<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14,1998
REGISTRATION NO. 333-64641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHILIPP BROTHERS CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 2819 13-1840497
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
ONE PARKER PLAZA
FORT LEE, NEW JERSEY 07024
(201) 944-6020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------
JACK C. BENDHEIM,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHILIPP BROTHERS CHEMICALS, INC.
ONE PARKER PLAZA
FORT LEE, NEW JERSEY 07024
(201) 944-6020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
LAWRENCE M. BELL, ESQ.
GOLENBOCK, EISEMAN, ASSOR & BELL
437 MADISON AVENUE
NEW YORK, NEW YORK 10022-7302
(212) 907-7300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO THE SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
EXACT NAME OF REGISTRANT INCORPORATION OR CLASSIFICATION IRS EMPLOYER
AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER IDENTIFICATION NO.
<S> <C> <C> <C>
C.P. Chemicals, Inc. New Jersey 2819 22-1548721
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
Koffolk, Inc. Delaware 2819 22-3429128
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
Phibro-Tech, Inc. Delaware 2819 22-3060339
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
MRT Management Corp. Delaware 2819 22-3407010
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
Mineral Resource Technologies, L.L.C. Delaware 2819 58-2204234
120 Interstate North Parkway East,
Suite 440
Atlanta, Georgia 30339
(770) 989-0089
Prince Agriproducts, Inc. Delaware 2819 23-1653576
One Prince Plaza
Quincy, Illinois 62301
(217) 222-8854
The Prince Manufacturing Company Pennsylvania 2819 13-2793019
700 Lehigh Street
Bowmanstown, Pennsylvania 18030
(610) 852-2345
The Prince Manufacturing Company Illinois 2819 13-2793024
One Prince Plaza
Quincy, Illinois 62301
Phibrochem, Inc. New Jersey 2819 22-2758614
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
Phibro Chemicals, Inc. New York 2819 22-2871784
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
Western Magnesium Corp. California 2819 13-2849569
One Parker Plaza
Fort Lee, New Jersey 07024
(201) 944-6020
</TABLE>
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS LOCATION
- --------------------------------------------------------- -----------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of the Registration Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Risk Factors; Selected Consolidated
Financial Data
4. Terms of the Transaction........................... Summary; The Exchange Offer; Description of the
Notes; Certain Federal Income Tax Consequences;
Plan of Distribution
5. Pro Forma Financial Information.................... Summary; Unaudited Pro Forma Condensed Consolidated
Financial Information; Selected Consolidated
Financial Data
6. Material Contracts with the Company Being
Acquired......................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel............. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
10. Information with Respect to S-3 Registrants........ Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants........................... Available Information; Summary; Risk Factors; Use of
Proceeds; Capitalization; Unaudited Pro Forma
Condensed Consolidated Financial Information;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Conditions in
Israel; Management; Description of Capital Stock;
Principal Stockholders; Certain Relationships and
Related Transactions; Description of Certain
Indebtedness; Description of the Notes; Legal
Matters; Experts; Index to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS LOCATION
- --------------------------------------------------------- -----------------------------------------------------
<S> <C>
15. Information with Respect to S-3 Companies.......... Not Applicable
16. Information with Respect to S-2 or S-3 Companies... Not Applicable
17. Information with Respect to Companies Other than
S-2 or S-3 Companies............................. Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in Exchange Offer..... Summary; Risk Factors; The Exchange Offer;
Description of Notes; Book Entry; Delivery and
Form; Exchange Offer; Registration Rights; Certain
United States Federal Income Tax Considerations;
Plan of Distribution
</TABLE>
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 14, 1998
OFFER FOR ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2008 IN EXCHANGE FOR
9 7/8% SENIOR SUBORDINATED NOTES DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF
THE COMPANY HAS NOT ISSUED, AND DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO
ISSUE, ANY SIGNIFICANT ADDITIONAL INDEBTEDNESS TO WHICH THE NOTES WOULD BE
SENIOR. THE NOTES ALSO WILL BE EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL OF THE
OUTSTANDING INDEBTEDNESS OF THE COMPANY AND ITS GUARANTOR SUBSIDIARIES.
[LOGO] PHILIPP BROTHERS CHEMICALS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
Philipp Brothers Chemicals, Inc. ("Philipp Brothers" and, collectively with
its consolidated subsidiaries, the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange an aggregate principal amount of $100,000,000 of its 9 7/8% Senior
Subordinated Notes due 2008 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 9 7/8% Senior Subordinated Notes
due 2008 (the "Old Notes" and, together with the New Notes, the "Notes") from
the holders (the "Holders") thereof. The terms of the New Notes are identical in
all material respects to the Old Notes, except for certain transfer restrictions
and registration rights relating to the Old Notes and except for certain
provisions providing for an increase in the interest rate on the Old Notes under
certain circumstances relating to the timing of the Exchange Offer.
On June 11, 1998 (the "Issue Date"), Philipp Brothers issued $100,000,000
in aggregate principal amount of Old Notes. The Old Notes were issued pursuant
to an offering (the "Offering") exempt from registration under the Securities
Act and applicable state securities laws.
Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year, commencing December 1, 1998. The Notes mature on June 1, 2008, unless
previously redeemed. The Notes are redeemable in cash at the option of the
Company, in whole or in part, on or after June 1, 2003, at the redemption prices
set forth herein, together with accrued interest thereon to the date of
redemption. In addition, at any time prior to June 1, 2001, the Company may, at
its option, redeem up to 30% of the sum of (i) the initial aggregate principal
amount of the Notes issued in the Offering and (ii) the respective initial
aggregate principal amount of the Notes issued under the
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(Continued from previous page)
indenture pursuant to which the Old Notes were, and the New Notes will be,
issued (the "Indenture") after the Issue Date, on one or more occasions with the
net proceeds of one or more Public Equity Offerings (as defined) at 109 7/8% of
the principal amount thereof, plus accrued interest to the date of redemption;
provided, that immediately after giving effect to such redemption, at least 70%
of the sum of (i) the initial aggregate principal amount of the Notes issued in
the Offering and (ii) the respective initial aggregate principal amount of the
Notes issued under the Indenture after the Issue Date remain outstanding. Upon a
Change of Control (as defined), the Company will be required to offer to
repurchase the Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest thereon to the date of repurchase. If a Change of
Control were to occur, there can be no assurance that the Company would have
adequate funds to first satisfy its obligations in respect of indebtedness
senior to the Notes and then to repurchase the Notes.
The Notes are unsecured senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. The Notes are effectively subordinated to all secured
indebtedness of the Company to the extent of the assets securing such
indebtedness. The Notes are unconditionally guaranteed by each of the current
domestic subsidiaries and certain future subsidiaries of the Company (the
"Guarantors") on an unsecured senior subordinated basis. Each of the Guarantees
(as defined) is effectively subordinated to all secured indebtedness of such
Guarantor to the extent of the assets securing such indebtedness. The Notes and
the Guarantees rank pari passu with any future senior subordinated indebtedness
of the Company or the Guarantors, respectively, and rank senior in right of
payment to all other subordinated obligations of the Company or the Guarantors,
respectively. The Notes, therefore, will be effectively subordinate to
essentially all of the outstanding indebtedness of the Company and the
Guarantors. At September 30, 1998, the Company and the Guarantors had
approximately $6.3 million in aggregate principal amount of outstanding Senior
Debt, and $35 million of availability, subject to a borrowing base, under the
New Credit Agreement (as defined). The Indenture governing the Notes permits the
Company and its subsidiaries to incur additional indebtedness, including Senior
Debt, subject to certain limitations. The Company expects from time to time to
incur indebtedness under the Credit Facility (as defined), has guaranteed or may
in the future guaranty indebtedness under credit facilities of its Foreign
Subsidiaries to the extent permitted under the Indenture and expects to enter
into capitalized lease or other equipment or fixed asset financing arrangements
permitted under the Indenture. In addition, the Company is discussing the
possibility that an unrestricted subsidiary, which may be formed in the future,
may incur indebtedness of approximately $10,000,000, without recourse to the
Company or any Restricted Subsidiary (as defined), in connection with the
financing and operation of a fly ash beneficiation plant and related assets.
Aside from the above, the Company does not have any current or pending
arrangements or agreements to incur additional significant indebtedness to which
the Notes will be subordinate or rank pari passu in right of payment.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from June 11, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any Holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided, that such New Notes are acquired in the ordinary
course of such Holders' business, such Holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and such Holders are not engaged in and do not intend to be engaged in a
distribution of such New Notes. However, the SEC has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is acquiring the New Notes in the
ordinary course of such Holder's business, such Holder is not an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, it is not
engaged in, and does not intend to engage in, a distribution of such New Notes
and has no arrangement or understanding to participate in a distribution of New
Notes. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an
ii
<PAGE>
(Continued from previous page)
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period (the "Applicable Period") of up to 180 days after the effective date of
the Registration Statement of which this Prospectus is a part, or such longer
period if extended pursuant to the Registration Rights Agreement among the
Company, the Guarantors and the Initial Purchaser (as defined), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of its expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Company will promptly return the
Old Notes to the Holders thereof. The Exchange Offer will terminate not later
than the 30th day after the date of this Prospectus, subject to extension for
such period as may be required by applicable law. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of Holders of the New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. Schroder & Co., Inc.
(the "Initial Purchaser") has advised the Company that it currently intends to
make a market in the New Notes. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to the New Notes may be discontinued
at any time without notice. The Company does not intend to apply for listing or
quotation of the New Notes on any securities exchange or stock market.
iii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the Company and the New Notes offered hereby,
reference is made to the Registration Statement. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such documents
filed as an exhibit to the Registration Statement otherwise filed with the SEC.
