduction measures we have taken in both North America and in
the U.K. The improvements in revenues relate to the full effect of price
increases taken in certain of our salt product lines during the summer of 2001
and the 14% price increase we have secured in our North American highway
deicing business (over prices paid by customers in the prior winter season) as
a result of the recently concluded contract bidding for the upcoming 2001/2002
winter season. Based on LTM volumes, such price increases would have increased
revenues and Adjusted Pro Forma EBITDA by more than $13 million, had such price
increases been in effect at the beginning of the LTM period. We have also taken
several measures in the past year to reduce costs, including implementing
energy efficiency programs and manpower productivity projects.
Competitive Strengths
Leading Market Position--We have a 30% market share in salt and are among
the three largest salt producers, who together represent over 80% of total
market capacity, in North America. In the U.K., we are the largest highway
deicing salt producer with an estimated 55% market share, and, along with the
next two largest producers, represent over 95% of total production capacity. In
the North American SOP market, we are the leading producer, with an estimated
56% market share in 2000. The top two North American SOP producers together
have approximately 75% of the North American market. Our leadership position in
our key markets has led to stable financial performance and consistently strong
Adjusted EBITDA margins.
Low Cost Producer--We believe that our Goderich, Ontario, Cote Blanche,
Louisiana and Winsford, Cheshire facilities are the lowest cost high volume
rock salt mines in our served markets. This cost advantage is a result of the
size and quality of our reserves, effective mining techniques, low
transportation cost due to proximity to either rail or water transport systems
and efficient production processes. Through our solar evaporation facility in
Ogden, Utah, we believe that we are the low cost solar salt producer in our
North American markets and among the lowest cost producers of SOP in the world.
Over the last 3 years, we have implemented cost-cutting measures including head
count reductions and pursued significant capital investments to improve mining
technology and production efficiencies, as well as to expand and rationalize
production.
53
Stable Financial Performance--Both the North American highway deicing salt
and the general trade salt business lines enjoy predictable and consistent
annual demand patterns and cash flow as a result of the following:
. Based on the non-discretionary need for salt products and their low cost
nature, our business is less susceptible to economic cycles. For example, even
in the recessionary period between 1990 and 1992, general trade salt production
in the U.S. continued to grow at an annual compound rate of 3% and sales of
highway deicing salt remained consistent with weather patterns during that
period.
. The overriding concern for public safety insulates the demand for salt
used for highway maintenance from economic cycles. Also, in our highway deicing
business line, pricing is set and volume is reserved up to a year in advance
under annual contracts.
. While winter weather conditions in individual locations are difficult to
predict, the overall amount of snowfall and general intensity of winter weather
conditions in our major target markets in the U.S. Upper Midwest and the U.S.
and Canadian Great Lakes region are relatively stable. As a result, over the
last 15 years, we have, on average, sold over 100% of our committed volume.
. In the general trade salt business line, sales are generally secured
through long term customer relationships.
. Our manufacturing costs for all our business lines are relatively stable
and have decreased at an annual compound rate of over 1% per ton over the last
5 years. Our manufacturing processes do not materially depend on the
consumption of raw materials susceptible to market price fluctuations.
Strong Free Cash Flow--We believe our strong free cash flow is a result of
the following business characteristics:
. High margins. Our LTM Adjusted Pro Forma EBITDA margin was approximately
30%. We believe that this is the result of low and stable production costs, our
strong market position and the many end use markets in which we operate.
. Low maintenance capital expenditures. Our low maintenance capital
expenditure requirements of less than $20 million per annum, coupled with the
non-cyclical nature of our business, provide us with a stable stream of cash
flow to use in our operations, to reduce debt and to reinvest in our business.
. Completed capacity expansions. Over the past three years, on average we
have spent over $17 million per year in growth capital expenditures for
capacity expansions and productivity enhancements. We believe that our capacity
is sufficient to meet our current growth initiatives without significant
additional spending and that future growth capital will be spent only upon the
expectation of significant returns.
Diversified Customer Base and End-Use Markets--Salt is used in numerous
different products and in a wide variety of consumer and industrial
applications. Due to its unique characteristics and low cost, consumers cannot
cost-effectively substitute any other product for salt, resulting in relatively
stable consumption and growth over the long term as the general population
grows. Salt is the best product available for deicing applications in terms of
cost and efficiency. For example, the next most cost-efficient product to
highway deicing salt, calcium chloride, costs approximately five times more to
purchase. Similarly, there is no cost effective substitute to salt in the water
conditioning and food processing markets. Our presence in different segments of
the general trade market effectively diversifies our exposure to events
affecting any single end market. No single customer accounted for more than 3%
of our 2000 sales while our top ten customers accounted for approximately 16%
of 2000 sales.
Significant Barriers to Entry--Each of the primary North American and U.K.
market participants has a large base of installed assets that would be
extremely expensive and time-consuming for new competitors to replicate. In
addition, our mineral rights are strategically located and we believe it is
unlikely that a new market entrant would be able to locate a mineral reserve in
close proximity to both low cost transportation systems and end-use markets.
Due to the low production cost, transportation and handling tends to be a
significant component
54
of the total delivered cost of salt, making logistics a key competitive factor
in the industry. The higher relative cost associated with transportation acts
as a barrier to entry in favor of salt manufacturers located within close
proximity to their customers. We maintain 87 depots in North America for
storage and distribution of highway
deicing salt, and we consider our salt distribution network to be the most
extensive in our served markets. Our over 35 years of market experience in the
highway deicing salt business, proven customer service, product quality and
modeling techniques enable us to bid selectively on highway deicing salt
contracts which have the most attractive terms. Our long term relationships
with major retailers coupled with the higher standard of care required in
handling food grade salt create a significant deterrent for potential new
entrants in the general trade market. In addition, our customers, specifically
government agencies in charge of maintaining public safety over their road
network, have stringent qualification standards and a strong preference for
dealing with existing salt manufacturers which can handle bulk capacity and
have track records for on time delivery. With respect to SOP, high quality
potassium sulfate reserves are scarce, and we believe that in North America no
comparable commercially viable sources are known other than those currently
being extracted.
Business Strategy
Increase revenues--One of our key objectives is to be the market leader with
respect to profitable sales growth. We believe that we can achieve this goal
through the following:
. Leveraging our leading market position. In the highway deicing business
line, we are leveraging our leading market position, distribution
infrastructure and low-cost production capability. We intend to strengthen our
leadership position by focusing on the customers strategically located within
our distribution network. We believe that this will allow us to efficiently
grow our business in line with market volume and price growth, which in the
U.S. have over time increased at 1% and 4% per annum, respectively. We believe
we can further increase sales to out existing and new customers by offering
liquid deicing products and other value-added deicing products that improve the
application of the product to roads and permit the conditioning of roads prior
to the impact of snow and ice. In the general trade salt business line, in
addition to participating in the underlying market growth, we plan to improve
our market share by focusing on specialty and high value-added niche products,
particularly in food grade and water conditioning applications. For example, we
are in the process of developing new products such as flake salt which is
preferred for use in the growing salty snack food market. In our water
conditioning business, we intend to expand by focusing on growing regional
brands and private label retail water conditioning sales.
. Increase service offerings. We plan on growing our service offerings,
including managing customer inventory and replenishment systems such as the
deicing management services provided for some U.K. deicing customers. We
currently have several such contracts in place and anticipate entering into
various other such contracts in the future. Also, we continue to develop
alternative mine uses such as waste and document storage. For this purpose, we
have already entered into a joint venture with a subsidiary of Vivendi SA to
use the excavated space in our mine in the U.K. as a document storage site and
are awaiting final permitting to also store inert waste. In addition, we are
working with various third parties to develop several of our North American
salt mines as storage sites for natural gas and waste. We expect to receive
ongoing revenue streams from these alternative uses.
. Increase focus on market development in SOP business line. For the seven
years prior to IMC Global|s ownership of the Company, the sales volume of the
SOP business line grew in excess of 25% per annum. However, as a non-core
product of IMC Global, we believe that SOP did not receive sufficient focus to
realize its full growth potential. We intend to increase the focus on this
business line and are in the process of recruiting a new sales manager and a
dedicated global sales force. We will target specific crops where the benefits
of using SOP versus other potassium sources have been scientifically proven,
such as wine grapes, tea, nuts and turf grass. We also plan to differentiate
ourselves from our competitors through unique value added products designed for
specific crop applications. For example, we have targeted the fast-growing
liquid and suspension fertilizer markets that are currently served primarily by
non-SOP potassium sources.
55
. Supplement growth through tuck-in acquisitions. To supplement internal
growth, we may pursue opportunistic acquisitions of small complementary
businesses in both North America and Europe. There are several smaller
producers of highway deicing salt which could be attractive to further expand
the scope of our operations. There are also several independent salt producers
in various niches of the general trade business market which could broaden both
our geographic coverage and product diversity.
Improve profitability--As an independent entity, we will seek to identify
opportunities to reduce costs which may not have been realized under the
umbrella of a large conglomerate. We intend to continue to focus on
productivity enhancements and on improving our cost platform through the
following:
. Plant consolidation and capacity expansion. Over the last 4 years, we
have successfully implemented manufacturing programs including consolidation of
facilities and over 300,000 tons of capacity expansion while divesting obsolete
operations.
. Increasing productivity. We have increased manpower productivity by over
8% per annum in our general trade salt business line over the last 4 years
through increased automation and capacity increases. We are currently
installing a continuous miner and shaft automation system which will
significantly decrease manufacturing cost and increase manpower productivity at
our Winsford facility.
. Optimizing performance. We monitor the performance of each product line
on a regular basis to aid in meeting target revenue and margin goals. By
maintaining, but not materially growing our share of the highway deicing
market, we believe that we have an opportunity to grow our margin and overall
profitability in this business line by focusing on our ability to increase our
average price levels by improving our customer mix.
Maximize cash flow--As an independent operating entity, we intend to manage
our working capital efficiently and generate cash flow from enhanced management
focus. Our annual maintenance capital expenditures have been approximately $20
to $25 million since IMC Global acquired us in 1998, although for the five
years under prior ownership, our annual maintenance capital expenditures were
on average approximately $17 million. In the future, we expect to spend less
than $20 million annually on maintenance capital expenditures. In addition to
maintenance capital expenditures, over the past three years, on average we have
spent in excess of $17 million per year in growth capital expenditures for
capacity expansions and productivity enhancements. We believe that our capacity
is sufficient to meet our current growth initiatives without significant
additional spending and that future growth capital will be spent only upon the
expectation of significant returns. Also, in connection with the
Recapitalization, we are receiving in excess of $114 million of net operating
loss carryforwards, and expect to realize significant cash tax savings as these
carryforwards are utilized. We intend to use our free cash flow to reduce
leverage by reducing indebtedness or by reinvesting in our business.
SALT SEGMENT
Our salt segment mines, produces, processes and distributes salt in North
America and Europe including rock, evaporated and solar salt. The products are
marketed primarily in the U.S., Canada and the U.K. Salt is used in a wide
variety of applications, including as a deicer for both highway and consumer
use (rock salt), an ingredient in the production of chemicals for paper
bleaching and plastic production, a flavor enhancer and preservative in food,
an ingredient and nutrient in animal feeds and an essential component in both
industrial and consumer water softeners. The demand for salt has historically
remained relatively stable during economic cycles due to its relative low cost
and high value in a diverse number of end uses. However, demand in the highway
deicing market is affected by changes in winter weather. Approximately 50% of
our highway deicing annual revenues are generated from December through March
when the need for highway deicing salt is at its peak.
Salt Industry Overview
The salt industry is characterized by stable demand which is resistant to
economic downturns and steady price increases across various grades. Salt is
one of the most common and widely consumed minerals in the
56
world due to its low relative cost and its utility in a variety of applications
including food processing, water conditioning, industrial chemical processing,
nutritional supplements for animal stock and highway deicing. The salt industry
has historically been characterized by stable demand which is resistant to
economic downturns. We estimate that the consumption of highway deicing salt
for North America is 23 million tons per annum (17 million tons per annum in
our served markets) while the general trade market totals 11 million tons per
annum. In the U.K., we estimate the size of the highway deicing market is 1.9
million tons per annum while the general trade market is approximately 1.0
million tons per annum. Production of salt used in highway deicing in the U.S.
increased at an approximate 1% compound annual growth rate over the last 30
years (1970-2000) while production of general trade salt products increased at
an approximate 2% compound annual growth rate over the same period.
Salt prices vary according to purity from the lowest grade (highway deicing
salt) at around $18 per ton to the highest grade salt (food grade salt) at more
than $400 per ton. The price difference between highway and food grade salt
reflects, among other things, the more elaborate refining and packaging
processes for higher grade salt. Due to its low production cost, transportation
and handling tends to be a significant component of total delivered cost making
logistics management and customer service key competitive factors in the
industry. The higher relative cost associated with transportation also acts as
a barrier to entry in favor of salt manufacturers located within close
proximity to their customers. Prices for salt used in highway deicing in the
U.S. increased at an approximate 4% compound annual growth rate over the last
30 years (1970-2000) while prices for general trade salt products increased at
an approximate 5% compound annual growth rate over the same period.
For the full year 2000, we attained the highest market share in the North
American highway deicing market at 31%, with the second and third largest
players accounting for 30% and 19% shares, respectively, based on production
capacity. We achieved the third highest market share in the North American
general trade market at 17%, with U.S. production growing by 2% per annum since
1990. In the U.K., we represent an estimated 55% of the highway deicing market
and an estimated 39% of the general trade market.
Processing Methods
We have production capacity, including salt purchased under long-term
contracts, of approximately 15 million tons of salt per annum. Mining, other
production activities and packaging are currently conducted at twelve of our
facilities and at two facilities where finished product is purchased from IMC
Global under long-term contracts.
Summarized below are the three processing methods we use to produce salt.
Rock Salt Mining. We employ a drill and blast mining technique at our
underground rock salt mines. Mining machinery moves salt from the salt face to
conveyor belts where it is then crushed and screened. Salt is then hoisted to
the surface where it is loaded onto shipping vessels, railcars or trucks. The
primary power source for each of our rock salt mines is electricity. At our
Winsford facility this system will be replaced by a continuous miner. Rock salt
is used in our highway and consumer deicing products.
Mechanical Evaporation. The mechanical evaporation method involves
subjecting salt-saturated brine to vacuum pressure and heat, generated by
natural gas, to precipitate salt. The salt brine is obtained from underground
salt deposits through a series of wells. The resulting product has both a high
purity and uniform physical shape. Evaporated salt is used in our general trade
salt business line.
Solar Evaporation. The solar evaporation method is used in areas of the
world where high salinity brine is available and where weather conditions
provide for a high natural evaporation rate. The brine is pumped into a series
of large open ponds where sun and wind evaporate the water and crystallize the
salt, which is then mechanically harvested and processed through washing,
drying and screening. Solar salt is used in our general trade salt business
line.
57
Operations and Facilities
United States. Our central and midwestern U.S. general trade customer base
is served by mechanical evaporation plants in Kansas and Tennessee.
Additionally, we serve areas around the Great Lakes with evaporated salt
purchased from IMC Global's potash and salt facility in Michigan. The Cote
Blanche, Louisiana rock salt mine serves chemical customers in the southern and
western U.S., highway deicing customers through a series of depots located
along the Mississippi and Ohio Rivers, and agriculture customers in the
southern and midwestern U.S. Construction of a third shaft and new underground
mill is complete at the Cote Blanche, Louisiana mine. In addition to increased
air ventilation, the new shaft reaches a new level of the salt dome formation
and further extends the economic life of the mine's proven reserves. Our solar
evaporation facility located in Ogden, Utah is the largest solar salt
production site in the U.S. This facility principally serves the western U.S.
general trade markets, and also provides salt for chemical applications, and
highway deicing and magnesium chloride which is primarily used in deicing and
de-dusting applications. Production capacity of salt at our Ogden facility is
currently only limited by demand. We also own and operate two salt packaging
facilities in Illinois and Wisconsin which also serve consumer deicing and
water conditioning customers in the central, midwestern and parts of the
northeastern U.S.
Canada. Our salt is produced at five different locations in Canada.
Mechanically evaporated salt is produced at three facilities strategically
located throughout Canada: Amherst, Nova Scotia in eastern Canada; Goderich,
Ontario in central Canada; and Unity, Saskatchewan in western Canada. From the
Goderich, Ontario rock salt mine, we serve the consumer and highway deicing
markets in Canada and the Great Lakes region of the U.S. We also purchase salt
and other products from IMC Global's potash and salt facilities located in
Esterhazy and Belle Plaine, Saskatchewan, which serve both the general trade
and the highway deicing markets.
United Kingdom. Our U.K. customer base is served by two facilities. Highway
deicing customers throughout the U.K. are served by the Winsford rock salt mine
in northwest England. The Weston Point mechanical evaporation plant is located
twelve miles north of the mine and serves the general trade and chemical
customers in the U.K. as well as in continental Europe.
The table below shows the capacity and type of salt produced at each of our
owned or leased production locations:
ANNUAL
PRODUCTION
CAPACITY PRODUCT
LOCATION (tons) TYPE
-------- ---------- ----------
North America
Goderich, Ontario Mine......... 6,500,000 Rock
Cote Blanche, Louisiana Mine... 2,800,000 Rock
Ogden, Utah Plant.............. 1,500,000 Solar
Lyons, Kansas Plant............ 400,000 Evaporated
Unity, Saskatchewan Plant...... 190,000 Evaporated
Goderich, Ontario Plant........ 120,000 Evaporated
Amherst, Nova Scotia Plant..... 115,000 Evaporated
United Kingdom
Winsford, Cheshire Mine........ 2,000,000 Rock
Weston Point, Cheshire Plant... 850,000 Evaporated
In addition to production, we package salt product produced by us or others
off-site at three additional facilities. The table below shows the capacity and
type of salt packaged at each of these facilities:
ANNUAL
PACKAGING
CAPACITY PRODUCT
LOCATION (tons) TYPE
-------- --------- ----------
New Johnsonville, Tennessee...... 90,000 Evaporated
Kenosha, Wisconsin............... 100,000 Evaporated
Chicago, Illinois................ 100,000 Evaporated
58
We also purchase finished salt from IMC Global, which is produced as a
by-product of their potash operations, under two long term contracts. The table
below shows the amount and type of salt purchased from each of these production
facilities:
ANNUAL
PURCHASING
CAPACITY PRODUCT
LOCATION (tons) TYPE
-------- ---------- ----------
Esterhazy, Saskatchewan.......... 200,000 Rock
Hersey, Michigan................. 250,000 Evaporated
We divide our salt products into two separate product lines: highway deicing
salt (including chemical salt) and general trade salt.
Highway Deicing Salt Products
Products and Sales
Highway deicing constitutes our second largest salt business line based on
revenue, representing approximately 39% percent of our net sales after shipping
and handling costs in 2000. Principal customers are states, provinces,
counties, municipalities and road maintenance contractors that purchase bulk
salt for ice control on public roadways. Highway deicing salt is sold mostly
through an annual tendered bid contract system and longer-term contracts, with
price, product quality and delivery being the primary competitive market
factors. Annual supply contracts generally are awarded on the basis of tendered
bids once the purchaser is assured that the minimum requirements for purity,
service and delivery can be met. The bidding process eliminates the need to
invest significant time and effort in marketing and advertising. Location of
the source of salt and distribution outlets also play a significant role in
determining a supplier. We have an extensive network of 87 depots for storage
and distribution of highway deicing salt in North America. The majority of
these depots are located on the Great Lakes and the Mississippi and Ohio River
systems where our Goderich, Ontario and Cote Blanche, Louisiana mines are
located to serve those markets. Salt from our Ogden, Utah facility is also used
for highway deicing.
We produce highway deicing salt in the U.K. for the highway deicing business
line through our facility at Winsford, Cheshire, the largest rock salt mine in
the U.K. Due to our superior production capacity, productivity and favorable
logistics, we are the only supplier of highway deicing salt capable of meeting
peak winter demands. This strong position has resulted in us being viewed as a
strategic operation by the U.K.'s Highway Agency. In the U.K. approximately 65%
of our highway deicing business is on multi-year contracts.
Winter weather variability is the most significant factor affecting salt
sales for deicing applications because mild winters reduce the need for salt
used in ice and snow control. Over the last four years, our North American
highway deicing business line has generated over 70% of its annual sales from
December through March when the need for highway deicing is at its peak. Lower
than expected sales during this period could have a material adverse effect on
our results of operations. The vast majority of North American deicing sales
are made in Canada and the midwestern U.S. where winter weather is generally
harsher than in other parts of North America. In keeping with industry
practice, we, along with our customers, stockpile sufficient quantities of salt
to meet estimated requirements for the next winter season. See "Risk
Factors--The demand for our products changes seasonally and is dependent upon
weather conditions" and "Management Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality".
Chemical customers accounted for approximately 7% of our 2000 net sales
after shipping and handling costs. Principal customers are producers of
intermediate chemical products used in pulp bleaching and plastic production
that do not have a captive source of brine. Distribution into the chemical
market is made primarily through multi-year supply agreements, which are
negotiated privately. Price, service and product quality are the major
competitive market factors.
59
The table below shows our shipments of highway deicing and chemical salt
products (thousands of tons):
Year Ended December 31, Nine Months ended September 30,
----------------------------- -------------------------------
1998 1999 2000 2000 2001
--------- --------- --------- --------------- ---------------
Tons % Tons % Tons % Tons % Tons %
----- --- ----- --- ----- --- ----- --- ----- ---
U.S.............. 4,830 67 5,884 66 6,078 66 3,521 65 3,815 60
Canada........... 1,862 26 2,043 23 2,159 24 1,224 22 1,548 24
Europe and Others 471 7 938 11 909 10 703 13 1,015 16
----- --- ----- --- ----- --- ----- --- ----- ---
Total............ 7,163 100 8,865 100 9,146 100 5,448 100 6,378 100
===== === ===== === ===== === ===== === ===== ===
Competition
We face strong competition in each of the markets in which we operate. In
North America, other large, nationally recognized companies compete against our
highway deicing and chemical salt products. In addition, there are several
smaller regional producers of highway deicing salt. There are several importers
of salt into North America but these mostly impact the eastern seaboard where
we have a minimal position. In the U.K., there are two other companies that
produce highway deicing salt, one in northern England and the other in Northern
Ireland. There are no significant imports of highway deicing salt into the U.K.
General Trade Salt Products
Products and Sales
The general trade business is our largest salt business line based on
revenue, and accounted for approximately 48% of our 2000 net sales after
shipping and handling costs. We are the third largest producer of general trade
salt in North America. This business line includes consumer applications such
as table salt, water conditioning, consumer ice control, food processing,
agricultural applications, as well as a variety of industrial applications. We
believe that we are the largest private label producer of water conditioning
and salt-based agricultural products in North America and sell more than 70
private labels of table salt to major retailers. Our Sifto(R)/ brand is well
recognized in the Canadian market. /
In the U.K. we operate the largest evaporated salt plant in the U.K. at
Weston Point. We are one of the U.K. brand and market leaders in evaporated
salt for water conditioning. We also produce salt for the food, chemical,
animal feeds and textile markets. We will pursue further cost reduction and
investment in water conditioning products to drive future growth and
profitability.
We have maintained a significant presence in the general trade business over
recent years due to our strong focus on: (i) the midwestern region of the U.S.;
(ii) all of Canada and the U.K.; (iii) our distribution network to the grocery
trade; and (iv) our relationships with large distributors of water conditioning
salt.
The general trade market is driven by strong customer relationships. Sales
in the general trade salt business line occur through retail channels such as
grocery stores, building supply, hardware and automotive stores, and feed
suppliers. Distribution in the general trade salt business line is channeled
through a direct sales force located in various parts of our service
territories who sell products to distributors, dealers and end-users. We also
maintain a network of brokers who sell table salt, consumer deicing and water
conditioning products. These brokers service wholesalers, grocery chains and
retailers, as well as the food service industry.
60
The table below shows our shipments of general trade salt products
(thousands of tons):
Nine Months ended
Year Ended December 31, September 30
----------------------------- -------------------
1998 1999 2000 2000 2001
--------- --------- --------- --------- ---------
Tons % Tons % Tons % Tons % Tons %
----- --- ----- --- ----- --- ----- --- ----- ---
U.S.............. 1,260 54 1,495 57 1,537 57 1,044 55 1,220 61
Canada........... 446 19 461 17 481 18 325 17 363 18
Europe and Others 637 27 691 26 668 25 517 28 417 21
----- --- ----- --- ----- --- ----- --- ----- ---
Total............ 2,343 100 2,647 100 2,686 100 1,886 100 2,000 100
===== === ===== === ===== === ===== === ===== ===
Competition
In North America, other large, nationally recognized companies compete
against our salt business in production and marketing of general trade salt
products. In addition, there are several smaller regional producers of general
trade salt. There are several importers of salt into North America but they
mostly impact the east coast and west coast of the U.S. where we have a minimal
position. In the U.K., there is one other large domestic producer of general
trade salt, several small local producers and some imports from continental
Europe. We also export salt from the U.K. to Scandinavia and continental Europe
and compete with many other European producers in these markets.
SPECIALTY POTASH SEGMENT
SOP is primarily used as a specialty fertilizer, providing essential
potassium to high-value, chloride-sensitive crops such as vegetables, fruits,
tea, tobacco and turf grasses. We are the market leader in North America for
SOP and market SOP products both domestically and overseas. We offer several
grades of SOP which are designed to differentiate us from our competitors, as
well as better serve the needs of our customers.
Potash Industry Overview
The annual worldwide consumption of all potash fertilizers approaches 50
million tons. Muriate of potash ("MOP"), or potassium chloride, is the most
common source of potassium and accounts for over 90% of all potash consumed in
fertilizer production. SOP represents about 5% of potash consumption. The
remainder is supplied in the forms of potassium magnesium sulfate, potassium
nitrate ("NOP"), and, to a lesser extent, potassium thiosulfate and
monopotassium phosphate. All of these products contain varying concentrations
of potassium expressed as potassium oxide (K\\20) and different combinations of
co-nutrients. \\
MOP is the least expensive form of potash fertilizer based on the
concentration of K\\20. It is the preferred potassium source for most crops.
However, SOP (containing approximately 50% K20) is utilized by growers for many
high-value crops, especially where the requirements are for fertilizers with
low chloride content. The use of SOP has been scientifically proven to improve
the yield and quality of certain crops. \\
Examples of crops where SOP is utilized to increase yield and quality
include tobacco, tea, potatoes, citrus fruits, grapes, almonds, some vegetables
and on turfgrass for golf courses. Approximately 73% of our annual SOP sales in
2000 were made to domestic customers, which include retail fertilizer dealers
and distributors of professional turf care products. These dealers and
distributors combine or blend SOP with other fertilizers and minerals to
produce fertilizer blends tailored to individual requirements.
Operations and Facilities
All of our SOP production is located on the Great Salt Lake near Ogden,
Utah. It is the largest SOP production facility in North America. The solar
evaporation facility, located west of Ogden, utilizes solar energy
61
and over 40,000 acres of evaporation ponds to manufacture SOP and magnesium
chloride from the brines of the Great Salt Lake. This facility has the capacity
to annually produce approximately 450,000 tons of SOP, approximately 400,000
tons of magnesium chloride and over 1.5 million tons of salt. The potassium
bearing salts are mechanically harvested and refined to high purity SOP in an
integrated production facility.
Ogden was unable to produce SOP from 1984 through the beginning of 1989 due
to flooding. Following the flood, dikes were raised to a height three feet over
the historic peak flood level. Also, the State of Utah constructed and
implemented the West Desert Pumping Project which could be utilized to lower
the level of the Great Salt Lake by up to twelve inches per year thus reducing
the risk of flooding. Although we believe that the subsequent dike improvements
and the West Desert Pumping Project have reduced the likelihood of future pond
flooding, we maintain both property damage and business interruption insurance
policies for this risk.
Products and Sales
Our domestic sales of SOP are concentrated in the western states of
California, Oregon, Washington, Idaho and the central tobacco belt area where
the crops and soil conditions favor SOP. Prior to the acquisition by IMC Global
in 1998, our SOP was marketed and sold by a sales group consisting of trained
agronomists and professional fertilizer agents. These representatives directly
contacted dealers and growers in the U.S. Following the IMC Global acquisition,
this SOP sales group was dissolved and the IMC Global sales force handled SOP
sales. The IMC Global sales group was responsible for selling all potash and
phosphate fertilizer products for IMC Global. Because the bulk of these
fertilizers are sold as commodities, the focus on specialty products such as
SOP diminished under IMC Global. Upon the purchase of the SOP business from IMC
Global, we plan to organize and employ an experienced global sales group
similar to the one that was in place prior to 1998.
We generally export SOP through major trading companies. Export SOP sales
volumes in 2000 were 27% of our annual SOP sales.
The table below shows our shipments of SOP (thousands of tons):
Nine Months ended
Year Ended December 31, September 30,
-------------------------- -----------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
Tons % Tons % Tons % Tons % Tons %
---- --- ---- --- ---- --- ---- --- ---- ---
U.S.......................... 227 54 187 70 179 73 137 72 119 81
Export....................... 192 46 80 30 67 27 54 28 28 19
--- --- --- --- --- --- --- --- --- ---
Total........................ 419 100 267 100 246 100 191 100 147 100
=== === === === === === === === === ===
In addition, under a long term contract with IMC Global, we will have the
exclusive right in North America (with certain limited exceptions) to purchase
the SOP produced at IMC|s Carlsbad, New Mexico facility to meet a portion of
our North American SOP requirements. In addition to the customers previously
serviced by our Ogden facility, we will begin to sell SOP to certain customers
serviced by the Carlsbad facility upon completion of the Recapitalization.
Competition
Approximately 56% of the world SOP production is located in Europe, 14% in
the U.S. and the remaining 30% in various other countries. The world
consumption of SOP totals about 2.9 million tons. Our major competition for SOP
sales in North America include imports from Germany, Chile, and Canada. In
addition, there is also some functional competition between SOP, MOP and NOP.
For exports into Asia, the Pacific Rim countries and Latin America, we compete
with various local and European producers.
62
SOP sales are seasonal, as much of our specialty potash sales are made
between March and May for the spring fertilizer season. Due to the nature of
our business, there are no significant backlogs. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Seasonality".
INTELLECTUAL PROPERTY
We rely on a combination of patents, trademarks, copyright and trade secret
protection, employee and third-party non-disclosure agreements, license
arrangements and domain name registrations to protect our intellectual
property. We sell many of our products under a number of registered trademarks
which we believe are widely recognized in the industry. No single patent,
trademark or trade name is material to our business as a whole.
Any issued patents that cover our proprietary technology and any of our
other intellectual property rights may not provide us with substantial
protection or be commercially beneficial to us. The issuance of a patent is not
conclusive as to its validity or its enforceability. Competitors may also be
able to design around our patents. If we are unable to protect our patented
technologies, our competitors could commercialize our technologies.
With respect to proprietary know-how, we rely on trade secret protection and
confidentiality agreements. Monitoring the unauthorized use of our technology
is difficult, and the steps we have taken may not prevent unauthorized use of
our technology. The disclosure or misappropriation of our intellectual property
could harm our ability to protect our rights and our competitive position.
EMPLOYEES
As of September 30, 2001, we had 1,569 employees, of which 760 are employed
in the U.S., 603 in Canada and 206 in the U.K. Approximately 29% of our U.S.
workforce (51% of our global workforce) is represented by labor unions. Of our
eight material collective bargaining agreements, two will expire in 2002, and
four will expire in 2003. Additionally, approximately 13% of our workforce is
employed in Europe where trade union membership is common. We consider our
labor relations to be good.
PRINCIPAL PROPERTIES
The table below sets forth our principal properties.
Location Use Owned/Leased Expiration of Lease
- -------- --- ------------ -------------------
Ogden, Utah SOP and solar salt production
facility owned N/A
Lyons, Kansas evaporated salt production
facility owned N/A
Cote Blanche, Louisiana rock salt production facility leased 2060
Weston Point, Cheshire, U.K. evaporated salt production
facility owned N/A
Winsford, Cheshire, U.K. rock salt production facility owned N/A
Goderich, Ontario(1), Canada evaporated salt and rock salt production
facility owned N/A
Unity, Saskatchewan, Canada evaporated salt production
facility owned N/A
Amherst, Nova Scotia, Canada evaporated salt production
facility owned N/A
Overland Park, Kansas corporate headquarters leased 2002 (with a 3 year
extension option)
- --------
(1)We operate our Goderich facility pursuant to a lease with the Province of
Ontario with a term of 21 years, renewable for an additional 21 years
subject to certain conditions. We are also party to two leases issued by the
Town of Goderich, which expire 4/30/2092.
63
With respect to each facility at which we extract salt, brine or SOP, we
obtain any required or necessary permits prior to the commencement of mining.
We obtain permits or licenses as needed in the normal course of business based
on our mine plans and state and local regulatory provisions regarding mine
permitting and licensing. Based on our historical permitting experience, we
expect to be able to continue to obtain necessary mining permits to support
historical rates of production.
Our mining leases have varying terms. Some will expire after a set term of
years, while others continue indefinitely. Many of these leases provide for a
royalty payment to the lessor based on a specific amount per ton of mineral
extracted or as a percentage of revenue. In addition, we own a number of
properties and are party to certain non-mining leases that permit us to perform
activities that are ancillary to the mining of salt, such as surface use
leases, and storage, depot and warehouse leases. We also believe that all of
our leases were entered into on market terms.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We produce and distribute crop and animal nutrients, salt and deicing
products. These activities subject us to an evolving set of international,
federal, state, provincial and local environmental, health and safety ("EHS")
laws which regulate, or propose to regulate: (i) product content; (ii) use of
products by both us and our customers; (iii) conduct of mining and production
operations, including safety procedures followed by employees; (iv) management
and handling of raw materials; (v) air and water quality impacts from our
facilities; (vi) disposal of hazardous and solid wastes; (vii) remediation of
contamination at our facilities and third-party sites; and (viii) post-mining
land reclamation. For new regulatory programs, it is difficult to ascertain
future compliance obligations or estimate future costs until implementing
regulations have been finalized and definitive regulatory interpretations have
been adopted. We intend to respond to these regulatory requirements at the
appropriate time by implementing necessary modifications to facilities or
operating procedures.
We have expended, and anticipate that we will continue to expend,
substantial financial and managerial resources to comply with EHS standards. In
2002, estimated environmental capital expenditures will total approximately
$0.8 million, primarily related to highway deicing salt storage pads, brine
well plugging and abandonment and capital projects associated with remediation
of contamination at current or former operations. In 2002, we expect estimated
expenditures for land reclamation activities will be approximately $0.2
million. No assurance can be given that greater-than-anticipated EHS capital
expenditures or land reclamation expenditures will not be required in 2002 or
in the future.