Upon the effectiveness of the Registration Statement, the Company will
become subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith, will file
reports and other information with the SEC. The Registration Statement, the
exhibits and schedules forming a part thereof and the reports and other
information filed by the Company with the SEC in accordance with the Exchange
Act may be inspected, without charge, at the Public Reference Section of the SEC
located at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of all or any portion of the material may be obtained
from the Public Reference Section of the SEC upon payment of the prescribed
fees. In addition, the SEC maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of such site is
http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the SEC, for so long as any Notes remain
outstanding, it will furnish to the registered holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the SEC, all
quarterly and annual and other documents that would be required to be filed with
the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor
provision thereto. In addition, for so long as any of the Notes remain
outstanding, the Company has agreed to make available to any registered holder
(and, upon request, certain others) the information required by
Rule 144A(d)(4) under the Securities Act.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, statements regarding the Company's
future financial position, business strategy, budgets, project costs and plans
and objectives of management for future operations, are Forward-Looking
Statements. In addition, Forward-Looking Statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "except,"
"should," "intend," "estimate," "anticipate," "believe," or "continue" or the
negative thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such Forward-Looking
Statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed under "Risk Factors" and elsewhere in this Prospectus, including,
without limitation, in conjunction with the Forward-Looking Statements included
in this Prospectus. All subsequent written and oral Forward-Looking Statements
attributable to the Company, or persons acting on its behalf, are expressly
qualified in their entirety by the Cautionary Statements. Pursuant to
Section 27A of the Securities Act and Section 21E of the Exchange Act, the "safe
harbor" for Forward-Looking Statements does not apply to statements made in
connection with an initial public offering.
iv
<PAGE>
MAJOR PRODUCTS OVERVIEW
<TABLE>
<CAPTION>
PRINCIPAL PRODUCTS PRINCIPAL END SELECTED WELL-KNOWN
PRODUCT GROUP AND BRANDS MARKETS OR USERS CUSTOMERS
<S> <C> <C> <C>
ANIMAL NUTRITION Amprolium Animal Feed Agway
AND HEALTH Animal Feed Ingredients Coccidiocides* Cargill
Copper Sulfate F.G. Feed Mills Continental Grain
Nicarbazin Nutritional Eli Lilly
Trace Mineral Premixes Supplements Farmland
Trace Minerals Poultry and Pet Meriel
Food (Merck/Rhone-Poulenc)
Perdue
Purina Mills
(Koch Industries)
Tyson Foods
INTERMEDIATES Anisic Alcohol Acetylene BOC
AND INDUSTRIAL Anisic Aldehyde Adhesion Promoter Colgate Palmolive
CHEMICALS Calcium Carbide Brick and Tile Elementis
Copper Oxide Catalysts Engelhard
Dicyandiamide Cement Coatings Ferro
DL Panthenol Concrete Hoffman La Roche
Fly Ash Flame Retardation Laporte
Iron Oxide Frits** Morton International
Manganese Dioxide Glass Osmose
Selenium Disulfide Pharmaceutical Owens Corning
Sodium Fluoride Intermediates Fiberglass
Superchlon Preservatives Pfizer
1,3-Difluorobenzene Shampoo PPG Industries
Toothpaste Procter & Gamble
Wood Treatment Sherwin-Williams
SmithKline Beecham
Unilever
CROP PROTECTION Copper Fungicides Citrus BASF
Champ Flowable Grapes Helena (Marubeni)
Champion Nuts Sivam
Macclesfield 50 and 80 Vegetables Sumitomo
Gibberellic Acid Vines United Agri Products
GibGro 4% LC (Conagra)
GibGro 20% SP
ELECTRONICS AND Alkaline Etchant Chemical Milling Ashland
METAL TREATMENT Phibro-Guard TFT Metal Finishers Automata
Ac-Cu-Guard Plus Printed Circuit Board Hadco
Ac-Cu-Fine9 Manufacturers Hutchinson
Ferric Chloride MacDermid
PF Etchant Sanmina
High Speed Circuit Etch Shipley
Rapid Circuit Etch Tyco International
Metal Treatment Van Waters & Rogers
Recycling Activities
</TABLE>
No single customer accounted for more than 5% of the Company's 1998 net
sales.
Advancing Animal Nutrition (Registered), A-STAB (Registered), Champ
Flowable (Registered), Champion (Registered), Copikem (Registered), CP and
design (Registered), GibGro (Registered), High Speed Circuit Etch (Registered),
Kastab (Registered), Manpower (Registered), MRT (Registered),
N-cap (Registered), Nicarb (Registered), Nicarmix (Registered), Phibro-
Guard (Registered), Prince and design (Registered), TFT (Registered),
Tripolymer (Registered), Ac-Cu-Guard (Trademark), Agri-tin (Trademark), High
Speed Ac-Cu-Guard Plus (Trademark), Ac-Cu-Fine9 (Trademark),
D Stab (Trademark), Necoxine (Trademark), Chromax (Trademark),
Chromox (Trademark), Brickox (Trademark), Macclesfield (Trademark),
MRT Cement (Trademark), Ultra Flourish (Trademark) and Phibro and
design (Trademark) are trademarks of the Company.
- ------------------
* Cocciocides are a pharmaceutical product used for the prevention of
coccidiosis (a parasitic infection) in chickens.
** A frit is a smelted chemical composition rapidly quenched to produce glasses
that are used to coat ceramics or metal substrates.
v
<PAGE>
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and the Company's historical
consolidated financial statements and "Unaudited Pro Forma Condensed
Consolidated Financial Information," and the respective notes thereto, included
elsewhere in this Prospectus. Unless otherwise indicated or the context
otherwise requires, (i) references to "Philipp Brothers" are to Philipp Brothers
Chemicals, Inc. and references to the Company are to Philipp Brothers and its
consolidated subsidiaries, and (ii) references to the Company's fiscal year
refer to the 12-month period ended June 30 of the applicable year.
THE COMPANY
Philipp Brothers Chemicals, Inc. is a leading diversified global
manufacturer and marketer of a broad range of specialty and industrial
chemicals, which are sold world-wide for use in numerous markets including
animal nutrition and health, electronics, wood treatment, agricultural,
pharmaceutical and personal care products, glass, construction and concrete. The
Company also provides recycling and hazardous waste services primarily to the
electronics and metal treatment industries. The Company has leading positions in
certain of its end markets, and has global marketing and manufacturing
capabilities. The Company's net sales and EBITDA (as defined) were
$278.0 million and $10.6 million, respectively, for the year ended June 30,
1998, $268.4 million and $20.6 million, respectively, for the year ended
June 30, 1997, $59.2 million and $2.6 million, respectively, for the quarter
ended September 30, 1998 and $62.6 million and $3.1 million, respectively, for
the quarter ended September 30, 1997. The Company has significant indebtedness
and is highly leveraged. As of September 30, 1998, the Company had approximately
$106.3 million of debt and approximately $22.8 million of stockholders' equity.
As of September 30, 1998, on a pro forma basis after giving effect to the ODDA
Acquisition, the Company would have had total indebtedness of $124.4 million and
stockholders' equity of $22.8 million. In addition, subject to the restrictions
in the Credit Facility and the Indenture, the Company may incur additional
indebtedness from time to time. There can be no assurance that the Company's
cash balance together with cash flow from operations and borrowings available
under the Credit Facility will be sufficient to fund anticipated operating
expenses, capital expenditures and to service its debt requirements as they come
due. Approximately 35% of the Company's fiscal 1998 net sales consisted of sales
made by the Company outside the United States. During fiscal 1998, the Company's
products were manufactured at nine facilities in the United States, two
facilities in Europe, two facilities in Israel, and one facility in South
America.
The Company manufactures and markets more than 350 specialty and industrial
chemicals, of which 50 products accounted for approximately 80% of fiscal 1998
net sales. The Company focuses on specialty and industrial chemicals for which
it has a strong market position or an advantage in product development,
manufacturing or distribution. Many of the Company's products provide critical
performance attributes to its customers' products, while representing a
relatively small percentage of total end-product costs. The Company has four
core product groups:
o ANIMAL NUTRITION AND HEALTH. The Company manufactures and markets trace
minerals, trace mineral premixes and animal feed ingredients, as well as
vitamins, vitamin premixes and other animal health products to the animal
feed, poultry and pet food industries. The Company produces, at one of
its plants in Israel, nicarbazin and amprolium, which it distributes to
the world-wide poultry industry through major multinational
pharmaceutical and animal health companies. The Company believes it is
the sole world-wide producer of amprolium, and the largest volume
world-wide producer of nicarbazin, both of which are coccidiocides
approved by the U.S. Food and Drug Administration ("FDA") for the
prevention of coccidiosis (a parasitic infection) in chickens. The
Company believes it is one of the largest volume manufacturers and
marketers of copper sulfate, a key ingredient in animal nutrition, to the
animal feed industries in the United States and France. Animal Nutrition
and Health products accounted for approximately $129 million, or 47%, of
the Company's fiscal 1998 net sales.
o INTERMEDIATES AND INDUSTRIAL CHEMICALS. The Company manufactures and
markets a number of specialty and fine organic chemicals and
intermediates, as well as industrial pigments and other mineral products
for use in the chemical, catalyst, pharmaceutical and personal care,
construction, concrete, wood treatment, automotive, aerospace, glass and
coal mining industries.
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Certain of these products are produced from the Company's recycling
operations, resulting in a cost advantage for the Company. One of the
Company's main products in this group, copper oxide, used in the
production of water-borne wood preservatives, is produced from its
recycling operations. The Company believes that it is one of the major
U.S. producers and suppliers of copper oxide to the North American wood
preservative market. In addition to copper oxide, the Company supplies
other mineral oxides, such as iron and manganese compounds, which are
used as colorants and for other purposes in the brick, masonry, glass and
other industries. The Company also manufactures and markets chemical
intermediates for the pharmaceutical and personal care industries. The
Company believes it is the largest volume U.S. marketer of sodium
fluoride for use in toothpaste. The Company also manufactures and markets
DL Panthenol, often labeled "pro vitamin B5," a key ingredient in shampoo
for providing luster. Intermediates and Industrial Chemicals accounted
for approximately $74 million, or 27%, of the Company's fiscal 1998 net
sales.
o CROP PROTECTION. The Company manufactures and markets fungicides and
other agricultural products for the United States, French and other
international markets. These products are primarily copper-based
fungicides, which are used in the treatment of crop bacteria and fungal
diseases, and gibberellins, which are plant growth regulators used in
table grape and citrus production, as well as value-added branded crop
protection chemicals. Copper-based fungicide products include
Macclesfield 80, a Bordeaux mixture, and Champion and Champ Flowable,
both copper hydroxide fungicides that are more efficacious forms of
copper-based fungicides. The gibberellins include liquid and soluble
powder GibGro, a plant growth regulator. The majority of these products
are covered by United States and foreign registrations granted to or held
by the Company. Crop Protection products accounted for approximately
$36 million, or 13%, of the Company's fiscal 1998 net sales.
o ELECTRONICS AND METAL TREATMENT. The Company believes that it is the
largest volume manufacturer and recycler of alkaline etchants in the
United States. Through five of its facilities, the Company sells fresh
etchant to printed circuit board manufacturers and recycles spent
etchants. The Company believes it is the only national recycler of spent
etchant generated principally by printed circuit board manufacturers and
metal finishers. Using its proprietary recycling processes, the Company
recovers copper, nickel and other materials for use in the manufacture of
a broad range of intermediates and industrial chemicals. Electronics and
Metal Treatment accounted for approximately $39 million, or 14%, of the
Company's fiscal 1998 net sales.
BUSINESS STRATEGY
The Company's objective is to continue to enhance its revenue growth and
profitability. The Company plans to achieve its objective through the following
key strategies:
o Enhance Growth through Selective Acquisitions and Strategic
Alliances. The Company will continue to seek acquisitions of businesses
and products that improve profitability. In 1994, the Company acquired
Agtrol International (formerly La Cornubia S.A.), a producer of copper
chemicals and crop protection chemicals in France. In 1995, the Company
acquired Planalqumica Industrial Ltda. ("Planalqumica"), the sole
manufacturer of nicarbazin in Latin America. In 1996, Koffolk Inc.
("Koffolk USA"), then an affiliate of the Company that became a
subsidiary through the Transactions, purchased the right to sell
nicarbazin from the Animal Feed Division of Merck & Co. Inc. ("Merck").
Koffolk USA became the registered transferee and owner of the New Animal
Drug Application ("NADA") for nicarbazin approved by the FDA. Separately,
Merck appointed Koffolk USA as its exclusive U.S. distributor of
amprolium for poultry markets. In June 1998, Koffolk USA become a
subsidiary of the Company upon the closing of the Offering. In October
1998, the Company completed the ODDA Acquisition (as defined below). See
"--Recent Developments."
o Increase Product Offerings to Primary Markets. The Company seeks to
offer an extensive animal nutrition and crop protection product portfolio
to a given customer, thereby enhancing its position as a valuable
supplier to the industries it serves and increasing its unit sales per
customer. The Company seeks to increase its product lines through
identification and registration
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of generic fungicides under the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"), either directly or through joint ventures or
strategic alliances. In 1998, the Company obtained a U.S. registration
under FIFRA to sell a fungicide used primarily in the sugar beet, pecan
and potato industries, and also launched a systemic fungicide used in the
tobacco, citrus and vegetable industries.
o Introduce New or Technologically Improved Products. The Company focuses
on the acquisition and development of new and technologically advanced
products to respond to customer demands, changes in the marketplace,
technology and environmental regulations. The Company continues to use
its recycling expertise, hydro-metallurgical experience and chemical
formulation capability to develop new products and services. The Company
continues to seek and develop opportunities that enable it to offer new
products and technologies. A subsidiary of the Company, has recently
obtained two patents for the development of a new series of cement
products made primarily from fly ash, an ash residue generated chiefly by
coal-burning electric utilities. In 1998, the Company introduced an
environmentally friendly livestock litter treatment product and a line of
animal nutrition palatants (flavor enhancers) for the United States feed
market.
o Continue to Improve Operating Efficiencies. With the curtailment of the
Company's Sewaren, New Jersey facility, the Company expects to realize
significant cost savings. The Company intends to implement additional
cost-saving and productivity-enhancing programs in the future, including
yield improvement programs. The Company intends to move or expand product
capacity to improve production efficiency and reduce transportation
costs. The Company is analyzing additional opportunities to increase
operating efficiencies and profitability. See "--Restructuring and Other
Charges."
o Expand and Strengthen Customer Base. The Company intends to expand and
strengthen its customer base by (i) focusing on relationships with key
accounts, (ii) continuing to incentivize its sales force to concentrate
on fast-growing, high-margin areas within existing product groups, and
(iii) pursuing growth opportunities for its existing products in new
markets outside the United States.
COMPETITIVE STRENGTHS
o Leadership Positions in Targeted Markets. The Company believes it holds
leading positions in several specialty agricultural markets, including
copper-based feed additives and fungicides, and in specialty and
industrial chemical markets, including metal ore-based colorants,
etchants and certain organic compounds. The Company believes these
leadership positions will enhance its ability to broaden its product
lines within its markets, and its brand name recognition will increase
its ability to launch its existing products in new markets.
o Manufacturing Expertise. The Company's extensive experience in various
metal recovery processes provides the Company with a high quality, low
cost source of raw material for use in products sold to the agricultural
and animal nutrition markets. In addition, the Company's expertise in
certain organic synthesis processes has led to long-term manufacturing
relationships with its customers. Further, the Company's formulation and
compounding expertise is recognized by its customers in the animal health
and nutrition market.
o Proven Experience in New Product Development. The Company is a leader in
the development of new agricultural and industrial products and
applications. The Company has introduced high quality generic
formulations of fungicides and has further enhanced the bio-availability
of the active ingredient. In addition, the Company has modified
formulations as required by crop and soil conditions and market demand,
and is currently developing and field testing the fourth generation of
one of its fungicides. The Company has also developed several specialty
nutrient blends. The Company is expert in the innovative use of fluorine
compounds to produce its chemical intermediates.
o Established Global Network and Diverse Customer Base. The Company
manufactures and markets over 350 products sold through multiple
distribution channels to over 3,100 customers in a wide variety of
end-use markets. The Company sells its products through an established
global sales, marketing and distribution network to customers in 81
countries. Approximately 35% of the
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Company's total sales for fiscal 1998 were made by the Company outside
the United States, with 11% of sales from Europe, 22% of sales from
Israel and 2% of sales from South America. The Company's U.S., Israeli
and European manufacturing operations provide it with cost-effective
access to major geographic markets. In fiscal 1998, no single customer
accounted for over 5% of total revenues and the top 10 customers
accounted for less than 17% of total revenues.
o Strong Management Team. The Company has assembled a strong and
experienced management team at both the corporate and operating levels.
The Company's top operating managers have an average of over 25 years of
experience in the chemicals industry.
RECENT DEVELOPMENTS
The Offering
In June 1998, the Company completed a private placement (the "Offering")
under Rule 144A of the Securities Act, pursuant to which the Company issued and
sold $100 million of Old Notes, from which the Company received net proceeds of
approximately $96.2 million, after payment of discounts and commissions to the
Initial Purchaser and offering expenses. The proceeds of the Offering were used
in part to retire certain indebtedness of the Company, to effect the
Transactions, to finance the acquisition of ODDA (as defined below), in
connection with the Restructuring and Other Charges, and will be used in part to
finance other potential acquisitions and capital expenditures and to provide
additional working capital for general corporate purposes.
ODDA Acquisition
On October 1, 1998, the Company completed the acquisition (the "ODDA
Acquisition") of ODDA Smeltverk, AS, a Norwegian manufacturer and the business
of BOC Carbide Industries, a related U.K. distributor (together, "ODDA") of
calcium carbide used in the production of acetylene for welding and cutting and
as a desulphurization agent in the steel and foundry industry, and dicyandiamide
used in several applications, including as a flame retardant treatment for wood.
The purchase price was approximately $37.2 million (comprised of $19.0 million
in cash plus the assumption of $18.2 million in principal amount of
indebtedness, which assumed indebtedness has been guaranteed by the Company).
Prior to the ODDA Acquisition, the Company was ODDA's exclusive U.S. distributor
for dicyandiamide. See Note 15(a) to the Company's Consolidated Financial
Statements and Unaudited Pro Forma Condensed Consolidated Financial Information.
For the twelve months ended September 30, 1998, ODDA had revenues of
approximately $39.7 million, EBITDA of $1.8 million and as of September 30, 1998
had assets of $45.7 million.
New Credit Facility
In August 1998, the Company terminated its existing credit agreement with
Fleet Bank, National Association (the "Old Credit Agreement"), and entered into
a new credit agreement with PNC Bank, National Association (the "New Credit
Agreement" or the "Credit Facility"). The New Credit Agreement provides, among
other things, for the extension of a $60 million senior secured financing,
consisting of a $35 million revolving credit facility (subject to the
availability of certain eligible receivables and eligible inventory, with a
sub-limit for inventory of $15 million), including a $7.5 million letter of
credit sub-facility, and a $25 million acquisition facility. See "Description of
Certain Indebtedness."
RESTRUCTURING AND OTHER CHARGES
The Company has implemented a restructuring program in fiscal 1998 and has
incurred the charges described below (the "Restructuring and Other Charges").
See Note 11(d) and (e) to the Company's Consolidated Financial Statements.
o Curtailment of operations at the Company's Sewaren, New Jersey
manufacturing facility, which manufactured products primarily in the
Intermediates and Industrial Chemicals product group. The curtailment
program resulted in non-recurring charges of approximately $10 million,
of which $5.6 million is associated with the non-cash write down of fixed
assets, $1.1 million for one-time
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costs associated with the actual shutdown and $3.3 million for ongoing
site monitoring and ground water remediation.
o Charges associated with the forgiveness of certain promissory notes
issued to the Company's Phibro-Tech subsidiary by certain executives and
tax-related adjustments, which aggregate $5.6 million. See "Certain
Relationships and Related Transactions."
o Charges of approximately $1.2 million arising out of severance payments
associated with personnel changes.