We maintain accounting reserves for certain contingent environmental
liabilities and believe such reserves comport with generally accepted
accounting principles. We record reserves for environmental investigatory and
non-capital remediation costs when litigation has commenced or a claim or
assessment has been asserted or is imminent, the likelihood of an unfavorable
outcome is probable, and the financial impact of such outcome is reasonably
estimable. Based on current information, it is the opinion of management that
our contingent liability arising from EHS matters, taking into account
established reserves, will not have a material adverse effect on our business,
financial condition and results of operations.
Product Requirements and Impacts
International, federal, state and provincial standards: (i) require
registration of many of our products before such products can be sold; (ii)
impose labeling requirements on those products; and (iii) require producers to
manufacture the products to formulations set forth on the labels. Various
environmental, natural resource and public health agencies at all regulatory
levels continue to evaluate alleged health and environmental impacts that might
arise from the handling and use of products such as those we manufacture. The
U.S. Environmental Protection Agency (EPA), the State of California and The
Fertilizer Institute have each completed independent assessments of potential
risks posed by crop nutrient materials. These assessments concluded that, based
on the
64
available data, crop nutrient materials generally do not pose harm to human
health. It is unclear whether any further evaluations may result in additional
standards or regulatory requirements for the producing industries, including
us, or for our customers. At this stage, it is the opinion of management that
the potential impact of these standards on the market for our products or on
the expenditures that may be necessary to meet new requirements will not have a
material adverse effect on our business or financial condition.
In December 2001, the Canadian government released a Priority Substances
List Assessment Report for road salt. This report found that road salts are
entering the environment under conditions that may have a harmful effect or
constitute a danger to the environment. Based on this report, the Canadian
government has proposed designating road salt as a "toxic" substance pursuant
to the Canadian Environmental Protection Act. This proposal is now subject to
public comment, and if formalized it will require Environment Canada to develop
a "control instrument" through a multi-stakeholder process to minimize the
impact of road salt on the environment. Given the importance of road salt for
traffic safety and the lack of any practical substitute, we deem it unlikely
that the control instrument would result in a ban on use of road salt. As noted
in the December 2001 report, the use of road salt and other deicing agents "is
an important component of strategies to keep roadways open and safe during the
winter and minimize traffic crashes, injuries and mortality under icy and snowy
conditions." The report further stated that mitigation measures "must be based
on optimization of winter road maintenance practices so as not to jeopardize
road safety, while minimizing the potential for harm to the environment."
Although we cannot predict whether the proposal will be finalized or the
precise form of future regulation, if any, the likely outcome is that
standardized guidelines will be developed for the usage of road salt. As a
result of the adoption of such a control instrument we could suffer reduced
sales and incur substantial costs and expenses that could have a material
adverse effect on our business, financial condition and results of operation.
We believe that no similar proposals for such designation of road salt are
being considered in either the U.S. or the United Kingdom.
Operating Requirements and Impacts
Permitting
We hold numerous environmental, mining and other permits or approvals
authorizing operations at each of our facilities. Our operations are subject to
permits for extraction of salt and brine, discharges of process materials to
air and surface water, and injection of brine and wastewater to subsurface
wells. A decision by a government agency to deny or delay issuing a new or
renewed permit or approval, or to revoke or substantially modify an existing
permit or approval, could have a material adverse effect on our ability to
continue operations at the affected facility. In addition, changes to
environmental and mining regulations or permit requirements could have a
material adverse effect on our ability to continue operations at the affected
facility. Expansion of our operations also is predicated upon securing the
necessary environmental or other permits or approvals.
Pursuant to the Mine Safety and Health Act ("MSHA"), new regulatory
standards for diesel particulate matter ("DPM") are expected to be phased in
between 2002 and 2006. These standards could require material expenditures to
achieve compliance at the Cote Blanche facility in Louisiana.
Remedial Activities
Remediation at Our Facilities
Many of our formerly-owned and current facilities have been in operation for
a number of years. Operations have involved the historical use and handling of
regulated chemical substances, salt and by-product or process tailings by us
and predecessor operators which have resulted in soil, surface water and
groundwater contamination. At some locations there are areas where
salt-processing waste and ordinary trash may have been disposed or buried, and
have since been closed and covered with soil and other materials. These past
operating practices have at certain locations resulted in soil, surface water
and groundwater contamination.
65
At many of these facilities, spills or other releases of regulated
substances have occurred previously and potentially could occur in the future,
possibly requiring us to undertake or fund cleanup efforts under CERCLA or
state and provincial or United Kingdom laws governing cleanup of hazardous
substances. In some instances, we have agreed, pursuant to consent orders or
agreements with the appropriate governmental agencies, to undertake certain
investigations, which currently are in progress, to determine whether remedial
action may be required to address such contamination. At other locations, we
have entered into consent orders or agreements with appropriate governmental
agencies to perform required remedial activities that will address identified
site conditions. At still other locations, we have undertaken voluntary
remediation, and removed formerly used underground storage tanks. Taking into
account established reserves, expenditures for these known conditions currently
are not expected, individually or in the aggregate, to be material. However,
material expenditures could be required in the future to remediate the
contamination at these or at other current or former sites. In addition, in
connection with the Recapitalization, IMC Global has agreed to indemnify us
against liabilities for certain known and unknown conditions at existing and
former sites.
Remediation at Third-Party Facilities
Along with impacting the sites at which we have operated, various
third-parties have alleged that our historic operations have resulted in
contamination to neighboring off-site areas or nearby third-party facilities.
CERCLA imposes liability, without regard to fault or to the legality of a
party's conduct, on certain categories of persons who are considered to have
contributed to the release of "hazardous substances" into the environment.
Under CERCLA, or its various state analogues, one party may, under certain
circumstances, be required to bear more than its proportional share of cleanup
costs at a site where it has liability if payments cannot be obtained from
other responsible parties.
We have entered into "de minimis" settlement agreements with the United
States with respect to certain CERCLA sites, pursuant to which we have made a
one-time cash payment and received statutory protection from future claims
arising from those sites. In some cases, however, such settlements have
included "reopeners," which could result in additional liability at such sites
in the event of newly discovered contamination or other circumstances.
At other sites for which we have received notice of potential CERCLA
liability we have provided information to the U.S. Environmental Protection
Agency ("EPA") that we believe demonstrates that we are not liable, and the EPA
has not asserted claims against us with respect to such sites. In some
instances, we have agreed, pursuant to orders from or agreements with
appropriate governmental agencies or agreements with private parties, to
undertake or fund investigations, some of which currently are in progress, to
determine whether remedial action, under CERCLA or otherwise, may be required
to address contamination. At other locations, we have entered into consent
orders or agreements with appropriate governmental agencies to perform required
remedial activities that will address identified site conditions. At the
present time, we are not aware of any additional sites for which we expect to
receive a notice from EPA of potential CERCLA liability. However, based on past
operations there is a potential that we may receive such notices in the future
for sites of which we are currently unaware. Taking into account established
reserves, expenditures for our known environmental liabilities and site
conditions currently are not expected, individually or in the aggregate, to be
material.
LEGAL MATTERS
Other than as described in "--Environmental, Health and Safety Matters," we
are party from time to time to various routine legal proceedings. These
primarily involve commercial claims, product liability claims, personal injury
claims and workers' compensation claims. We cannot predict the outcome of these
lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe
that the outcome of these proceedings, even if determined adversely, would not
have a material adverse effect on our business, financial condition and results
of operations. In addition, in connection with the Recapitalization, IMC Global
has agreed to indemnify us against certain legal matters.
66
In August 2001, Madison Dearborn Partners, LLC filed a lawsuit against IMC
Global in the Cook County Circuit Court in Illinois alleging that IMC Global
has breached an alleged obligation pursuant to an exclusive negotiation
agreement dated February 13, 2001 between Madison Dearborn and IMC Global to
negotiate in good faith to sell its salt operations and related businesses to
Madison Dearborn. In September 2001, Madison Dearborn amended its complaint to
include us as a party to the litigation. The lawsuit arises out of the
exclusive negotiation agreement. Neither we nor any of our subsidiaries were
party to that agreement and we have subsequently been dismissed as defendants
in the lawsuit. Madison Dearborn is seeking to have IMC Global sell its salt
operations and related businesses to it, and in the alternative, damages. IMC
Global has informed us that they believe that they have meritorious defenses
and intend to vigorously defend the lawsuit. Under the Agreement and Plan of
Merger, dated October 13, 2001, IMC Global has agreed to indemnify us against
all liabilities arising out of this lawsuit. We do not believe that this action
will have a material adverse effect on our business, financial position,
results of operations or cash flows.
67
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age as of the date of this offering
and position, effective upon consummation of the Recapitalization, of each
person who is an executive officer or director of the Company.
Name Age Position
---- --- ---------------------------------------------------
Robert F. Clark........ 59 President, Chief Executive Officer and Director
Steven Wolf............ 56 Vice President and General Manager, Highway Deicing
Keith E. Clark......... 46 Vice President and General Manager, General Trade
Robert A. Beck......... 42 Vice President and General Manager, SOP
Rodney L. Underdown.... 35 Vice President, Finance and Secretary
David J. Goadby........ 47 Managing Director, Salt Union
Carol Wood............. 42 Treasurer and Assistant Secretary
Daniel J. Long......... 44 Vice President
Gregory W. Shelton..... 49 Assistant Secretary
Peter P. Copses........ 43 Director
Robert H. Falk......... 63 Director
Joshua J. Harris....... 36 Director
Scott M. Kleinman...... 28 Director
Joel A. Asen........... 50 Director
Heinn F. Tomfohrde, III 67 Director
Robert F. Clark served as Senior Vice President of IMC Global since April
1999 and President of IMC Salt, Inc. (IMC Salt|) since joining IMC Global in
April 1998 as a result of the acquisition of Harris Chemical Group, Inc. From
1993 to 1998, Mr. Clark served as President of Great Salt Lake Minerals, a
division of Harris Chemical Group.
Steven Wolf served as the Vice President and General Manager, Highway
Deicing of IMC Salt since 1994, when IMC Inorganic Chemicals Inc. was still
under the management of Harris Chemical Group. Mr. Wolf joined Harris Chemical
Group in 1991, assuming various management responsibilities. Prior to his
career at Harris Chemical Group, Mr. Wolf was a Senior Vice President at Kerr
McGee for 3 years.
Keith E. Clark served as the Vice President and General Manager of IMC
Salt|s General Trade segment since 1997 when IMC Inorganic Chemicals Inc. was
still under the management of Harris Chemical Group. Prior to his career at
Harris, Mr. Clark served as a Vice President, Operations for North American
Salt for 2 years. From 1988 until 1995, Mr. Clark assumed various operations
positions at General Chemical, where his last position was Plant Manager.
Robert A. Beck has recently joined the Company to serve as the Vice
President and General Manager for our SOP subsidiary, GSL Corporation. Mr. Beck
was Vice President for Operations at CompuNet Engineering, a network solutions
provider. Prior to this, from 1997 to 1998, he was Vice President of Sales and
Marketing and, from 1993 to 1997, Director of International Sales for IMC
Kalium Ogden Corp.
Rodney L. Underdown served as the Vice President, Finance of IMC Salt since
1998. Mr. Underdown joined the Harris Chemical Group in 1997, where he served
as the Director of Corporate Reporting. Prior to his career at Harris Chemical
Group, Mr. Underdown was employed with Arthur Andersen, where he served as an
Audit Manager for 9 years.
David J. Goadby served as the Managing Director of Salt Union Ltd., our U.K.
subsidiary, since 1994, when IMC Inorganic Chemicals Inc. was still under the
management of Harris Chemical Group. Prior to that position, Mr. Goadby served
as the Commercial Manager of Salt Union Ltd. for 2 years. From 1984 until 1992,
Mr. Goadby was employed with Imperial Chemical Industries plc in various
production and distribution positions, where his last position was Business
Manager Sulphur Chemicals.
Carol Wood joined North American Salt Company in 1996, as Director of
Financial Planning and Analysis. Prior to her career at North American Salt,
Ms. Wood was an accounting manager with GST Steel Co. for seven years.
68
Daniel J. Long served as Vice President of Human Resources for IMC Salt
since 1999. Mr. Long joined IMC Global in 1997 as the Director of Human
Resources for the Kalium division. Prior to his career with IMC Global, Mr.
Long held various management positions with ConAgra, AE Staley, Frito-Lay and
General Motors Hughes Electronics.
Gregory W. Shelton served as Director of Purchasing for IMC Salt since 1999.
Mr. Shelton joined Harris Chemical Group in 1993 as Purchasing Director for
Sifto Canada Inc. Prior to this, from 1987 to 1993, Mr. Shelton was Purchasing
Manager for Nabisco Brands Ltd.
Peter P. Copses is a Senior Partner in Apollo where he has worked since
1990. From 1986 to 1990, Mr. Copses was initially an investment banker at
Drexel Burnham Lambert Incorporated, and subsequently at Donaldson, Lufkin &
Jenrette Securities Corporation, concentrating on the structuring, financing
and negotiation of mergers and acquisitions. Mr. Copses is also a Director of
Rent-A-Center, Inc., Prandium, Inc., Zale Corporation and Resolution
Performance Products, Inc.
Robert H. Falk is a Senior Partner in Apollo and has served as an officer of
certain affiliates of Apollo since 1992. Prior to 1992, Mr. Falk was a Partner
in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Falk is a
Director of Converse, Inc., the Florsheim Group, Inc. and Samsonite Corporation.
Joshua J. Harris is a Senior Partner in Apollo and has served as an officer
of certain affiliates of Apollo since 1990. Prior to that time, Mr. Harris was
a member of the Mergers and Acquisitions Department of Drexel Burnham Lambert
Incorporated. Mr. Harris is also a Director of Breuners Home Furnishings
Corporation, Clark Retail Enterprises, Inc., Florsheim Group Inc., NRT,
Incorporated, Pacer International, Inc., Quality Distribution Inc. and
Resolution Performance Products, Inc.
Scott M. Kleinman is a Principal of Apollo, where he has worked since
February 1996. Prior to that time, Mr. Kleinman was employed by Smith Barney
Inc. in its Investment Banking division. Mr. Kleinman is also a Director of
Encompass Services Corporation and Resolution Performance Products, Inc.
Joel A. Asen has been the President of Asen Advisory since 1992, which
provides strategic and financial advisory services. He was Managing Director at
Whitehead Sterling from 1991 to 1992, at Paine Webber, Inc. from 1990 to 1991
and at Drexel Burnham Lambert Incorporated from 1988 to 1990. From 1985 to 1988
he was a Senior Vice President at GAF Corporation. Prior to that time, Mr. Asen
was a Manager of Business Development at GE and Manager of Marketing and
Business Development at GECC. Mr. Asen is also a Director of Resolution
Performance Products, Inc.
Heinn F. Tomfohrde, III has served the chemicals industry in a variety of
leadership positions for 44 years. Mr. Tomfohrde served as President and Chief
Operating Officer of International Specialty Products, Inc. and its predecessor
company, GAF Chemicals Corp. from 1987 to 1993. Prior to that time, Mr.
Tomfohrde spent 31 years with Union Carbide Corp., rising from positions in
research and development and marketing to senior management, serving as
President of Union Carbides| Consumer and Industrial Products Group from 1983
to 1986. Mr. Tomfohrde is also a Director of Resolution Performance Products,
Inc.
Board Committees
Our Board of Directors will have an Executive Committee, Audit Committee and
Compensation Committee. The Executive Committee may exercise any of the Board|s
authority between meetings of the Board. The Audit Committee will recommend the
engagement of the independent public accountants; review the professional
services provided by, and the fees charged by, the independent public
accountants; review the scope of the audit; and review financial statements and
matters pertaining to the audit. The Compensation Committee will be responsible
for assuring that the executive officers and other key management are
effectively compensated and that compensation is internally equitable and
externally competitive.
Board Compensation
Following consummation of the Recapitalization, the members of our Board of
Directors were reimbursed for their out-of-pocket expenses. Those directors who
are not employees will receive compensation for their service on the Board.
69
Executive Compensation
The following table sets forth information concerning our compensation for
services in all capacities for the year ended December 31, 2001 paid to our
President and our four other most highly compensated executive officers serving
as executive officers on December 31, 2001.
Summary Compensation Table
Annual Compensation
for the year 2001 Long-Term Compensation
--------------------- ---------------------------------
Awards Payouts
--------------------- -----------
Long Term
Securities Underlying Incentive All Other
Name and Principal Position Salary($) Bonus($)(1) Options/SARs (#) (2) Payouts ($) Compensation ($)
--------------------------- --------- ----------- --------------------- ----------- ----------------
Robert F. Clark
President and
Chief Executive Officer.............. 281,250 135,000 17,154 -- 94,499(4)
Steven Wolf
Vice President and
General Manager, Highway Deicing..... 247,108 91,998 30,876 -- 50,348(4)
Keith E. Clark
Vice President and
General Manager
General Trade........................ 193,804 75,323 29,821 -- 34,405(4)
David J. Goadby (3)
Managing Director,
Salt Union........................... 150,932 27,860 19,632 -- 45,801
Rodney L. Underdown
Vice President, Finance and Secretary 128,105 31,832 13,724 -- 13,864(5)
- --------
(1)Bonuses were paid pursuant to IMC Global's Management Incentive Compensation
Program. Under such program bonus amounts were calculated on an annual basis
according to business and individual performance.
(2)Represents the number of shares of Salt Holdings common stock underlying
options.
(3)Mr. Goadby's compensation is paid in British pounds sterling, which has been
converted to U.S. dollars at a rate of (Pounds)0.7072 per $1.00.
(4)Consists primarily of employer contributions to tax-qualified and
non-tax-qualified defined contribution retirement plans of IMC Global.
(5)Consists primarily of employer contributions to a tax-qualified defined
contribution retirement plan of IMC Global.
The following table shows all grants of options to acquire shares of Salt
Holdings common stock made to our named executive officers during 2001.
Option Grants in 2001
Potential Realizable Value
at Assumed Annual Rates
Number of % of Total of Stock Appreciation for
Securities Options Option Term(3)
- Underlying Granted to --------------------------
the Options Employees in Exercise Price
Name Granted (1) Fiscal Year Per Share (2) Expiration Date 5% 10%
---- ----------- ------------ -------------- ----------------- -------- --------
Robert F. Clark.............. 17,154 7.79% $10.00 December 28, 2009 $ 82,959 $199,235
Steven Wolf.................. 30,876 14.02% $10.00 December 28, 2009 $149,320 $358,610
Keith E. Clark............... 29,821 13.54% $10.00 December 28, 2009 $144,218 $346,357
David J. Goadby.............. 19,632 8.92% $10.00 December 28, 2009 $ 94,943 $228,016
Rodney L. Underdown.......... 13,724 6.23% $10.00 December 28, 2009 $ 66,371 $159,398
- --------
(1)Each option was granted on November 28, 2001 pursuant to the Salt Holdings
2001 Stock Option Plan. See "2001 Option Plan." The options generally
provide for the purchase of shares of Class B Common Stock of Salt Holdings,
although upon the occurrence of certain transactions the options convert
into options to purchase shares of Class A Common Stock of Salt Holdings.
Each option is a non- qualified stock option and is not intended to be an
"incentive stock option." None of the options was vested or exercisable as
of December 31, 2001 and none of the named executive officers exercised any
option during 2001. The options described in the above table were the only
options to purchase Salt Holdings common stock held by the respective named
executive offices as of December 31, 2001.
70
(2)Exercise price is equal to the Recapitalization consideration per share of
common stock.
(3)Potential realizable values are net of exercise price, but before deduction
of taxes associated with exercise. A zero percent gain in stock price will
result in zero dollars for the optionee. The dollar amounts indicated in
these columns are the result of calculations assuming growth rates required
by the SEC, These growth rates are not intended to forecast future
appreciation, if any, in the price of Salt Holdings common stock.
2001 Option Plan
Our employees, consultants and directors (and employees, consultants and
directors of our subsidiaries) are eligible to receive options under the Salt
Holdings Corporation 2001 Stock Option Plan. The option plan is administered by
the board of directors of Salt Holdings (or, if determined by the board, by the
compensation committee of the board). The option plan permits the grant of
options to purchase shares of Salt Holdings common stock. Such options may be
non-qualified stock options or incentive stock options. The maximum number of
shares of common stock that are issuable under the option plan is 419,750
(subject to adjustment for changes in the capital structure of Salt Holdings
such as stock dividends, stock splits, mergers and reorganizations).
Following the consummation of the Recapitalization, we granted non-qualified
options to purchase common stock to certain management employees, including the
executives named in the management table. The per share exercise price of each
such option is $10, which is equal to the Recapitalization consideration per
share of common stock. The options shall generally become vested and
exercisable as follows:
. One-half of the options are time vesting options that will become vested
and exercisable in equal annual installments on each of the first four
anniversaries of the date of grant, so long as the optionee continues to
provide services to us or one of our subsidiaries as of such anniversary.
. One-half of the options are performance vesting options that will become
vested and exercisable on the eighth anniversary of the date of grant, so
long as the optionee continues to provide services to us or one of our
subsidiaries as of such date. However, all or a portion of such
performance vesting options will become vested and exercisable prior to
such eighth anniversary upon a sale of the assets or capital stock of Salt
Holdings pursuant to which Apollo achieves a specified internal rate of
return.
The term of the options is eight years and thirty days. However, all
unvested options will automatically expire upon the date of an optionee's
termination of employment (or termination of directorship or consultancy, as
applicable). In addition, all vested options will generally expire one year
following the termination of an optionee's services by us, subject to certain
exceptions.
Shares of common stock purchased or acquired under the stock plan will
generally be subject to restrictions on transfer, repurchase rights, and other
limitations set forth in the investor rights agreement. See "Certain Related
Party Transactions."
Deferred Compensation Plan
In connection with the consummation of the Recapitalization, we have adopted
the Salt Holdings Corporation Senior Executives' Deferred Compensation Plan.
The deferred compensation plan is not a tax qualified retirement plan. The
deferred compensation plan is intended to allow certain of our employees to
elect in advance to defer certain retention bonuses or other compensation and
to allow such employees to transfer liabilities from certain IMC Global, Inc.
deferred compensation plans to the deferred compensation plan. Any amounts
deferred into the deferred compensation plan represent a conditional right to
receive capital stock of Salt Holdings as described below. Amounts deferred
under the deferred compensation plan are represented by bookkeeping accounts
maintained on behalf of the participants. Each such account is deemed to be
invested in shares of capital stock of Salt Holdings. Distributions shall
generally be made to a participant under the deferred compensation plan in one
lump sum in the form of capital stock of Salt Holdings upon the participant's
71
termination of employment or upon certain Apollo "exit events". In connection
with the establishment of the deferred compensation plan, we have established a
"rabbi trust" which has been funded with shares of capital stock of Salt
Holdings. All assets contained in the rabbi trust will be subject to the claims
of our creditors in the event of our bankruptcy or insolvency.
Employment Agreements
David J. Goadby. Salt Union has entered into a service agreement, dated
September 1, 1997, with Mr. Goadby which provides that he will serve Salt Union
as Managing Director until his employment is terminated by either Salt Union,
giving Mr. Goadby not less than twelve months prior written notice, or Mr.
Goadby, giving Salt Union not less than three months prior written notice. The
agreement also provides for an annual base salary of (Pounds)107,000 per annum,
as well as bonuses or additional remuneration, if any, as the board of
directors of Salt Union may determine. For a period of six months following
termination, Mr. Goadby will be subject to certain non-compete,
non-solicitation and non-dealing covenants with regard to customers and
non-solicitation of suppliers and managerial, supervisory, technical, sales,
financial and administrative employees. In the event of a change of control of
Salt Union, Mr. Goadby will be entitled to terminate the agreement immediately
and Salt Union will be obligated to pay him an amount equal to his annual base
salary and the value of his company car and medical insurance calculated over a
twelve month period.
Other Named Executive Officers. We have not entered into employment
agreements with any of Messrs. R. Clark, S. Wolf, K. Clark or R. Underdown and,
accordingly, each such individual is currently an "at will" employee.
72
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock of Salt Holdings immediately following the
Recapitalization with respect to each person that is a beneficial owner of more
than 5% of Salt Holdings' outstanding common stock and beneficial ownership of
Salt Holdings' common stock by each director and each executive officer named
in the Summary Compensation Table and all directors and executive officers as a
group:
Number of
Shares of
Common Percent of
Name and Address of Beneficial Owner Stock(1) Class
------------------------------------ --------- ----------
Apollo(2)........................................ 6,549,643 93.63%
IMC Global(3).................................... 1,395,700 19.95%
Robert F. Clark(4)............................... 11,123 *
Steven Wolf(4)................................... 20,041 *
Keith E. Clark(4)................................ 19,355 *
David J. Goadby(5)............................... 12,740 *
Robert A. Beck(5)................................ 8,673 *
Rodney L. Underdown(4)........................... 8,918 *
Carol Wood....................................... --
Daniel J. Long................................... --
Gregory W. Shelton............................... --
Peter P. Copses.................................. --
Robert H. Falk................................... --
Joshua J. Harris................................. --
Scott M. Kleinman................................ --
Joel A. Asen..................................... --
Heinn F. Tomfohrde, III.......................... --
All directors and officers as a group (6 persons) 80,850 *
* Signifies less than 1%. Also, does not include any shares held by YBR
Holdings that could be attributed to any of these individuals.
- --------
(1)The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of
beneficial ownership of securities. Under the rules of the SEC, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
voting power, which includes the power to vote or direct the voting of such
security, or investment power, which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to
acquire beneficial ownership within 60 days. Securities that can be so
acquired are deemed to be outstanding for purposes of computing such
person's ownership percentage, but not for purposes of computing any other
person|s percentage. Under these rules, more than one person may be deemed
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic
interest. Except as otherwise indicated in these footnotes, each of the
beneficial owners has, to our knowledge, sole voting and investment power
with respect to the indicated shares of common stock.
(2)Represents all shares held of record by YBR Holdings and includes 1,038,700
shares of common stock issued on behalf of IMC Global in registered
certificated form in the name of The Bank of New York, as the escrow agent,
according to the escrow agreement by and among Salt Holdings, Apollo, IMC
Global, The Bank of New York and certain stockholders (the "Escrow
Agreement"). As a result of the Escrow Agreement, Apollo and certain of its
affiliates and permitted transferees have the ability to direct the voting
of these 1,038,700 shares of common stock for a period during which Apollo
and certain of its affiliates and permitted transferees own a majority of
the shares of common stock then outstanding. See "Certain Related Party
Transactions--Agreements between stockholders of Salt Holdings Corporation."
YBR Holdings is an
73
affiliate of, and is controlled by, Apollo through its majority ownership of
YBR Holdings' membership interests. The address of each of YBR Holdings and
Apollo and of Messrs. P. Copses, R. Falk, J. Harris and S. Kleinman is c/o
Apollo Management, L.P., 1301 Avenue of the Americas, New York, New York
10019.
(3)Includes 1,038,700 shares of common stock that are subject to the Escrow
Agreement. The address of IMC Global is 100 South Saunders Road, Suite 300,
Lake Forest, Illinois 60045.
(4)Represents "Deferred Common Stock Units" credited to Messrs. R. Clark, S.
Wolf, K. Clark and R. Underdown, respectively, under the Salt Holdings
Corporation Senior Executives' Deferred Compensation Plan (the "Deferred
Compensation Plan"). Pursuant to the terms of the Deferred Compensation
Plan, each Deferred Common Stock Unit represents the right to receive one
share of Salt Holdings common stock upon the applicable individual's
termination of employment or upon the occurrence of certain other events
specified in the Deferred Compensation Plan. See "Management--Deferred
Compensation Plan." Does not include options to purchase 17,154, 30,876,
29,821 and 13,724 shares of Salt Holdings common stock that Salt Holdings
has granted to Messrs. R. Clark, S. Wolf, K. Clark and R. Underdown,
respectively. These options are subject to time and performance vesting
conditions. See "Management--2001 Option Plan." The address of each of
Messrs. R. Clark, S. Wolf, K. Clark and R. Underdown is c/o Salt Holdings
Corporation, 8300 College Boulevard, Overland Park, Kansas 66210.
(5)Does not include options to purchase 19,632 shares of Salt Holdings common
stock and 13,352 shares of Salt Holdings common stock that Salt Holdings has
granted to Mr. D. Goadby and Mr. R. Beck, respectively, which are subject to
time and performance vesting conditions. See "Management--2001 Option Plan."
The address of Mr. D. Goadby and Mr. R. Beck is c/o Salt Holdings
Corporation, 8300 College Boulevard, Overland Park, Kansas 66210.
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CERTAIN RELATED PARTY TRANSACTIONS
Ongoing Relationship with IMC Global
In connection with the Recapitalization, we, our parent Salt Holdings and
IMC Global or their respective affiliates entered into several additional
agreements providing for the continuation or transfer and transition of certain
aspects of our business operations. These agreements were the result of
arm's-length negotiations in connection with the Recapitalization, and we
believe they are on terms at least as favorable to us as those we could have
obtained from unaffiliated third parties. Set forth below are descriptions of
the material agreements that we or affiliates of ours have entered into with
IMC Global.
Supply Agreements
We have contracted with IMC Global or its affiliates to supply some of our
facilities with raw materials used in the production of our products and to
supply to other facilities finished products that we distribute to our
customers or distributors. IMC Global supplies us with the following products:
. coarse and mixed highway deicing salt, as a finished product, from IMC
Global's Esterhazy, Saskatchewan facility;
. bulk white granular ice melt muriate of potash from IMC Global's Belle
Plaine, Saskatchewan facility;
. packaged water softener muriate of potash, as a finished product, from IMC
Global's Belle Plaine, Saskatchewan facility;
. MOP, as a raw material, from IMC Global's Esterhazy, Saskatchewan facility
to our Ogden facility;
. a variety of general trade salt products, as finished products, from IMC
Global's Hersey, Michigan facility; and
. SOP, as a finished product, from IMC Global's Carlsbad, New Mexico
facility.
The terms of these supply contracts range from five to thirteen years and
are automatically extended by one-year intervals unless termination notice is
given by either party six months prior to the end of the term. The prices we
pay for these products varies depending on the product. However, we believe
that the prices IMC Global is charging us are generally at or below the prices
we can obtain from third persons. Some contracts require us to purchase all of
our requirements for a particular product from IMC Global. Others require us to
purchase no less than 90% of our requirements from IMC Global, while others
have no purchase requirement at all. The SOP supply contract requires us to
purchase 28% of our requirements from IMC Global. Certain of those contracts
permit us to obtain a lower price elsewhere and, if IMC Global does not match
the lower price, we can purchase at the lower price from the third party. We
cannot exercise our rights under these provisions more than twice in a year.
Under the Hersey salt supply contract we are required to purchase no less than
200,000 tons of salt products each year under most circumstances and we can
purchase from third parties if a force majeure event prevents IMC Global from
delivering products to us. Pricing for the Esterhazy highway deicing salt
contract is adjusted each year based on a Canadian product price index. Pricing
under the other supply contracts is generally adjusted each year based on the
movement in the sales prices of the products to our own customers. Under the
Hersey salt supply contract the price is adjusted each year based on a salt
producer price index, but we have the right to change the pricing adjustment
formula to a quarterly adjustment based on the prices we sell the products to
our customers.
Transitional Arrangements
In connection with the Recapitalization we have also entered into transition
arrangements with IMC Global pursuant to which IMC Global will provide services
and support to us and assist us in migrating certain information technology to
us as a stand alone business. The purpose of the transition arrangements is to
develop and implement a transition plan and to assure that we receive
substantially the same information technology
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services and systems that we had prior to the Recapitalization. IMC Global will
provide these services for a year unless we terminate any services earlier. We
have also entered into transition arrangements with respect to the premises at
Overland Park, which premises are shared with IMC Global|s chemicals business.
This agreement provides for the allocation of office space and furniture at the
Overland Park premises. This agreement can be terminated at 60 days' notice by
either party.
Railcar Lease Memorandum of Understanding
We have also agreed to sublease from an affiliate of IMC Global railcars
that were used by us prior to the Recapitalization and which are leased from
railcar companies by affiliates of IMC Global. The railcars are used to
transport products used in our business.
Agreements between stockholders of Salt Holdings Corporation
Stock Rights Agreement
In connection with the Recapitalization, Apollo, certain affiliates of
Apollo and IMC Global entered into a stock rights agreement. Material
provisions of that agreement are as follows:
Registration Rights. Under the terms of the stock rights agreement, Salt
Holdings has agreed to register its shares of common stock owned by Apollo,
certain of its affiliates and permitted transferees, and IMC Global under the
following circumstances:
. Demand Rights. Upon written request from Apollo or certain affiliates of
Apollo, Salt Holdings will register shares of common stock specified in
such request for resale under an appropriate registration statement filed
and declared effective by the Securities and Exchange Commission. Salt
Holdings will not be obligated to effectuate a registration until 180 days
after Salt Holdings' initial public offering where, cumulatively, more
than 20% of the stock of Salt Holdings has been sold to the public. Salt
Holdings may defer a demand for registration by up to 90 days if its board
of directors deems it to be materially detrimental for us to file a
registration statement. Salt Holdings may only make such a deferral twice
in any 12-month period.
. Piggyback Rights. If at any time Salt Holdings files a registration
statement for the purposes of making a public offering of its common
stock, or registers outstanding shares of common stock for resale on
behalf of any holder of its common stock, the other parties to the stock
rights agreement may elect to include in such registration any shares of
common stock such person holds. Salt Holdings or the managing underwriter
may exclude all or a part of the shares if market factors dictate pursuant
to an order of priority specified in the stock rights agreement.
. Lockup. In consideration of these registration rights, the stockholders
who are parties to the stock rights agreement have agreed not to sell
shares of common stock for a period not to exceed 60 days prior to or 180
days following the effective date of any registration statement filed by
us in connection with an underwritten public offering, subject to certain
exceptions.
Additional Equity Issuances. Prior to our initial public offering where,
cumulatively, more than 20% of the stock of Salt Holdings is sold to the
public, Salt Holdings may not issue any of its securities to Apollo or certain
of its affiliates or permitted transferees, unless Salt Holdings also offers
IMC Global an opportunity to acquire a pro rata percentage of all of the
securities to be issued.
Sales of Securities by Apollo and IMC Global.