The Company will continue to analyze opportunities to increase operating
efficiencies and profitability, which may result in additional restructuring and
other charges in the future. Additional matters have not currently been
identified.
THE TRANSACTIONS
The Company has undertaken the following transactions to provide it with
greater flexibility in the next several years with respect to its capital
expenditure and working capital requirements and to simplify the capital
structure of the Company and certain related entities.
Concurrently with the consummation of the Offering, all of the Company's
outstanding indebtedness under the Company's Old Credit Agreement with Fleet
Bank, N.A. was repaid in full out of the proceeds of the Notes. In addition, the
Company paid all amounts outstanding under and discharged $20.0 million in
aggregate principal amount of the Company's 11% Senior Notes due June 29, 2004
held by The Northwestern Mutual Life Insurance Company (the "Old Senior Notes").
Concurrently with the consummation of the Offering, Jack Bendheim, the
President and principal shareholder of the Company, sold all of the stock of
Koffolk USA to the Company in exchange for $1.5 million in indebtedness owed by
Mr. Bendheim to the Company (collectively, the "Koffolk USA Purchase"). In
addition, the Company acquired from Jack Bendheim his 29.2% interest in Mineral
Resource Technologies, L.L.C ("MRT") for $25,000 and repaid $995,000 in advances
made by Mr. Bendheim to MRT (the "MRT Transaction"). See "Certain Relationships
and Related Transactions."
The foregoing transactions, together with the Offering of the Old Notes,
are collectively referred to herein as the "Transactions."
---------------------------
The Company was founded in 1947 by Charles H. Bendheim, as the successor to
the chemical business of Philipp Brothers Incorporated. Siegfried Bendheim, the
father of Charles H. Bendheim, was the founder and principal shareholder of such
predecessor, Philipp Brothers Incorporated, which was founded in 1916. The
Company has grown through internal growth and selective acquisitions. Mr. Jack
Bendheim, the son and grandson of the founders, is the principal shareholder and
President and Chief Executive Officer of the Company. The principal executive
offices of the Company are located at One Parker Plaza, Fort Lee, New Jersey and
its telephone number is (201) 944-6020.
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THE EXCHANGE OFFER
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Securities Offered........................ $100,000,000 principal amount of 9 7/8% Senior Subordinated Notes due
2008, which have been registered under the Securities Act. The terms
of the New Notes and the Old Notes are identical in all material
respects, except that the offer of the New Notes will have been
registered under the Securities Act and, therefore, the New Notes
will not be subject to certain transfer restrictions, registration
rights and related liquidated damage provisions applicable to the Old
Notes described below under "--Summary Description of the New Notes."
The Exchange Offer........................ The New Notes are being offered in exchange for a like principal
amount of Old Notes. The issuance of the New Notes is intended to
satisfy obligations of the Company contained in the Registration
Rights Agreement dated as of June 11, 1998 among the Company, the
Guarantors and the Initial Purchaser (the "Registration Rights
Agreement").
Expiration Date; Withdrawal Rights........ The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, 30 days after the date of this Prospectus, or
such later date and time to which it is extended, pursuant to
applicable law, in which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is extended. The
tender of Old Notes pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. Any Old Note not accepted
for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer. See "The Exchange
Offer--Terms of the Exchange Offer; Period for Tendering Old Notes"
and "--Withdrawal Rights."
Procedures for Tendering
Old Notes............................... Each Holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with either certificates for such Old Notes
or a Book-Entry Confirmation (as defined herein) of such Old Notes
into the Book-Entry Transfer Facility (as defined herein), if such
procedure is available, and any other required documentation to the
exchange agent (the "Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal, each Holder will
represent to the Company, among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer by the Holder and any other
person are being obtained in the ordinary course of business of the
person receiving such New Notes, (ii) neither the Holder nor such
other person is participating in, intends to participate in or has an
arrangement or understanding with any person to participate in the
distribution of such New Notes and (iii) neither the Holder nor such
other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker or dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as
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a result of market-making or other trading activities. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a broker or dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See "The
Exchange Offer--Procedures for Tendering Old Notes" and "Plan of
Distribution."
Untendered Old Notes...................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old Notes
will not have any further exchange or registration rights and such
Old Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old Notes
could be adversely affected.
Shelf Registration Statement.............. If any holder of the Old Notes (other than any such holder which is
an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) is not eligible under applicable securities laws
to participate in the Exchange Offer, and such holder has satisfied
certain conditions relating to the provision of information to the
Company for use therein, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf Registration
Statement") and to use its reasonable best efforts to cause it to be
declared effective by the SEC. The Company has also agreed to file a
Shelf Registration Statement under certain other circumstances. The
Company has agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain circumstances, a maximum of
two years, to cover resales of the Old Notes held by such holders.
Special Procedures for Beneficial
Owners.................................. Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered Holder promptly
and instruct such registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering its Old Notes,
either make appropriate arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly completed bond power
from the registered Holder. The transfer of registered ownership may
take considerable time. See "The Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures............ Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not immediately available or who can not deliver their Old
Notes or any other documents required by the Letter of Transmittal to
the Exchange Agent must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Federal Income Tax Consequences........... The exchange pursuant to the Exchange Offer will not result in gain
or loss to the Holders or the Company for federal income tax
purposes. See "Certain United States Federal Income Tax
Consequences."
Use of Proceeds........................... There will be no proceeds to the Company from the Exchange Offer.
Exchange Agent............................ The Chase Manhattan Bank is serving as Exchange Agent in connection
with the Exchange Offer. See "The Exchange Offer--Exchange Agent."
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CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights." Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by Holders thereof
(other than any Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes and such Holders are not engaged in and do
not intend to be engaged in a distribution of such New Notes. However, the SEC
has not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that it is acquiring
the New Notes in the ordinary course of such Holder's business, such Holder is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a Prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register thereunder the New Notes prior to offering or selling such New
Notes. The Company has agreed, pursuant to the Registration Rights Agreement,
subject to certain limitations specified therein, to register or qualify the New
Notes for offer or sale under the securities laws of such jurisdictions as any
Holder reasonably requests in writing. Unless a Holder so requests, the Company
does not intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "The Exchange Offer--Consequences of Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions providing for an
increase in the interest rates on the Old Notes under certain circumstances
relating to timing of the Exchange Offer, which rights will terminate upon
consummation of the Exchange Offer. The New Notes will bear interest from the
most recent date to which interest has been paid on the Old Notes or, if no
interest has been paid on the Old Notes, from June 11, 1998. Accordingly,
registered Holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from June 11, 1998. Old Notes accepted
for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer, and the right
of such Holders to receive any such payment will terminate upon consummation of
the Exchange Offer.
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THE OFFERING
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Notes Offered............................. $100,000,000 in aggregate principal amount of 9 7/8% Senior
Subordinated Notes due 2008, which have been registered under the
Securities Act.
Maturity Date............................. June 1, 2008.
Interest Payment Dates.................... June 1 and December 1 of each year, commencing December 1, 1998.
Ranking................................... The Notes are general unsecured obligations of the Company. The Notes
are subordinated in right of payment to all existing and future
Senior Debt (as defined) of the Company and rank pari passu in right
of payment with all other existing and future senior subordinated
indebtedness of the Company. In addition, the Notes are effectively
subordinated to all secured indebtedness of either the Company or any
of its subsidiaries to the extent of the assets securing such
indebtedness. The Notes, therefore, will be effectively subordinate
to essentially all of the outstanding indebtedness of the Company and
the Guarantors. After giving effect to the Transactions, Philipp
Brothers and the Guarantors had approximately $4.3 million in
aggregate principal amount of Senior Debt outstanding as of June 30,
1998, and $35 million of availability, subject to a borrowing base,
under the New Credit Agreement as of August 31, 1998. The Indenture
governing the Notes permits Philipp Brothers and its subsidiaries to
incur additional indebtedness, subject to certain limitations. The
Company has not issued, and does not have any current firm
arrangements to issue, any significant additional indebtedness to
which the Notes would be senior. See "Risk Factors--Ranking of the
Notes" and "Description of the Notes--Subordination."
Optional Redemption....................... The Notes are redeemable in cash at the option of the Company, in
whole or in part, at any time or from time to time on or after
June 1, 2003, at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date of redemption.
In addition, at any time prior to June 1, 2001, the Company may, at
its option, redeem up to 30% of the sum of (i) the initial aggregate
principal amount of the Notes issued in the Offering and (ii) the
respective initial aggregate principal amount of the Notes issued
under the Indenture after the Issue Date, on one or more occasions
with the net proceeds of one or more Public Equity Offerings at
109 7/8% of the principal amount thereof, plus accrued interest to
the date of redemption, provided, that immediately after giving
effect to such redemption, at least 70% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the Offering and
(ii) the respective initial aggregate principal amount of the Notes
issued under the Indenture after the Issue Date remain outstanding.
See "Description of the Notes--Optional Redemption."
Change of Control......................... Upon a Change of Control, unless the Company has given a notice of
redemption, subject to the terms and conditions of the Indenture, the
Company will be required to offer to repurchase the Notes at a
purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
However, the New Credit Agreement
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contains a similar "change of control" provision. Payment of such
amount to the holder of the Notes is subject to payment of amounts
outstanding under such New Credit Agreement and any other obligations
senior in right of payment to the Notes, and consent of the lenders
thereunder. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient funds to repurchase
the Notes. At September 30, 1998, the Company had no borrowings
outstanding under the Credit Facility and no other Senior Debt that
must be repaid prior to the Company purchasing the Notes upon a
Change of Control. See "Description of the Notes--Change of Control."
Guarantees................................ The Notes are unconditionally guaranteed on a senior subordinated
basis (the "Guarantees") by the Guarantors. The Guarantees are
unsecured senior subordinated obligations of the Guarantors and are
subordinated in right of payment to all existing and future Senior
Debt (including their guarantees under the Credit Facility) of each
Guarantor. As of June 30, 1998, the Guarantors had approximately
$4.3 million principal amount of Senior Debt outstanding. See
"Description of the Notes--Guarantees."
Certain Covenants......................... The Indenture contains certain covenants with respect to the Company
and its Restricted Subsidiaries (as defined), which restrict, among
other things, (a) the incurrence of additional indebtedness, (b) the
payment of dividends and other restricted payments, (c) the creation
of certain liens, (d) the sale of assets, (e) certain payment
restrictions affecting subsidiaries, and (f) transactions with
affiliates. The Indenture also restricts the Company's ability to
consolidate or merge with or into, or to transfer all or
substantially all of its assets to, another person. These
restrictions and requirements are subject to a number of important
qualifications and exceptions. See "Description of the Notes--Certain
Covenants."
Exchange Offer; Registration.............. Holders of New Notes (other than as set forth below) are not entitled
to any registration rights with respect to the New Notes. Pursuant to
the Registration Rights Agreement, the Company has agreed, for the
benefit of the Holders of Old Notes, to file an Exchange Offer
Registration Statement (as defined). The Registration Statement of
which this Prospectus is a part constitutes the Exchange Offer
Registration Statement. Under certain circumstances, certain Holders
of Notes (including Holders who may not participate in the Exchange
Offer or who may not freely resell New Notes received in the Exchange
Offer) may require the Company to file, and cause to become
effective, a shelf registration statement under the Securities Act,
which would cover resales of Notes of such Holders. See "Description
of Notes--Exchange Offer; Registration Rights."
Use of Proceeds........................... The proceeds from the Offering of the Old Notes were used in part to
retire certain existing indebtedness of the Company, to effect the
Transactions, to finance the acquisition of ODDA, and in connection
with the Restructuring and Other Charges, and will be used in part to
finance other potential acquisitions and capital expenditures and to
provide additional working capital for general corporate purposes.
See "Use of Proceeds."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Risk Factors.............................. Holders of the Old Notes should consider carefully the information
set forth under the caption "Risk Factors" (including without
limitation the information set forth thereunder with respect to the
consequences of a failure to exchange Notes, the Company's
substantial leverage and potential inability to service debt, the
Company's dependence on distributions from subsidiaries, the
potential unenforceability of the Guarantees and the risks associated
with the Company's international operations) and all other
information set forth in this Prospectus before making a decision to
tender their Old Notes in the Exchange Offer.
</TABLE>
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated historical financial
and other data of the Company on a consolidated basis for each of the years in
the five-year period ended June 30, 1998 and the three months ended
September 30, 1998 and 1997, and pro forma financial and other data of the
Company on a consolidated basis for the fiscal year ended June 30, 1998 and the
three months ended September 30, 1998. The summary consolidated historical
financial data for each of the years in the five-year period ended June 30, 1998
were derived from the audited consolidated financial statements of the Company.
The summary consolidated historical data for the three months ended
September 30, 1998 and 1997 were derived from unaudited condensed consolidated
financial statements of the Company, which reflect all adjustments (consisting
of normal recurring adjustments necessary for a fair presentation of such data).
The results of operations for the three months ended September 30, 1998 and 1997
are not indicative of results for the full year. The summary consolidated pro
forma data for the fiscal year ended June 30, 1998 and the three months ended
September 30, 1998 were derived from the "Unaudited Pro Forma Condensed
Consolidated Financial Information," giving effect to the events described
therein, included elsewhere in this Prospectus. The pro forma financial data are
not necessarily indicative of operating results or financial position that would
have been achieved had these events been consummated on the dates indicated and
should not be construed as representative of future operating results or
financial position. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Condensed Consolidated
Financial Information" and the Company's historical consolidated financial
statements, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(A)
THREE MONTHS THREE MONTHS ENDED PRO FORMA(A)
ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------- JUNE 30, ----------------------------------------------------
1998 1998 1997 1998 1998 1997 1996 1995(B) 1994(C)
------------- -------- -------- ------------ -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $ 68,631 $ 59,209 $ 62,630 $317,667 $277,983 $268,362 $241,395 $230,805 $197,287
Gross profit........... 15,504 12,506 14,635 85,344 69,070 67,324 60,362 62,305 53,997
Curtailment of
operations at
manufacturing
facility.............. -- -- -- -- 10,000 -- -- -- --
Operating income
(loss)................ (764) 618 714 (5,692) (4,227) 11,231 9,191 11,023 9,447
Interest expense....... 3,113 2,721 1,566 12,052 6,865 6,253 5,546 5,409 4,205
Net income (loss)
before extraordinary
items................. (2,234) (1,087) (1,572) (11,325) (7,065) 8,036 (10) 2,982 2,760
Extraordinary items.... -- -- -- (1,962) (1,962) -- -- -- --
Net income (loss)(d)... (2,234) (1,087) (1,572) (13,287) (9,027) 8,036 (10) 2,982 2,760
CASH FLOW DATA:
Provided by operating
activities............ -- 9,274 4,526 -- 1,339 2,923 680 2,774 13,256
Used in investing
activities............ -- (2,538) (1,489) -- (8,031) (4,697) (12,773) (12,134) (4,272)
Provided by (used in)
financing
activities............ -- 1,160 2,272 -- 26,820 436 13,944 6,092 (9,064)
Net (decrease) increase
in cash............... -- 7,896 5,309 -- 20,128 (1,338) 1,851 (3,268) (80)
OTHER FINANCIAL DATA:
Depreciation and
amortization.......... $ 2,741 $ 1,986 $ 2,433 $ 12,576 $ 9,253 $ 9,342 $ 8,006 $ 7,777 $ 6,554
Capital expenditures... 4,253 2,538 1,489 13,647 8,031 4,697 8,892 12,666 4,307
Ratio of earnings to
fixed charges(e)...... -- -- -- -- -- 2.3x 1.4x 1.9x 2.1x
EBITDA(f).............. 1,977 2,604 3,147 12,418 10,560 20,573 17,197 18,800 16,001
Ratio of EBITDA to
interest expense(g)... -- -- 2.0x 1.0x 1.5x 3.3x 3.1x 3.5x 3.8x
Ratio of debt to
EBITDA(h)............. -- -- -- 9.9x 9.9x 3.3x 4.1x 3.0x 3.1x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(A) AS OF JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------------
1998 1998 1998 1997 1996 1995(B) 1994(C)
------------- ------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ 59,374 $ 77,303 $ 79,667 $ 23,504 $ 35,942 $ 31,298 $ 26,840
Total assets............................. 214,500 188,978 192,196 162,700 158,182 149,798 126,558
Debt(h).................................. 124,446 106,251 104,296 67,259 70,269 56,171 49,313
Stockholders' equity..................... 22,766 22,766 23,577 35,404 33,514 34,039 30,415
</TABLE>
See accompanying Notes to Summary Consolidated Financial Data
12
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(a) See "Unaudited Pro Forma Condensed Consolidated Financial Information" and
related notes thereto.
(b) Reflects the acquisition of Planalqumica effective December 7, 1995.
(c) Reflects the acquisition of La Cornubia S.A. effective June 1, 1994.
(d) In 1997, includes $5.6 million gain related to proceeds from the life
insurance policy received on the death of the then Chairman of the Board of
the Company.
(e) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary items and
fixed charges. "Fixed charges" consist of interest expense, amortization of
deferred financing costs and that portion of rental expense deemed
representative of the interest factor. The Company's earnings were less than
its fixed charges by $11,754, $17,955, $2,100, $3,846 and $2,434 for the
year ended June 30, 1998 (historical and pro forma), the three months ended
September 30, 1998 (historical and pro forma) and the three months ended
September 30, 1997, respectively. The decrease in earnings for the year
ended June 30, 1998, was primarily due to non-recurring charges related to
the curtailment of operations at a manufacturing facility and the
forgiveness of promissory notes related to stock of a subsidiary.
(f) EBITDA represents the sum of consolidated operating income (loss) plus
depreciation and amortization and other non-cash operating charges that do
not require future cash payments. EBITDA is presented here because the
Company believes it provides additional information about the Company's
ability to meet future debt service, capital expenditures and working
capital requirements. The definition of EBITDA is substantially consistent
with the definition of Cash Flow under the Indenture for the Notes used in
calculating the Consolidated Cash Flow Coverage Ratio of the Company under a
covenant which provides limitations on the incurrence of indebtedness.
EBITDA is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered as an
alternative to either net income as an indicator of the Company's operating
performance, or to cash flows as a measure of the Company's liquidity. In
computing EBITDA and pro forma EBITDA for year ended June 30, 1998, asset
write downs related to the curtailment of operations at a manufacturing
facility of $5.5 million have been added back to consolidated operating
income (loss). There were no "other non-cash operating charges" reflected in
the calculation of EBITDA for the years ended June 30, 1997 through 1994 or
the three months ended September 30, 1998 and 1997.
(g) For the purpose of the computation, interest expense includes both interest
expensed and capitalized. For the three months ended September 30, 1998,
EBITDA was less than interest expense by (pro forma) $1,136 and (historical)
$117.
(h) Debt is equal to loans payable to banks plus other loans payable plus long
term debt plus current portion of long term debt. The ratio of debt to
EBITDA is not presented for the three months ended September 30, 1998 and
1997, historical and pro forma, since such ratio is based on annual amounts.
13
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the following risks
before tendering their Old Notes in the Exchange Offer, although the risk
factors set forth below (other than "--Consequences of Failure to Exchange and
Requirements for Transfer of New Notes") are generally applicable to the Old
Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. Based on interpretations by
the staff of the SEC, as set forth in no-action letters issued to third parties,
the Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is acquiring the New Notes in the ordinary course of its business, is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, is not engaged in, and does not intend to engage in, a distribution of New
Notes, and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for the Applicable Period, it will, upon request, make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." However, to comply with the securities laws
of certain jurisdictions, if applicable, the New Notes may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. The Company has agreed, pursuant to the Registration
Rights Agreement, subject to certain limitations specified therein, to register
or qualify the New Notes for offer or sale under the securities laws of such
jurisdictions as any Holder reasonably requests in writing. Unless the Company
is so requested, the Company does not currently intend to register or qualify
the sale of the New Notes in any such jurisdictions. See "The Exchange
Offer--Consequences of Exchanging Old Notes."