. Bring-Along and Tag-Along Rights. The agreement allows Apollo and certain
of its affiliates and permitted transferees to require IMC Global to sell
a pro rata percentage of its common stock in Salt Holdings if Apollo or
certain of its affiliates or permitted transferees are selling their own
shares in a sale of the Company. Similarly, the agreement allows IMC
Global to participate with Apollo and certain of its
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affiliates and permitted transferees on a pro rata basis if Apollo or
certain of its affiliates or permitted transferees are selling at least
20% of their respective shares of common stock.
. Transfer and Clawback Rights. The agreement also requires IMC Global to
place its securities into an escrow account and potentially transfer its
securities to Apollo and certain of its affiliates and permitted
transferees on a case by case basis depending on how much Apollo and
certain of its affiliates and permitted transferees sell their securities
for each time they sell their securities. This arrangement will provide
Apollo with a preferential return over IMC Global|s interest in Salt
Holdings and, subject to certain conditions, will stay in place until
Apollo and certain of its affiliates and permitted transferees sell for
cash more than 90% of the total amount of common stock they received in
the Recapitalization. It could result in Apollo and certain of its
affiliates and permitted transferees owning more and IMC Global owning
less of Salt Holdings than they each owned immediately following the
Recapitalization.
Management Consulting Agreement
In connection with the Recapitalization, Salt Holdings entered into a
management consulting agreement with Apollo. The agreement allows us to avail
ourselves of Apollo's expertise in areas such as financial transactions,
acquisitions and other matters that relate to the business, administration and
policies of the Company. Apollo received a one time transaction fee for
structuring the Recapitalization and will receive an annual fee for its
management services and advice. Apollo also has the right to act, in return for
additional fees, as our financial advisor or investment banker for any merger,
acquisition, disposition or the like if we decide we need to hire someone to
fill such a role.
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THE NEW CREDIT FACILITIES
We summarize below the principal terms of the agreements that govern the
senior credit facilities. This summary is not a complete description of all of
the terms of the agreements.
In connection with the offering of the old notes, we entered into the new
credit facilities with a syndicate of financial institutions and institutional
lenders. Set forth below is a summary of the terms of the new credit facilities.
The new credit facilities provide for senior secured financing of up to $360
million, consisting of (a) a $225 million term loan facility drawn in full on
the closing date of the Recapitalization with a maturity of eight years and (b)
a $135 million revolving credit facility that will terminate in six and
one-half years. The revolving credit facility permits up to the Canadian dollar
equivalent of $30 million in revolving loans to be borrowed by a Canadian
subsidiary of ours and up to the pounds sterling equivalent of $10 million in
revolving loans to be borrowed by a United Kingdom subsidiary of ours. The
revolving credit facility includes a $30 million sub-limit for the issuance of
letters of credit for our account. All borrowings are subject to the
satisfaction of customary conditions, including absence of a default and
accuracy of representations and warranties.
Proceeds of the term loan facility were used to finance the
Recapitalization. Proceeds of the revolving credit facility will be used for
general corporate purposes.
Interest and Fees
The interest rates per annum applicable to loans under the new credit
facilities (other than revolving loans to either of the foreign borrowers) are,
at our option, the Base Rate or Eurodollar Rate plus, in each case, an
applicable margin. The applicable margin for loans under the revolving facility
is subject to adjustment based on our total leverage ratio. The Base Rate is a
fluctuating interest rate equal to the higher of (a) the prime rate of The
Chase Manhattan Bank and (b) the federal funds effective rate plus one-half of
one percent (0.5%). The interest rates per annum applicable to revolving loans
made to either of the foreign borrowers under the revolving credit facility are
at the rates plus applicable margins set forth in the credit agreement
governing the new credit facilities. In addition, the borrowers are required to
pay to the lenders under the revolving credit facility a commitment fee in
respect of the unused commitments thereunder at a rate per annum that is
subject to adjustment based on our total leverage ratio.
Prepayments
The term loan is required to be prepaid with, subject to certain exceptions
and subject to percentage reductions or elimination based on our total leverage
ratio, 100% of the net cash proceeds of certain asset sales and certain debt
issuances, 75% of annual excess cash flow and 50% of the net cash proceeds of
certain equity issuances by our parent.
Voluntary prepayments of loans under the new credit facilities and voluntary
reductions in the unused commitments under the revolving credit facility are
permitted in whole or in part, in minimum amounts and subject to certain other
exceptions as set forth in the credit agreement.
Amortization of Principal
The term loan amortization payments due before 2009 are nominal amounts. The
remaining balance of the term loan will amortize in equal quarterly
installments in the eighth year of the term loan facility.
Collateral and Guarantees
We, our parent and our domestic subsidiaries that guarantee our obligations
under the notes also guarantee (on a senior basis) the obligations of the
borrowers under the new credit facilities. Substantially all of the
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domestic guarantors' real and personal property, including intercompany notes
held by the domestic guarantors and certain equity interests held by the
domestic guarantors in their respective subsidiaries, secure the domestic
guarantees and the obligations of the borrowers under the new credit facilities.
In addition, certain of our foreign subsidiaries, including the foreign
borrowers, guarantee (on a senior basis) the obligations of the foreign
borrowers under the revolving credit facility. Substantially all of the foreign
guarantors' real and personal property, including intercompany notes held by
the foreign guarantors and certain equity interests held by the foreign
guarantors in their respective subsidiaries, secure the foreign guarantees and
the obligations of the foreign borrowers under the revolving credit facility.
Covenants and Other Matters
The new credit facilities require us to comply with certain financial
covenants, including a maximum total leverage ratio and a minimum interest
coverage ratio. The new credit facilities include certain negative covenants
restricting our ability to, among other things: (a) declare dividends or redeem
or repurchase capital stock; (b) prepay, redeem or purchase certain debt
(including the notes); (c) incur liens and engage in sale-leaseback
transactions; (d) make loans and investments; (e) guarantee or incur additional
debt; (f) amend or otherwise alter terms of debt and other material agreements
(including the notes); (g) make capital expenditures; (h) engage in mergers,
acquisitions and other business combinations; (i) sell assets; (j) transact
with affiliates; and (k) alter the business we conduct. The new credit
facilities contain certain customary representations and warranties,
affirmative covenants and events of default, including change of control,
cross-defaults to other debt and material judgments.
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DESCRIPTION OF THE EXCHANGE NOTES
The old notes were and the exchange notes will be issued under an indenture
among Compass Minerals Group, Inc. (the ("Issuer"), the Guarantors and The Bank
of New York, as trustee. The form and terms of the notes are identical in all
material respects except the exchange notes will have been registered under the
Securities Act. See "The Exchange Offer--Purpose and Effect." The definitions
of certain capitalized terms used in the following summary are set forth below
under "Certain Definitions."
The following description is a summary of the material provisions of the
indenture. It does not restate the terms of the indenture in their entirety. We
urge that you carefully read the indenture and the Trust Indenture Act of 1939
(the "TIA"), because the indenture and the TIA govern your rights as holders of
the notes, not this description. A copy of the indenture may be obtained from
us or the initial purchasers. The definitions of certain capitalized terms used
in the following summary are set forth below under "--Certain Definitions."
General
The notes will be general unsecured obligations of the Issuer, ranking
subordinate in right of payment to all existing and future Senior Debt of the
Issuer.
The notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples of $1,000.
Initially, the trustee will act as paying agent and registrar for the notes.
You may present your notes for registration of transfer and exchange at the
offices of the registrar, which initially will be the trustee's corporate trust
office. The Issuer may change any paying agent and registrar without prior
notice.
The Issuer will pay principal (and premium, if any) on the notes at the
trustee's corporate office in New York, New York. At the Issuer's option,
interest may be paid at the trustee's corporate trust office or by check mailed
to the registered address of holders.
Any old notes that remain outstanding after completion of the Exchange
Offer, together with the exchange notes issued in connection with the exchange
offer, will be treated as a single class of securities under the indenture.
Principal, Maturity and Interest
Old notes in an aggregate principal amount of $250.0 million were issued in
connection with the Recapitalization. The notes will mature on August 15, 2011.
Additional notes in an unlimited amount may be issued under the indenture from
time to time, subject to the limitations set forth under "Certain
Covenants--Limitation on Incurrence of Additional Indebtedness." The old notes,
the exchange notes and any additional notes subsequently issued will be treated
as a single class for all purposes under the indenture.
Interest on the notes will be payable semiannually in cash on each February
15 and August 15, commencing on February 15, 2002, to the persons who are
registered holders at the close of business on the February 1 and August 1
immediately preceding the applicable interest payment date. Interest on the
notes will accrue from the most recent date for which interest has been paid
or, if no interest has been paid, from and including the date of issuance and
will be computed on the basis of a 360-day year of twelve 30-day months.
The notes will not be entitled to the benefit of any mandatory sinking fund.
Redemption
Optional Redemption
The Issuer may redeem all or any portion of the notes, on and after August
15, 2006, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal
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amount) if redeemed during the twelve-month period commencing on August 15 of
the year set forth below, plus, in each case, accrued and unpaid interest, if
any, to the date of redemption:
Year Percentage
---- ----------
2006............... 105.000%
2007............... 103.333%
2008............... 101.667%
2009 and thereafter 100.000%
Optional Redemption upon Equity Offerings
At any time, or from time to time, on or prior to August 15, 2004, we may,
at our option, use the net cash proceeds of one or more Equity Offerings to
redeem up to 35% in aggregate principal amount of the notes originally issued
under the indenture at a redemption price equal to 110% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided, however, that after any such redemption the aggregate
principal amount of the notes outstanding must equal at least 65% of the
aggregate amount of the notes originally issued under the indenture. In order
to effect the foregoing redemption with the net cash proceeds of any Equity
Offering, we shall make such redemption not more than 120 days after the
consummation of any such Equity Offering.
Optional Redemption Upon Change of Control
In addition, at any time prior to August 15, 2006, upon the occurrence of a
Change of Control, we may redeem the notes, in whole but not in part, at a
redemption price equal to the principal amount of the notes plus the Applicable
Premium plus accrued and unpaid interest, if any, to the date of redemption.
Notice of redemption of the notes upon a Change of Control will be mailed to
holders of the notes not more than 30 days following the occurrence of a Change
of Control.
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, the trustee
will select those notes for redemption in compliance with the requirements of
the principal national securities exchange, if any, on which the notes are
listed or, if the notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or by such method as the trustee considers fair and
appropriate, provided that:
. notes with a principal amount of $1,000 or less may only be redeemed in
full and
. if a partial redemption is made with the Net Cash Proceeds of an Asset
Sale or an Equity Offering, the trustee will select the notes or portions
of the notes for redemption only on a pro rata basis or on as nearly a
proportional basis as is practicable, unless the 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 the note will state the portion of the
principal amount to be redeemed. A new note in a principal amount equal to the
unredeemed portion will be issued in the name of the holder upon cancellation
of the original note. On and after the redemption date, interest will cease to
accrue on those notes called for redemption if the Issuer has deposited with
the paying agent the funds needed to pay the applicable redemption price.
Subordination
The payment of all Obligations on or relating to the notes is subordinated
in right of payment to the prior payment in full in cash or Cash Equivalents of
all Obligations on all existing and future Senior Debt of the
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Issuers (including the Obligations with respect to the Credit Agreement).
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations in respect of Senior Debt
(including interest accruing after the commencement of any bankruptcy or other
like proceeding at the rate specified in the applicable Senior Debt even if
such interest is not an allowed claim in such proceeding) before the holders of
notes will be entitled to receive any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the notes in the
event of any total or partial distribution to creditors of the Issuer:
(1) in a total or partial liquidation or total or partial dissolution of
the Issuer;
(2) in a total or partial bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its properties;
(3) in a total or partial assignment for the benefit of creditors of the
Issuer; or
(4) in any marshalling of all or part of the Issuer's assets and
liabilities.
Until such Obligations in respect of Senior Debt have been paid in full in
cash or Cash Equivalents, any payment or distribution to which holders of notes
would have been entitled but for the subordination provisions of the indenture
will be made to holders of Senior Debt as their interests may appear. If a
payment or distribution is made to holders of notes that due to the
subordination provisions of the indenture should not have been made to them,
such holders of notes will be required to hold it in trust for the holders of
Senior Debt and pay it over to such holders of Senior Debt as their interests
may appear.
The Issuer may not make any payment or distribution of any kind or character
with respect to any Obligations on, or relating to, the notes or purchase,
repurchase, redeem or otherwise acquire or retire any notes for cash or
property or otherwise or set aside any funds or make any deposit with the
trustee for any purpose (collectively, ("pay the notes") if:
(1) a payment default (including a default in the payment of any
principal of, premium (if any), liquidated damages (if any) or other
Obligations) on any Designated Senior Debt of the Issuer occurs and is
continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt
of the Issuer that permits holders of the Designated Senior Debt to
accelerate its maturity and the trustee receives a notice of such default (a
"Payment Blockage Notice") from the Representative of any Designated Senior
Debt.
Payments and distributions with respect to any Obligations on, or with
respect to, the notes may and will be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earliest to happen of:
. the date on which all nonpayment defaults are cured or waived (so
long as no other event of default or payment default exists);
. 180 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior
Debt has been accelerated; or
. the date on which the trustee receives notice from the
Representative for such Designated Senior Debt rescinding the
Payment Blockage Notice, unless the maturity of any Designated
Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee will be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default
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shall have been cured or waived for a period of not less than 90 consecutive
days. However, under the indenture, any subsequent action, or any breach of any
financial covenants for a period commencing after the date of delivery of such
initial Payment Blockage Notice, that in either case would give rise to a
default pursuant to any provisions under which a default previously existed or
was continuing would constitute a new default for this purpose.
The Credit Agreement requires that we promptly notify each lender if payment
of the notes is accelerated because of an Event of Default.
Since the right to be paid principal, interest and other Obligations on or
relating to the notes ranks junior to the rights of holders of our Senior Debt,
if we become bankrupt or insolvent, creditors of the Issuer who are not holders
of Senior Debt, including the holders of the notes, may recover less
proportionately than holders of Senior Debt.
At September 30, 2001, on a pro forma consolidated basis, we and our
Restricted Subsidiaries had approximately $225.4 million of Senior Debt
outstanding. In addition to the amount then outstanding, we could have borrowed
an additional $135.0 million under the Credit Agreement which, if borrowed,
also would have been senior to the notes.
Guarantees
Each Guarantor unconditionally guarantees, on an unsecured senior
subordinated basis, jointly and severally, to each holder of notes and the
trustee, the full and prompt performance of the Issuer's obligations under the
indenture and the notes, including the payment of principal of and interest on
the notes. The Guarantees will be subordinated to Guarantor Senior Debt on the
same basis as the notes are subordinated to Senior Debt. The obligations of
each Guarantor are limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the indenture, will
result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in an
amount pro rata, based on the net assets of each Guarantor, determined in
accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Issuer or another Guarantor without limitation, or with other Persons upon the
terms and conditions set forth in the indenture. See "Certain
Covenants--Merger, Consolidation and Sale of Assets." In the event all of the
Capital Stock of a Guarantor is disposed of by the Issuer, whether by merger,
consolidation, sale or otherwise, and the disposition is not in violation of
the provisions set forth in "Certain Covenants--Limitation on Asset Sales," the
Guarantor's Guarantee will be released. In addition, upon the designation of a
Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary, which
designation is in compliance with the indenture, such Guarantor's Guarantee
will be released.
The obligations of each Guarantor will be automatically released upon such
Guarantor ceasing to be a subsidiary of the Issuer as a result of any
foreclosure on any pledge or security interest securing Obligations with
respect to the Credit Agreement or other exercise of remedies in respect
thereof if such Guarantor is released from its guarantee of Obligations with
respect to the Credit Agreement.
Change of Control
The indenture provides that upon the occurrence of a Change of Control, each
holder will have the right to require that we purchase all or a portion of such
holder's notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount plus accrued
interest to
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the date of purchase. Notwithstanding the occurrence of a Change of Control, we
will not be obligated to repurchase the notes under this covenant if we have
exercised our right to redeem all the notes under the terms of the section
titled "--Optional Redemption."
The indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, we
covenant to:
. repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the Credit Agreement and all
other such Senior Debt and to repay the Indebtedness owed to (and
terminate all commitments of) each lender which has accepted such offer; or
. obtain consents required under the Credit Agreement and all such other
Senior Debt to permit the repurchase of the notes as provided below.
We will first comply with the covenant in the immediately preceding sentence
before we are required to repurchase notes under the provisions described
below. Our failure to comply with the covenant described in the second
preceding sentence (and any failure to send the notice referred to in the
succeeding paragraph as a result of the prohibition in the second preceding
sentence) constitutes an Event of Default described in clause (3) and not in
clause (2) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control occurred,
we will send, by first-class mail, a notice to each holder, with a copy to the
trustee, which notice shall govern the terms of the Change of Control Offer.
The notice will state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 60 days from the date the notice is mailed,
other than as may be required by law (the "Change of Control Payment Date").
Holders electing to have a note purchased pursuant to a Change of Control Offer
must surrender the note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the note completed, to the paying agent at the
address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer.
If we make a Change of Control Offer, there can be no assurance that we will
have available funds sufficient to pay the Change of Control purchase price for
all the notes that might be delivered by holders seeking to accept the Change
of Control Offer. In the event we are required to purchase outstanding notes
pursuant to a Change of Control Offer, we expect that we would seek third party
financing to the extent we lack available funds to meet our purchase
obligations. However, there can be no assurance that we would be able to obtain
such financing.
The trustee may not waive the covenant relating to a holder's right to
redemption upon a Change of Control. However, the covenant and other provisions
contained in the indenture relating to our obligation to make a Change of
Control Offer may be waived or modified with the written consent of the holders
of a majority in principal amount of the notes. Restrictions described in the
indenture on the ability of the Issuer and our Restricted Subsidiaries to incur
additional Indebtedness, to grant Liens on our property, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of the Issuer, whether favored or opposed by our management.
Consummation of any such transaction may require redemption or repurchase of
the notes, and there can be no assurance that the Issuer or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may make more difficult or discourage any leveraged buyout of us or
any of our Restricted Subsidiaries by our management. While such restrictions
cover a wide variety of arrangements which have
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traditionally been used to effect highly leveraged transactions, the indenture
may not afford you protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
"Change of Control" provisions of the indenture by so doing.
The definition of "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of our property and assets. With
respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances, there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear whether a Change of Control has occurred and whether we are required
to make a Change of Control Offer.
Certain Covenants
The indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur"), any Indebtedness (other
than Permitted Indebtedness); provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, we and our Restricted
Subsidiaries may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, our Consolidated Fixed Charge Coverage
Ratio is greater than 2.0 to 1.0; provided that the amount of Indebtedness
(other than Acquired Indebtedness) that may be incurred pursuant to the
foregoing by our Restricted Subsidiaries that have not Guaranteed the notes in
compliance with the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" or "Future Guarantors" covenants shall not exceed $50.0 million
at any one time outstanding.
Limitation on Restricted Payments
We will not, and will not cause or permit any of our Restricted Subsidiaries
to, directly or indirectly,
. declare or pay any dividend or make any distribution (other than dividends
or distributions payable in our Qualified Capital Stock) on or in respect
of shares of our Capital Stock to holders of that Capital Stock;
. purchase, redeem or otherwise acquire or retire for value any of our
Capital Stock or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock;
. make any principal payment on, purchase, defease, redeem, prepay, decrease
or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any of
our Indebtedness that is subordinate or junior in right of payment to the
notes or any Guarantee (other than Indebtedness described in clause (7) of
the definition of "Permitted Indebtedness"); or
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. make any Investment (other than Permitted Investments) (each of the
actions listed above being referred to as a "Restricted Payment"),
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(1) a Default or an Event of Default shall have occurred and be
continuing; or
(2) we are not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; or
(3) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made after the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by our Board of
Directors) exceeds the sum of:
(a) 50% of our cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) earned
after the Issue Date and on or prior to the date the Restricted Payment
is made (the "Reference Date") (treating such period as a single
accounting period); plus
(b) 100% of the aggregate Net Cash Proceeds and the fair market
value, as determined in good faith by our Board of Directors, of
property other than cash received by us from any Person (other than a
Subsidiary of ours) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of our Qualified Capital
Stock (other than Excluded Contributions); plus
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate Net Cash Proceeds of any equity
contribution received by us from a holder of our Capital Stock (other
than Excluded Contributions); plus
(d) the amount by which our Indebtedness or that of any of our
Restricted Subsidiaries is reduced on our balance sheet upon the
conversion or exchange after the Issue Date of any of our Indebtedness
or any Indebtedness of our Restricted Subsidiaries incurred after the
Issue Date into or for Qualified Capital Stock; plus
(e) without duplication, the sum of:
(I) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made after the Issue
Date whether through interest payments, principal payments, dividends
or other distributions or payments;
(II) the net cash proceeds received by us or any Restricted
Subsidiary of ours from the disposition of all or any portion of such
Investments (other than to a Subsidiary of ours); and
(III) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary
(valued in each case as provided in the definition of "Investment");
provided, however, that the sum of clauses (I), (II) and (III) above will not
exceed the aggregate amount of all such Investments made by us or any
Restricted Subsidiary in the relevant Person or Unrestricted Subsidiary after
the Issue Date.
However, the provisions set forth in the immediately preceding paragraph do
not prohibit:
(1) the payment of any dividend or other distribution within 60 days
after the date of declaration of that dividend or other distribution if the
dividend or other distribution would have been permitted on the date of
declaration;
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(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of our Capital Stock, either (a)
solely in exchange for shares of our Qualified Capital Stock or Qualified
Capital Stock of Holdings or (b) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of
ours) of shares of our Qualified Capital Stock or, to the extent the
proceeds are contributed by Holdings to us, from the shares of Capital Stock
of Holdings;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any of our Indebtedness that is subordinate
or junior in right of payment to the notes or a Guarantee either:
(a) solely in exchange for shares of Qualified Capital Stock of us or
Holdings, or
(b) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of ours) of:
. shares of Qualified Capital Stock of us or Holdings or
. Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be
continuing, repurchases by us or any Restricted Subsidiary of ours of, or
dividends, distributions or advances to Holdings to allow Holdings to
repurchase (and/or to make payments on notes previously issued by Holdings
representing the consideration for the previous repurchase of), securities
of Holdings or us from employees, directors or consultants of Holdings, us
or any Subsidiary of ours or their authorized representatives
(a) upon the death, disability or termination of employment of such
employees, directors or consultants or to the extent required pursuant
to employee benefit plans, employment agreements or consulting
agreements or
(b) pursuant to any other agreement with such employees or directors
of or consultants to Holdings, us or any Subsidiary of ours, in an
aggregate amount not to exceed $7.5 million in any calendar year (with
unused amounts in any calendar year being carried over to succeeding
years subject to a maximum of $15.0 million in any calendar year),
provided that the cancellation of Indebtedness owing to us or any
Restricted Subsidiary of ours from such employees, directors or
consultants of us or any of our Restricted Subsidiaries in connection
with a repurchase of our Capital Stock will not be deemed to constitute
a Restricted Payment under the indenture;
(5) the declaration and payment of dividends to holders of any class or
series of our Preferred Stock, provided that for the most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the date of issuance of such Preferred
Stock, after giving effect to such issuance on a pro forma basis, we would
have been able to incur at least $1.00 of Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(6) the payment of dividends on our Common Stock (or dividends,
distributions or advances to Holdings to allow Holdings to pay dividends on
Holdings' Common Stock), following the first public offering of our Common
Stock (or of Holdings' Common Stock) after the Issue Date, of:
. in the case of the first public offering of our Common Stock, up to 6%
per annum of the net proceeds received by us in such public offering,
or
. in the case of the first public offering of Holdings' Common Stock, up
to 6% per annum of the amount contributed by Holdings from the
proceeds received by Holdings from such offering,
other than, in each case, public offerings with respect to our Common Stock
(or of Holdings' Common Stock) registered on Form S-8;
(7) the payment of dividends, distributions or advances to Holdings to
allow Holdings to repurchase, retire or otherwise acquire or retire for
value any securities of Holdings in existence on the Issue Date from the
persons holding such securities on the Issue Date which are not held by
Apollo or any of its Affiliates or members of management of us and our
Subsidiaries on the Issue Date (including any equity interests issued in
respect of any such securities constituting equity interests as a result of
a stock split, recapitalization,
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merger, combination, consolidation or similar transaction), provided,
however, that we shall be permitted to make Restricted Payments under this
clause only if after giving effect thereto, we would be permitted to incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(8) other Restricted Payments in an aggregate amount not to exceed $15.0
million;
(9) if no Default or Event of Default shall have occurred and be
continuing, payments or distributions to, or dividends, distributions or
advances to Holdings to allow Holdings to make payments or distributions to,
dissenting stockholders pursuant to applicable law, pursuant to or in
connection with a consolidation, merger or transfer of assets that complies
with the provisions of the indenture applicable to mergers, consolidations
and transfers of all or substantially all of our property and assets;
(10) Investments that are made with Excluded Contributions;
(11) any payments made to consummate the transactions pursuant to or
contemplated by the Merger Agreement and any other agreement related to the
Recapitalization in effect on the closing date of the Recapitalization,
including payments made by us to Holdings to allow Holdings to satisfy its
obligations under such agreements or documents, in each case, as such
agreements or documents are in effect on the Issue Date as amended from time
to time so long as such amendment is in the good faith judgment of our Board
of Directors not more disadvantageous to you in any material respect than
such agreements or documents as in effect on the Issue Date;
(12) repurchases of Capital Stock deemed to occur upon the exercise of
stock options, warrants or other convertible securities, to the extent such
Capital Stock represents a portion of the consideration for such exercise;
(13) payment of dividends, other distributions or other amounts by us to
Holdings in amounts required for Holdings to pay franchise taxes and other
fees required to maintain its existence and provide for all other operating
costs of Holdings, including, without limitation, in respect of directors'
fees and expenses, administrative, legal and accounting services provided by
third parties and other costs and expenses, including all costs and expenses
with respect to filings with the SEC, of up to $2.5 million per fiscal year;
(14) the acquisition of any shares of our Disqualified Capital Stock
either:
. solely in exchange for shares of our Disqualified Capital Stock or
Capital Stock of Holdings or
. through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of ours) of
shares of our Disqualified Capital Stock or, to the extent the
proceeds are contributed by Holdings to us, from shares of Capital
Stock of Holdings;
(15) any purchase or redemption of Indebtedness that ranks junior to the
notes utilizing any Net Cash Proceeds remaining after we have complied with
the requirements of the covenants described under "Limitation on Asset
Sales" and "Change of Control";
(16) the payment of dividends, other distributions or amounts by us to
Holdings in amounts required to pay the tax obligations of us and our
Subsidiaries and the tax obligations of Holdings or any of its direct or
indirect parents attributable to us and our Subsidiaries; provided that:
. the amount of dividends paid pursuant to this clause (16) to enable
Holdings or any of its direct or indirect parents to pay Federal and
state income taxes at any time will not exceed the amount of such
Federal and state income taxes actually owing by Holdings or any of
its direct or indirect parents at such time for the respective period
and
. any refunds received by Holdings or any of its direct or indirect
parents attributable to us and our Subsidiaries shall promptly be
returned by Holdings or any of its direct or indirect parents to us;
and
(17) if no Default or Event of Default shall have occurred and be
continuing, payments of cash, or dividends, distributions or advances to
Holdings to allow Holdings to make payments of cash, in lieu of the
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issuance of fractional shares upon the exercise of warrants or upon the
conversion or exchange of, or issuance of Capital Stock in lieu of cash
dividends on, any Capital Stock of Holdings, us or any Restricted
Subsidiary, which in the aggregate do not exceed $3.0 million.
In determining the aggregate amount of Restricted Payments made after the
Issue Date in accordance with clause (3) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2), (4), (5), (6), (7),
(8), (9), (15) and (17) will be included in the calculation.
Not later than the date of making any Restricted Payment, we will deliver to
the trustee an officers| certificate stating that such Restricted Payment
complies with the indenture and setting forth in reasonable detail the basis
upon which the required calculations were computed, which calculations may be
based upon our latest available internal quarterly financial statements.
Limitation on Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as determined
in good faith by our senior management or, in the case of an Asset Sale in
excess of $5.0 million, our Board of Directors);
(2) at least 75% of the consideration received by us or the Restricted
Subsidiary, as the case may be, from such Asset Sale shall be in the form of:
. cash or Cash Equivalents,
. properties and assets to be owned by us or any of our Restricted
Subsidiaries and used in a Permitted Business or
. Capital Stock in one or more Persons engaged in a Permitted Business
that are or thereby become Restricted Subsidiaries of ours,
and, in each case, such consideration is received at the time of such
disposition; provided that the amount of
. any liabilities (as shown on our or such Restricted Subsidiary's most
recent balance sheet) of us or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the notes) that
are assumed by the transferee of any such assets and
. any notes or other securities received by us or any such Restricted
Subsidiary from such transferee that are converted by us or such
Restricted Subsidiary into cash within 180 days after such Asset Sale
(to the extent of the cash received)
shall be deemed to be cash for the purposes of this provision only; and
(3) upon the consummation of an Asset Sale, we will apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 360 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt or any
Indebtedness of a Restricted Subsidiary that is not a Guarantor and, in
the case of any Senior Debt, Guarantor Senior Debt or Indebtedness of a
Restricted Subsidiary that is not a Guarantor under any revolving credit
facility, effect a permanent reduction in the availability under such
revolving credit facility (or effect a permanent reduction in the
availability under such revolving credit facility regardless of the fact
that no prepayment is required);
(b) to make an Investment
. in properties and assets that replace the properties and assets
that were the subject of such Asset Sale,
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. in properties and assets that will be used by us or a Restricted
Subsidiary in a Permitted Business or
. permitted by clause (1) of the definition of "Permitted
Investments" (collectively, "Replacement Assets"); or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
Pending the final application of the Net Cash Proceeds, we and our
Restricted Subsidiaries may temporarily reduce Indebtedness or otherwise invest
such Net Cash Proceeds in any manner not prohibited by the indenture.
On the 361st day after an Asset Sale or such earlier date, if any, as the
senior management or the Board of Directors of us or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of the next preceding
paragraph (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of
Net Cash Proceeds which have not been applied on or before such Net Proceeds
Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of the
next preceding paragraph (each a "Net Proceeds Offer Amount") shall be applied
by us or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 60 days following the applicable Net Proceeds Offer
Trigger Date, from all holders on a pro rata basis, that amount of notes equal
to the Net Proceeds Offer Amount at a price equal to 100% of the principal
amount of the notes to be purchased, plus accrued and unpaid interest thereon,
if any, to the date of purchase; provided, however, that if we are required by
the terms of any Senior Subordinated Debt, such Net Proceeds Offer may be made
ratably to purchase the notes and such other Indebtedness of ours that ranks
pari passu with the notes.
If at any time any non-cash consideration received by us or any Restricted
Subsidiary of ours, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder as of the
date of such conversion or disposition and the Net Cash Proceeds thereof will
be applied in accordance with this covenant.
The Issuer may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million
resulting from one or more Asset Sales (at which time, the entire unutilized
Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million,
shall be applied as required pursuant to the second preceding paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of us and our Restricted Subsidiaries as an entirety to a
Person in a transaction permitted under "Merger, Consolidation and Sale of
Assets," which transaction does not constitute a Change of Control, the
successor corporation shall be deemed to have sold the properties and assets of
us and our Restricted Subsidiaries not so transferred for purposes of this
covenant and shall comply with the provisions of clause (3) of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of us or our Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notice of each Net Proceeds Offer will be mailed to the record holders as
shown on the register of holders within 25 days following the Net Proceeds
Offer Trigger Date, with a copy to the trustee, and will comply with the
procedures set forth in the indenture. Upon receiving notice of the Net
Proceeds Offer, holders may elect to tender their notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent holders
properly tender notes in an amount exceeding the Net Proceeds Offer Amount,
notes of tendering holders will be purchased on a pro rata basis (based on
amounts tendered). To the extent that the aggregate amount of the notes
tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer
Amount, we may use such excess Net Proceeds Offer Amount for general corporate
purposes or for any other purposes not prohibited by the indenture. Upon
completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall
be reset at zero. A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law.
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The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the indenture, the Issuer shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations under the "Asset Sale" provisions of the indenture by virtue
thereof. The covenant and other provisions contained in the indenture relating
to the Issuer's obligation to make a Net Proceeds Offer may be waived or
modified with the written consent of the holders of a majority in principal
amount of the notes.
Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries
We will not, and will not cause or permit any of our Restricted Subsidiaries
(other than a Restricted Subsidiary that has executed a Guarantee) to, directly
or indirectly, create or otherwise cause or permit to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary of
ours to
(a) pay dividends or make any other distribution on or in respect of its
Capital Stock (it being understood that the priority of any Preferred Stock
in receiving dividends or liquidating distributions prior to dividends or
liquidating distributions being paid on Common Stock shall not be deemed a
restriction on the ability to make distributions on Capital Stock);
(b) make loans or advances or to pay any Indebtedness or other obligation
owed to us or any other Restricted Subsidiary of ours; or
(c) transfer any of its property or assets to us or any other of our
Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of:
(1) applicable law, rule, regulation, order, grant or governmental
permit;
(2) the indenture;
(3) the Credit Agreement;
(4) customary non-assignment provisions of any contract, license or
any lease of any of our Restricted Subsidiaries;
(5) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets
of the Person so acquired;
(6) agreements existing or entered into on the Issue Date to the
extent and in the manner such agreements are in effect on the Issue Date;
(7) purchase money obligations for property acquired in the ordinary
course of business or Capitalized Lease Obligations that impose
restrictions of the nature discussed in clause (c) above on the property
so acquired;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Restricted Subsidiary of ours
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary;
(9) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "Limitation on Incurrence of Additional
Indebtedness" and "Limitation on Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary net worth and restrictions on transfer, assignment or
subletting provisions contained in leases and other agreements entered
into by us or any Restricted Subsidiary;
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(12) any restriction in any agreement or instrument of a Receivables
Subsidiary governing a Qualified Receivables Transaction;
(13) any agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clauses (1) through (12) above; provided, however, that
the provisions relating to such encumbrance or restriction contained in
any such Indebtedness, taken as a whole, are no less favorable to us in
any material respect as determined by our Board of Directors in its
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in the agreements referred to in
such clauses; or
(14) any agreement governing Indebtedness permitted to be incurred
pursuant to the "Limitation on Incurrence on Additional Indebtedness"
covenant; provided that the provisions relating to such encumbrance or
restriction contained in such Indebtedness, taken as a whole, are no
less favorable to us in any material respect as determined by our Board
of Directors in its reasonable and good faith judgment than the
provisions contained in the Credit Agreement or in the indenture as in
effect on the Issue Date.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
We will not sell, and will not permit any of our Restricted Subsidiaries,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(1) to us or a Wholly Owned Restricted Subsidiary;
(2) issuance of directors' qualifying shares or sales to foreign
nationals of shares of Capital Stock of our Foreign Restricted Subsidiaries,
to the extent required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
any Investment in such Person remaining after giving effect to such issuance
or sale would have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such issuance or sale;
or
(4) the sale or issuance of Common Stock that is Qualified Capital Stock
of a Restricted Subsidiary of ours, if the proceeds from such issuance and
sale are applied in accordance with the "Limitation on Asset Sales" covenant.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
We will not permit any of our Restricted Subsidiaries, directly or
indirectly, to guarantee any of our Indebtedness under the Credit Agreement
("Guaranteed Indebtedness"), unless (1) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the indenture
providing for an unsecured senior subordinated Guarantee of payment of the
notes by such Restricted Subsidiary, which Guarantee shall be subordinated to
the guarantee of the Indebtedness under the Credit Agreement to the same extent
that the notes are subordinated to the Credit Agreement and (2) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of any rights of reimbursement, indemnity or subrogation
or any other rights against us or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Guarantee so long as any
notes remain outstanding.