14
<PAGE>
To participate in the Exchange Offer and avoid the consequences of failing
to exchange the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at one of the addresses set forth
below under "The Exchange Offer--Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer of such Old Notes, if such procedure is
available, into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder
must comply with the guaranteed delivery procedures described herein and in the
Letter of Transmittal. See "The Exchange Offer."
SUBSTANTIAL LEVERAGE AND POTENTIAL INABILITY TO SERVICE DEBT
The Company has significant indebtedness and is highly leveraged. As of
September 30, 1998, the Company had approximately $106.3 million of debt (the
sum of long-term debt, current maturities of long-term debt, notes payable and
capitalized lease obligations) and approximately $22.8 million of stockholders'
equity. As of September 30, 1998, on a pro forma basis after giving effect to
the ODDA Acquisition, the Company would have had total indebtedness of
$124.5 million and $22.8 million of stockholders' equity. In addition, subject
to the restrictions in the Credit Facility and the Indenture, the Company may
incur additional indebtedness from time to time to finance working capital
needs, acquisitions or capital expenditures or for other purposes. See
"Capitalization," "Description of the Notes" and "Description of Certain
Indebtedness." The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) a substantial
portion of the Company's consolidated cash flow from operations must be
dedicated to the payment of the principal of and interest on its outstanding
indebtedness and will not be available for other purposes, (ii) the Company's
ability to obtain additional financing in the future for working capital needs,
capital expenditures, acquisitions and general corporate purposes may be
materially limited or impaired or such financing may not be on terms favorable
to the Company, (iii) the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage, and (iv) the
Company's leverage may make it more vulnerable to a downturn in its business or
the economy in general.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by the factors described herein and by prevailing economic
conditions and financial, business, regulatory and other factors, many of which
are beyond its control. There can be no assurance, however, that the amounts
available from such sources will be sufficient for such purposes. No assurance
can be given that additional sources of funding will be available if required
or, if available, will be on terms satisfactory to the Company. If the Company
is unable to service its indebtedness it will be forced to adopt an alternative
strategy that may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness, or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DEPENDENCE ON DISTRIBUTIONS FROM SUBSIDIARIES; UNFORCEABILITY OF GUARANTEES
Philipp Brothers derives substantially all of its operating income from its
subsidiaries. Accordingly, Philipp Brothers will be dependent on dividends and
other distributions from its subsidiaries to generate the funds necessary to
meet its obligations, including the payment of principal and interest on the
Notes. The ability of the Company's subsidiaries to pay such dividends will be
subject to, among other things, the terms of any debt instruments of the
Company's subsidiaries then in effect and applicable law. In addition, in the
case of the Company's foreign subsidiaries, dividend and interest may be subject
to foreign withholding taxes which would reduce the amount of funds the Company
receives from such foreign subsidiaries. The holders of the Notes have no direct
claim against the Company's subsidiaries other than the claim created by the
Guarantees, if any, which may themselves be subject to legal challenge in the
event of the bankruptcy or insolvency of a Guarantor. See "--Fraudulent Transfer
15
<PAGE>
Considerations." If such a challenge were upheld, the Guarantees would be
invalidated and unenforceable. To the extent that the Guarantees are held to be
unenforceable or have been released pursuant to the terms of the Indenture, the
rights of holders of the Notes to participate in any distribution of assets of
any Guarantor upon liquidation, bankruptcy or reorganization may, as is the case
with other unsecured creditors of Philipp Brothers, be subject to prior claims
of creditors of such Guarantor. The Indenture, among other things, limits the
incurrence of additional debt by certain subsidiaries of Philipp Brothers.
However, these limitations are subject to a number of important qualifications.
See "Description of the Notes."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has significant assets located outside the United States and a
significant portion of the Company's sales and earnings are attributable to
operations conducted abroad. During fiscal 1998, the Company operated
manufacturing and other facilities in five countries and sold its products in
approximately 81 countries. At June 30, 1998, approximately 41% of the Company's
assets were located outside the United States, representing manufacturing
facilities in the United Kingdom, Israel, France and Brazil, and, for the fiscal
year ended June 30, 1998, approximately 35% of the Company's net sales consisted
of sales made by the Company outside the United States, predominantly from
Western Europe and Israel. At June 30, 1998, on a pro forma basis after giving
effect to the ODDA Acquisition, approximately 51% of the Company's assets were
located outside the United States, and for the fiscal year ended June 30, 1998,
approximately 43% of the Company's net sales consisted of sales made by the
Company or a subsidiary outside the United States, predominantly from Western
Europe and Israel. Changes in the relative values of currencies take place from
time to time and could in the future adversely affect the Company's results of
operations as well as the Company's ability to meet interest and principal
obligations on the Notes. To the extent that the U.S. dollar weakens or
strengthens versus the applicable foreign currency, the Company's results are
favorably or unfavorably affected. The Company often manages this exposure by
entering into foreign currency forward exchange contracts. Such contracts
generally are entered into with respect to anticipated revenues denominated in
foreign currencies for which timing of the receipt of payment can be reasonably
estimated. No assurances can be given that such hedging activities will not
result in losses which will have an adverse effect on the Company's financial
condition or results of operations. In addition, there are times when the
Company does not hedge against foreign currency fluctuations and is therefore
subject to the risks associated with fluctuations in currency exchange rates.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Effect of Inflation; Foreign Currency Exchange Rates" and Note 1 to
the Company's Consolidated Financial Statements included elsewhere herein. In
addition, international manufacturing, sales and raw materials sourcing are
subject to other inherent risks, including possible nationalization or
expropriation, labor unrest, political instability, price and exchange controls,
limitation on foreign participation in local enterprises, health-care
regulation, export duties and quotas, domestic and international customs and
tariffs, unexpected changes in regulatory environments, difficulty in obtaining
distribution and support, and potentially adverse tax consequences. There can be
no assurance that these factors will not have a material adverse impact on the
Company's ability to increase or maintain its international sales or on its
results of operations in the future.
DEPENDENCE ON ISRAELI OPERATIONS
Israeli operations are conducted through Koffolk (1949) Ltd. ("Koffolk
Israel"), a wholly owned subsidiary of the Company, and accounted for
approximately 28% of the Company's consolidated assets as of June 30, 1998 and
approximately 22% of its consolidated net sales for the year then ended
(excluding in each case Koffolk Israel's non-Israeli subsidiaries). The Company
maintains two manufacturing facilities in Israel, one located near Tel Aviv in
Petach Tikva, which specializes in the development and production of vitamins,
vitamin premixes and animal health products for the animal feed industry, and
the second located south of Beersheba in Ramat Hovav, which produces organic
chemical intermediates and animal health specialties. The Ramat Hovav plant
synthesizes aromatic aldehydes and alcohols, coccidiocides (nicarbazin and
amprolium) and vitamins, the bulk of which are
16
<PAGE>
exported from Israel to the major world markets. Accordingly, Koffolk Israel is
dependent on foreign markets and its ability to reach those markets.
Consequently, the Company is affected by social, political and economic
conditions affecting Israel, and any major hostilities involving Israel or
curtailment of trade between Israel and its current trading partners, either as
a result of hostilities or otherwise, could have a material adverse effect on
the Company. See "Conditions in Israel."
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS; CONSEQUENCES OF
FAILURE TO COMPLY
The terms and conditions of the Credit Facility and the Indenture impose
restrictions that affect, among other things, the ability of Philipp Brothers
and its Restricted Subsidiaries to incur debt (including other subordinated
debt), pay dividends or make distributions, make acquisitions, create liens,
sell assets, create restrictions on the payment of dividends and other payments
by its Restricted Subsidiaries and make certain investments. The Credit Facility
requires the Company to maintain specified financial ratios and tests, including
minimum net worth and minimum fixed charge coverage ratios. Moreover, the
indebtedness outstanding under the Credit Facility is guaranteed by all of the
Company's domestic subsidiaries and is secured by a first priority lien on
substantially all of the accounts receivable and inventory of the Company and
its domestic subsidiaries, now owned or acquired later (collectively, the
"Collateral").
The Company's ability to comply with the foregoing provisions can be
affected by events beyond its control. The breach of any of these covenants
could result in a default under one or more of the debt instruments of the
Company or its subsidiaries. In the event of a default under any indebtedness of
the Company or its subsidiaries, the holders of such indebtedness could elect to
declare all amounts outstanding under their respective debt instruments to be
due and payable. Any such declaration under a debt instrument of the Company or
its subsidiaries is likely to result in an event of default under one or more of
the other debt instruments of the Company or its subsidiaries. If indebtedness
of the Company or its subsidiaries were to be accelerated, there could be no
assurance that the assets of the Company or the Company's subsidiaries, as the
case may be, would be sufficient to repay in full borrowings under all of such
debt instruments, including the Notes. In the case of the Credit Facility, if
such indebtedness were not so repaid, refinanced or restructured, the lenders
could proceed to realize on the Collateral. See "Description of the Notes" and
"Description of Certain Indebtedness."