Notwithstanding the foregoing or the covenant set forth below under "Future
Guarantors," any Guarantee by a Restricted Subsidiary may provide by its terms
that it shall be automatically and unconditionally released and discharged upon
. any sale, exchange or transfer, to any Person not an Affiliate of ours, of
all of our and each of our Restricted Subsidiary's Capital Stock in, or
all or substantially all the assets of, such Restricted Subsidiary (which
sale, exchange or transfer is not prohibited by the indenture),
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. the release or discharge of the guarantee, if any, which resulted in the
creation of such Guarantee, except a discharge or release by or as a
result of payment under such guarantee, or
. the designation of such Restricted Subsidiary as an Unrestricted
Subsidiary in accordance with the provisions of the indenture.
Future Guarantors
If we organize or acquire any Domestic Restricted Subsidiary after the Issue
Date (each, a "New Domestic Restricted Subsidiary") that, after giving pro
forma effect to the acquisition or organization of such New Domestic Restricted
Subsidiary or Subsidiaries (if applicable), together with each other New
Domestic Restricted Subsidiary, has consolidated assets or Consolidated EBITDA
which exceeds 5 percent of the total consolidated assets, as of the end of the
most recently completed fiscal quarter for which financial statements are
available, or total Consolidated EBITDA, for the most recent preceding four
fiscal quarters for which financial statements are available, of us and our
Restricted Subsidiaries, we will cause each New Domestic Restricted Subsidiary
to promptly execute and deliver to the trustee a Guarantee.
Thereafter, such New Domestic Restricted Subsidiary shall be a Guarantor for
all purposes of the indenture.
Limitations on Liens
We will not, and will not cause or permit any of our Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or permit or suffer to exist
any Lien of any kind against or upon any property or assets of us or any of our
Restricted Subsidiaries whether owned on the Issue Date or acquired after the
Issue Date, or any proceeds therefrom, or assign or otherwise convey any right
to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment of the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the notes are equally and ratably secured,
except for the following Liens which are expressly permitted:
(a) Liens existing as of the Issue Date;
(b) Liens securing Senior Debt, Guarantor Senior Debt and Indebtedness
(including any guarantee) incurred by a Restricted Subsidiary under the
Credit Agreement;
(c) Liens securing the notes or any Guarantee;
(d) Liens in favor of us or a Wholly Owned Restricted Subsidiary of ours
on assets of any Restricted Subsidiary of ours;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness (including, without limitation, Acquired
Indebtedness) which has been secured by a Lien permitted under the indenture
and which has been incurred in accordance with the provisions of the
indenture; provided, however, that such Liens:
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(I) are no less favorable to holders of the notes and are not more
favorable to the lienholders with respect to such Liens than the Liens
in respect of the Indebtedness being Refinanced; and
(II) do not extend to or cover any property or assets of ours or any
of our Restricted Subsidiaries not securing the Indebtedness so
Refinanced;
(f) Liens securing Indebtedness of our Restricted Subsidiaries that are
not Guarantors so long as such indebtedness is otherwise permitted under the
indenture; and
(g) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt
The Issuer and the Guarantors will not incur or suffer to exist Indebtedness
that is senior in right of payment to the notes or any Guarantee and
subordinate in right of payment by its terms to any other Indebtedness of the
Issuer or such Guarantor, as the case may be.
Limitations on Transactions with Affiliates
(1) We will not, and will not permit any of our Restricted Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service)
with, or for the benefit of, any of our Affiliates (each an "Affiliate
Transaction"), other than
. Affiliate Transactions permitted under paragraph (2) below and
. Affiliate Transactions on terms that are no less favorable than those that
could reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate of
ours or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $2.0
million shall be approved by our Board of Directors or the Board of
Directors of such Restricted Subsidiary, as the case may be, such approval
to be evidenced by a Board Resolution stating that such Board of Directors
has determined that such transaction complies with the foregoing provisions.
If we or any of our Restricted Subsidiaries enters into an Affiliate
Transaction (or a series of related Affiliate Transactions related to a
common plan) that involves an aggregate fair market value of more than $10.0
million, we or such Restricted Subsidiary, as the case may be, shall, prior
to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to us or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view,
from an Independent Financial Advisor and file the same with the trustee.
(2) The restrictions set forth in clause (1) shall not apply to:
(a) reasonable fees and compensation paid to and indemnity provided
on behalf of officers, directors, employees or consultants of ours or
any Restricted Subsidiary of ours as determined in good faith by our
Board of Directors;
(b) transactions exclusively between us and any of our Restricted
Subsidiaries or exclusively among such Restricted Subsidiaries, provided
such transactions are not otherwise prohibited by the indenture;
(c) any agreement as in effect or entered into as of the Issue Date
or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement
is not more disadvantageous to the holders in any material respect than
the original agreement as in effect on the Issue Date;
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(d) Restricted Payments and Permitted Investments permitted by the
indenture;
(e) transactions in which we or any of our Restricted Subsidiaries,
as the case may be, delivers to the trustee a letter from an Independent
Financial Advisor stating that such transaction is fair to us or such
Restricted Subsidiary from a financial point of view or meets the
requirements of the first sentence of paragraph (1) above;
(f) the issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans or similar
employee benefit plans approved by our Board of Directors in good faith
and loans to employees of ours and our Subsidiaries which are approved
by our Board of Directors in good faith;
(g) the payment of all fees and expenses related to the Transactions;
(h) transactions with customers, clients, suppliers or purchasers or
sellers of goods or services, in each case on ordinary business terms
and otherwise in compliance with the terms of the indenture, which are
fair to us or our Restricted Subsidiaries, in the reasonable
determination of our Board of Directors or our senior management, or are
on terms at least as favorable as could reasonably have been obtained at
such time from an unaffiliated party;
(i) fees payable to Apollo pursuant to the Management Agreement as in
effect on the Issue Date or pursuant to any amendment, restatement or
replacement thereof to the extent that such amendment, restatement or
replacement does not provide for any fees or other payments in excess of
those set forth in the Management Agreement as in effect on the Issue
Date;
(j) any contribution to our capital by Holdings or any sales of our
Capital Stock to Holdings; and
(k) any tax-sharing agreement or arrangement and payments pursuant
thereto among us and our Subsidiaries and any other Person with which we
or any of our Subsidiaries is required or permitted to file a
consolidated tax return or with which we or any of our Restricted
Subsidiaries is or could be part of a consolidated group for tax
purposes in amounts not otherwise prohibited by the indenture.
Reports to Holders
The indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any notes are outstanding, we will
file a copy of the following information and reports with the Commission for
public availability (unless the Commission will not accept such a filing) and
will furnish to the holders of notes and to securities analysts and prospective
investors, upon their written request:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if we
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of us and our consolidated
Subsidiaries and, with respect to the annual information only, a report
thereon by our certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in each
case within the time periods specified in the Commission's rules and
regulations.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, we will file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon written request to us.
In addition, we have agreed that, for so long as any notes remain
outstanding, we 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.
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Merger, Consolidation and Sale of Assets
We will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of
ours to sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of our assets (determined on a consolidated basis for us and
our Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless:
(1) either (a) the Issuer shall be the surviving or continuing
corporation, partnership, trust or limited liability company or (b) the
Person (if other than the Issuer) formed by such consolidation or into which
the Issuer is merged or the Person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and assets
of the Issuer and of its Restricted Subsidiaries substantially as an
entirety (the "Surviving Entity"):
(x) shall be a corporation, partnership, trust or limited liability
company organized and validly existing under the laws of the United
States or any State thereof or the District of Columbia; and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the trustee), executed and delivered to the
trustee, the due and punctual payment of the principal of and premium,
if any, and interest on all of the notes and the performance of every
covenant of the notes and the indenture on the part of the Issuer to be
performed or observed;
(2) immediately after giving effect to such transaction on a pro forma
basis and the assumption contemplated by clause (1)(b)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Issuer or such Surviving Entity, as the case may be, shall
be able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction on a pro forma basis and the assumption contemplated by clause
(1)(b)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred or repaid and any Lien granted or to be released in connection with
or in respect of the transaction), no Default or Event of Default shall have
occurred or be continuing; and
(4) the Issuer or the Surviving Entity, as the case may be, shall have
delivered to the trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with the applicable provisions of the indenture and that all
conditions precedent in the indenture relating to such transaction have been
satisfied.
Notwithstanding the foregoing, (a) the merger of the Issuer with an
Affiliate incorporated solely for the purpose of reincorporating the Issuer in
another jurisdiction shall be permitted and (b) the merger of any Restricted
Subsidiary of the Issuer into the Issuer or the transfer, lease, conveyance or
other disposition of all or substantially all of the assets of a Restricted
Subsidiary of the Issuer to the Issuer shall be permitted so long as the Issuer
delivers to the trustee an Officers' Certificate stating that the purpose of
such merger, transfer, lease, conveyance or other disposition is not to
consummate a transaction that would otherwise be prohibited by clause (3) of
this covenant.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Issuer the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Issuer shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Issuer.
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The indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Issuer in
accordance with the foregoing in which the Issuer is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Issuer is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Issuer under the indenture and the notes with the same effect as
if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of such Guarantee and the indenture in connection
with any transaction complying with the provisions of ("--Limitation on Asset
Sales") will not, and we will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than us or any other Guarantor
unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States, any State thereof, the
District of Columbia or the jurisdiction in which such Guarantor is
organized;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on its Guarantee;
(3) immediately after giving effect to such transaction on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing;
and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, we could satisfy the
provisions of clause (2) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into us (with the Issuer
being the surviving entity) or another Guarantor that is a Wholly Owned
Restricted Subsidiary of ours need only comply with clause (4) of the first
paragraph of this covenant.
Events of Default
The following events are defined in the indenture as ("Events of Default")
(1) the failure to pay interest on any note when the same becomes due and
payable and the default continues for a period of 30 days (whether or not
such payment shall be prohibited by the subordination provisions of the
indenture);
(2) the failure to pay the principal of any note when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer) (whether or not such
payment shall be prohibited by the subordination provisions of the
indenture);
(3) a default by us or any Restricted Subsidiary of ours in the
observance or performance of any other covenant or agreement contained in
the indenture which default continues for a period of 30 days after we
receive written notice specifying the default (and demanding that such
default be remedied) from the trustee or the holders of at least 25% of the
outstanding principal amount of the notes;
(4) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any of our Indebtedness or the Indebtedness of any of our Significant
Subsidiaries, or the acceleration of the final stated maturity of any such
Indebtedness by the holders thereof, if the aggregate principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final stated
maturity or which has been accelerated, exceeds $10.0 million or more at any
time;
(5) one or more judgments in an aggregate amount in excess of $10.0
million (exclusive of amounts covered by insurance other than
self-insurance) shall have been rendered against us or any of our Significant
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Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgments become final and non-appealable;
(6) certain events of bankruptcy affecting us or any of our Significant
Subsidiaries; or
(7) any Guarantee made by a Significant Subsidiary ceases to be in full
force and effect or any Guarantee made by a Significant Subsidiary is
declared to be null and void and unenforceable or any Guarantee made by a
Significant Subsidiary is found to be invalid or any such Guarantor denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to us) shall occur and be continuing, the trustee or the
holders of at least 25% in principal amount of outstanding notes may declare
the principal of and accrued interest on all the notes to be due and payable by
notice in writing to us and the trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same shall become immediately due and payable or if there are any
amounts outstanding under the Credit Agreement, it shall become immediately due
and payable upon the first to occur of an acceleration under the Credit
Agreement or five business days after receipt by us and the Representative
under the Credit Agreement of such Acceleration Notice (but only if such Event
of Default is then continuing).
If an Event of Default specified in clause (6) above with respect to us
occurs and is continuing, then all unpaid principal of and premium, if any, and
accrued and unpaid interest on all of the outstanding notes shall automatically
become and be immediately due and payable without any declaration or other act
on the part of the trustee or any holder.
The indenture provides that, at any time after a declaration of acceleration
with respect to the notes as described in the preceding paragraph, the holders
of a majority in principal amount of the notes may rescind and cancel such
declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;
(4) if we have paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default, the
trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission will affect any subsequent Default or Event of Default or
impair any right consequent thereto.
The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a Default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture and under the TIA. Subject to the provisions of the
indenture relating to the duties of the trustee, the trustee is under no
obligation to exercise any of its rights or powers under the indenture at the
request, order or direction of any of the holders, unless such holders have
offered to the trustee reasonable indemnity. Subject to all provisions of the
indenture and applicable law, the holders of a majority in aggregate principal
amount of the then outstanding
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notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee.
Under the indenture, we are required to provide an officers' certificate to
the trustee
. promptly upon any such officer obtaining knowledge of any Default or Event
of Default, describing such Default or Event of Default and the status
thereof, and
. annually, describing whether or not such officer knows of any Default or
Event of Default.
No Personal Liability of Directors, Officers, Employees, Members and
Stockholders
No Affiliate, director, officer, employee, limited liability company member
or stockholder of us or any Subsidiary, as such, shall have any liability for
any obligations of us or any Guarantor under the notes or the indenture or any
Guarantee 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 were part of the
consideration for issuance of the notes.
Legal Defeasance and Covenant Defeasance
We may at any time elect to have our obligations and the obligations of any
Guarantor discharged with respect to the outstanding notes ("Legal
Defeasance"). Such Legal Defeasance means that we will be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding notes,
except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are due;
(2) our obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the trustee and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may at any time elect to have our obligations released with
respect to certain covenants that are described in the indenture ("Covenant
Defeasance"). Any omission to comply with such obligations would then not
constitute a Default or Event of Default with respect to the notes. If Covenant
Defeasance occurs, our failure to perform these covenants will no longer
constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, we must deliver to the trustee an
opinion of counsel in the United States reasonably acceptable to the trustee
confirming that:
(a) we have received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the execution of the indenture, there has been
a change in the applicable Federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders will not recognize income, gain
or loss for Federal income tax purposes as a result of such
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Legal Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuer must deliver to the
trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that the holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such Covenant Defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance must not result in a
breach or violation of, or constitute a default under, the indenture, the
Credit Agreement or any other material agreement or instrument to which we
or any of our Subsidiaries is a party or by which we or any of our
Subsidiaries is bound;
(6) we must deliver to the trustee an officers| certificate stating that
the deposit was not made by us with the intent of preferring the holders
over any other of our creditors or with the intent of defeating, hindering,
delaying or defrauding any other of our creditors or others;
(7) we must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent to the Legal
Defeasance or the Covenant Defeasance were complied with;
(8) we must deliver to the trustee an opinion of counsel to the effect
that the trust funds will not be subject to any rights of holders of Senior
Debt, including, without limitation, those arising under the indenture, and
if no intervening bankruptcy of us occurs between the date of deposit and
the 91st day following the date of the deposit and no holder is an insider
of the Issuer, then after the 91st day following the date of the deposit the
trust funds will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law; and
(9) certain other customary conditions precedent are satisfied.
However, the opinion of counsel required by clause (2) above is not required
if all notes not theretofore delivered to the trustee for cancellation have
become due and payable, will become due and payable on the maturity date within
one year or are to be called for redemption within one year under arrangements
satisfactory to the trustee for the giving of notice of redemption by the
trustee in our name, and at our expense.
Satisfaction and Discharge
The indenture will be discharged when:
(1) either (a) all the notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by us and thereafter repaid to us or discharged
from such trust) have been delivered to the trustee for cancellation or (b)
all notes not theretofore delivered to the trustee for cancellation have
become due and payable upon redemption or maturity and we have irrevocably
deposited or caused to be deposited with the trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on the notes not
theretofore delivered to the trustee for cancellation, for principal of,
premium, if any, and interest on the notes to the date of deposit together
with irrevocable instructions from us directing the trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(2) we have paid all other sums payable under the indenture by us; and
(3) we have delivered to the trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the indenture
relating to the satisfaction and discharge of the indenture have been
complied with.
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When the indenture is discharged, it ceases to be of further effect except
for surviving rights of registration or transfer or exchange of the notes.
Modification of the Indenture
From time to time, we, the Guarantors and the trustee, without the consent
of the holders, may amend the indenture to cure ambiguities, defects or
inconsistencies, and to add guaranties to secure the notes or similar
provisions, so long as such change does not, in the good faith determination of
our Board of Directors, adversely affect the rights of any of the holders in
any material respect. In making its determination, our Board of Directors may
rely on such evidence as it deems appropriate. Other modifications and
amendments of the indenture may be made with the consent of the holders of a
majority in principal amount of the then outstanding notes issued under the
indenture, except that the consent of each holder affected thereby is required
to:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any notes, or change the date on which any notes may be
subject to redemption or reduce the redemption price therefor as described
under "--Redemption";
(4) make any notes payable in money other than that stated in the notes;
(5) make any changes in provisions of the indenture protecting the right
of each holder to receive payment of principal of and interest on such note
on or after the due date thereof or to bring suit to enforce such payment,
or permitting holders of a majority in principal amount of notes to waive
Defaults or Events of Default;
(6) modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the notes or any
Guarantee in a manner which adversely affects the holders;
(7) amend, change or modify in any material respect the obligation of the
Issuer to make and consummate a Change of Control Offer in the event of a
Change of Control which has occurred or modify any of the provisions or
definitions with respect thereto after a Change of Control has occurred;
(8) make any change in the foregoing amendment provisions which require
each holder|s consent or in the waiver provisions; or
(9) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the indenture other than in
accordance with the terms of the indenture.
However, no modification or amendment may be made to any provision of the
indenture or the related definitions affecting the subordination or ranking of
the notes or any Guarantee that adversely affects the rights of any holder of
Senior Debt of the Issuer then outstanding unless the holders of such Senior
Debt (or any group or Representative thereof authorized to give a consent)
consent to such amendment.
Governing Law
The indenture, the notes and any Guarantee will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
The Trustee
The Bank of New York is the trustee under the indenture and has been
appointed to act as registrar and paying agent with respect to the notes. The
indenture provides that, except during the continuance of an Event of
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Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
trustee will exercise such rights and powers vested in it by the indenture and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
If the trustee becomes a creditor of ours, the indenture and the provisions
of the TIA limit the rights of the trustee to obtain payments of its claims or
to realize on certain property received in respect of its claims. Subject to
the TIA, the trustee will be permitted to engage in other transactions;
however, if the trustee acquires any conflicting interest as described in the
TIA, it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. You should read the indenture for the full definition of all such
terms and any other terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries
(1) existing at the time such Person becomes a Restricted Subsidiary of
ours or at the time it merges or consolidates with us or any of our
Restricted Subsidiaries or
(2) assumed in connection with the acquisition of assets from such Person
in each case, not incurred by such Person in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of ours or such
acquisition, merger or consolidation.
"Affiliate" of any specified Person means any other Person who directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. "Controlling" and
"controlled" shall have correlative meanings. For purposes of the indenture,
IMC Global Inc. and its Affiliates are not deemed Affiliates of ours so long as
they beneficially own securities representing equal to or less than thirty-five
percent of the voting power of us or Holdings; provided that Apollo
beneficially owns securities representing a greater percentage of the voting
power of us or Holdings than IMC Global Inc. and its Affiliates.
"Apollo" means Apollo Management V, L.P. and its Affiliates.
"Applicable Premium" means, with respect to a note, the greater of
(1) 1.0% of the then outstanding principal amount of such note and
(2) (a) the present value of all remaining required interest and principal
payments due on such note and all premium payments relating to such
note assuming a redemption date of August 15, 2006, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, minus
(b) the then outstanding principal amount of such note minus
(c) accrued interest paid on the date of redemption.
"Asset Acquisition" means:
(1) an Investment by us or any of our Restricted Subsidiaries in any
other Person pursuant to which such Person shall become a Restricted
Subsidiary of us or any Restricted Subsidiary of ours, or shall be merged
with or into or consolidated with us or any Restricted Subsidiary of ours; or
102
(2) the acquisition by us or any of our Restricted Subsidiaries of the
assets of any Person (other than a Restricted Subsidiary of ours) which
constitute all or substantially all of the assets of such Person or comprise
any division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by us or any of our
Restricted Subsidiaries, including any Sale and Leaseback Transaction, to any
Person other than us or a Wholly Owned Restricted Subsidiary of ours of
. any Capital Stock of any Restricted Subsidiary of ours (other than
directors' qualifying shares); or
. any other property or assets of ours or any Restricted Subsidiary of ours
other than in the ordinary course of business.
Notwithstanding the preceding, the following items shall not be deemed Asset
Sales:
(1) a transaction or series of related transactions for which we or our
Restricted Subsidiaries receive aggregate consideration of less than $3.0
million;
(2) the sale or exchange of equipment in connection with the purchase or
other acquisition of other equipment, in each case used in our business and
that of our Restricted Subsidiaries;
(3) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of our assets that is permitted under "Merger,
Consolidation and Sale of Assets";
(4) disposals of equipment in connection with the reinvestment in or the
replacement of its equipment and disposals of worn-out or obsolete
equipment, in each case in the ordinary course of business of us or our
Restricted Subsidiaries;
(5) the sale of accounts receivable pursuant to a Qualified Receivables
Transaction;
(6) sales or grants of licenses to use our or any Restricted Subsidiary's
patents, trade secrets, know-how and technology to the extent that such
license does not prohibit the licensor from using the patent, trade secret,
know-how or technology;
(7) the disposition of any Capital Stock or other ownership interest in
or assets or property of an Unrestricted Subsidiary;
(8) Capacity Arrangements;
(9) any Restricted Payment permitted by the covenant described under
"Limitation on Restricted Payments" or that constitutes a Permitted
Investment; and
(10) one or more Sale and Leaseback Transactions for which we or any
Restricted Subsidiary of ours receives aggregate consideration of less than
$15 million.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such (person| has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition, regardless of when such right may be exercised.
"Board of Directors" of any Person means the board of directors or
equivalent governing board of such Person or any duty authorized committee
thereof.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of any Person to have been duty adopted by the Board
of Directors of such Person and to be in full force and effect on the date of
such certification, and delivered to the trustee.
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"Capacity Arrangements" means any agreement or arrangement involving,
relating to or otherwise facilitating, (a) requirement contracts, (b) tolling
arrangements or (c) the reservation or presale of production capacity of us or
our Restricted Subsidiaries by one or more third parties.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability of a Person under a capital lease
that would at that time be required to be capitalized on a balance sheet in
accordance with GAAP, with the stated maturity being the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Capital Stock" means:
(1) in the case of a corporation, any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents (however
designated and whether or not voting) of corporate stock; and
(2) with respect to any other Person, any and all partnership,
membership, limited liability company interests or other equity interests of
such Person.
"Cash Equivalents" means:
(1) U.S. dollars and, in the case of any of our Foreign Restricted
Subsidiaries, Euros and such local currencies held by them from time to time
in the ordinary course of business;
(2) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States, Canada and the United Kingdom or issued by
any agency of those countries and backed by the full faith and credit of the
respective country, in each case maturing within one year from the date of
acquisition;
(3) marketable direct obligations issued by any State of the United
States of America or any political subdivision of any such State or any
public instrumentality maturing within one year from the date of acquisition
and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services ("S&P") or Moody|s
Investors Service, Inc. ("Moody's") or, if Moody's and S&P cease to exist,
any other nationally recognized statistical rating organization designated
by our Board of Directors;
(4) commercial paper maturing no more than one year from the date it is
created and, at the time of acquisition, having a rating of at least A-1
from S&P or at least P-1 from Moody|s or, if Moody|s and S&P cease to exist,
the equivalent from any other nationally recognized statistical rating
organization designated by our Board of Directors;
(5) time deposits, certificates of deposit or bankers| acceptances
maturing within one year from the date of acquisition issued by any bank
organized under the laws of the United States of America or any State or the
District of Columbia or any foreign jurisdiction having at the date of
acquisition combined capital and surplus of at least $250.0 million;
(6) repurchase obligations with a term of not more than thirty days for
underlying securities of the types described in clause (2) above entered
into with any bank meeting the qualifications specified in clause (5) above;
(7) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (2) through (6)
above; and
(8) overnight deposits and demand deposit accounts (in the respective
local currencies) maintained in the ordinary course of business.
"Change of Control" means the occurrence of one or more of the following:
(1) any sale, lease, exchange, conveyance, disposition or other transfer,
in one or a series of related transactions, of all or substantially all of
our assets to any Person or group of related Persons for purposes of
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Section 13(d) of the Exchange Act (a (Group|), together with any Affiliates
of such Person, other than to the Permitted Holders;
(2) any approval, adoption or initiation of a plan or proposal for our
liquidation or dissolution;
(3) any Person or Group, together with any Affiliates, other than the
Permitted Holders, shall become the Beneficial Owner or owner of record, by
way of merger, consolidation or other business combinations or by purchase
in one transaction or a series of related transactions, of shares
representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of us or Holdings;
(4) any Person or Group, together with any Affiliates or Related Persons
thereof, other than Permitted Holders, shall succeed in having a sufficient
number of its nominees elected to the Board of Directors of us or Holdings
such that such nominees, when added to any existing director remaining on
our Board of Directors or that of Holdings after such election who was a
nominee of or is an Affiliate or Related Person of such Person or Group,
will constitute a majority of our Board of Directors or that of Holdings; or
(5) Holdings shall cease to own, directly or indirectly, a majority of
our Capital Stock.
"Commodity Agreement" means any commodity futures contract, commodity option
or other similar agreement or arrangement entered into by us or any of our
Restricted Subsidiaries designed to protect us or any of our Restricted
Subsidiaries against fluctuations in the price of the commodities at the time
used in the ordinary course of our business or the business of any of our
Restricted Subsidiaries.
"Common Stock" means any and all shares, interests or other participations
in, and other equivalents (however designated and whether voting or nonvoting)
of, such Person|s common stock, whether outstanding on the Issue Date or issued
after the Issue Date, including all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced by the
following,
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses),
(b) Consolidated Interest Expense, and
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period,
all as determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP as applicable.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial statements are available (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis
(consistent with the provisions below) for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation
105
and any incurrence or repayment of other Indebtedness (and the application
of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period
and on or prior to the Transaction Date, as if such incurrence or repayment,
as the case may be (and the application of the proceeds thereof), occurred
on the first day of the Four Quarter Period;
(2) any asset sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions,
adjustments and other operating improvements or synergies both achieved by
such Person during such period and to be achieved by such Person and with
respect to the acquired assets, all as determined in good faith by a
responsible financial or accounting officer, attributable to the assets
which are the subject of the Asset Acquisition or asset sale or other
disposition during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date, as if such asset sale or
other disposition or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first day
of the Four Quarter Period. If such Person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third
Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or any Restricted Subsidiary of
such Person had directly incurred or otherwise assumed such guaranteed
Indebtedness; and
(3) all adjustments used in connection with the calculation of pro forma
EBITDA and Adjusted EBITDA as set forth in the Prospectus to the extent such
adjustments are not fully reflected in such Four Quarter Period and continue
to be applicable.
Furthermore, in calculating (Consolidated Fixed Charges| for purposes of
determining the denominator (but not the numerator) of this (Consolidated Fixed
Charge Coverage Ratio,|
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations or Currency Agreements, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off of
deferred financing costs), plus
(2) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person or its Restricted Subsidiaries (other than
dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be
paid or accrued during such period times (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal.
106
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including, without limitation,
(a) any amortization of debt discount and amortization or write-off
of deferred financing costs (including the amortization of costs
relating to interest rate caps or other similar agreements),
(b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP, minus interest income for such period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that the following shall be excluded:
(1) after-tax gains or losses from Asset Sales (without regard to the
$3.0 million limitation set forth in the definition thereof) or abandonments
or reserves relating thereto;
(2) after-tax items which are extraordinary gains or losses or
nonrecurring gains, losses, expenses or income (including, without
limitation, expenses related to the Transactions, severance and transition
expenses incurred as a direct result of our transition to an independent
operating company in connection with the Transactions provided that with
respect to any nonrecurring item or transition expense, we deliver to the
trustee an officers' certificate specifying and quantifying such item or
expense and state that such item or expense is a general nonrecurring item
or specifically a severance or transition expense, as the case may be);
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued before the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person or
any Restricted Subsidiary of the referent Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is prohibited by
contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or distributions
paid to the referent Person or to a Restricted Subsidiary of the referent
Person by such Person;
(6) the establishment of accruals and reserves within twelve months after
the Issue Date that are required to be so established in accordance with
GAAP;
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued); and
(8) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person|s assets, any earnings of
the successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
(solely for the purpose of determining compliance with the (Limitation on
Restricted Payments| covenant, excluding any non-cash items for which a future
cash payment
107
will be required and for which an accrual or reserve is required by GAAP to be
made) of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement dated as of the Issue Date,
among us, Holdings, one or more of our Subsidiaries, the lenders party to the
Credit Agreement in their capacities as lenders and The Chase Manhattan Bank,
as administrative agent, together with the related documents (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and
restatement), supplemented or otherwise modified from time to time, including
any agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of ours as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us or
any Restricted Subsidiary of ours against fluctuations in currency values.
"Default" means an event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) Indebtedness under or in respect of the Credit Agreement; and
(2) any other Senior Debt the principal amount of which is at least $25.0
million and that we have designated as "Designated Senior Debt."
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control or an Asset Sale), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof (except, in each case, upon the occurrence of a Change of
Control or an Asset Sale) on or prior to the final maturity date of the notes;
provided that any class of Capital Stock of such Person that by its terms
authorizes such Person to satisfy its obligations thereunder by delivery of
Qualified Capital Stock shall not be deemed Disqualified Capital Stock.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of ours
incorporated or otherwise organized or existing under the laws of the United
States, any State or the District of Columbia.
"Equity Offering" means a public or private sale of Qualified Capital Stock
(other than on Form S-8) of the Issuer or Holdings or any other direct or
indirect parent of the Issuer; provided that with respect to any Equity
Offering by Holdings or any such other direct or indirect parent of the Issuer,
such person contributes the net cash proceeds from such Equity Offering to the
Issuer.
"Euros" means the single currency of the participating member states as
described in any legislative measures of the European Union for the
introduction of, change over to, or operation of, a single or unified European
currency.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statutes.
"Excluded Contribution" means Net Cash Proceeds received by us from (a)
contributions to our common equity capital and (b) the sale of our Qualified
Capital Stock, in each case designated as Excluded Contributions pursuant to an
officers' certificate executed on the date such capital contributions are made
or the date such
108
Qualified Capital Stock is sold, as the case may be, which are excluded from
the calculation set forth in clause (3) under "--Certain Covenants--Limitation
on Restricted Payments."
"fair market value" means with respect to any asset or property, the price
which could be negotiated in an arm|s-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined conclusively by our Board of Directors acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
our Board of Directors delivered to the trustee.
"Foreign Restricted Subsidiary" means any of our Restricted Subsidiaries
incorporated in any jurisdiction outside of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantee" means the guarantee by each Guarantor of the Issuer's
obligations under the indenture.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person,
including any obligation, direct or indirect, contingent or otherwise, of such
Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm|s-length terms and are entered into in the ordinary
course of business), to take-or-pay or to maintain financial statement
conditions or otherwise), or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part).
Notwithstanding the preceding, "guarantee" does not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means:
(1) each Domestic Restricted Subsidiary on the Issue Date;
(2) each New Domestic Restricted Subsidiary required to execute and
deliver a Guarantee pursuant to the (Limitation on Issuances of Guarantees
by Restricted Subsidiaries| and (Future Guarantors| covenants; and
(3) each of our Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees to be
bound by the terms of the indenture as a Guarantor,
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its Guarantee is released in accordance
with the terms of the indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or created, incurred or assumed
109
after the Issue Date, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the Indebtedness or pursuant to which the
Indebtedness is outstanding expressly provides that such Indebtedness shall not
be senior in right of payment to the Guarantee of such Guarantor. Without
limiting the generality of the foregoing, "Guarantor Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing by any Guarantor in respect of,
. all obligations of every nature of such Guarantor under, or with respect
to, the Credit Agreement, including, without limitation, obligations to
pay principal, premium and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (including guarantees
thereof);
. all Interest Swap Obligations (including guarantees thereof); and
. all obligations under Currency Agreements (including guarantees thereof),
in each case whether outstanding on or incurred after the Issue Date.
Notwithstanding the preceding, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Restricted Subsidiary of such
Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any director, officer or
employee of such Guarantor or any director, officer or employee of any
Subsidiary of such Guarantor (including, without limitation, amounts owed
for compensation);
(3) Indebtedness or other liabilities to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services
(other than if incurred under the Credit Agreement);
(4) Indebtedness represented by Disqualified Capital Stock or in respect
of Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (6) if the holder(s) of such
obligation or their representative shall have received an officers'
certificate of the Issuer to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness,
that the incurrence of the entire committed amount thereof at the date on
which the initial borrowing thereunder is made would not) violate such
provisions of the indenture);
(7) any Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to us or any Guarantor; and
(8) any Indebtedness or other Obligation which is, by its express terms,
subordinated in right of payment to any other Indebtedness or other
Obligation of such Guarantor;
provided, if any Guarantor Senior Debt is disallowed under Section 548 of Title
11, United States Code, or any applicable state fraudulent conveyance law, such
Guarantor Senior Debt shall nevertheless constitute Guarantor Senior Debt for
all purposes of the indenture.
"Holdings" means Salt Holdings Corporation, a Delaware corporation.
"Indebtedness" means with respect to any Person, any indebtedness of such
Person, without duplication, in respect of:
(1) all obligations for borrowed money, including, without limitation,
Senior Debt;
(2) all Obligations evidenced by bonds, debentures, notes or other
similar instruments;
110
(3) all Capitalized Lease Obligations;
(4) the deferred and unpaid purchase price of property, all conditional
sale obligations and all obligations under any title retention agreement,
but excluding trade accounts payable and other accrued liabilities arising
in the ordinary course of business;
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker|s acceptance or similar credit transaction;
(6) guarantees and other contingent Obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such Obligations being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under Currency Agreements or Commodity Agreements and
Interest Swap Obligations of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes of this definition of Indebtedness, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant
to the indenture, and if such price is based upon, or measured by, the fair
market value of such Disqualified Capital Stock, such fair market value shall
be determined reasonably and in good faith by the Board of Directors of the
issuer of such Disqualified Capital Stock. For purposes of the covenant
described above under the caption "Limitation on Incurrence of Additional
Indebtedness," in determining the principal amount of any Indebtedness to be
incurred by us or any Restricted Subsidiary or which is outstanding at any
date, the principal amount of any Indebtedness which provides that an amount
less than the principal amount shall be due upon any declaration of
acceleration shall be the accreted value of the Indebtedness at the date of
determination.
"Independent Financial Advisor" means a firm:
(1) which does not have a direct or indirect common equity interest in
us; and
(2) which, in the judgment of our Board of Directors, is otherwise
independent and qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit, including a guarantee, or capital contribution to
(by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued by, any Person.
"Investment" does not include extensions of trade credit by, prepayment of
expenses by, and receivables owing to, us and our Restricted Subsidiaries on
commercially reasonable terms in accordance with
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our normal trade practices or those of such Restricted Subsidiary, as the case
may be. For purposes of the "Limitation on Restricted Payments" covenant:
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary of ours at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary of ours and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary of ours at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of ours; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by us or any of our
Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions
or receipt of any such other amounts shall reduce the amount of any
Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income.
If we or any Restricted Subsidiary of ours sells or otherwise disposes of
any Common Stock of any direct or indirect Restricted Subsidiary of ours such
that, after giving effect to any such sale or disposition, such Person ceases
to be a Restricted Subsidiary of ours, we shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Common Stock of that Restricted Subsidiary not sold or disposed of.
"Issue Date" means November 28, 2001, the date of original issuance of the
old notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind, including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest.
"Management Agreement" means the Management Agreement dated as of the Issue
Date between us and Apollo.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
October 13, 2001, among IMC Global, Inc., Holdings, YBR Holdings LLC and YBR
Acquisition Corp.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by us or any of our Restricted Subsidiaries from such Asset
Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) any repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale;
(4) appropriate amounts to be provided by us or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by us
or such Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale; and
(5) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or joint ventures as a result of
such Asset Sale;
and (b) with respect to any issuance or sale of Capital Stock, the cash
proceeds of such issuance or sale, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' or initial purchasers' fees, discounts or
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commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Domestic Restricted Subsidiary" has the meaning set forth in the
"Future Guarantors" covenant.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Business" means the business of us and our Restricted
Subsidiaries as existing on the Issue Date and any other businesses that are
the same, similar or reasonably related, ancillary or complementary thereto and
reasonable extensions thereof.
"Permitted Holders" means Apollo and other Related Parties.
"Permitted Indebtedness" means, without duplication, each of the following
(1) Indebtedness under the notes issued in the offering and the exchange
notes and any Guarantees thereof;
(2) Indebtedness incurred pursuant to the Credit Agreement by us and our
Restricted Subsidiaries in an aggregate principal amount at any time
outstanding not to exceed $360.0 million less the amount of all repayments
of term debt and permanent commitment reductions under the Credit Agreement
with Net Cash Proceeds of Asset Sales applied thereto as required by the
"Limitation on Asset Sales" covenant; provided that the aggregate principal
amount of Indebtedness permitted to be incurred from time to time under this
clause (2) shall be reduced dollar for dollar by the amount of any
Indebtedness then outstanding under clause (12) below and provided further
that any Indebtedness incurred pursuant to the Credit Agreement on the Issue
Date shall be deemed to be incurred under this clause (2); and provided
further that the amount of Indebtedness permitted to be incurred pursuant to
the Credit Agreement in accordance with this clause (2) shall be in addition
to any Indebtedness to be incurred pursuant to the Credit Agreement in
reliance on and in accordance with clauses (10) and (16) below;
(3) other Indebtedness of us and our Restricted Subsidiaries outstanding
on the Issue Date (including, without limitation, Indebtedness incurred in
connection with the Transactions) reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions therein;
(4) Interest Swap Obligations of ours covering Indebtedness of us or any
of our Restricted Subsidiaries and Interest Swap Obligations of any
Restricted Subsidiary of ours covering Indebtedness of us or such Restricted
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect us and our Restricted Subsidiaries from fluctuations
in interest rates on Indebtedness incurred in accordance with the indenture
to the extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of us and our Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(6) Indebtedness of a Restricted Subsidiary of ours to us or to a
Restricted Subsidiary of ours for so long as such Indebtedness is held by
us, a Restricted Subsidiary of ours or the lenders or collateral agent under
the Credit Agreement, in each case subject to no Lien held by a Person other
than us, a Restricted Subsidiary of ours or the tenders or collateral agent
under the Credit Agreement; provided that if as of any date any Person other
than us, a Restricted Subsidiary of ours or the lenders or collateral agent
under the Credit Agreement owns or holds any such Indebtedness or holds a
Lien in respect of such Indebtedness,
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such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (6) by the issuer of such
Indebtedness;
(7) Indebtedness of us to a Restricted Subsidiary of ours for so long as
such Indebtedness is held by a Restricted Subsidiary of ours or the lenders
or the collateral agent under the Credit Agreement and is subject to no Lien
other than a Lien in favor of the lenders or collateral agent under the
Credit Agreement; provided that (a) any Indebtedness of us to any Restricted
Subsidiary of ours is unsecured and subordinated, pursuant to a written
agreement, to our obligations under the indenture and the notes and (b) if
as of any date any Person other than a Restricted Subsidiary of ours owns or
holds any such Indebtedness or any Person holds a Lien other than a Lien in
favor of the lenders or collateral agent under the Credit Agreement in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness under this clause (7)
by us;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(9) Indebtedness of us or any of our Restricted Subsidiaries in respect
of performance bonds, bankers' acceptances, workers' compensation claims,
surety or appeal bonds, payment obligations in connection with
self-insurance or similar obligations, and bank overdrafts (and letters of
credit in respect thereof);
(10) Indebtedness represented by Capitalized Lease Obligations, Purchase
Money Indebtedness or Acquired Indebtedness of us and our Restricted
Subsidiaries not to exceed $20.0 million in the aggregate at any one time
outstanding; provided that all or a portion of the $20.0 million permitted
to be incurred under this clause (10) may, at our option, be incurred under
the Credit Agreement or pursuant to clause (16) below (in addition to the
amount set forth therein) instead of pursuant to Capitalized Lease
Obligations, Purchase Money Indebtedness or Acquired Indebtedness;
(11) Indebtedness arising from agreements of ours or a Restricted
Subsidiary of ours providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees by us or a Restricted Subsidiary of ours of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing such
acquisition; provided, however, that:
(a) such Indebtedness is not reflected on our balance sheet or that
of any Restricted Subsidiary of ours (contingent obligations referred to
in a footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet
for purposes of this clause (a)); and
(b) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including the
fair market value of non-cash proceeds (the fair market value of such
non-cash proceeds being measured at the time it is received as
determined in good faith by our Board of Directors or that of the
Restricted Subsidiary, as applicable, and without giving effect to any
subsequent changes in value) actually received by us and our Restricted
Subsidiaries in connection with such disposition;
(12) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse (other than
pursuant to representations, warranties, covenants and indemnities entered
into in the ordinary course of business in connection with a Qualified
Receivables Transaction) to us or to any Restricted Subsidiary of ours or
its assets (other than such Receivables Subsidiary and its assets), and is
not guaranteed by any such Person; provided that any outstanding
Indebtedness incurred under this clause (12) shall reduce (for so long as,
and to the extent that, the Indebtedness referred to in this clause (12)
remains outstanding) the aggregate amount permitted to be incurred under
clause (2) above to the extent set forth therein;
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(13) Indebtedness under Commodity Agreements;
(14) guarantees of Indebtedness of (a) any Restricted Subsidiary of ours
by us and our Restricted Subsidiaries, including agreements of ours to
keep-well or maintain financial statement conditions of any Restricted
Subsidiary of ours, and (b) us incurred pursuant to the Credit Agreement or
pursuant to clauses (4) and (5) above by any Restricted Subsidiary of ours;
(15) Refinancing Indebtedness;
(16) additional Indebtedness of us and our Restricted Subsidiaries in an
aggregate principal amount not to exceed $50.0 million at any one time
outstanding (which amount may, but need not, be incurred in whole or in part
under the Credit Agreement) plus up to an additional amount as contemplated
by, and to the extent not incurred under, clause (10) above; and
(17) Indebtedness of us or any of our Restricted Subsidiaries consisting
of (x) the financing of insurance premiums in the ordinary course of
business or (y) take-or-pay obligations contained in supply arrangements
entered into in the ordinary course of business and on a basis consistent
with past practice.
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant,
(a) in the event that an item of Indebtedness meets the criteria of more
than one of the categories of Permitted Indebtedness described in clauses
(1) through (17) above or is entitled to be incurred pursuant to the
Consolidated Fixed Charge Coverage Ratio provisions of such covenant, we
shall, in our sole discretion, classify (or later reclassify) such item of
Indebtedness in any manner that complies with such covenant,
(b) accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms or in the form of Capital Stock,
the payment of dividends on Disqualified Capital Stock in the form of
additional shares of the same class of Disqualified Capital Stock and
increases in the amount of Indebtedness outstanding solely as a result of
fluctuations in the exchange rate of currencies will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Capital Stock for
purposes of the "Limitation on Incurrence of Additional Indebtedness"
covenant,
(c) guarantees of, or obligations in respect of letters of credit
relating to, Indebtedness which is otherwise included in the determination
of a particular amount of Indebtedness shall not be included,
(d) if obligations in respect of letters of credit are incurred pursuant
to the Credit Agreement and are being treated as incurred pursuant to clause
(2) above and the letters of credit relate to other Indebtedness, then such
other Indebtedness shall not be included, and
(e) if such Indebtedness is denominated in a currency other than U.S.
dollars, the U.S. dollar equivalent principal amount thereof will be
calculated based on the relevant currency exchange rates in effect on the
date such Indebtedness was incurred.
"Permitted Investments" means:
(1) Investments by us or any Restricted Subsidiary of ours in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary of ours or that will merge or consolidate into us or a Restricted
Subsidiary of ours; provided that such Restricted Subsidiary of ours is not
restricted from making dividends or similar distributions by contract,
operation of law or otherwise other than as permitted by the "Limitations on
Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant;
(2) Investments in us by any Restricted Subsidiary of ours; provided that
any Indebtedness evidencing such Investment is unsecured and subordinated,
pursuant to a written agreement, to our obligations under the notes and the
indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of us and our Restricted
Subsidiaries made (a) in the ordinary course of business for bona fide
business purposes not to exceed $5.0 million in the aggregate at
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any one time outstanding or (b) to fund purchases of Capital Stock of
Holdings or us under any stock option plan or similar employment
arrangements so long as no cash is actually advanced by us or any of our
Restricted Subsidiaries to such employees and officers to fund such
purchases;
(5) Currency Agreements, Commodity Agreements and Interest Swap
Obligations entered into in the ordinary course of our or our Restricted
Subsidiaries' businesses and otherwise in compliance with the indenture;
(6) Investments in securities of trade creditors or customers received
(a) pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers or
(b) in settlement of delinquent obligations of, and other disputes
with, customers, suppliers and others, in each case arising in the
ordinary course of business or otherwise in satisfaction of a judgment;
(7) Investments
(a) made by us or our Restricted Subsidiaries consisting of
consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(b) consisting of consideration received by us or any of our
Restricted Subsidiaries in connection with a transaction that would be
an Asset Sale if it consisted of aggregate consideration received by us
or any of our Restricted Subsidiaries of $3.0 million or more; or
(c) acquired in exchange for, or out of the proceeds of a
substantially concurrent offering of, our Capital Stock (other than
Disqualified Capital Stock) (which proceeds of any such offering of our
Capital Stock shall not have been, and shall not be, included in clause
(3)(b) of the first paragraph of the "Limitation on Restricted Payments"
covenant);
(8) Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of ours or at the time such
Person merges or consolidates with us or any of our Restricted Subsidiaries,
in either case in compliance with the indenture; provided that such
Investments were not made by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of ours or such merger or consolidation;
(9) Investments in the notes;
(10) Investments in existence on the Issue Date (including, without
limitation, Investments made in connection with the Transactions);
(11) guarantees of Indebtedness to the extent permitted pursuant to the
"Limitation on Incurrence of Additional Indebtedness", "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" and "Future Guarantors"
covenants; and
(12) additional Investments (including Investments in joint ventures and
Unrestricted Subsidiaries) not to exceed $35.0 million at any one time
outstanding.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims that
are either (a) not delinquent or (b) being contested in good faith by
appropriate proceedings and as to which we or our Restricted Subsidiaries
shall have set aside on their books such reserves, if any, as shall be
required pursuant to
. GAAP in the case of a Domestic Restricted Subsidiary, and
. generally accepted accounting principles in effect from time to time
in the applicable jurisdiction, in the case of a Foreign Restricted
Subsidiary;
(2) statutory and common law Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen, customs and
revenue authorities and other Liens imposed by law
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incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duty initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) licenses, sublicenses, leases, subleases, easements, rights-of-way,
zoning restrictions and other similar charges or encumbrances in respect of
property not interfering in any material respect with the ordinary conduct
of our business and that of our Restricted Subsidiaries, taken as a whole;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease; provided that such Liens do not extend to any
property or asset which is not leased property subject to such Capitalized
Lease Obligation or operating lease;
(7) Liens securing Indebtedness permitted pursuant to clause (10) of the
definition of "Permitted Indebtedness"; provided, however, that in the case
of Purchase Money Indebtedness (a) the Indebtedness shall not exceed the
cost of such property or assets and shall not be secured by any property or
assets of ours or any Restricted Subsidiary of ours other than the property
and assets so acquired or constructed and any improvements thereon and (b)
the Lien securing such Indebtedness shall be created within 180 days of such
acquisition or construction or, in the case of a refinancing of any Purchase
Money Indebtedness, within 180 days of such refinancing;
(8) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances or similar credit transactions issued or created for the account
of such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of us or any of
our Restricted Subsidiaries, including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations so long as the Interest
Swap Obligations relate to Indebtedness that is otherwise permitted under
the indenture;
(12) Liens in the ordinary course of business not exceeding $10.0 million
at any one time outstanding that (a) are not incurred in connection with
borrowing money and (b) do not materially detract from the value of the
property or materially impair its use;
(13) Liens by reason of judgment or decree not otherwise resulting in an
Event of Default;
(14) Liens securing Indebtedness permitted to be incurred pursuant to
clauses (12) and (16) of the definition of "Permitted Indebtedness";
(15) Liens securing Indebtedness under Currency Agreements and Commodity
Agreements permitted under the indenture;
(16) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with
importation of goods;
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(17) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by us or any of
our Restricted Subsidiaries in the ordinary course of business;
(18) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant (including,
without limitation, clause (10) of the definition of "Permitted
Indebtedness"); provided that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by us or a
Restricted Subsidiary of ours and were not granted in connection with,
or in anticipation of, the incurrence of such Acquired Indebtedness by
us or a Restricted Subsidiary of ours; and
(b) such Liens do not extend to or cover any property or assets of
ours or of any of our Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of ours or a Restricted
Subsidiary of ours and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by us or a Restricted Subsidiary of ours; and
(19) Liens securing insurance premium financing arrangements; provided
that such Lien is limited to the applicable insurance contracts.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof or any other entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of us and our Restricted
Subsidiaries incurred in the normal course of business for the purpose of
financing all or any part of the purchase price, or the cost of installation,
construction or improvement, of property or equipment or other related assets
and any Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by us or any of our Restricted
Subsidiaries in which we or any of our Restricted Subsidiaries may sell, convey
or otherwise transfer to (1) a Receivables Subsidiary (in the case of a
transfer by us or any of our Restricted Subsidiaries) and (2) any other Person
(in the case of a transfer by a Receivables Subsidiary), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of us or any of our Restricted Subsidiaries, and any related
assets, including all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets (including
contract rights) which are customarily transferred or in respect of which
security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Recapitalization" means the recapitalization of us and Holdings as
described herein.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of ours
that engages in no activities other than in connection with the financing of
accounts receivable and that is designated by our Board of Directors (as
provided below) as a Receivables Subsidiary:
(1) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which
(a) is guaranteed by us or any Restricted Subsidiary of ours
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to representations, warranties,
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covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction),
(b) is recourse to or obligates us or any Restricted Subsidiary of
ours in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction or
(c) subjects any property or asset of ours or of any Restricted
Subsidiary of ours, directly or indirectly, contingently or otherwise,
to the satisfaction thereof, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary
course of business in connection with a Qualified Receivables
Transaction;
(2) with which neither we nor any Restricted Subsidiary of ours has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to us or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of ours,
other than fees payable in the ordinary course of business in connection
with servicing accounts receivable; and
(3) with which neither we nor any Restricted Subsidiary of ours has any
obligation to maintain or preserve such Restricted Subsidiary's financial
condition or cause such Restricted Subsidiary to achieve certain levels of
operating results.
Any such designation by our Board of Directors shall be evidenced to the
trustee by filing with the trustee a Board Resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the preceding conditions.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by us or any Restricted
Subsidiary of ours of (A) for purposes of clause (15) of the definition of
"Permitted Indebtedness," Indebtedness incurred or existing in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13) or
(14) of the definition of "Permitted Indebtedness") or (B) for any other
purpose, Indebtedness incurred in accordance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, in each case that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium, accrued interest and defeasance costs
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable fees, expenses, discounts and
commissions incurred by us in connection with such Refinancing); or
(2) create Indebtedness with
(a) if the Indebtedness being Refinanced was incurred pursuant to
clause (3) of the definition of "Permitted Indebtedness," a Weighted
Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or a final maturity
earlier than the final maturity of the Indebtedness being Refinanced or
(b) if the Indebtedness being Refinanced was otherwise incurred in
accordance with the definition of "Permitted Indebtedness" or with the
(Limitation on Incurrence of Additional Indebtedness' covenant, a
Weighted Average Life to Maturity that is less than the Weighted Average
Life to Maturity of the notes or a final maturity earlier than the final
maturity of the notes;
provided that--
. if such Indebtedness being Refinanced is solely our Indebtedness, then
such Refinancing Indebtedness shall be solely our Indebtedness and
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. if such Indebtedness being Refinanced is subordinate or junior to the
notes, then such Refinancing Indebtedness shall be subordinate to the
notes at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Related Parties" of a specified Person means
(a) if a natural person, (1) any spouse, parent or lineal descendant
(including by adoption) of such Person or (2) the estate of such Person
during any period in which such estate holds Capital Stock of us or of
Holdings for the benefit of any Person referred to in clause (a)(1) and
(b) if a trust, corporation, partnership, limited liability company or
other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially owning an interest of more than 50% of which consist of such
Person and/or such other Persons referred to in the immediately preceding
clause (a).
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a Representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to us or a Restricted Subsidiary of ours of any property, whether owned
by us or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by us or such Restricted Subsidiary to
such Person or to any other Person from whom funds have been or are to be
advanced by such Person on the security of such property other than:
(a) arrangements between us and a Wholly Owned Restricted Subsidiary of
ours or between Wholly Owned Restricted Subsidiaries of ours or
(b) any arrangement whereby the transfer involves fixed or capital assets
and is consummated within 120 days after the date we or a Restricted
Subsidiary acquire or finish construction of such fixed or capital assets.
"Senior Debt" means the principal of, premium, if any, and accrued and
unpaid interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy or other like proceeding at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any of our Indebtedness, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes. Without
limiting the generality of the preceding sentence, "Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of petition of bankruptcy or other like
proceeding at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing by us in respect of,
. all of our obligations of every nature (including guarantees thereof)
under, or with respect to, the Credit Agreement, including, without
limitation, obligations to pay principal, premium and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities;
. all Interest Swap Obligations (including guarantees thereof); and
. all obligations under Currency Agreements and Commodity Agreements
(including guarantees thereof), in each case whether outstanding on or
incurred after the Issue Date.
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Notwithstanding the preceding, "Senior Debt" shall not include:
(1) any Indebtedness of us to any of our Subsidiaries;
(2) Indebtedness to, or guaranteed on behalf of, any director, officer or
employee of ours or any director, officer or employee of any Subsidiary of
ours (including, without limitation, amounts owed for compensation);
(3) Indebtedness or other liabilities to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services
(other than if incurred under the Credit Agreement);
(4) Indebtedness represented by Disqualified Capital Stock or in respect
of Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by us;
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (unless the holder(s) of such obligation or their
representative shall have received an officers' certificate from us to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse
to us; and
(8) any Indebtedness or other Obligation which is, by its express terms,
subordinated in right of payment to any of our other Indebtedness or other
Obligation;
provided, if any Senior Debt is disallowed under Section 548 of Title 11,
United States Code, or any applicable state fraudulent conveyance law, such
Senior Debt shall nevertheless constitute Senior Debt of all purposes of the
indenture.
"Senior Subordinated Debt" means, with respect to a Person, the notes and
any other Indebtedness of such Person that specifically provides that such
Indebtedness is to rank on an equal basis with the notes in right of payment
and is not subordinated by its terms in right of payment to any Indebtedness or
other obligations of such Person which are not Senior Debt of such Person.
"Significant Subsidiary," means (1) any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Regulation S-X under the Securities
Act as such Regulation is in effect on the Issue Date and (2) any Restricted
Subsidiary that, when aggregated with all other Restricted Subsidiaries that
are not otherwise Significant Subsidiaries and as to which any event described
in clause (5), (6) or (7) under "Events of Default" has occurred and is
continuing, would constitute a Significant Subsidiary under clause (1) of this
definition.
"Subsidiary," with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person or a Subsidiary of such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person or a Subsidiary of such Person.
"Transactions" means the offering of the notes, the Recapitalization and the
related borrowings under the Credit Agreement on the Issue Date.
"Treasury Rate" means the rate per annum equal to the yield to maturity at
the time of computation of United States Treasury securities with a constant
maturity most nearly equal to the period from such date of
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redemption to August 15, 2006; provided, however, that if the period from such
date of redemption to August 15, 2006 is not equal to the constant maturity of
a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from such date of redemption to August 15, 2006 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (1) any Subsidiary of any Person that is
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (2) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary, including any
newly acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary
only if:
. such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, us or any other Subsidiary of ours that is not a
Subsidiary of the Subsidiary to be so designated;
. either (1) we certify to the trustee in an officers' certificate that such
designation complies with the "Limitation on Restricted Payments" covenant
or (2) the Subsidiary to be so designated at the time of designation has
total consolidated assets of $1,000 or less; and
. each Subsidiary to be so designated and each of its Subsidiaries has not
and does not after the time of designation, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has recourse to any of
our assets or those of any of our Restricted Subsidiaries (other than the
assets of such Unrestricted Subsidiary).
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if
. immediately after giving effect to such designation, we are able to incur
at least $1.00 of additional Indebtedness (other than Permitted
indebtedness) in compliance with the "Limitation on Incurrence of
Additional indebtedness" covenant and
. immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the trustee by promptly filing with the trustee a copy of the
Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the then outstanding aggregate principal amount of such Indebtedness
into
(2) the sum of the total of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of such
payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a Foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of one or more fully
registered notes in global form ("Global Notes"). Ownership of beneficial
interests in a Global Note will be limited to persons who have accounts with
DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in a Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such Global Note for all
purposes under the indenture and the exchange notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the indenture.
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof.
Neither Compass Minerals Group, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note as shown on the records of DTC or
its nominee. We also expect that payments by participants to owners of
beneficial interests in such Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
We expect that DTC will take any action permitted to be taken by a holder of
exchange notes (including the presentation of exchange notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of exchange notes as to which
such participant or participants has or have given such direction. However, if
there is an Event of Default under the notes, DTC will exchange the applicable
Global Note for Certificated Notes, which it will distribute to its
participants.
We understand that: DTC is a limited purpose trust company organized under
the laws of the State of New York, a "banking organization" within the meaning
of New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and trust
companies and certain other organizations that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither Compass Minerals
Group nor the Trustee will have any responsibility for the performance by DTC
or its respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
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If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by Compass
Minerals Group within 90 days, we will issue Certificated Notes in exchange for
the Global Notes. Holders of an interest in a Global Note may receive
Certificated Notes in accordance with the DTC's rules and procedures in
addition to those provided for under the Indenture.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for old notes
where such old notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the Expiration Date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 2002, all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have 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 brokers or dealers and will indemnify the
holders of the notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the exchange notes in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of exchange notes are made. Any resale of the exchange notes in Canada
must be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the exchange notes.
Representations of Purchasers
By exchanging old notes for exchange notes in Canada, the holder is
representing to us that (1) the holder is entitled under applicable provincial
securities laws to exchange the old notes for exchange notes without the
benefit of a prospectus qualified under those securities laws, (2) where
required by law, that the holder is exchanging as principal and not as agent,
and (3) the holder has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the statutory right of action prescribed by Ontario
securities law. As a result, Ontario purchasers must rely on other remedies
that may be available, including common law rights of action for damages or
rescission or rights of action under the civil liability provisions of the U.S.
federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Taxation and Eligibility for Investment
Canadian holders of exchange notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the exchange
notes in their particular circumstances and about the eligibility of the
exchange notes for investment by the holder under relevant Canadian legislation.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences (a) expected to result to holders whose old notes are exchanged
for the exchange notes in this exchange offer and (b) relevant to the ownership
and disposition of the exchange notes by persons who hold the exchange notes as
a capital asset, generally for investment, as defined in section 1221 of the
Internal Revenue Code of 1986, as amended. This summary does not consider
state, local or foreign tax laws. In addition, it does not include all of the
rules which may affect the United States tax treatment of your investment in
the notes. For example, special rules not discussed herein may apply to you if
you are:
. a broker-dealer or a dealer in securities or currencies;
. an S corporation
. a bank, thrift or other financial institution;
. a regulated investment company or a real estate investment trust;
. an insurance company;
. a tax-exempt organization;
. subject to the alternative minimum tax provisions of the Internal Revenue
Code;
. holding the notes as a part of a hedge, straddle, conversion or other risk
reduction or constructive sale transaction;
. holding the notes through a partnership or similar pass-through entity;
. a person with a "functional currency" other than the U.S. dollar; or
. a United States expatriate.
The discussion is based on the following materials, all as of the date
hereof:
. the Internal Revenue Code;
. current, temporary and proposed Treasury Regulations promulgated under the
Internal Revenue Code;
. the legislative history of the Internal Revenue Code;
. current administrative interpretations and practices of the Internal
Revenue Service; and
. court decisions.
Legislation, judicial decisions, or administrative changes may be
forthcoming that could effect the accuracy of the statements included in this
summary, possibly on a retroactive basis. We have not requested, and do not
plan to request, any rulings from the Internal Revenue Service concerning the
tax consequences of exchange of the old notes for the exchange notes or the
purchase, ownership or disposition of the exchange notes. The statements set
forth below are not binding on the Internal Revenue Service or any court. Thus,
we can provide no assurance that the statements set forth below will not be
challenged by the Internal Revenue Service, or that they would be sustained by
a court if they were so challenged.
We urge you to consult your own tax advisor concerning the tax consequences
of the exchange of the old notes for the exchange notes and of holding and
disposing of the exchange notes, including the United States federal, state,
local and other tax consequences and potential changes in the tax laws.
The Exchange
The exchange of the old notes for the exchange notes in the exchange offer
will not be treated as an "exchange" for federal income tax purposes, because
the exchange notes will not be considered to differ materially in kind or
extent from the old notes. Accordingly, the exchange of old notes for exchange
notes will not be a taxable event to holders for federal income tax purposes.
Moreover, the exchange notes will have the same tax attributes as the old notes
and the same tax consequences to holders as the old notes have to holders,
including without limitation, the same issue price, adjusted issue price,
adjusted tax basis and holding period. Therefore, references to "notes" apply
equally to the exchange notes and the old notes.
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United States Holders
If you are a "United States Holder", as defined below, this section applies
to you and summarizes certain United States federal income tax consequences of
the ownership and disposition of the notes. Otherwise, the next section,
"Non-United States Holders", applies to you. You are a "United States Holder"
if you hold notes and you are:
. a citizen or resident of the United States;
. a corporation or partnership or other entity taxable as a corporation or
partnership created or organized in or under the law of the United States,
any state thereof or the District of Columbia;
. an estate the income of which is subject to United States federal income
tax regardless of its source;
. a trust, if either (i) a court within the United States is able to
exercise primary supervision over the administration of the trust, and one
or more United States persons have the authority to control all
substantial decisions of the trust or (ii) the trust was in existence on
August 20, 1996, was treated as a United States person on that date and
has elected to be treated as a United States person at all times
thereafter; or
. otherwise subject to United States federal income tax on your worldwide
income on a net income basis.
If a partnership or other entity taxable as a partnership holds the notes,
the tax treatment of a partner will generally depend on the status of the
partner and the activities of the partnership. Such partner should consult its
tax advisors as to its tax consequences.
Payments of Interest
You must generally include the interest on the notes in ordinary income:
. when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
. when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
Market Discount
If a United States Holder acquires a note at a cost that is less than the
stated redemption price (i.e. the principal) at maturity of the notes, the
amount of such difference is treated as "market discount" for federal income
tax purposes, unless such difference is less than .0025 multiplied by the
stated redemption price at maturity multiplied by the number of complete years
to maturity (from the date of acquisition).
Under the market discount rules of the Internal Revenue Code, you are
required to treat any gain on the sale, exchange, retirement or other
disposition of a note as ordinary income to the extent of the accrued market
discount that has not previously been included in income. Thus, principal
payments and payments received upon the sale or exchange of a note are treated
as ordinary income to the extent of accrued market discount that has not
previously been included in income. If you dispose of a note with market
discount in certain otherwise nontaxable transactions, you must include accrued
market discount as ordinary income as if you had sold the note at its then fair
market value.
In general, the amount of market discount that has accrued is determined on
a ratable basis. A United States Holder may, however, elect to determine the
amount of accrued market discount on a constant yield to maturity basis. This
election is made on a note-by-note basis and is irrevocable.
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With respect to notes with market discount, you may not be allowed to deduct
immediately a portion of the interest expense on any indebtedness incurred or
continued to purchase or to carry the notes. A United States Holder may elect
to include market discount in income currently as it accrues, in which case the
interest deferral rule set forth in the preceding sentence will not apply. This
election will apply to all debt instruments that a United States Holder
acquires on or after the first day of the first taxable year to which the
election applies and is irrevocable without the consent of the Internal Revenue
Service. A United States Holder's tax basis in a note will be increased by the
amount of market discount included in the holder's income under the election.
Amortizable Bond Premium
If a United States Holder purchases a note for an amount in excess of the
stated redemption price at maturity, the holder will be considered to have
purchased the note with "amortizable bond premium" equal in amount to the
excess. Generally, a United States Holder may elect to amortize the premium as
an offset to interest income otherwise required to be included in income in
respect of the note during the taxable year, using a constant yield method
similar to that described above, over the remaining term of the note. Under
Treasury Regulations, the amount of amortizable bond premium that a United
States Holder may deduct in any accrual period is limited to the amount by
which the holder's total interest inclusions on the note in prior accrual
periods exceed the total amount treated by the holder as a bond premium
deduction in prior accrual periods. If any of the excess bond premium is not
deductible, that amount is carried forward to the next accrual period. A United
States Holder who elects to amortize bond premium must reduce the holder's tax
basis in the note by the amount of the premium used to offset interest income
as set forth above. An election to amortize bond premium applies to all taxable
debt obligations then owned and thereafter acquired by the United States Holder
and may be revoked only with the consent of the Internal Revenue Service.
Sale or Other Taxable Disposition of the Notes
You must recognize taxable gain or loss on the sale, exchange, redemption,
retirement or other taxable disposition of a note. The amount of your gain or
loss equals the difference between the amount you receive for the note (in cash
or other property, valued at fair market value), minus the amount, if any,
attributable to accrued but unpaid interest, minus your adjusted tax basis in
the note. Your tax basis in a note will initially equal the price you paid for
the note and will be subsequently increased by market discount previously
included in income in respect of the note and will be reduced by any
amortizable bond premium in respect of the note which has been taken into
account.
Your gain or loss will generally be capital gain or loss except as described
under "Market Discount" above. The capital gain or loss will be long-term
capital gain or loss, if you have held the notes for more than one year.
Otherwise, it will be short-term capital gain or loss. Payments attributable to
accrued but unpaid interest which you have not yet included in income will be
taxed as ordinary interest income. The deductibility of capital losses is
subject to limitations.
Backup Withholding and Information Reporting
Backup withholding at a rate of up to 31% may apply when you receive
interest payments on a note or proceeds upon the sale or other disposition of a
note. Certain holders, including among others, corporations, financial
institutions and certain tax-exempt organizations, are generally not subject to
backup withholding. In addition, backup withholding will not apply to you if
you provide your social security number or other taxpayer identification number
in the prescribed manner unless:
. the Internal Revenue Service notifies us or our agent that the taxpayer
identification number provided is incorrect;
128
. you fail to report interest and dividend payments that you receive on your
tax return and the Internal Revenue Service notifies us or our agent that
backup withholding is required; or
. you fail to certify under penalties of perjury that backup withholding
does not apply to you.
If backup withholding applies to you, you may use the amount withheld as a
refund or credit against your United States federal income tax liability as
long as you provide the required information timely to the Internal Revenue
Service. United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining the exemption.
We will be required to furnish annually to the Internal Revenue Service and
to holders of notes information relating to the amount of interest paid on the
notes. Some holders, including corporations, financial institutions and certain
tax-exempt organizations, are generally not subject to information reporting.