RANKING OF THE NOTES; SUBORDINATION OF NOTES AND GUARANTEES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt, including indebtedness under the
Credit Facility. As of September 30, 1998, on a pro forma basis after giving
effect to the ODDA Acquisition, the Company and the Guarantors would have had
approximately $24.5 million of Senior Debt outstanding, exclusive of unused
commitments, and $35.0 million of availability, subject to a borrowing base,
under the Credit Facility. In addition, the Guarantees of the Notes by each of
the Guarantors are general unsecured obligations of each of such Guarantors and
are subordinated in right of payment to all existing and future Senior Debt of
each of such Guarantors, including such Guarantors' guarantees of the Company's
obligations under the Credit Facility. Subject to certain limitations, the
Indenture permits Philipp Brothers and its Restricted Subsidiaries, including
the Guarantors, to incur additional Senior Debt. See "Description of the
Notes--Certain Covenants--Limitation on Incurrence of Indebtedness." As a result
of the subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency, holders of Senior Debt and trade creditors of Philipp
Brothers and the Guarantors may recover more, ratably, than the holders of the
Notes. The holders of any indebtedness of the Company's subsidiaries (other than
the Guarantors) will be entitled to payment of their indebtedness from the
assets of such subsidiaries prior to the holders of any general unsecured
obligations of the Company, including the Notes. In addition, in the event of a
payment default under the Credit Facility, no payment may be made on account of
the principal, premium, if any, or interest on the Notes until such default has
been cured or waived. Under certain circumstances, no payments may be made for a
specified period with respect to the principal, premium, if any, or interest on
the Notes if a nonpayment default exists under the Credit Facility.
17
<PAGE>
The Company's operations are predominantly conducted through subsidiaries.
Although the Company's domestic subsidiaries have guaranteed the Notes, the
Company's foreign subsidiaries have not guaranteed or otherwise become obligated
with respect to the Notes. Claims of creditors of such subsidiaries, including
trade creditors, will generally have priority as to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Notes. The Notes will therefore be effectively
subordinated to all existing and future liabilities, including indebtedness, of
the Company's foreign subsidiaries. As of September 30, 1998, on a pro forma
basis after giving effect to the ODDA Acquisition, the Company's foreign
subsidiaries would have had indebtedness for borrowed money and had other
liabilities of approximately $45.9 million reflected on the Company's
consolidated balance sheet. In addition, in the event a Guarantor's obligations
under a Guarantee were voided, the Notes will be similarly subordinated to the
indebtedness and the liabilities of such Guarantor. As of September 30, 1998, on
a pro forma basis after giving effect to the ODDA Acquisition, the Guarantors
would have had $41.2 million of indebtedness and other liabilities reflected on
the Company's consolidated balance sheet (exclusive of obligations under the
Credit Facility). See "--Fraudulent Transfer Considerations" and "Description of
the Notes--Subordination."
COMPETITIVE INDUSTRY
The Company faces competition in each of its markets from a number of large
and small companies, some of which have greater financial, research and
development, production and other resources than the Company. Many of the
Company's products, including its Animal Nutrition and Health and Crop
Protection products, face competition from products which may be used as an
alternative or substitute therefor, including amprolium and nicarbazin. The
Company competes with several regional companies of varying sizes and financial
resources in the hazardous metal-containing chemical waste and coal combustion
product recycling industry. The Company also competes with large national
companies which offer alternative methods of treatment or disposal of hazardous
metal-containing chemical waste and which have substantially greater financial
resources than the Company. While these national companies do not currently
offer recycling services similar to those offered by the Company, their entry
into the hazardous metal-containing chemical waste recycling business could have
a material adverse effect on the Company. In addition, the Company competes with
several large chemical companies in the chemical production business, none of
which obtains a significant portion of its raw materials from recycling. To the
extent these companies, or new entrants into the market, offer comparable
finished chemical products at lower prices, the Company's business could be
adversely affected.
The Company's competitive position is based principally on customer service
and support, breadth of product line, product quality, manufacturing technology,
facility location, and the selling prices of its products. The Company's
competitors can be expected to continue to improve the design and performance of
their specialty chemical products and to introduce new products with competitive
price and performance characteristics. There can be no assurance that the
Company will have sufficient resources to maintain its current competitive
position or market share. The Company typically does not enter into long-term
agreements with its customers. See "Business--Products," "Business--
Competition" and "Business--Customers."
ENVIRONMENTAL LIABILITY
Like similar companies, the operations and properties of the Company and
its subsidiaries are subject to a wide variety of complex and stringent federal,
state, local and foreign environmental laws and regulations, including those
governing the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of certain materials and wastes, the remediation of
contaminated soil and groundwater, the manufacture, sale and use of pesticides
and the health and safety of employees (collectively, "Environmental Laws").
Pursuant to these Environmental Laws, certain of the Company's subsidiaries are
required to obtain and retain numerous governmental permits and approvals,
including RCRA Part B permits, to conduct various aspects of their operations,
any of which may be subject to revocation, modification or denial under certain
circumstances. U.S. manufacturers of specialty and
18
<PAGE>
industrial chemicals, including certain of the Company's subsidiaries, have
expended, and may be required to expend in the future, substantial funds for
compliance with such Environmental Laws.
As recyclers of hazardous metal-containing chemical waste, certain of the
Company's subsidiaries have been, and are likely to be, the focus of extensive
compliance reviews by federal, state and local environmental regulatory
authorities. In the past, certain of the Company's subsidiaries have paid
certain fines and agreed to certain consent orders. While procedures have been
implemented at each facility which are intended to achieve compliance in all
material respects with Environmental Laws, there can be no assurance that
operations or activities of the Company or certain of its subsidiaries will not
result in civil or criminal enforcement actions or private actions, resulting in
mandatory clean-up requirements, revocation of required permits or licenses or
significant fines, penalties or damages which could have a material adverse
effect on the Company. In addition, the Company cannot predict the extent to
which any further legislation or regulation may affect the market for the
Company's services or its cost of doing business. For instance, if governmental
enforcement efforts should lessen, the market for the recycling services by
certain of the Company's subsidiaries could decline. Alternatively, changes in
Environmental Laws (some of which are set forth below) might increase the cost
of such services by imposing additional requirements. States that have received
authorization to administer their own hazardous waste management programs may
also amend their applicable Environmental Laws, and may impose requirements
which are stricter than those imposed by the U.S. Environmental Protection
Agency ("EPA"). No assurance can be provided that such changes will not
adversely affect the ability of subsidiaries of the Company to provide services
at a competitive price and thereby reduce the market for their services.
As such, the nature of the current and former operations of subsidiaries of
the Company exposes the Company and its subsidiaries to the risk of claims with
respect to such matters and there can be no assurance that material costs and
liabilities will not be incurred in connection with such claims. Future events,
such as new information, changes in existing Environmental Laws or their
interpretation, and more vigorous enforcement policies of regulatory agencies,
may give rise to additional expenditures or liabilities that could be material.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Environmental Matters," "Business--Litigation," and the
Company's Consolidated Financial Statements included herein.
GOVERNMENT REGULATION
The testing, manufacturing, and marketing of certain of the Company's
agriculture products are subject to extensive regulation by numerous government
authorities in the United States and other countries, including, but not limited
to, the FDA. Among other requirements, FDA approval of the Company's products,
including a review of the manufacturing processes and facilities used to produce
such products, is required before such products may be marketed in the United
States. Similarly, marketing approval by a foreign governmental authority is
typically required before such products may be marketed in a particular foreign
country.
In order to obtain FDA approval of a new product, the Company must, among
other things, demonstrate to the satisfaction of the FDA that the product is
safe and effective for its intended uses and that the Company is capable of
manufacturing the product with procedures that conform to the FDA's then current
good manufacturing practice ("GMP") regulations, which must be followed at all
times. The process of seeking FDA approvals can be costly, time consuming, and
subject to unanticipated and significant delays. There can be no assurance that
such approvals will be granted to the Company on a timely basis, or at all. Any
delay in obtaining or any failure to obtain such approvals would adversely
affect the Company's ability to introduce and market products and to generate
product revenue. See "Business--Government Regulation."
FIFRA, a health and safety statute, requires that all pesticides sold or
distributed in the U.S. must first be registered with the EPA. In order to
obtain a registration, an applicant typically must demonstrate through test data
that its product will not cause unreasonable adverse effects on the environment.
Depending on the specific requirements at issue, these tests can be very
expensive, running to millions of dollars. However, if the product in question
is generic in nature (i.e., chemically identical or
19
<PAGE>
substantially similar to a previously-registered product), the applicant has the
option of citing and relying on the test data supporting the original
registrant's product, in lieu of submitting data. Should the generic applicant
choose the citation option, it must offer to pay compensation to the original
submitter and must agree to enter into binding arbitration with the original
submitter if the parties are unable to agree on the terms and amount of
compensation.
The Company has elected the citation option in the past; has a currently
outstanding offer to pay compensation with respect to citation of data in
registering one of its products with respect to which a demand for payment has
been made; and intends to use the citation option in the future should it
conclude it is economically desirable to do so. While there are cost savings
associated with the opportunity to avoid one's own testing and demonstration to
the EPA of test data, there is, in each instance, a risk that the level of
compensation ultimately required to be paid by the Company to the original
registrant will be substantial. There is also the risk that a third party will
elect the citation option with respect to a product of the Company, and that the
level of compensation ultimately required to be paid to the Company as the
original registrant will not be substantial.
VOTING CONTROL BY PRINCIPAL STOCKHOLDER
Mr. Jack Bendheim owns all of the outstanding shares of voting capital
stock of the Company. Accordingly, pursuant to corporate law, Mr. Bendheim
controls the election of all of the directors of the Company and, in general,
has sufficient voting power to determine (without the consent of the Company's
other stockholders) the outcome of any corporate transaction or other matter
submitted to the stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of the Company's assets, and also the
power to prevent or cause a change in control of the Company. Mr. Bendheim is
also a director and President and Chief Executive Officer of the Company. In
addition, the other two current members of the Board of Directors are related to
Mr. Bendheim. The interests of Mr. Bendheim may differ from the interest of the
holders of the Notes. See "Management--Directors and Executive Officers" and
"Principal Stockholders."