Non-United States Holders
As used herein, a "Non-United States Holder" is a person or entity that, for
United States federal income tax purposes, is not a United States Holder.
Payments of Interest
If you are a Non-United States Holder, interest paid to you will not be
subject to United States federal income taxes or withholding taxes if the
interest is not effectively connected with your conduct of a trade or business
within the United States, and you:
. do not actually, indirectly or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote;
. are not a controlled foreign corporation with respect to which we are a
"related person" within the meaning of section 864(d)(4) of the Internal
Revenue Code;
. are not a bank receiving interest pursuant to a loan agreement entered
into in the ordinary course of your trade or business, and
. provide appropriate certification.
You can generally meet the certification requirement by providing a properly
executed Form W-BEN or appropriate substitute form to us, or our paying agent.
If you hold the notes through a financial institution or other agent acting on
your behalf, you may be required to provide appropriate documentation to your
agent.
Your agent will then generally be required to provide appropriate
certifications to us or our paying agent, either directly or through other
intermediaries. Special certification rules apply to foreign partnerships,
estates and trusts, and in certain circumstances certifications as to foreign
status of partners, trust owners or beneficiaries may have to be provided to us
or our paying agent.
If you do not qualify for an exemption under these rules, interest income
from the notes may be subject to withholding tax at the rate of 30% (or lower
applicable treaty rate) at the time it is paid. The payment of interest
effectively connected with your United States trade or business, however, would
not be subject to a 30% withholding tax so long as you provide us or our agent
an adequate certification (currently on Form W-8ECI), but such interest would
be subject to United States federal income tax on a net basis at the rates
applicable to United States persons generally. In addition, if you are a
foreign corporation and the payment of interest is effectively connected with
your United States trade or business, you may also be subject to a 30% (or
lower applicable treaty rate) branch profits tax.
129
Sale or Other Taxable Disposition of Notes
If you are a Non-United States Holder, you generally will not be subject to
United States federal income tax on any amount which constitutes capital gain
upon retirement or disposition of a note, unless:
. your investment in the note is effectively connected with your conduct of
a United States trade or business; or
. you are a nonresident alien individual and are present in the United
States for 183 or more days in the taxable year within which such sale or
other taxable disposition takes place and certain other requirements are
met.
If you have a United States trade or business and the investment in the
notes is effectively connected with that trade or business, the payment of the
sale proceeds with respect to the notes would be subject to United States
federal income tax on a net income basis at the rate applicable to United
States Holders generally. In addition, foreign corporations may be subject to a
30% (or lower applicable treaty rate) branch profits tax if the investment in
the note is effectively connected with the foreign corporation's United States
trade or business.
Backup Withholding and Information Reporting
No backup withholding or information reporting will generally be required
with respect to interest paid to Non-United States Holder of notes if the
beneficial owner of the note provides the certification described above in
"Non-United States Holder--Payments of Interest" or is an exempt recipient and,
in each case, the payor does not have actual knowledge or reason to know that
the beneficial owner is a United States Holder. Information reporting
requirements and backup withholding tax generally will not apply to any
payments of the proceeds of the sale of a note effected outside the United
States by a foreign office of a foreign broker (as defined in applicable
Treasury Regulations). However, unless such broker does not have actual
knowledge or reason to know that the beneficial owner is a United States Holder
and has documentary evidence in its records that the beneficial owner is a
Non-United States Holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption, information reporting but
not backup withholding will apply to any payment of the proceeds of the sale of
a note effected outside the United States by such broker if it:
. is a United States person, as defined in the Internal Revenue Code;
. is a foreign person and it derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States;
. is a controlled foreign corporation for United States federal income tax
purposes; or
. is a foreign partnership that, at any time during its taxable year, has
more than 50% of its income or capital interests owned by United States
persons or is engaged in the conduct of a United States trade or business.
Payments of the proceeds of any sale of a note effected by the United States
office of a broker will be subject to information reporting and backup
withholding requirements, unless the beneficial owner of the note provides the
certification described above in "Non-United States Holders' Payments of
Interest" or otherwise establishes an exemption.
If you are a Non-United States Holder of notes, you should consult your tax
advisor regarding the application of information reporting and backup
withholding in your particular situation, the availability of an exemption
therefrom and the procedures for obtaining the exemption, if available. Any
amounts withheld from payment to you under the backup withholding rules will be
allowed as a refund or credit against your federal income tax liability,
provided that the required information is furnished timely to the Internal
Revenue Service.
130
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Latham &
Watkins, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our combined financial
statements at December 31, 1999 and 2000, and for the nine month fiscal period
ended December 31, 1998 and for each of the two years in the period ended
December 31, 2000, as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
Under the terms of the indenture, we have agreed that, whether or not
required by the rules and regulations of the SEC, so long as any notes are
outstanding, we will furnish to the trustee and the holders of notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes our financial condition and results of operations
and our consolidated subsidiaries and, with respect to the annual information
only, a report thereon by our independent auditors and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K. In addition,
whether or not required by the rules and regulations of the SEC, we will file a
copy of all such information and reports with the SEC for public availability
(unless the SEC will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, we have agreed that, for so long as any notes remain outstanding, we
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.
131
IMC INORGANIC CHEMICALS INC.
(to be renamed COMPASS MINERALS GROUP, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
----
IMC Inorganic Chemicals Inc.
Report of Independent Auditors.......................................... F-2
Combined Balance Sheets as of December 31, 1999 and 2000, and September
30, 2001 (unaudited).................................................. F-3
Combined Statements of Operations for the nine months ended December 31,
1998, the years ended December 31, 1999 and 2000, and the nine month
periods ended September 30, 2000 and 2001 (unaudited)................. F-4
Combined Statements of Stockholder's Equity for the nine months ended
December 31, 1998, the years ended December 31, 1999 and 2000 and the
nine months ended September 30, 2001 (unaudited)...................... F-5
Combined Statements of Cash Flows for the nine months ended December 31,
1998, the years ended December 31, 1999 and 2000 and the nine months
ended September 30, 2000 and 2001 (unaudited)......................... F-6
Notes to the Combined Financial Statements.............................. F-7
F-1
REPORT OF INDEPENDENT AUDITORS
The Shareholder
IMC Inorganic Chemicals Inc.
We have audited the accompanying combined balance sheets of IMC Inorganic
Chemicals Inc. as of December 31, 1999 and 2000, and the related combined
statements of operations, stockholder's equity and cash flows for the nine
month fiscal period ended December 31, 1998, and each of the two years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of IMC Inorganic
Chemicals Inc. at December 31, 1999 and 2000, and the combined results of their
operations and their cash flows for the nine month fiscal period ended December
31, 1998 and each of the two years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
September 21, 2001, except for Note 13, as to which the date is
October 15, 2001
F-2
IMC INORGANIC CHEMICALS INC.
COMBINED BALANCE SHEETS
(in thousands)
December 31, December 31, September 30,
1999 2000 2001
------------ ------------ -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 4,259 $ 366 $ 724
Receivables, less allowance for doubtful accounts of
$1,652 in 1999, $1,784 in 2000 and $1,633 in 2001
(Unaudited)................................................. 80,785 125,161 51,493
Due from IMC and affiliates, net.............................. 2,730 -- 2,106
Inventories................................................... 113,231 87,120 99,719
Deferred income taxes......................................... 31,784 2,284 2,284
Other......................................................... 1,316 1,733 1,574
---------- --------- ---------
Total current assets...................................... 234,105 216,664 157,900
Property, plant and equipment, net............................ 857,877 417,455 421,128
Goodwill...................................................... 196,563 -- --
Other......................................................... 1,984 1,885 1,166
---------- --------- ---------
Total assets.............................................. $1,290,529 $ 636,004 $ 580,194
========== ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt............................. $ 6,008 $ 70,976 $ 258
Notes payable to IMC and affiliates, net...................... 120,727 81,080 130,672
Accounts payable.............................................. 47,171 62,405 43,355
Due to IMC and affiliates, net................................ -- 5,987 --
Accrued expenses.............................................. 13,092 9,401 4,776
Accrued salaries and wages.................................... 9,325 7,326 8,186
Income taxes payable.......................................... 2,200 5,100 --
---------- --------- ---------
Total current liabilities................................. 198,523 242,275 187,247
Long-term debt, net of current portion........................... 69,260 255 171
Deferred income taxes............................................ 254,259 95,135 103,844
Other noncurrent liabilities..................................... 10,901 9,818 7,378
Commitments and contingencies (Note 9)
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding............................................. -- -- --
Additional paid in capital.................................... 944,733 944,733 944,733
Accumulated deficit........................................... (189,641) (657,334) (661,585)
Accumulated other comprehensive income........................ 2,494 1,122 (1,594 )
---------- --------- ---------
Total stockholder's equity................................ 757,586 288,521 281,554
---------- --------- ---------
Total liabilities and stockholder's equity................ $1,290,529 $ 636,004 $ 580,194
========== ========= =========
The accompanying notes are an integral part of the financial statements.
F-3
IMC INORGANIC CHEMICALS INC.
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
Nine Months Nine Months Nine Months
Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, September 30,
1998 1999 2000 2000 2001
------------ ------------ ------------ ------------- -------------
(Unaudited) (Unaudited)
Net sales.......................... $277,734 $494,426 $ 509,216 $325,210 $365,568
Shipping and handling costs........ 55,859 126,937 140,039 84,204 99,650
-------- -------- --------- -------- --------
221,875 367,489 369,177 241,006 265,918
Cost of sales...................... 146,087 268,240 271,937 192,446 189,381
-------- -------- --------- -------- --------
Gross profit.................... 75,788 99,249 97,240 48,560 76,537
Selling, general and administrative
Expenses......................... 36,751 37,156 35,534 26,274 28,703
Goodwill write-down................ -- 87,475 191,000 -- --
Restructuring and other charges.... 20,281 13,675 425,910 -- --
-------- -------- --------- -------- --------
Operating earnings (loss)....... 18,756 (39,057) (555,204) 22,286 47,834
Other (income) expense: --
Interest expense................ 17,335 19,042 16,415 12,108 9,036
Other, net...................... 2,954 (3,029) (246) (1,132) (4,276 )
-------- -------- --------- -------- --------
Income (loss) before income taxes
and extraordinary item........... (1,533) (55,070) (571,373) 11,310 43,074
Income tax expense (benefit)....... 9,362 12,417 (103,680) 8,216 20,663
-------- -------- --------- -------- --------
Income (loss) before extraordinary
item............................. (10,895) (67,487) (467,693) 3,094 22,411
Extraordinary item--loss on debt
extinguishment, net of tax....... 3,517 -- -- -- --
-------- -------- --------- -------- --------
Net income (loss).................. $(14,412) $(67,487) $(467,693) $ 3,094 $ 22,411
======== ======== ========= ======== ========
The accompanying notes are an integral part of the financial statements.
F-4
IMC INORGANIC CHEMICALS INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
Accumulated
Additional Accumulated Other
Common Paid In Excess Comprehensive
Stock Capital (Deficit) Income (Loss) Total
------ ---------- ----------- ------------- ---------
Balance, April 1, 1998........................ $-- $889,657 $ 73,041 $ 1,890 $ 964,588
Comprehensive loss:
Net loss............................... (14,412) (14,412)
Translation adjustment................. (2,921) (2,921)
---------
Comprehensive loss..................... (17,333)
--- -------- --------- -------- ---------
Balance, December 31, 1998.................... -- 889,657 58,629 (1,031) 947,255
Comprehensive loss:
Net loss............................... (67,487) (67,487)
Translation adjustment................. 3,525 3,525
---------
Comprehensive loss..................... (63,962)
Dividend to HCNA........................... (180,783) (180,783)
Capital contribution from IMC.............. 55,076 55,076
--- -------- --------- -------- ---------
Balance, December 31, 1999.................... -- 944,733 (189,641) 2,494 757,586
Comprehensive loss:
Net loss............................... (467,693) (467,693)
Translation adjustment................. (1,372) (1,372)
---------
Comprehensive loss..................... (469,065)
--- -------- --------- -------- ---------
Balance, December 31, 2000.................... -- 944,733 (657,334) 1,122 288,521
Comprehensive income:
Net income (unaudited)................. 22,411 22,411
Translation adjustment (unaudited)..... (2,716) (2,716)
---------
Comprehensive income (unaudited)....... 19,695
Dividend to HCNA (unaudited)............... (26,662) (26,662)
--- -------- --------- -------- ---------
Balance, September 30, 2001 (unaudited)....... $-- $944,733 $(661,585) $(1,594) $ 281,554
=== ======== ========= ======== =========
The accompanying notes are an integral part of the financial statements.
F-5
IMC INORGANIC CHEMICALS INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months
Ended Year Ended
December 31, December 31,
1998 1999
------------ ------------
Cash flows from operating activities:
Net income (loss).......................................... $ (14,412) $ (67,487)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and depletion.............................. 27,336 47,213
Amortization............................................ 6,949 7,906
Goodwill write-down..................................... -- 87,475
Restructuring charge and other charges, net of cash..... 11,234 3,761
Deferred income taxes................................... 4,305 (6,611)
Loss on disposal of property, plant and
equipment............................................. 79 251
Other................................................... 6,678 (1,085)
Changes in operating assets and liabilities:
Receivables.......................................... 5,234 (8,615)
Due to IMC and affiliates............................ 42,202 841
Inventories.......................................... (52,706) 1,959
Other assests........................................ 1,212 1,482
Accounts payable an accrued expenses................. (14,025) 12,828
Other noncurrent liabilities......................... 1,657 (1,569)
----------- ---------
Net cash provided by operating activities............... 25,743 78,349
----------- ---------
Cash flows from investing activities:
Capital expenditures....................................... (39,610) (45,584)
Proceeds from sales of property, plant and equipment....... 319 5,459
Other...................................................... -- (7,955)
----------- ---------
Net cash used in investing activities................... (39,291) (48,080)
----------- ---------
Cash flows from financing activities:
Revolver activity.......................................... 29,056 (21,286)
Principal payments on other long-term debt, including
capital leases............................................ (156,526) (2,010)
Borrowings from IMC Global and affiliates, net............. 133,854 (33,870)
Capital contribution from IMC.............................. -- 23,026
Dividends paid............................................. -- --
Other...................................................... -- 626
----------- ---------
Net cash provided by (used in) financing activities..... 6,384 (33,514)
----------- ---------
Effect of exchange rate changes on cash and cash equivalents.. (4,127) 2,608
----------- ---------
Net increase (decrease) in cash equivalents................ (11,291) (637)
Cash and cash equivalents, beginning of period................ 16,187 4,896
----------- ---------
Cash and cash equivalents, end of period...................... $ 4,896 $ 4,259
=========== =========
Supplemental cash flow information:
Interest paid excluding capitalized interest............... $ 19,166 $ 15,228
Income taxes paid.......................................... 7,156 7,335
Supplemental disclosure of noncash activities:
Dividend to HCNA........................................... $ -- $ 180,783
Capital contribution from IMC.............................. -- 32,050
Nine Months Nine Months
Year Ended Ended Ended
December 31, September 30, September 30,
2000 2000 2001
------------ ------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss).......................................... $(467,693) $ 3,094 $ 22,411
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and depletion.............................. 38,752 29,621 24,003
Amortization............................................ 5,465 4,056 --
Goodwill write-down..................................... 191,000 -- --
Restructuring charge and other charges, net of cash..... 425,600 -- --
Deferred income taxes................................... (129,624) 1,324 9,753
Loss on disposal of property, plant and
equipment............................................. 1,867 18 146
Other................................................... 41 734 267
Changes in operating assets and liabilities:
Receivables.......................................... (44,381) 30,487 72,359
Due to IMC and affiliates............................ 15,067 20,502 (5,592)
Inventories.......................................... 24,866 8,109 (13,954)
Other assests........................................ 650 1,900 843
Accounts payable an accrued expenses................. 10,969 (18,183) (27,470)
Other noncurrent liabilities......................... (509) (1,209) (3,085)
--------- --------- --------
Net cash provided by operating activities............... 72,070 80,453 79,681
--------- --------- --------
Cash flows from investing activities:
Capital expenditures....................................... (33,694) (20,665) (30,655)
Proceeds from sales of property, plant and equipment....... 920 907 52
Other...................................................... (1,183) (771) (805)
--------- --------- --------
Net cash used in investing activities................... (33,957) (20,529) (31,408)
--------- --------- --------
Cash flows from financing activities:
Revolver activity.......................................... 1,631 (1,034) (4,386)
Principal payments on other long-term debt, including
capital leases............................................ (5,270) (11,778) (66,291)
Borrowings from IMC Global and affiliates, net............. (39,646) (53,171) 49,592
Capital contribution from IMC.............................. -- -- --
Dividends paid............................................. -- -- (26,659)
Other...................................................... -- -- --
--------- --------- --------
Net cash provided by (used in) financing activities..... (43,285) (65,983) (47,744)
--------- --------- --------
Effect of exchange rate changes on cash and cash equivalents.. 1,279 1,804 (171)
--------- --------- --------
Net increase (decrease) in cash equivalents................ (3,893) (4,255) 358
Cash and cash equivalents, beginning of period................ 4,259 4,259 366
--------- --------- --------
Cash and cash equivalents, end of period...................... $ 366 $ 4 $ 724
========= ========= ========
Supplemental cash flow information:
Interest paid excluding capitalized interest............... $ 12,503 $ 10,083 $ 13,545
Income taxes paid.......................................... 4,503 3,063 12,725
Supplemental disclosure of noncash activities:
Dividend to HCNA........................................... $ -- $ -- $ --
Capital contribution from IMC.............................. -- -- --
The accompanying notes are an integral part of the financial statements.
F-6
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation:
IMC Inorganic Chemicals Inc. ("IMCI"), formerly Harris Chemical Group, Inc.,
is a producer and marketer of inorganic mineral products with manufacturing
sites in North America and Europe. Its principal products are salt and sulfate
of potash. Together, the Company serves a variety of markets, including
agriculture, food processing, chemical processing, water conditioning and
highway deicing. IMCI has been a wholly-owned subsidiary of IMC Global Inc.
("IMC") since IMC's acquisition of IMCI on April 1, 1998.
On November 10, 2000, IMC entered into a letter of intent for the sale of
IMCI's salt and specialty potash businesses (defined below). Accordingly, these
combined financial statements have been prepared to present the historical
financial condition and results of operations and cash flows for the businesses
that are subject to the proposed sale. This anticipated transaction was not
consummated by IMC, however, a second transaction was entered into. See Note 13.
The combined financial statements include the accounts of IMCI and the
consolidated results of three of its wholly-owned subsidiaries ("Included
Subsidiaries") listed below. Together, these companies comprise the IMCI salt
and specialty potash businesses.
Included Subsidiaries
. NAMSCO Inc. ("NAMSCO") and subsidiaries
. IMC Salt, Inc. ("IMCS")
. Carey Salt Company
. Sifto Canada Inc. ("Sifto")
. GSL Corporation ("GSL") and subsidiary
. IMC Kalium Ogden Corp.
. IMC Global (Europe) Limited U.K. ("IMCEL") and subsidiaries
. IMC Global (UK) Limited
. Salt Union Limited U.K. ("SUL") and subsidiaries
The following wholly-owned subsidiaries of IMCI ("Excluded Subsidiaries")
are specifically excluded from the combined financial statements (including
periods during which portions of these operations were part of IMCEL).
Together, these companies comprise the chemical businesses.
Excluded Subsidiaries
. GSA Holdings LLC
. Harris Soda Products Europe S.A.S.
. Societa Chemica Larderello S.p.A.
. Matthes & Weber GmbH
. IMC Chemical Inc. and subsidiaries
. Harris Chemical North America, Inc. ("HCNA")
. The Harris Chemical Group Europe, Inc.
In the accompanying combined financial statements, the combined IMCI salt
and specialty potash businesses are referred to as the "Company."
Sales in the accompanying combined statements of operations represent sales
directly attributable to the Company. Costs and expenses in the accompanying
combined statements of operations represent direct costs and expenses related
to the Company. In addition, the combined statements of operations include the
estimated cost of all services provided by IMC and its subsidiaries to the
Company, which had previously not been directly allocated to the Company.
F-7
All of the allocations and estimates in the statements of operations are
based on assumptions that Company management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the Company
had been operated as a separate entity or the future results of the Company.
2. Summary of Significant Accounting Policies:
a. Management Estimates: Management is required to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
b. Basis of Combination: The Company's combined financial statements include
the combined accounts of the Company, which include the domestic and foreign
subsidiaries discussed in Note 1. All significant intercompany balances and
transactions have been eliminated in combination.
c. Fiscal Periods Presented: Prior to the acquisition by IMC, the Company had
adopted a 52-53 week fiscal year ending on the last Saturday in March.
Subsequent to the IMC acquisition, the Company changed its fiscal year end to
December 31. The period from April 1, 1998 to December 31, 1998 ("1998 Fiscal
Period") is designated a nine month period in these financial statements.
d. Interim Financial Statements: The Company's combined balance sheet at
September 30, 2001 and the combined statements of operations, stockholder's
equity and cash flows for the nine months ended September 30, 2000 ("2000 Stub
Period") and September 30, 2001 ("2001 Stub Period") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial statements. The Company believes that such information
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position, results of operations, and
cash flows.
The Company has included information for the nine months ended September 30,
2001 in the combined balance sheets, combined statements of operations and
combined statements of cash flows, and has included information for the nine
months ended September 30, 2000 in the combined statements of operations and
combined statements of cash flows for comparative purposes. This information is
unaudited.
e. Foreign Currency Translation: Assets and liabilities are translated into
U.S. dollars at end of period exchange rates. Revenues and expenses are
translated using the average rates of exchange for the year. Adjustments
resulting from the translation of a foreign currency financial statement into
the reporting currency, U.S. dollars, are included in accumulated other
comprehensive income (loss). Exchange gains and losses from transactions
denominated in a currency other than a company's functional currency are
included in income.
f. Revenue Recognition: Revenue is recognized by the Company upon the
transfer of title to the customer, which is generally at the time product is
shipped. In December 1999, the SEC issued SAB No. 101, which provides guidance
regarding revenue recognition in financial statements. The Company performed a
comprehensive review of its revenue recognition policies and determined that it
is in compliance with SAB No. 101.
g. Cash and Cash Equivalents: The Company considers all investments with
original maturities of three months or less to be cash equivalents. The Company
maintains the majority of its cash in bank deposit accounts with several
commercial banks with high credit ratings in the U.S., Canada and Europe. The
Company does not believe it is exposed to any significant credit risk on cash
and cash equivalents.
F-8
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
h. Inventories: Inventories are stated at the lower of cost or market. Raw
materials and supply costs are determined by either the first-in, first-out
("FIFO") or the average cost method. Finished goods costs are determined by the
average cost method.
i. Property, Plant and Equipment: Tangible property, plant and equipment,
including assets under capital leases, are stated at cost and include interest
on funds borrowed to finance construction and the push-down of purchase price
adjustments from the April 1, 1998 IMC acquisition. The costs of replacements
or renewals which improve or extend the life of existing property are
capitalized. Maintenance and repairs are expensed as incurred. Mineral deposits
are stated at cost with amortization being provided on the units of production
method based on estimates of recoverable reserves.
Other asset classes or groups are depreciated or amortized on a
straight-line basis over the following estimated useful lives:
Land improvements................ 5 to 25 years
Buildings and improvements....... 10 to 40 years
Machinery and equipment.......... 3 to 25 years
Furniture and fixtures........... 3 to 10 years
Using the methodology prescribed in Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, the Company reviews long-lived
assets and the related intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amounts of such assets may not
be recoverable. Once an indication of a potential impairment exists,
recoverability of the respective assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets
relate, to the carrying amount, including associated intangible assets, of such
operation. If the operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first, followed
by the other long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values, depending upon
the nature of the assets.
j. Goodwill: Goodwill, representing the excess of purchase cost over the fair
value of net assets of acquired companies (including goodwill related to IMC's
acquisition of the Company) is generally amortized using the straight-line
method over 40 years. Effective October 1, 1999, the Company elected to change
its method for assessing the recoverability of goodwill (not associated with
impaired assets) from one based on undiscounted cash flows to one based on
discounted cash flows.
The Company evaluates the recoverability of goodwill by estimating the
future discounted cash flows of the businesses to which the goodwill relates.
This evaluation is made whenever events or changes in circumstances indicate
the carrying amount may not be recoverable. Estimated cash flows are determined
by disaggregating the Company's business segments to an operational and
organizational level for which meaningful identifiable cash flows can be
determined. Impairment losses, limited to the carrying amount of goodwill,
represent the excess of the sum of the carrying amount of the net long-lived
assets (tangible and identifiable intangible) and goodwill in excess of the
discounted cash flows of the business being evaluated. In determining the
estimated future cash flows, the Company considers current and projected future
levels of income as well as business trends, prospects and market and economic
conditions.
The Company believes that using the discounted cash flow approach to assess
the recoverability of goodwill is preferable because it is consistent with the
methodology used by the Company to evaluate investment decision
F-9
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
(acquisitions and capital projects) and takes into account the specific and
detailed operating plans and strategies and the timing of cash flows of each
business. The discount rate used in determining discounted cash flows was a
rate corresponding to the Company's weighted-average cost of capital. This
change represents a change in accounting principle, which is indistinguishable
from a change in estimate.
As a result of the change to a discounted cash flow methodology, the Company
recorded a non-cash write-down of goodwill of $87.5 million, in the fourth
quarter of 1999. This charge represented the amount required to write-down the
carrying amount of goodwill to the Company's estimate, as of October 1, 1999,
of the estimated future discounted cash flows of the businesses to which the
goodwill relates. In the fourth quarter of 2000 the Company reduced its
goodwill to zero in connection with the proposed IMC sale of the Company (see
Note 3). The following table summarizes amortization charged to earnings for
the 1998 Fiscal Period, the years ended December 31, 1999 and 2000, and the
2001 Stub Period (in millions):
1998 1999 2000 2001
---- ---- ---- -----------
(Unaudited)
Amortization... $5.6 $8.4 $5.4 $ --
k. Income Taxes: The Company's U.S. subsidiaries participate in the
consolidated federal income tax return of IMC for periods owned by IMC. The
foreign subsidiaries file separate-company returns in their respective
jurisdictions. For financial reporting purposes, the Company computes a
provision for income taxes on a stand alone basis. The Company accounts for
income taxes using the liability method in accordance with the provisions of
SFAS No. 109--Accounting for Income Taxes. Under the liability method, deferred
taxes are determined based on the differences between the financial statement
and the tax basis of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
l. Environmental Costs: Environmental costs, other than those of a capital
nature, are accrued at the time the exposure becomes known and costs can
reasonably be estimated. Costs are accrued based upon management's estimates of
all direct costs, after taking into account reimbursement by third parties. The
Company does not accrue liabilities for unasserted claims that are not probable
of assertion, nor does it provide for environmental clean-up costs, if any, at
the end of the useful lives of its facilities because, given the long lives of
its mineral deposits, it is not practical to estimate such costs.
m. Derivatives: On January 1, 2001, the Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137 and SFAS No. 138. The adoption of the provisions of SFAS No. 133,
as amended, did not have a material impact on the results of operations or
financial position of the Company.
The Company is exposed to the impact of interest rate changes on borrowings,
fluctuations in the functional currency of foreign operations and the impact of
fluctuations in the purchase price of natural gas consumed in operations, as
well as changes in the market value of its financial instruments. The Company
does not utilize derivative instruments to hedge such exposures. The Company
periodically enters into natural gas supply agreements to minimize natural gas
pricing risks, but not for trading purposes. These supply agreements do not
meet the definition of a derivative instrument under the provisions of SFAS No.
133.
n. Concentration of Credit Risk: The Company sells its salt products to
various governmental agencies, manufacturers, distributors and retailers
primarily in the mid-western United States, and throughout Canada and the
United Kingdom. The Company's potash products are sold across North America and
internationally. No single customer or group of affiliated customers accounted
for more than ten percent of the Company's net sales
F-10
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
in any year during the 1998 Fiscal Period, the two year period ended December
31, 2000 or the 2001 Stub Period, or for more than ten percent of accounts
receivable at December 31, 1999 and 2000, and September 30, 2001.
o. Recent Accounting Pronouncements: In June 2001, the Financial Accounting
Standards Board issued SFAS No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is not expected to result in a
material impact on net income as the Company, in the fourth quarter of 2000,
recorded a charge to reduce goodwill to zero and has no material other
intangibles with indefinite lives.
3. Asset Impairment on Proposed IMC Sale of the Company:
On November 10, 2000, IMC entered into a letter of intent for the sale of
the Company. Based on anticipated net proceeds to IMC, the Company recorded an
impairment charge of $616.6 million, $482.1 million after tax, in the fourth
quarter of 2000. As part of this charge, goodwill was reduced $191.0 million to
zero and mineral properties and rights was reduced $425.6 million.
Additionally, the Company recorded $0.3 million, $0.2 million after tax in the
fourth quarter of 2000 for employee severance costs.
4. Restructuring and Other Charges:
During the fourth quarter of 1999, IMC announced and began implementing a
rightsizing program (Rightsizing Program) which was designed to simplify and
focus IMC's businesses. The key components of the Rightsizing Program affecting
the Company were closure of NAMSCO's Hutchinson facility and headcount
reductions. In conjunction with the Rightsizing Program, the Company recorded a
restructuring charge of $13.7 million in the fourth quarter of 1999.
Substantially all cash payments related to this charge had been made by
December 31, 2000. A discussion of the components of the Rightsizing Program
follows.
Asset Impairments
The Rightsizing Program included the disposal of property, plant and
equipment, as well as the write-down to fair value of facilities and production
equipment at the Hutchinson facility of approximately $1.1 million. In order to
determine the write-down of assets affected by the Rightsizing Program, and in
accordance with SFAS No. 121, the Company performed an assessment of future
cash flows and, accordingly, adjusted the assets to their appropriate fair
values.
Non-Employee Exit Costs
As a result of the decision to permanently close the Hutchinson plant, the
Company recorded costs of $1.9 million for the closing of the Hutchinson plant
and incremental environmental land reclamation of the surrounding areas. The
facility was closed and the Company expects to transfer responsibility to IMC
for all remaining closure and reclamation activities prior to any sale of the
Company by IMC.
Employee Headcount Reductions
As part of the Rightsizing Program, headcount reductions were implemented
throughout the Company. The majority of these reductions were a result of the
closing of operations, as discussed above. To facilitate
F-11
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
headcount reductions, certain locations offered a voluntary retirement program
for eligible employees. Certain involuntary eliminations of positions, which
were communicated prior to December 31, 1999, were necessary in order to
achieve desired staffing levels. A total of 187 employees were terminated. The
Company recorded a charge of $8.0 million for severance benefits related to
these employee headcount reductions.
Inventories and Spare Parts of Exited Facilities
The Company recorded charges of approximately $2.7 million to reduce the
carrying value of finished goods inventories on-hand and spare parts to net
realizable value at December 31, 1999, primarily as a result of the facilities
closures discussed above.
1998 Restructuring Plan
During the 1998 Fiscal Period, the Company developed and began execution of
a plan to improve profitability (Restructuring Plan). The Restructuring Plan
was comprised of an initiative to restructure the salt production/distribution
operations and processes in an effort to reduce costs. Operating efficiencies
were the critical components of the Restructuring Plan.
In conjunction with the Restructuring Plan, the Company recorded pre-tax
charges totaling approximately $20.3 million in the 1998 Fiscal Period. To
determine the write-down of assets affected by the Restructuring Plan, in
accordance with SFAS No. 121, the Company performed an assessment of future
cash flows and, accordingly, adjusted the assets to their appropriate fair
values. The Company recorded a $17.7 million write-down of property, plant and
equipment at NAMSCO's Hutchinson and Canadian locations, driven by the
consolidation of certain facilities. The majority of the write-down related to
production equipment and mineral rights. The remaining $2.6 million charge
relates to the estimated costs of closing the facilities and the severance of
employees.
5. Inventories and Property, Plant and Equipment:
Inventories consist of the following (in thousands):
December 31, December 31, September 30,
1999 2000 2001
------------ ------------ -------------
- (Unaudited)
Finished goods............ $ 94,742 $65,544 $80,412
Raw materials and supplies 18,489 21,576 19,307
-------- ------- -------
$113,231 $87,120 $99,719
======== ======= =======
Property, plant and equipment consists of the following (in thousands):
December 31, December 31, September 30,
1999 2000 2001
------------ ------------ -------------
(Unaudited)
Land and buildings........... $ 74,498 $ 72,859 $ 74,948
Machinery and equipment...... 344,228 354,602 376,120
Furniture and fixtures....... 9,003 9,598 9,043
Mineral properties and rights 613,701 185,559 186,213
Construction in progress..... 26,614 33,658 32,051
---------- -------- --------
1,068,044 656,276 678,375
Less accumulated depreciation 210,167 238,821 257,247
---------- -------- --------
$ 857,877 $417,455 $421,128
========== ======== ========
F-12
6. Income Taxes:
As discussed in Note 2, the income tax provision and related assets and
liabilities have been computed on a stand alone basis without regard to actual
liabilities and benefits related to consolidated tax return filings by IMC. The
schedule of deferred tax assets and liabilities below reflects assets related
to net operating loss carryforwards and alternative minimum tax credits, net of
the necessary reserves, on an historical basis based upon a prospective
reorganization and transfer of certain tax assets to the Company.
The Company files a consolidated U.S. Federal income tax return with IMC.
The following table summarizes income tax provisions of the Company on a stand
alone basis for the 1998 Fiscal Period, the years ended December 31, 1999 and
2000, and the 2001 Stub Period (in thousands):
1998 1999 2000 2001
-------- ------- --------- -----------
(Unaudited)
Current:
Federal..................................................... $ (1,278) $10,410 $ 17,600 $ 2,090
State....................................................... (204 ) 1,205 2,397 781
Foreign..................................................... 6,539 7,413 5,947 8,039
-------- ------- --------- --------
Total current........................................... 5,057 19,028 25,944 10,910
-------- ------- --------- --------
Deferred:
Federal..................................................... 6,435 (5,415) (110,508) 7,783
State....................................................... 1,097 (870 ) (18,097) 640
Foreign..................................................... (3,227) (326 ) (1,019 ) 1,330
-------- ------- --------- --------
Total deferred.......................................... 4,305 (6,611) (129,624) 9,753
-------- ------- --------- --------
Total provision (benefit) before extraordinary item............ 9,362 12,417 (103,680) 20,663
Tax benefit of extraordinary item--early extinguishment of debt
(foreign).................................................... (2,748) -- -- --
-------- ------- --------- --------
Total provision (benefit) for income taxes..................... $ 6,614 $12,417 $(103,680) $ 20,663
======== ======= ========= ========
A deferred tax benefit of approximately $2.7 million has been recorded
related to the extraordinary loss realized by Sifto for the 1998 Fiscal Period.
The following table summarizes components of income (loss) before taxes and
extraordinary items, and the effects of significant adjustments to tax computed
at the federal statutory rate for the 1998 Fiscal Period, the years ended
December 31, 1999 and 2000, and the 2001 Stub Period (in thousands):
1998 1999 2000 2001
-------- -------- --------- ------------
(Unaudited)
Domestic income (loss).................................. $ 1,843 $(65,931) $(583,624) $29,162
Foreign income (loss)................................... (3,376) 10,861 12,251 13,912
-------- -------- --------- -------
Income (loss) before income taxes and extraordinary item $ (1,533) $(55,070) $(571,373) $43,074
======== ======== ========= =======
Computed tax at the federal statutory rate of 35%....... $ (537) $(19,275) $(199,981) $15,076
Foreign income, mining, and withholding taxes........... 3,914 63 1,023 4,500
Percentage depletion in excess of basis................. (876) (2,157) (1,450) (921)
F-13
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
1998 1999 2000 2001
------ -------- --------- ------------
(Unaudited)
State income taxes, net of federal income tax benefit...... 728 1,585 2,120 1,421
Write-down and amortization of goodwill.................... 6,092 32,166 94,574 --
Other items................................................ 41 35 34 587
------ -------- --------- -------
Income tax expense (benefit)............................... $9,362 $ 12,417 $(103,680) $20,663
====== ======== ========= =======
Effective tax rate......................................... n/m n/m 18 % 48 %
====== ======== ========= =======
- --------
n/m--Not meaningful
The Company does not provide U.S. federal income taxes on undistributed
earnings of foreign companies that are not currently taxable in the United
States. No undistributed earnings of foreign companies were subject to U.S.
income tax in the 1998 Fiscal Period, the years ended December 31, 1999 and
2000, or the 2001 Stub Period. Total undistributed earnings on which no U.S.
federal income tax has been provided were $47.0 million at September 30, 2001
(unaudited). If these earnings are distributed, foreign tax credits may become
available under current law to reduce or possibly eliminate the resulting U.S.
income tax liability.
Under SFAS No. 109, deferred tax assets and liabilities are recognized for
the estimated future tax effects, based on enacted tax law, of temporary
differences between the values of assets and liabilities recorded for financial
reporting and for tax purposes and of net operating loss and other
carryforwards. Significant components of the Company's deferred tax liabilities
and assets were as follows (in thousands):
December 31, December 31, September 30,
1999 2000 2001
------------ ------------ -------------
(Unaudited)
Deferred tax liabilities:
Property, plant and equipment................. $244,836 $ 84,362 $ 92,109
Other liabilities............................. 9,423 10,773 11,735
-------- -------- --------
Total deferred tax liabilities................... 254,259 95,135 103,844
Deferred tax assets: --
Net operating loss carryforwards.............. 41,900 41,900 41,900
Alternative minimum tax credit carryforwards.. 2,400 2,400 2,400
Foreign tax loss carryforwards................ 3,996 3,981 3,676
Other assets.................................. 31,784 2,284 2,284
-------- -------- --------
Subtotal...................................... 80,080 50,565 50,260
Valuation allowance.............................. (48,296) (48,281) (47,976)
-------- -------- --------
Total deferred tax assets........................ 31,784 2,284 2,284
-------- -------- --------
Net deferred tax liabilities..................... $222,475 $ 92,851 $101,560
======== ======== ========
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company had a valuation allowance
relating to such items of $44.3 million and $47.6 million at April 1, 1998 and
December 31, 1998, respectively.
F-14
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
At September 30, 2001, the Company has net operating loss carryforwards of
approximately $114.0 million (unaudited). The Company is a loss corporation as
defined in Section 382 of the Internal Revenue Code. The Company has previously
incurred an ownership change which has placed a significant annual limitation
on the amount of loss carryforward utilization. Should certain changes in the
ownership of the Company occur a second time, there could be additional annual
limitations on the amount of loss carryforwards that can be utilized. If not
utilized, these carryforwards expire between 2009 and 2020. In addition, the
Company has a U.S. federal alternative minimum tax credit carryforward at
September 30, 2001, of approximately $2.4 million (unaudited). This credit
carryforward may be carried forward indefinitely to offset any excess of
regular tax liability over alternative minimum tax liability subject to certain
separate company limitations. The alternative minimum tax credit has been fully
offset by a valuation allowance since the Company does not foresee utilization
of these credits under its proposed operating structure and current tax law.
7. Long-term Debt:
Third-party long-term debt consists of the following (in thousands):
December 31, December 31, September 30,
1999 2000 2001
------------ ------------ -------------
(Unaudited)
European Facility........................... $67,876 $65,520 $ --
European Revolving Credit Facility.......... 2,615 4,237 --
Other, including capital lease obligations.. 4,777 1,474 429
------- ------- ----
75,268 71,231 429
Less current portion........................ 6,008 70,976 258
------- ------- ----
$69,260 $ 255 $171
======= ======= ====
The Company maintained a 45.0 million Pound Sterling, five year debt
facility maturing in December 2003 (European Facility). The European Facility
bore interest at LIBOR plus 1.139%. As of December 31, 2000, $65.5 million was
outstanding under the European Facility. Commitment fees associated with the
European Facility were 30.0 basis points. The European Facility was repaid in
January 2001 and replaced with a Note Payable to IMC, due on demand. Therefore,
the European Facility was classified as a current liability at December 31,
2000.
The Company maintains a 4.0 million Pound Sterling revolving credit facility
(European Revolving Credit Facility), which reduces to 3.5 million Pound
Sterling in October 2001. The European Revolving Credit Facility bears interest
at a defined base rate plus 1.0% (7.0% at December 31, 2000). As of December
31, 2000, $4.2 million was outstanding under this credit facility.
As a result of the acquisition of the Company by IMC in April 1998, certain
debt of the Company was repaid resulting in a $3.5 million loss on debt
retirement, net of tax. Substantially all of the debt was replaced with Notes
payable to IMC and affiliates.
As of December 31, 2000, the estimated fair value of third-party long-term
debt was approximately book value.
8. Pension Plans and Other Benefits:
The Company has non-contributory pension plans for certain of its employees,
primarily certain employees of SUL. Benefits are based on a combination of
years of service and compensation levels. The plan's assets consist mainly of
European equity securities.
The following table sets forth pension obligations and plan assets for the
Company's defined benefit plans, based on a September 30 measurement date, as
of December 31 (in thousands):
F-15
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
1999 2000
------- -------
Change in benefit obligation:
Benefit obligation as of January 1.......... $35,226 $41,510
Service Cost................................ 1,431 1,232
Interest Cost............................... 2,479 2,293
Actuarial loss.............................. 3,949 5,600
Benefits paid............................... (367) (359)
Currency fluctuation adjustment............. (1,333) (5,271)
Other....................................... 125 112
------- -------
Benefit obligation as of December 31........ $41,510 $45,117
======= =======
1999 2000
-------- -------
Change in plan assets:
Fair value as of January 1.................. $ 33,441 $40,351
Actual return............................... 7,417 10,586
Company contribution........................ 1,030 899
Currency fluctuation adjustment............. (1,296) (5,397)
Benefits paid............................... (367) (359)
Other....................................... 126 112
-------- -------
Fair value as of December 31................ $ 40,351 $46,192
======== =======
Funded status of the plan................... $ (1,159) $ 1,075
Unrecognized net (gain) loss................ 637 (940)
Unrecognized transition liability........... 1,314 514
-------- -------
Prepaid (accrued) benefit cost.............. $ 792 $ 649
======== =======
The Company's actuarial assumptions were as follows:
1999 2000
---- ----
Discount rate............................... 5.50% 5.50%
Expected return on plan assets.............. 6.50% 6.50%
Rate of compensation increase............... 4.00% 4.00%
The components of net pension expense were for the 1998 Fiscal Period and
the years ended December 31, 1999 and 2000 (in thousands):
1998 1999 2000
------- ------- -------
Service cost for benefits earned during the year $ 665 $ 1,431 $ 1,232
Interest cost on projected benefit obligation... 2,130 2,479 2,293
Return on plan assets........................... (2,417) (3,383) (2,644)
Net amortization and deferral................... 49 65 63
------- ------- -------
Net pension expense............................. $ 427 $ 592 $ 944
======= ======= =======
Net pension expense recorded by the Company for the 2001 Stub Period was
$0.4 million (unaudited).
During 1999, two of the Company's defined benefit pension plans were merged
into the IMC Global Pension Plan. There were no contributions to this Plan by
the Company in either 1999 or 2000 or the 2001 Stub Period.
F-16
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
The Company has defined contribution and pre-tax savings plans (Savings
Plans) for certain of its employees in the United States and Canada. Under each
of the Savings Plans, participants are permitted to defer a portion of their
compensation. Company contributions to the Savings Plans are based on a
percentage of employee contributions. In 1998, the Company added a profit
sharing feature to the Savings Plans for salaried and non-union hourly
employees. The Company contribution to the profit sharing feature is based on
the employee's age and pay and the Company's financial performance. The
following table summarizes the expense attributable to these Savings plans for
the 1998 Fiscal Period, the years ended December 31, 1999 and 2000, and the
2001 Stub Period (in millions):
1998 1999 2000 2001
---- ---- ---- ----------
(Unaudited)
Savings Plans Expense $2.2 $2.4 $2.4 $2.0
9. Commitments and Contingencies:
The Company is involved in legal and administrative proceedings and claims
of various types from normal Company activities. While any litigation contains
an element of uncertainty, management, based upon the opinion of the Company's
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's results of operations or
financial position.
Guarantees: On May 17, 2001, IMC entered into a new $500.0 million senior
secured credit facility (the New Credit Facilities) and issued $600.0 million
of senior unsecured notes (the Notes). The New Credit Facilities and the Notes
are guaranteed by substantially all of IMC's direct and indirect domestic
subsidiaries (the Restricted Subsidiaries), including IMCI, NAMSCO, IMCS, Carey
Salt Company, IMC Kalium Ogden Corp. and GSL. Both the New Credit Facilities
and the Notes contain covenants that limit certain activities of IMC and the
Restricted Subsidiaries.
Leases: The Company leases certain property and equipment under
non-cancelable operating leases for varying periods. The Company also leases
various equipment under capital leases with a net book value of $6.5 million at
December 31, 2000, that are included in property, plant, and equipment in the
accompanying combined balance sheet.
The aggregate minimum annual rentals under lease arrangements (excluding
related party subleases, see Note 10), as of December 31, 2000, are as follows
(in thousands):
Capital Operating
Calendar Year Leases Leases
------------- ------- ---------
2001...................................... $1,234 $ 5,521
2002...................................... 248 4,126
2003...................................... 47 2,758
2004...................................... -- 1,769
2005...................................... -- 1,522
Thereafter................................ -- 6,977
------ -------
Total.................................. 1,529 $22,673
=======
Less amounts representing interest........ 55
------
Present value of net minimum lease payment $1,474
======
F-17
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
The following table summarizes rental expense, net of sublease income for
the 1998 Fiscal Period, the years ended December 31, 1999 and 2000, and the
2001 Stub Period (in millions):
1998 1999 2000 2001
---- ---- ---- -----------
(Unaudited)
Rental expense, net of sublease income $4.1 $5.6 $6.0 $5.2
Royalties: The Company has various private, state and Canadian provincial
leases associated with the salt and specialty potash businesses. The following
table summarizes royalty expense related to these leases for the 1998 Fiscal
Period, the years ended December 31, 1999 and 2000, and the 2001 Stub Period
(in millions):
1998 1999 2000 2001
---- ---- ---- -----------
(Unaudited)
Royalty Expense $3.0 $5.0 $5.0 $3.9
Purchase Commitments: In connection with the operations of the Company's
facilities, the Company purchases electricity, steam and other raw materials
from third parties under existing contracts, extending, in some cases, for
multiple years. Purchases under these contracts are generally based on
prevailing market prices. The Company's future minimum long-term purchase
commitments are approximately $7.3 million annually from 2001 to 2005 and
approximately $39.2 million thereafter.
Environmental Matters: In 1999 NAMSCO terminated operations at its salt
facility in Hutchinson, Kansas. Groundwater beneath that facility contains
elevated levels of chloride, which could be derived from a number of potential
sources in Hutchinson including natural mineral intrusion, NAMSCO's operations,
and other industrial operations. Effective January 8, 2001, Salt entered into a
Consent Order with the Kansas Department of Health and the Environment (KDHE)
to conduct a Comprehensive Investigation/Corrective Action Study (CI/CAS) to
evaluate the nature, extent and source of this chloride contamination. The
CI/CAS has been finalized. The Company is currently in negotiations with the
KDHE to determine future corrective action and is unable to determine the cost
of any remedial action that ultimately may be required. The Company expects to
transfer responsibility for all remaining closure and reclamation activities to
IMC prior to any sale of the Company by IMC.
At December 31, 2000 and September 30, 2001, the Company has recorded
accruals of $6.2 million and $5.0 million (unaudited) ($0.9 million and $0.8
million classified in accrued expenses and $5.3 million and $4.1 million
classified in other noncurrent liabilities) for future costs associated with
existing environmental exposures at certain of its facilities. The Company
estimates that a significant portion of these accruals will be used over the
next five years.
10. Related Party Transactions:
The following related party transactions are in addition to those disclosed
elsewhere in the notes to the combined financial statements.
Transactions with IMC and its subsidiaries are considered related parties.
These businesses include the legal entities comprising IMC's business units
(IMC Potash and IMC PhosFeed) and the Excluded Subsidiaries. All of the above
mentioned entities are collectively referred to as IMC affiliates. The Company
believes that all of the related party transactions approximate terms which
would otherwise be negotiated by the Company with unrelated third parties.
F-18
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
The following table summarizes inventory sales and purchases between the
Company and IMC affiliates for the 1998 Fiscal Period, the years ended December
31, 1999 and 2000, and the 2001 Stub Period (in thousands):
1998 1999 2000 2001
------- ------- ------- -----------
(Unaudited)
Inventory sales to IMC affiliates......... $48,121 $48,273 $46,389 $28,483
Inventory purchases from IMC affiliates... 23,135 28,864 30,116 14,208
In 1998, the Company began selling potash to IMC affiliates who market,
distribute and sell this product to the agricultural industry. The Company was
not charged for these services and received a discounted price for the product
sales. The Company estimates its results would have been as follows, had the
Company provided its own sales and marketing resources and directly sold its
potash product for the 1998 Fiscal Period, the years ended December 31, 1999
and 2000, and the 2001 Stub Period (in thousands, unaudited):
1998 1999 2000 2001
-------- -------- --------- -----------
(Unaudited)
Net Sales............................... $277,368 $501,849 $ 514,521 $369,019
Operating Earnings (Loss)............... 21,000 (32,171) (552,267) 50,356
Sifto has a note payable, due on demand, with IMC which bears interest at
10.0%. At December 31, 2000 and September 30, 2001, approximately $71.6 million
and $0.6 million (unaudited) was outstanding on this note.
Sifto has a note payable, due on demand, with IMC Potash which bears
interest at the 30 day CD rate, plus 0.25% as of the first day of each month
(6.95% at December 31, 2000). At December 31, 2000 and September 30, 2001,
approximately $13.0 million and $24.8 million (unaudited) was outstanding on
this note.
IMCS has a note payable, due on demand, with IMC which bears interest at
10.0%. At December 31, 2000 and September 30, 2001, approximately $20.0 million
and $0.0 million (unaudited) was outstanding on this note.
SUL had a note payable, due December 31, 2003, with IMC which bears interest
at LIBOR plus 0.65% as of the first day of each quarter (6.775% at December 31,
2000). At December 31, 2000 and September 30, 2001, approximately $8.7 million
and $0.0 million (unaudited) was outstanding on this note.
Subsequent to December 31, 2000, IMCEL has a note payable, due on December
31, 2001, with IMC, which bears interest at 6.69%. At September 30, 2001,
approximately $66.2 million (unaudited) was outstanding on this note.
The Company participates in HCNA's revolving credit agreement with IMC which
provides the Company certain cash management services. The outstanding balance
bears interest at one-month LIBOR + 2.75% (9.37% at December 30, 2000). The
balance of the loan (receivable) at December 31, 1999 and 2000 and at
September 30, 2001, was approximately $19.4 million, $(32.2) million and $14.2
million (unaudited), respectively, and is shown as part of Notes Payable to IMC
and affiliates in the combined balance sheet.
F-19
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
The following table summarizes the Company's interest income and expense
with IMC and IMC affiliates for the 1998 Fiscal Period, the years ended
December 31, 1999 and 2000, and the 2001 Stub Period (in millions):
1998 1999 2000 2001
----- ----- ----- -----------
(Unaudited)
Interest income from IMC $ -- $ 1.5 $ 3.4 $2.9
Interest expense to IMC. 11.9 13.4 12.5 7.8
IMC has provided certain management services to the Company. The following
table summarizes what the Company has estimated the cost to be for the 1998
Fiscal Period, the years ended December 31, 1999 and 2000, and the 2001 Stub
Period (in millions):
1998 1999 2000 2001
---- ---- ---- -----------
(Unaudited)
Corporate Management Services $0.5 $0.7 $0.7 $0.5
These costs have been included in the Company's results for each period.
Services provided by IMC include tax, treasury and cash management, risk
management, information systems and certain employee benefit administration
costs. These estimates are not necessarily indicative of the expenses that
would have resulted if the Company had been operated as a separate entity or
the future results of the Company.
At December 31, 2000 and September 30, 2001, the Company leased 71 and 201
railcars from IMC Affiliates at agreed upon rates under existing arrangements
expiring between March 31, 2002 and December 31, 2014. The following table
summarizes the lease amounts expensed for the 1998 Fiscal Period, the years
ended December 31, 1999 and 2000, and the 2001 Stub Period (in millions):
1998 1999 2000 2001
---- ---- ---- -----------
(Unaudited)
Railcar Lease Expense $0.3 $0.4 $0.4 $0.7
The Company's headquarters are located in the same leased building as IMC
Chemicals Inc. In 1999, the Company began charging IMC Chemicals Inc. for their
estimated portion of the office's administrative operating costs. These charges
totaled $0.2 million, $0.2 million and $0.1 million (unaudited) for the years
ended December 31, 1999 and 2000, and the 2001 Stub Period, respectively.
11. Operating Segments:
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
As of September 30, 2001, the Company had two reportable segments: Salt and
Potash. Salt produces salt for use in road deicing, food processing, water
softeners, and agricultural and industrial applications. Potash crop nutrients
and industrial grade potash are produced and marketed through the Potash
segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. All intersegment sales prices
are market-based. The Company evaluates performance based on operating earnings
of the respective segments.
The Notes to the Combined Financial Statements include detail related to
special charges and should be referred to when viewing the segment information
herein.
F-20
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
Segment information as of December 31, 1998, and for the 1998 Fiscal Period,
as of and for the years ended December 31, 1999 and 2000, and as of September
30, 2001 (unaudited) and for the 2001 Stub Period (unaudited) was as follows
(in thousands):
1998 Salt Potash Other (d) Total
---- --------- --------- ---------- ----------
Net sales from external customers (e)(f) $ 175,170 $ 46,705 $ -- $ 221,875
Intersegment net sales.................. -- 6,865 (6,865) --
Gross margins........................... 71,275 4,513 -- 75,788
Operating earnings (loss) (c)........... 20,036 2,366 (3,646) 18,756
Depreciation, depletion and amortization 36,434 9,078 7 45,519
Total assets............................ 974,987 367,971 31,273 1,374,231
Capital expenditures.................... 28,810 10,800 -- 39,610
1999 Salt Potash Other (d) Total
---- --------- --------- ---------- ----------
Net sales from external customers (e)(f) $ 321,700 $ 45,789 $ -- $ 367,489
Intersegment net sales.................. -- 9,745 (9,745) --
Gross margins........................... 97,753 1,531 (35) 99,249
Operating earnings (loss) (b)........... 51,084 (89,408) (733) (39,057)
Depreciation, depletion and amortization 44,121 102,202 32 146,355
Total assets............................ 988,112 271,452 30,965 1,290,529
Capital expenditures.................... 39,709 5,875 -- 45,584
2000 Salt Potash Other (d) Total
---- --------- --------- ---------- ----------
Net sales from external customers (e)(f) $ 325,101 $ 44,076 $ -- $ 369,177
Intersegment net sales.................. -- 9,353 (9,353) --
Gross margins........................... 93,541 3,699 -- 97,240
Operating earnings (loss) (a)........... (415,496) (138,785) (923) (555,204)
Depreciation, depletion and amortization 509,569 151,248 -- 660,817
Total assets............................ 512,822 121,895 1,287 636,004
Capital expenditures.................... 29,957 3,737 -- 33,694
2001 (Unaudited) Salt Potash Other (d) Total
---------------- --------- --------- ---------- ----------
Net sales from external customers (e)(f) $ 234,954 $ 30,964 $ -- $ 265,918
Intersegment net sales.................. -- 7,263 (7,263) --
Gross margins........................... 75,018 1,519 -- 76,537
Operating earnings (loss)............... 47,428 947 (541) 47,834
Depreciation, depletion and amortization 17,887 6,116 -- 24,003
Total assets............................ 410,414 144,065 25,715 580,194
Capital expenditures.................... 27,931 2,724 -- 30,655
- --------
(a)Includes $616.9 million related to asset impairments, goodwill write-downs
and severance.
(b)Includes special charges of $101.2 million related to the Rightsizing
Program, additional asset write-offs and the goodwill write-down.
(c)Includes $20.3 million related to restructuring charges and asset
impairments.
(d)Other includes corporate entities and eliminations.
(e)Net sales from external customers is after shipping and handling costs.
(f)Highway deicing sales approximate 40% of the salt segment's sales each year,
on an annualized basis.
F-21
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
Financial information relating to the Company's operations by geographic
area as of December 31, 1998, 1999, 2000 and September 30, 2001, and for the
nine-month period ended September 30, 1998, the years ended December 31, 1999
and 2000, and the nine-month period ended September 30, 2001, were as follows
(in thousands):
Net Sales (a) 1998 1999 2000 2001
------------- ---------- ---------- -------- -----------
(Unaudited)
United States. $ 146,495 $ 234,889 $239,377 $167,650
Canada........ 34,894 67,845 70,375 49,355
United Kingdom 37,703 56,875 52,425 45,035
Other......... 2,783 7,880 7,000 3,878
---------- ---------- -------- --------
Combined...... $ 221,875 $ 367,489 $369,177 $265,918
========== ========== ======== ========
Long-Lived Assets (b) 1998 1999 2000 2001
--------------------- ---------- ---------- -------- -----------
(Unaudited)
United States..... $ 597,124 $ 509,141 $221,439 $227,139
Canada............ 290,948 283,244 95,573 94,218
United Kingdom.... 259,545 264,039 102,328 100,937
---------- ---------- -------- --------
Combined.......... $1,147,617 $1,056,424 $419,340 $422,294
========== ========== ======== ========
- --------
(a)Net sales are after shipping and handling costs.
(b)Includes goodwill and other long-lived assets.
12. Quarterly Results (Unaudited) /(a) (in thousands): /
First Second Third Fourth (c) Year (c)
Quarter -------- ------- -------- ----------- ---------
1999
Net sales................ $191,171 $76,467 $ 76,827 $ 149,961 $ 494,426
Gross profit............. 47,220 4,477 4,626 42,926 99,249
Operating earnings (loss) 38,469 (5,554) (3,885) (68,087) (39,057)
Net income (loss)........ 19,175 (5,853) (10,148) (70,661) (67,487)
First Second Third Fourth (b) Year (b)
Quarter -------- ------- -------- ----------- ---------
2000
Net sales................ $173,219 $75,485 $ 76,506 $ 184,006 $ 509,216
Gross profit............. 34,938 8,671 4,951 48,680 97,240
Operating earnings (loss) 24,631 63 (2,408) (577,490) (555,204)
Net income (loss)........ 11,238 (4,417) (3,726) (470,788) (467,693)
First Second Third Fourth Year
Quarter -------- ------- -------- ----------- ---------
2001
Net sales................ $197,000 $77,739 $ 90,829 $ -- $ 365,568
Gross profits............ 49,758 14,869 11,910 -- 76,537
Operating earnings....... 40,177 5,304 2,353 -- 47,834
Net income (loss)........ 22,973 (4) (558) -- 22,411
- --------
(a)See Notes to Combined Financial Statements for detail related to special
charges.
(b)Fourth quarter operating results include special charges of $616.9 million
($482.3 million after tax) related to asset impairments, goodwill
write-downs and severance.
(c)Fourth quarter operating results include special charges of $101.2 million
($79.1 million after tax) related to the Rightsizing Program, additional
asset write-offs and the goodwill write-down.
F-22
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
13. Subsequent Events
On October 15, 2001, IMC announced it had signed a definitive agreement to
transfer the Company to an entity controlled by an affiliate of Apollo
Management, L.P. ("Apollo"). The transaction is expected to be accounted for as
a leveraged recapitalization with the assets and liabilities of the Company
retaining their historical values. Under the terms of the agreement, the
Company's net intercompany notes and other net intercompany receivables and
payables with IMC will be settled at closing and be reflected as a capital
contribution to the Company. In addition, IMC will retain a minority interest
in the entity controlled by Apollo. IMC has provided indemnification to the
Company and Apollo related to a suit filed against IMC, the Company and each of
its subsidiaries regarding the potential sale of the Company. The
recapitalization is expected to be financed by a combination of an equity
investment by Apollo, borrowings under a new credit facility and the issuance
of senior subordinated notes. Under the proposed terms of the senior
subordinated notes, the Company and its domestic subsidiaries will be
guarantors of the senior subordinated notes.
The following condensed combining financial statements present the financial
position, results of operations and cash flows of the Company, its domestic
subsidiaries (guarantors) and its foreign subsidiaries (non-guarantors).
F-23
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING BALANCE SHEETS
December 31, 1999
(in thousands)
Guarantors Non-guarantors IMCI Eliminations Consolidated
---------- -------------- -------- ------------ ------------
Cash and cash equivalent.............. $ (290) $ 4,549 $ -- $ -- $ 4,259
Receivables, net...................... 41,459 39,326 -- -- 80,785
Inventories........................... 82,035 31,196 -- -- 113,231
Other current assets.................. (32,210 ) 107,234 (39,194) -- 35,830
Property, plant and equipment, net.... 426,997 430,880 -- -- 857,877
Other................................. 139,185 58,344 805,690 (804,672) 198,547
--------- -------- -------- --------- ----------
Total assets....................... $ 657,176 $671,529 $766,496 $(804,672) $1,290,529
========= ======== ======== ========= ==========
Current portion of long-term debt..... $ 1,165 $ 4,843 $ -- $ -- $ 6,008
Other current liabilities............. 104,399 78,927 9,189 -- 192,515
--------- -------- -------- --------- ----------
Total current liabilities............. 105,564 83,770 9,189 -- 198,523
Long-term debt, net of current portion 640 68,620 -- -- 69,260
Other noncurrent liabilities.......... 243,375 22,064 (279) -- 265,160
Total common stockholder's equity..... 307,597 497,075 757,586 (804,672) 757,586
--------- -------- -------- --------- ----------
Total liabilities and common
stockholder's equity............. $ 657,176 $671,529 $766,496 $(804,672) $1,290,529
========= ======== ======== ========= ==========
F-24
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING BALANCE SHEETS
December 31, 2000
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- -------- ------------ ------------
Cash and cash equivalents............. $ 2,365 $ (1,999) $ -- $ -- $ 366
Receivables, net...................... 77,624 47,537 -- -- 125,161
Inventories........................... 60,548 26,572 -- -- 87,120
Other current assets.................. 2,923 1,094 -- -- 4,017
Property, plant and equipment, net.... 221,289 196,166 -- -- 417,455
Other................................. (9,821) 10,688 331,984 (330,966) 1,885
-------- -------- -------- --------- --------
Total assets....................... $354,928 $280,058 $331,984 $(330,966) $636,004
======== ======== ======== ========= ========
Current portion of long-term debt..... $ 540 $ 70,436 $ -- $ -- $ 70,976
Other current liabilities............. 127,177 380 43,742 171,299
-------- -------- -------- --------- --------
Total current liabilities............. 127,717 70,816 43,742 -- 242,275
Long-term debt, net of current portion 47 208 -- 255
Other noncurrent liabilities.......... 166,828 (61,596) (279) -- 104,953
Total common stockholder's equity..... 60,336 270,630 288,521 (330,966) 288,521
-------- -------- -------- --------- --------
Total liabilities and common
stockholder's equity............ $354,928 $280,058 $331,984 $(330,966) $636,004
======== ======== ======== ========= ========
F-25
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING BALANCE SHEETS
September 30, 2001 (Unaudited)
(in thousands)
Guarantors Non-guarantors IMCI Eliminations Consolidated
---------- -------------- --------- ------------ ------------
Cash and cash equivalents............. $ 2,107 $ (1,383) $ -- $ -- $ 724
Receivables, net...................... 30,125 21,368 -- -- 51,493
Inventories........................... 73,647 26,072 -- -- 99,719
Other current assets.................. (26,839) 71,921 (39,118 ) -- 5,964
Property, plant and equipment, net.... 225,252 195,876 -- -- 421,128
Other................................. (10,575) 11,123 324,851 (324,233) 1,166
-------- -------- --------- --------- --------
Total assets....................... $293,717 $324,977 $ 285,733 $(324,233) $580,194
======== ======== ========= ========= ========
Current portion of long-term debt..... $ 102 $ 156 $ -- $ -- $ 258
Other current liabilities............. 73,887 108,923 4,179 -- 186,989
-------- -------- --------- --------- --------
Total current liabilities............. 73,989 109,079 4,179 -- 187,247
Long-term debt, net of current portion 10 161 -- -- 171
Other noncurrent liabilities.......... 140,287 (29,065) -- -- 111,222
Total common stockholder's equity..... 79,431 244,802 281,554 (324,233) 281,554
-------- -------- --------- --------- --------
Total liabilities and common
stockholder's equity............ $293,717 $324,977 $ 285,733 $(324,233) $580,194
======== ======== ========= ========= ========
F-26
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Nine Months Ended December 31, 1998
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- -------- ------------ ------------
Net sales after shipping and handling costs. $122,329 $ 99,546 $ -- $ -- $ 221,875
Cost of sales............................... 76,721 69,366 -- -- 146,087
-------- -------- -------- ------- ---------
Gross profit............................. 45,608 30,180 -- -- 75,788
Selling, general and administrative expenses 17,495 16,494 2,762 -- 36,751
Restructuring and other charges............. 20,281 -- -- -- 20,281
-------- -------- -------- ------- ---------
Operating income (loss).................. 7,832 13,686 (2,762) -- 18,756
Interest expense............................ 573 16,762 -- -- 17,335
Other (income) expense...................... 1,071 2,654 14,612 15,383 2,954
-------- -------- -------- ------- ---------
Income (loss) before income taxes
and extraordinary item................. 6,188 (5,730) (17,374) 15,383 (1,533 )
Income tax expense (benefit)................ 11,013 1,311 (2,962) -- 9,362
-------- -------- -------- ------- ---------
Income (loss) before extraordinary item.. (4,825) (7,041) (14,412) 15,383 (10,895 )
Extraordinary item--loss on debt
retirement, net of tax.................... 552 2,965 -- -- 3,517
-------- -------- -------- ------- ---------
Net income (loss)........................ $ (5,377) $(10,006) $(14,412) $15,383 $ (14,412)
======== ======== ======== ======= =========
F-27
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- -------- ------------ ------------
Net sales after shipping and handling costs. $214,370 $153,119 $ -- $ -- $367,489
Cost of sales............................... 154,750 113,455 35 -- 268,240
-------- -------- -------- -------- --------
Gross profit............................. 59,620 39,664 (35) -- 99,249
Selling, general and administrative expenses 19,928 17,228 -- -- 37,156
Goodwill write-down......................... 87,475 -- -- -- 87,475
Restructuring and other charges............. 8,577 5,098 -- -- 13,675
-------- -------- -------- -------- --------
Operating income (loss).................. (56,360) 17,338 (35) -- (39,057)
Interest expense............................ 1,975 17,067 -- -- 19,042
Other (income) expense...................... (1,200) (1,829) 67,466 (67,466) (3,029)
-------- -------- -------- -------- --------
Income (loss) before income taxes........ (57,135) 2,100 (67,501) 67,466 (55,070)
Income tax expense (benefit)................ 7,729 4,702 (14) -- 12,417
-------- -------- -------- -------- --------
Net income (loss)........................ $(64,864) $ (2,602) $(67,487) $ 67,466 $(67,487)
======== ======== ======== ======== ========
F-28
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- --------- ------------ ------------
Net sales after shipping and handling costs. $ 220,234 $ 148,943 $ -- $ -- $ 369,177
Cost of sales............................... 158,997 112,940 -- -- 271,937
--------- --------- --------- --------- ---------
Gross profit............................. 61,237 36,003 -- -- 97,240
Selling, general and administrative expenses 20,010 15,524 -- -- 35,534
Goodwill write-down......................... 145,604 45,396 -- -- 191,000
Restructuring and other charges............. 208,482 217,428 -- -- 425,910
--------- --------- --------- --------- ---------
Operating income (loss).................. (312,859) (242,345) -- -- (555,204)
Interest expense............................ 2,799 13,616 -- -- 16,415
Other (income) expense...................... (2,472) 2,226 472,334 (472,334) (246)
--------- --------- --------- --------- ---------
Income (loss) before income taxes........ (313,186) (258,187) (472,334) 472,334 (571,373)
Income tax expense (benefit)................ (65,478) (33,561) (4,641) -- (103,680)
--------- --------- --------- --------- ---------
Net income (loss)........................ $(247,708) $(224,626) $(467,693) $ 472,334 $(467,693)
========= ========= ========= ========= =========
F-29
CONDENSED COMBINING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2001 (Unaudited)
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- -------- ------------ ------------
Net sales after shipping and handling costs $149,042 $116,876 $ -- $ -- $265,918
Cost of sales.............................. 104,016 85,365 -- -- 189,381
-------- -------- -------- -------- --------
Gross profit............................ 45,026 31,511 -- -- 76,537
Selling, general and administrative
expenses................................. 16,552 12,151 -- -- 28,703
-------- -------- -------- -------- --------
Operating income (loss)................. 28,474 19,360 -- -- 47,834
Interest expense........................... 669 8,367 -- -- 9,036
Other (income) expense..................... (2,629 ) (1,926) (22,366) 22,645 (4,276)
-------- -------- -------- -------- --------
Income (loss) before income taxes....... 30,434 12,919 22,366 (22,645) 43,074
Income tax expense (benefit)............... 11,339 9,369 (45) -- 20,663
-------- -------- -------- -------- --------
Net income (loss)....................... $ 19,095 $ 3,550 $ 22,411 $(22,645) $ 22,411
======== ======== ======== ======== ========
F-30
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
For the Nine Months Ended December 31, 1998
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- ----- ------------ ------------
Net cash provided by (used in) operating
activities..................................... $(17,828) $ 43,571 $ -- $ -- $ 25,743
Cash flows from investing:
Capital expenditure........................... (21,402) (18,208) -- -- (39,610)
Proceeds from sales........................... -- 319 -- -- 319
-------- --------- ----- ---- ---------
Net cash used in investing activities..... (21,402) (17,889) -- -- (39,291)
Cash flows from financing:
Revolver activity............................. 31,588 (2,532) -- -- 29,056
Principal payments on other long-term
debt, including capital leases.............. (10,879) (145,647) -- -- (156,526)
Borrowings from IMC Global and
affiliates, net............................. 19,981 113,873 -- -- 133,854
-------- --------- ----- ---- ---------
Net cash provided by (used in)
financing activities.................... 40,690 (34,306) -- -- 6,384
Effect of exchange rate changes on cash.......... -- (4,127) -- -- (4,127)
-------- --------- ----- ---- ---------
Net increase (decrease) in cash and cash
equivalents................................... 1,460 (12,751) -- -- (11,291)
Cash and cash equivalents:
Beginning of period........................... 12 16,175 -- -- 16,187
-------- --------- ----- ---- ---------
End of period................................. $ 1,472 $ 3,424 $ -- $ -- $ 4,896
======== ========= ===== ==== =========
F-31
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- ---- ------------ ------------
Net cash provided by (used in) operating
activities..................................... $ 93,832 $(15,483) $ -- $ -- $ 78,349
Cash flows from investing:
Capital expenditures.......................... (29,947) (15,637) -- -- (45,584)
Proceeds from sales........................... 5,403 56 -- -- 5,459
Other......................................... -- (7,955) -- -- (7,955)
-------- -------- ---- ----- --------
Net cash used in investing activities..... (24,544) (23,536) -- -- (48,080)
Cash flows from financing:
Revolver activity............................. (22,376) 1,090 -- -- (21,286)
Principal payments on other long-term
debt, including capital leases.............. (877) (1,133 ) -- -- (2,010)
Borrowings from IMC Global and affiliates,
net......................................... (27,959) (5,911) -- -- (33,870)
Capital contribution from IMC................. -- 23,026 -- -- 23,026
Other......................................... (19,838) 20,464 -- -- 626
-------- -------- ---- ----- --------
Net cash provided by (used in)
financing activities.................... (71,050) 37,536 -- -- (33,514)
Effect of exchange rate changes on cash.......... -- 2,608 -- -- 2,608
-------- -------- ---- ----- --------
Net increase (decrease) in cash and cash
equivalents.................................... (1,762) 1,125 -- -- (637)
Cash and cash equivalents:
Beginning of period........................... 1,472 3,424 -- -- 4,896
-------- -------- ---- ----- --------
End of period................................. $ (290) $ 4,549 $ -- $ -- $ 4,259
======== ======== ==== ===== ========
F-32
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2000
(in thousands)
Guarantors Non-guarantors IMCI Eliminations Consolidated
---------- -------------- ---- ------------ ------------
Net cash provided by operating activities........ $ 67,491 $ 4,579 $-- $-- $ 72,070
Cash flows from investing:
Capital expenditures.......................... (19,889) (13,805) -- -- (33,694)
Proceeds from sales........................... 35 885 -- -- 920
Other......................................... (1,090) (93) -- -- (1,183)
-------- -------- --- --- --------
Net cash used in investing activities..... (20,944) (13,013) -- -- (33,957)
Cash flows from financing:
Revolver activity............................. -- 1,631 -- -- 1,631
Principal payments on other long-term
debt, including capital leases.............. (1,586) (3,684) -- -- (5,270)
Borrowings from IMC Global
and affiliates, net............................ (42,306) 2,660 -- -- (39,646)
-------- -------- --- --- --------
Net cash provided by (used in)
financing activities.................... (43,892) 607 -- -- (43,285)
Effect of exchange rate changes on cash.......... -- 1,279 -- -- 1,279
-------- -------- --- --- --------
Net increase (decrease) in cash and cash
equivalents................................... 2,655 (6,548) -- -- (3,893)
Cash and cash equivalents:
Beginning of period........................... (290) 4,549 -- -- 4,259
-------- -------- --- --- --------
End of period................................. $ 2,365 $ (1,999) $-- $-- $ 366
======== ======== === === ========
F-33
IMC INORGANIC CHEMICALS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2001 (Unaudited)
(in thousands)
Non-
Guarantors guarantors IMCI Eliminations Consolidated
---------- ---------- ---- ------------ ------------
Net cash provided by operating activities........... $ 55,741 $ 23,940 $-- $-- $ 79,681
Cash flows from investing:
Capital expenditures............................. (15,910) (14,745) -- -- (30,655)
Proceeds from sales.............................. -- 52 -- -- 52
Other............................................ (805) -- -- -- (805)
-------- -------- --- --- --------
Net cash used in investing activities........ (16,715) (14,693) -- -- (31,408)
Cash flows from financing:
Revolver activity................................ -- (4,386) -- -- (4,386)
Principal payments on other long-term
debt, including capital leases................. (475) (65,816) -- -- (66,291)
Borrowings from IMC Global and affiliates, net... (12,150) 61,742 -- -- 49,592
Dividends paid................................... (26,659) -- -- -- (26,659)
-------- -------- --- --- --------
Net cash used in financing activities........ (39,284) (8,460) -- -- (47,744)
Effect of exchange rate changes on cash............. -- (171) -- -- (171)
-------- -------- --- --- --------
Net increase (decrease) in cash and cash equivalents (258) 616 -- -- 358
Cash and cash equivalents:
Beginning of period.............................. 2,365 (1,999) -- -- 366
-------- -------- --- --- --------
End of period.................................... $ 2,107 $ (1,383) $-- $-- $ 724
======== ======== === === ========
F-34
- --------------------------------------
- --------------------------------------
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus. You must not rely upon any
information or representation not contained or incorporated by reference in
this prospectus as if we had authorized it. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the registered securities to which it relates, nor does this prospectus
constitute an offer to sell or a solicitation of an offer to buy securities in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
-------------
TABLE OF CONTENTS
Page
----
Cautionary Note Regarding Forward-
Looking Statements and Industry Data. ii
Market and Industry Data and Forecasts. ii
Where You Can Find More Information.... iii
Prospectus Summary..................... 1
Risk Factors........................... 14
Use of Proceeds........................ 23
The Exchange Offer..................... 24
Capitalization......................... 31
Unaudited Pro Forma Combined
Financial Information................ 32
Selected Consolidated Financial Data... 40
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 42
Business............................... 52
Management............................. 67
Principal Stockholders................. 72
Certain Related Party Transactions..... 74
The New Credit Facilities.............. 77
Description of Exchange Notes.......... 79
Book Entry; Delivery and Form.......... 122
Plan of Distribution................... 123
Notice to Canadian Residents........... 124
Certain United States Federal Tax
Consequences......................... 125
Legal Matters.......................... 130
Experts................................ 130
Available Information.................. 130
Index to Combined Financial Statements. F-1
-------------
Until , 2002, all dealers effecting transactions in the exchange notes,
whether or not participating in this offering, 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
allotment or subscriptions.
- --------------------------------------
- --------------------------------------
- --------------------------------------
- --------------------------------------
[LOGO]
Compass Mineral Group
Compass Minerals Group, Inc.
Offer to Exchange $250,000,000
principal amount of its
10% Senior Subordinated Notes
due 2011 which have been
registered under the
Securities Act of 1933, as amended,
for any and all of its outstanding
10% Senior Subordinated Notes due 2011
-------------
PROSPECTUS
-------------
, 2002
- --------------------------------------
- --------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article Sixth of Compass Mineral Groups' Restated Certificate of
Incorporation eliminates the liability of directors to Compass Minerals Group
or its stockholders, except for liabilities related to breach of duty of
loyalty, actions or omissions not in good faith and certain other liabilities.
Article Fifth of Great Salt Lake Minerals Corporation's Restated Certificate
of Incorporation eliminates the liability of directors to Great Salt Lake
Minerals Corporation or its stockholders, except for liabilities related to
breach of duty of loyalty, actions or omissions not in good faith and certain
other liabilities.
Article Sixth of Carey Salt Company's Certificate of Incorporation, as
amended, eliminates the liability of directors to Carey Salt Company or its
stockholders, except for liabilities related to breach of duty of loyalty,
actions or omissions not in good faith and certain other liabilities.
Article Fifth of NAMSCO Inc.'s Restated Certificate of Incorporation
eliminates the liability of directors to NAMSCO, Inc. or its stockholders,
except for liabilities related to breach of duty of loyalty, actions or
omissions not in good faith and certain other liabilities.
Article Fifth of GSL Corporation's Certificate of Incorporation, as amended,
eliminates the liability of directors to GSL Corporation or its stockholders,
except for liabilities related to breach of duty of loyalty, actions or
omissions not in good faith and certain other liabilities.
Article Fifth of North American Salt Company's Restated Certificate of
Incorporation eliminates the liability of directors to North American Salt
Company or its stockholders, except for liabilities related to breach of duty
of loyalty, actions or omissions not in good faith and certain other
liabilities.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions);
or
. for any transaction from which the director derived an improper personal
benefit.
The certificate of incorporation and by-laws of each of Compass Minerals
Group, Inc., Great Salt Lake Minerals Corporation, Carey Salt Company, NAMSCO
Inc., GSL Corporation and North American Salt Company provide for the
indemnification of their directors, officers, employees and agents to the
fullest extent permitted by the DGCL and their respective certificate of
incorporation. Section 145 of the DGCL provides, in substance, that a Delaware
corporation has the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
The companies have purchased and maintain insurance on behalf of their
directors and officers.
II-1
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No. Description of Exhibit
--- ----------------------
2.1 Agreement and Plan of Merger, dated October 13, 2001, among IMC Global Inc., Salt Holdings
Corporation, YBR Holdings LLC and YBR Acquisition Corp.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated November 28, 2001, among IMC Global
Inc., Salt Holdings Corporation, YBR Holdings LLC and YBR Acquisition Corp.
3.1 Restated Certificate of Incorporation of IMC Inorganic Chemicals Inc., filed as Exhibit A to the
Certificate of Merger of IMC Merger Sub Inc. with and into Harris Chemical Group, Inc., filed on
April 1, 1998.
3.2 Certificate of Amendment of Certificate of Incorporation of IMC Inorganic Chemicals Inc., changing
its name from IMC Inorganic Chemicals Inc. to Compass Minerals Group, Inc., filed on
November 28, 2001.
3.3 By-laws of Compass Minerals Group, Inc.
3.4 Certificate of Incorporation of GSL Corporation, filed as Exhibit A to the Certificate of Merger of
GSL Acquisition Corp. into GSL Corporation, filed on September 24, 1993.
3.5 Certificate of Ownership and Merger merging GSL Holdings Inc. into GSL Corporation filed on
May 17, 1994.
3.6 Certificate of Amendment to Certificate of Incorporation of GSL Corporation filed on January 12,
2001.
3.7 By-laws of GSL Corporation.
3.8 Certificate of Incorporation of Sifto Louisiana Inc. filed on March 22, 1990.
3.9 Certificate of Amendment to the Certificate of Incorporation of Sifto Louisiana Inc., changing its
name from Sifto Louisiana Inc. to Carey Louisiana Inc., filed on August 22, 1990.
3.10 Certificate of Amendment to the Certificate of Incorporation of Carey Louisiana Inc., changing its
name from Carey Louisiana Inc. to Carey Salt Company, filed on November 8, 1990.
3.11 Bylaws of Carey Salt Company.
3.12 Restated Certificate of Incorporation of American Salt Company, filed as Exhibit A to Certificate of
Merger of Carey Salt, Inc. into American Salt Company, filed on March 30, 1990.
3.13 Certificate of Merger of Sifto Acquisition, Inc. into American Salt Company filed on March 30, 1990.
3.14 Certificate of Amendment to Restated Certificate of Incorporation of American Salt Company,
changing its name from American Salt Company to North American Salt Company, filed on
August 20, 1990.
3.15 Certificate of Amendment to Restated Certificate of Incorporation of North American Salt Company,
changing its name from North American Salt Company to IMC Salt Inc., filed on May 1, 1998.
3.16 Certificate of Amendment of Certificate of Incorporation of IMC Salt Inc., changing its name from
IMC Salt Inc. to North American Salt Company, filed on November 28, 2001.
3.17 By-laws of North American Salt Company.
3.18 Restated Certificate of Incorporation of Great Salt Lake Minerals and Chemicals Corporation filed on
March 29, 1990.
3.19 Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals and
Chemicals Corporation, changing its name from Great Salt Lake Minerals and Chemicals Corporation
to Great Salt Lake Minerals Corporation, filed on October 9, 1991.
3.20 Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals
Corporation, changing its name from Great Salt Lake Minerals Corporation to IMC Kalium Ogden
Corp., filed on June 18, 1998.
II-2
Exhibit
No. Description of Exhibit
--- ----------------------
3.21 Certificate of Amendment to Restated Certificate of Incorporation of IMC Kalium Ogden Corp.,
changing its name from IMC Kalium Ogden Corp. to Great Salt Lake Minerals Corporation, dated
November 28, 2001.
3.22 By-laws of Great Salt Lake Minerals Corporation.
3.23 Restated Certificate of Incorporation of NAMSCO Inc., filed as Exhibit A to the Certificate of Merger
of NAMSCO Acquisition Corp. with and into NAMSCO Inc., filed on September 24, 1993.
3.24 Certificate of Amendment to Certificate of Incorporation of NAMSCO Inc. filed on January 16, 2001.
3.25 By-laws of NAMSCO Inc.
4.1 Indenture, dated November 28, 2001, among Compass Minerals Group, Inc., as issuer, Carey Salt
Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO Inc., North American
Salt Company, as guarantors, and The Bank of New York, as trustee.
4.2 Form of Initial Note (included as Exhibit A to Exhibit 4.1).
4.3 Form of Exchange Note (included as Exhibit B to Exhibit 4.1).
4.4 Registration Rights Agreement, dated November 28, 2001, among Compass Minerals Group, Inc., as
issuer, Carey Salt Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO
Inc., North American Salt Company, as guarantors, and Credit Suisse First Boston Corporation, J.P.
Morgan Securities Inc., Deutsche Banc Alex. Brown Inc. and Credit Lyonnais Securities (USA) Inc.,
as initial purchasers.
5.1 Opinion of Latham & Watkins, special counsel to Compass Minerals Group, Inc., dated
February 13, 2002.
8.1 Opinion of Latham & Watkins regarding tax consequences, dated February 13, 2002.
10.1 Salt mining lease, dated November 9, 2001, between the Province of Ontario, as lessor, and Sifto
Canada, Inc., as lessee.
10.2 Salt and Surface Agreement, dated June 21, 1961, by and between John Taylor Caffery, as agent for
Marcie Caffery Gillis, Marcel A. Gillis, Bethia Caffery McCay, Percey McCay, Mary Louise Caffery
Ellis, Emma Caffery Jackson, Edward Jackson, Liddell Caffery, Marion Caffery Campbell, Martha
Gillis Restarick, Katherine Baker Senter, Caroline Baker, Bethia McCay Brown, Donelson Caffery
McCay, Lucius Howard McCurdy Jr., John Andersen McCurdy, Edward Rader Jackson III,
individually and as trustee for Donelson Caffery Jackson, and the J.M. Burguieres Company, LTD.,
and Carey Salt Company as amended by Act of Amendment to Salt Lease, dated May 30, 1973, as
further amended by Agreement dated November 21, 1990, and as further amended by Amendment to
Salt and Surface lease dated July 1, 1997.
10.3 Royalty Agreement, dated September 1, 1962, between IMC Kalium Ogden Corp. and the Utah State
Land Board.
10.4 Credit Agreement, dated November 28, 2001, among Salt Holdings Corporation, Compass Minerals
Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K.
borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian
agent, Chase Manhattan International Limited, as U.K. agent, J.P. Morgan Securities Inc., as joint
advisor, co-lead arranger and joint bookrunner, Deutsche Banc Alex. Brown Inc., as syndication
agent, joint advisor, co-lead arranger and joint bookrunner, Credit Suisse First Boston Corporation, as
co-documentation agent, and Credit Lyonnais, as co-documentation agent.
10.5 U.S. Collateral and Guaranty Agreement, dated November 28, 2001, among Salt Holdings
Corporation, Compass Minerals Group, Inc., Carey Salt Company, Great Salt Lake Minerals
Corporation, GSL Corporation, NAMSCO Inc., North American Salt Company and JPMorgan Chase
Bank, as collateral agent.
10.6 U.S. Collateral Assignment, dated November 28, 2001, among Salt Holdings Corporation, Compass
Minerals Group, Inc. and JPMorgan Chase Bank.
II-3
Exhibit
No. Description of Exhibit
--- ----------------------
10.7 Foreign Guaranty, dated November 28, 2001, among Sifto Canada Inc., Salt Union Limited, IMC
Global (Europe) Limited, IMC Global (UK) Limited, London Salt Limited, Direct Salt Supplies
Limited, J.T. Lunt & Co. (Nantwich) Limited, and JPMorgan Chase Bank, as collateral agent.
10.8 2001 Stock Option Plan of Salt Holdings Corporation, as adopted by the Board of Directors of Salt
Holdings Corporation on November 28, 2001.
10.9 Salt Holdings Corporation Senior Executives| Deferred Compensation Plan, effective as October 8,
2001.
10.10 Service Agreement, dated September 1, 1997, between Salt Union Limited and David J. Goadby.
10.11 Investor Rights Agreement, dated November 28, 2001, between Salt Holdings Corporation and the
holders of securities of Salt Holdings Corporation party thereto.
10.12 Management Consulting Agreement, dated November 28, 2001, between Salt Holdings Corporation
and Apollo Management V L.P.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrants.
23.1 Consent of Latham & Watkins, special counsel to Compass Minerals Group, Inc., (included in Exhibit
5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature pages attached hereto).
25.1 Statement of Eligibility of The Bank of New York, as trustee, on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter from Compass Minerals Group, Inc. to Registered Holders and DTC Participants.
99.4 Form of Instructions from Beneficial Owners to Registered Holders and DTC Participants.
99.5 Form of Letter to Clients.
99.6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
Item 22. Undertakings.
Each of the undersigned registrants 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 of 1933; (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
a prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement); and
(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;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
II-4
(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.
Each of the undersigned registrants hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the application form.
Each of the undersigned registrants hereby undertakes that every prospectus:
(1) that is filed pursuant to the immediately preceding paragraph or (2) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933, as amended, and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, 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.
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 provisions described under Item 20 above, or
otherwise, each of the registrants has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, each of
the registrants 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 Securities Act of 1933 and will be governed by final
adjudication of such issue.
Each of the undersigned registrants hereby undertakes to respond to requests
for information that are incorporated by reference into this prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, 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 undertaking also includes documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
Each of the undersigned registrants 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.
II-5
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, New York, on
February 13, 2002.
COMPASS MINERALS GROUP, INC.
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
/s/ ROBERT F. CLARK President, Chief Executive Officer February 13, 2002
------------------------ and Director
Robert F. Clark
/s/ STEVEN WOLF Vice President and General Manager, February 13, 2002
------------------------ Highway Deicing
Steven Wolf
/s/ KEITH E. CLARK Vice President and General Manager, February 13, 2002
------------------------ General Trade
Keith E. Clark
/s/ ROBERT A. BECK Vice President and General Manager, February 13, 2002
------------------------ SOP
Robert A. Beck
/s/ RODNEY L. UNDERDOWN Vice President, Finance and February 13, 2002
------------------------ Secretary
Rodney L. Underdown
/s/ DAVID J. GOADBY Managing Director, Salt Union February 13, 2002
------------------------
David J. Goadby
/s/ CAROL WOOD Treasurer and Assistant Secretary February 13, 2002
------------------------
Carol Wood
/s/ DANIEL J. LONG Vice President February 13, 2002
------------------------
Daniel J. Long
/s/ GREGORY W. SHELTON Assistant Secretary February 13, 2002
------------------------
Gregory W. Shelton
------------------------ Director
Peter P. Copses
/s/ ROBERT H. FALK Director February 13, 2002
------------------------
Robert H. Falk
II-6
/s/ JOSHUA J. HARRIS Director February 13, 2002
-----------------------
Joshua J. Harris
/s/ SCOTT M. KLEINMAN Director February 13, 2002
-----------------------
Scott M. Kleinman
----------------------- Director
Joel A. Asen
----------------------- Director
Heinn F. Tomfohrde, III
II-7
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, New York, on
February 13, 2002.
GREAT SALT LAKE MINERALS CORPORATION
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
Name Title Date
---- ----- ----
/s/ ROBERT F. CLARK President and Director February 13, 2002
------------------------
Robert F. Clark
/S/ KENNETH L. WARNICK Vice President February 13, 2002
------------------------
Kenneth L. Warnick
/s/ RODNEY L. UNDERDOWN Vice President and Secretary February 13, 2002
------------------------
Rodney L. Underdown
/s/ ERIC BEAUMONT Vice President February 13, 2002
------------------------
Eric Beaumont
/s/ ROBERT A. BECK Vice President February 13, 2002
------------------------
Robert A. Beck
/s/ DANIEL J. LONG Vice President February 13, 2002
------------------------
Daniel J. Long
/s/ GREGORY W. SHELTON Assistant Secretary February 13, 2002
------------------------
Gregory W. Shelton
/s/ CAROL WOOD Treasurer February 13, 2002
------------------------
Carol Wood
II-8
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, New York, on
February 13, 2002.
CAREY SALT COMPANY
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
/s/ ROBERT F. CLARK President and Director February 13, 2002
------------------------
Robert F. Clark
/s/ JOHN S. FALLIS Vice President February 13, 2002
------------------------
John S. Fallis
/s/ STEVEN WOLF Vice President February 13, 2002
------------------------
Steven Wolf
/s/ RODNEY L. UNDERDOWN Vice President and Secretary February 13, 2002
------------------------
Rodney L. Underdown
/s/ CAROL WOOD Treasurer and Assistant Secretary February 13, 2002
------------------------
Carol Wood
/s/ GREGORY W. SHELTON Assistant Secretary February 13, 2002
------------------------
Gregory W. Shelton
/s/ DANIEL J. LONG Vice President February 13, 2002
------------------------
Daniel J. Long
II-9
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, New York, on
February 13, 2002.
NAMSCO INC.
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
/s/ ROBERT F. CLARK President and Director February 13, 2002
------------------------
Robert F. Clark
/s/ RODNEY L. UNDERDOWN Vice President and Secretary February 13, 2002
------------------------
Rodney L. Underdown
/s/ KEITH E. CLARK Vice President and General Manager February 13, 2002
------------------------
Keith E. Clark
/s/ DANIEL J. LONG Vice President February 13, 2002
------------------------
Daniel Long
/s/ STEVEN WOLF Vice President and General Manager February 13, 2002
------------------------
Steven Wolf
/s/ CAROL WOOD Treasurer and Assistant Secretary February 13, 2002
------------------------
Carol Wood
/s/ SCOTT M. KLEINMAN Director February 13, 2002
------------------------
Scott M. Kleinman
II-10
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, New York, on
February 13, 2002.
GSL CORPORATION
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
/s/ ROBERT F. CLARK President and Director February 13, 2002
------------------------
Robert F. Clark
/s/ KENNETH L. WARNICK Vice President February 13, 2002
------------------------
Kenneth L. Warnick
/s/ RODNEY L. UNDERDOWN Vice President and Secretary February 13, 2002
------------------------
Rodney L. Underdown
/s/ ERIC BEAUMONT Vice President February 13, 2002
------------------------
Eric Beaumont
/s/ ROBERT A. BECK Vice President February 13, 2002
------------------------
Robert A. Beck
/s/ SCOTT M. KLEINMAN Director February 13, 2002
------------------------
Scott M. Kleinman
II-11
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, New York, on
February 13, 2002.
NORTH AMERICAN SALT COMPANY
By: /s/ ROBERT F. CLARK
------------------------------------
Name: Robert F. Clark
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert F. Clark, jointly and severally, each in
his own capacity, his true and lawful attorney-in-fact, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such said attorney-in-fact and agents with full power
and authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated.
/S/ ROBERT F. CLARK President and Director February 13, 2002
------------------------
Robert F. Clark
/S/ STEVEN WOLF Vice President February 13, 2002
------------------------
Steven Wolf
/S/ KEITH E. CLARK Vice President February 13, 2002
------------------------
Keith E. Clark
/S/ RODNEY L. UNDERDOWN Vice President and Secretary February 13, 2002
------------------------
Rodney L. Underdown
/s/ DANIEL J. LONG Vice President February 13, 2002
------------------------
Daniel J. Long
/s/ CAROL WOOD Treasurer and Assistant Secretary February 13, 2002
------------------------
Carol Wood
/s/ GREGORY W. SHELTON Assistant Secretary February 13, 2002
------------------------
Gregory W. Shelton
II-12
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
--- ----------------------
2.1 Agreement and Plan of Merger, dated October 13, 2001, among IMC Global Inc., Salt Holdings
Corporation, YBR Holdings LLC and YBR Acquisition Corp.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated November 28, 2001, among IMC Global
Inc., Salt Holdings Corporation, YBR Holdings LLC and YBR Acquisition Corp.
3.1 Restated Certificate of Incorporation of IMC Inorganic Chemicals Inc., filed as Exhibit A to the
Certificate of Merger of IMC Merger Sub Inc. with and into Harris Chemical Group, Inc., filed on
April 1, 1998.
3.2 Certificate of Amendment of Certificate of Incorporation of IMC Inorganic Chemicals Inc., changing
its name from IMC Inorganic Chemicals Inc. to Compass Minerals Group, Inc., filed on November
28, 2001.
3.3 By-laws of Compass Minerals Group, Inc.
3.4 Certificate of Incorporation of GSL Corporation, filed as Exhibit A to the Certificate of Merger of
GSL Acquisition Corp. into GSL Corporation, filed on September 24, 1993.
3.5 Certificate of Ownership and Merger merging GSL Holdings Inc. into GSL Corporation filed on May
17, 1994.
3.6 Certificate of Amendment to Certificate of Incorporation of GSL Corporation filed on January 12,
2001.
3.7 By-laws of GSL Corporation.
3.8 Certificate of Incorporation of Sifto Louisiana Inc. filed on March 22, 1990.
3.9 Certificate of Amendment to the Certificate of Incorporation of Sifto Louisiana Inc., changing its
name from Sifto Louisiana Inc. to Carey Louisiana Inc., filed on August 22, 1990.
3.10 Certificate of Amendment to the Certificate of Incorporation of Carey Louisiana Inc., changing its
name from Carey Louisiana Inc. to Carey Salt Company, filed on November 8, 1990.
3.11 By-laws of Carey Salt Company.
3.12 Restated Certificate of Incorporation of American Salt Company, filed as Exhibit A to Certificate of
Merger of Carey Salt, Inc. into American Salt Company, filed on March 30, 1990.
3.13 Certificate of Merger of Sifto Acquisition, Inc. into American Salt Company filed on March 30, 1990.
3.14 Certificate of Amendment to Restated Certificate of Incorporation of American Salt Company,
changing its name from American Salt Company to North American Salt Company, filed on August
20, 1990.
3.15 Certificate of Amendment to Restated Certificate of Incorporation of North American Salt Company,
changing its name from North American Salt Company to IMC Salt Inc., filed on May 1, 1998.
3.16 Certificate of Amendment of Certificate of Incorporation of IMC Salt Inc., changing its name from
IMC Salt Inc. to North American Salt Company, filed on November 28, 2001.
3.17 By-laws of North American Salt Company.
3.18 Restated Certificate of Incorporation of Great Salt Lake Minerals and Chemicals Corporation filed on
March 29, 1990.
3.19 Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals and
Chemicals Corporation, changing its name from Great Salt Lake Minerals and Chemicals Corporation
to Great Salt Lake Minerals Corporation, filed on October 9, 1991.
Exhibit
No. Description of Exhibit
--- ----------------------
3.20 Certificate of Amendment to Restated Certificate of Incorporation of Great Salt Lake Minerals
Corporation, changing its name from Great Salt Lake Minerals Corporation to IMC Kalium Ogden
Corp., filed on June 18, 1998.
3.21 Certificate of Amendment to Restated Certificate of Incorporation of IMC Kalium Ogden Corp.,
changing its name from IMC Kalium Ogden Corp. to Great Salt Lake Minerals Corporation, dated
November 28, 2001.
3.22 By-laws of Great Salt Lake Minerals Corporation.
3.23 Restated Certificate of Incorporation of NAMSCO Inc., filed as Exhibit A to the Certificate of Merger
of NAMSCO Acquisition Corp. with and into NAMSCO Inc., filed on September 24, 1993.
3.24 Certificate of Amendment to Certificate of Incorporation of NAMSCO Inc. filed on January 16, 2001.
3.25 By-laws of NAMSCO Inc.
4.1 Indenture, dated November 28, 2001, among Compass Minerals Group, Inc., as issuer, Carey Salt
Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO Inc., North American
Salt Company, as guarantors, and The Bank of New York, as trustee.
4.2 Form of Initial Note (included as Exhibit A to Exhibit 4.1).
4.3 Form of Exchange Note (included as Exhibit B to Exhibit 4.1).
4.4 Registration Rights Agreement, dated November 28, 2001, among Compass Minerals Group, Inc., as
issuer, Carey Salt Company, Great Salt Lake Minerals Corporation, GSL Corporation, NAMSCO
Inc., North American Salt Company, as guarantors, and Credit Suisse First Boston Corporation, J.P.
Morgan Securities Inc., Deutsche Banc Alex. Brown Inc. and Credit Lyonnais Securities (USA) Inc.,
as initial purchasers.
5.1 Opinion of Latham & Watkins, special counsel to Compass Minerals Group, Inc., dated February 13,
2002.
8.1 Opinion of Latham & Watkins regarding tax consequences, dated Februry 13, 2002.
10.1 Salt mining lease, dated November 9, 2001, between the Province of Ontario, as lessor, and Sifto
Canada Inc. as lessee.
10.2 Salt and Surface Agreement, dated June 21, 1961, by and between John Taylor Caffery, as agent for
Marcie Caffery Gillis, Marcel A. Gillis, Bethia Caffery McCay, Percey McCay, Mary Louise Caffery
Ellis, Emma Caffery Jackson, Edward Jackson, Liddell Caffery, Marion Caffery Campbell, Martha
Gillis Restarick, Katherine Baker Senter, Caroline Baker, Bethia McCay Brown, Donelson Caffery
McCay, Lucius Howard McCurdy Jr., John Andersen McCurdy, Edward Rader Jackson III,
individually and as trustee for Donelson Caffery Jackson, and the J.M. Burguieres Company, LTD.,
and Carey Salt Company as amended by Act of Amendment to Salt Lease, dated May 30, 1973, as
further amended by Agreement dated November 21, 1990, and as further amended by Amendment to
Salt and Surface lease dated July 1, 1997.
10.3 Royalty Agreement, dated September 1, 1962, between IMC Kalium Ogden Corp. and the Utah State
Land Board.
10.4 Credit Agreement, dated November 28, 2001, among Salt Holdings Corporation, Compass Minerals
Group, Inc., as U.S. borrower, Sifto Canada Inc., as Canadian borrower, Salt Union Limited, as U.K.
borrower, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Bank Canada, as Canadian
agent, Chase Manhattan International Limited, as U.K. agent, J.P. Morgan Securities Inc., as joint
advisor, co-lead arranger and joint bookrunner, Deutsche Banc Alex. Brown Inc., as syndication
agent, joint advisor, co-lead arranger and joint bookrunner, Credit Suisse First Boston Corporation, as
co-documentation agent, and Credit Lyonnais, as co-documentation agent.
2
Exhibit
No. Description of Exhibit
--- ----------------------
10.5 U.S. Collateral and Guaranty Agreement, dated November 28, 2001, among Salt Holdings
Corporation, Compass Minerals Group, Inc., Carey Salt Company, Great Salt Lake Minerals
Corporation, GSL Corporation, NAMSCO Inc., North American Salt Company and JPMorgan Chase
Bank, as collateral agent.
10.6 U.S. Collateral Assignment, dated November 28, 2001, among Salt Holdings Corporation, Compass
Minerals Group, Inc. and JPMorgan Chase Bank.
10.7 Foreign Guaranty, dated November 28, 2001, among Sifto Canada Inc., Salt Union Limited, IMC
Global (Europe) Limited, IMC Global (UK) Limited, London Salt Limited, Direct Salt Supplies
Limited, J.T. Lunt & Co. (Nantwich) Limited, and JPMorgan Chase Bank, as collateral agent.
10.8 2001 Stock Option Plan of Salt Holdings Corporation, as adopted by the Board of Directors of Salt
Holdings Corporation on November 28, 2001.
10.9 Salt Holdings Corporation Senior Executives' Deferred Compensation Plan, effective as October 8,
2001.
10.10 Service Agreement, dated September 1, 1997, between Salt Union Limited and David J. Goadby.
10.11 Investor Rights Agreement, dated November 28, 2001, between Salt Holdings Corporation and the
holders of securities of Salt Holdings Corporation party thereto.
10.12 Management Consulting Agreement, dated November 28, 2001, between Salt Holdings Corporation
and Apollo Management V L.P.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrants.
23.1 Consent of Latham & Watkins, special counsel to Compass Minerals Group, Inc., (included in Exhibit
5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature pages attached hereto).
25.1 Statement of Eligibility of The Bank of New York, as trustee, on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter from Compass Minerals Group, Inc. to Registered Holders and DTC Participants.
99.4 Form of Instructions from Beneficial Owners to Registered Holders and DTC Participants.
99.5 Form of Letter to Clients.
99.6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
3