RAW MATERIAL PRICE VOLATILITY
The principal raw materials used by the Company in the manufacture of its
products can be subject to significant cyclical price fluctuations. No single
raw material accounted for more than 6% of the Company's fiscal 1998 cost of
goods sold. While the selling prices of the Company's products tend to increase
or decrease over time with the cost of raw materials, such changes may not occur
simultaneously or to the same degree. Maintenance of current margins for various
Intermediates and Industrial Chemicals are dependent on the continued supply of
raw materials from the Company's recycling operations. If the Company were to be
unable to source certain raw materials from its recycling operations, its costs
of such raw materials, purchased as virgin materials from third parties, would
increase. There can be no assurance that the Company will be able to pass any
increases in raw material costs through to its customers in the form of price
increases. Significant increases in the price of raw materials, if not offset by
product price increases, would have an adverse impact upon the profitability of
the Company. See "Business--Intermediates and Industrial Chemicals" and "Raw
Materials."
RELIANCE ON CONTINUED OPERATION AND SUFFICIENCY OF MANUFACTURING FACILITIES;
INTELLECTUAL PROPERTY
The Company's revenues are dependent on the continued operation of its
various manufacturing facilities. The operation of chemical manufacturing plants
involves many risks, including the breakdown, failure or substandard performance
of equipment, power outages, the improper installation or operation of
equipment, natural disasters and the need to comply with environmental and other
directives of governmental agencies. Certain of the Company's product lines are
manufactured at a single facility and production would not be transferable to
another site. The occurrence of material operational problems, including but not
limited to the above events, may adversely affect the profitability of the
Company during the period of such operational difficulties.
20
<PAGE>
MRT's success will depend in part on its ability to exploit the two U.S.
patents issued to it for MRT Cement and to operate without having third parties
circumvent MRT's patent rights. There can be no assurance that such issued
patents will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. Litigation, which could be
costly and time consuming, may be necessary to enforce patents issued to the
Company and/or determine the scope and validity of others' proprietary rights,
in either case in judicial or administrative proceedings.
The Company's competitive position is also dependent upon unpatented trade
secrets which generally are difficult to protect. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets, that such trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets.
LEGAL PROCEEDINGS AND GENERAL LITIGATION EXPENSE
In addition to the matters discussed above, because certain of the
Company's subsidiaries' products constitute or contain hazardous materials, and
because the production of certain chemicals involves the use, handling,
processing, storage and transportation of hazardous materials, the Company and
its subsidiaries have been subject to claims of injury from direct exposure to
such materials and from indirect exposure when such materials are incorporated
into other companies' products. There can be no assurance that as a result of
past or future operations, there will not be additional claims of injury by
employees or members of the public due to exposure, or alleged exposure, to such
materials.
Furthermore, the Company and its subsidiaries are parties to a number of
claims and lawsuits arising out of the normal course of business including
product liabilities and governmental regulation. Certain of these actions seek
damages in various amounts. In most cases, such claims are covered by insurance.
The Company also has exposure to present and future claims with respect to
workplace exposure, workers' compensation and other matters. There can be no
assurance as to the actual amount of these liabilities or the timing thereof.
OPERATING HAZARDS AND UNINSURED RISKS
In addition to pollution and other environmental risks (see
"--Environmental Liability" above), the Company is subject to risks inherent in
the chemical industry, such as explosions, fires and chemical spills or
releases. Any significant interruption of operations at the Company's principal
facilities could have a material adverse effect on the Company. The Company
maintains general liability insurance and property and business interruption
insurance. Because of the nature of industry hazards, it is possible that
liabilities for pollution and other damages arising from a major occurrence may
not be covered by the Company's insurance policies or could exceed insurance
coverages or policy limits or that such insurance may not be available at
reasonable rates in the future. Any such liabilities, which could arise due to
injury or loss of life, severe damage to and destruction of property and
equipment, pollution or other environmental damage or suspension of operations,
could have a material adverse effect on the Company. See "Business--Litigation."
RISK OF WORK STOPPAGES
As of June 30, 1998, approximately 10% of the Company's domestic employees
were covered by collective bargaining agreements which expire from 1998 through
2000. Most of the Company's employees in Israel and France are covered by
collective bargaining agreements. In Israel, the Company continues to operate
under the terms of the national collective bargaining agreement, portions of
which expired in 1994. In Norway, wage and income developments are largely
determined in negotiations between the National Labor Organization and the
employees during national and central collective bargaining settlements, and
through local negotiations. Approximately 75% of ODDA's employees are covered by
collective bargaining agreements. The present agreement is a two-year agreement,
expiring in 2000. There can be no assurance, however, that new agreements will
be reached without a work stoppage or strike or will be reached on terms
satisfactory to the Company. A
21
<PAGE>
prolonged work stoppage or strike at any of its manufacturing facilities could
have a material adverse effect on the Company's results of operations. See
"Business--Employees."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
senior executive officers, Jack Bendheim, I. David Paley, Marvin S. Sussman,
James O. Herlands and Nathan Z. Bistricer. The loss of the services of any of
Messrs. Bendheim, Paley, Sussman, Herlands or Bistricer could have a material
adverse effect on the Company. The Company does not carry key-man life insurance
other than to fund stock repurchase or compensation obligations. See
"Management--Directors and Executive Officers" and "Management--Employment and
Severance Agreements."
UNCERTAIN IMPACT OF ACQUISITION PLANS
The Company intends to continue to pursue a strategy of targeted expansion
through the acquisition of compatible businesses and product lines and the
formation of strategic alliances, joint ventures and other business
combinations. The Company has used a portion of the proceeds of the Offering to
finance the ODDA Acquisition and may use a portion of the proceeds of the
Offering to finance other acquisitions and investments. However, there can be no
assurance that the Company will find attractive acquisition candidates or
successfully complete or finance any future acquisition. With respect to ODDA,
and, should the Company complete any material acquisition, the Company's success
or failure in integrating the operations of the acquired business may have a
material impact on the future growth or success of the Company. See
"Summary--Recent Developments."
SEASONALITY OF BUSINESS
The Company's sales are typically highest in the fourth fiscal quarter. The
Company's sales of copper-based fungicides and other agricultural products are
typically highest in the first and fourth fiscal quarters, and its sales of
gibberellic acid are highest in the fourth quarter, due to the seasonal nature
of the agricultural industry. The Company's sales of finished chemicals to the
wood treatment industry are typically highest in the first and fourth fiscal
quarters due to the increased level of home construction during these periods.
Additionally, sales of these products may be more concentrated in one of these
quarters due to weather conditions.
YEAR 2000 COMPLIANCE
The term "Year 2000 ("Y2K") Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the dates in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues affect the Company and most companies in the
world.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. The inability of the Company to correct a Y2K problem could arise
due to third parties not controlled by the Company. In addition, the Y2K Issue
could have a material adverse impact on the operations of the Company due to
(a) the unavailability of qualified personnel and other information technology
resources, (b) the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment and (c) the actions of governmental agencies or other third parties
with respect to Y2K compliance not made or completed on a timely basis. This
impact could, in turn, materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K
readiness of the Company's customers, suppliers, and other third-party
providers, the Company is
22
<PAGE>
unable to determine at this time whether the consequences of any Y2K failures
will have a material impact on the Company's results of operations, liquidity or
financial condition.
FRAUDULENT TRANSFER CONSIDERATIONS
The obligations of any Guarantor under its Guarantee may be subject to
avoidance under state fraudulent transfer laws or federal bankruptcy law. If a
court were to find, in a lawsuit by an unpaid creditor of a Guarantor or a
representative of creditors, such as a trustee in bankruptcy, (a) that such
Guarantor incurred the indebtedness represented by its Guarantee with the intent
to hinder, delay or defraud present or future creditors, or received less than a
reasonably equivalent value or fair consideration for any such indebtedness and
(b) at the time of such incurrence (i) was insolvent, (ii) was rendered
insolvent by reason of such incurrence, (iii) was engaged or about to engage in
a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business or (iv) intended to incur,
or believed or reasonably should have believed that it would incur debts beyond
its ability to pay as such debts matured, such court could void such Guarantor's
obligations under its Guarantee, subordinate such Guarantee to all other
indebtedness of such Guarantor or take other action detrimental to the holders
of the Notes. In such an event, there can be no assurance that any payment on
such Guarantee could ever be recovered by holders of the Notes. In addition, any
payments by any Guarantor pursuant to such Guarantor's Guarantee could be voided
and may be required to be returned to such Guarantor or to a fund for the
benefit of its creditors. The measures of insolvency for purposes of the
foregoing considerations will vary depending upon the law applied in any
proceeding with respect to the foregoing. Generally, however, a Guarantor would
be considered insolvent if the sum of its debts, including contingent
liabilities, were greater than the fair saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature. There can be no assurance as to what standard a court would apply in
making such determination or that a court would conclude that each of the
Guarantors is solvent under the foregoing standards. See "Description of the
Notes--The Guarantees."
In rendering their opinions with respect to the validity of the New Notes
and the Guarantees, counsel for the Company and the Guarantors will not express
any opinion as to the applicability of federal or state statutes relating to
fraudulent conveyances and obligations.
LIMITATIONS ON REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase the Notes then outstanding at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. The Credit Facility prohibits the Company from
purchasing any Notes pursuant to a Change of Control offer prior to repayment in
full of the Company's indebtedness under the Credit Facility.
The failure of the Company following a Change of Control to make or
consummate an offer to repurchase the Notes would constitute an Event of Default
under the Indenture. In such an event, the Trustee or the holders of at least
25% in aggregate principal amount of the outstanding Notes may accelerate the
maturity of all of the Notes. A Change of Control includes any transaction which
results in any person (other than Permitted Holders (as defined in the
Indenture)) beneficially owning or controlling more than 50% of the voting stock
of the Company. See "Description of the Notes--Change of Control."
The occurrence of the events constituting a Change of Control with respect
to the Notes would result in an event of default under the Credit Facility and
would give the lenders thereunder the right to require payments in full of the
indebtedness thereunder. If a Change of Control were to occur, there can be no
assurance that the Company would have adequate funds to first satisfy its
obligations under the Credit Facility or other agreements relating to
indebtedness, if accelerated, and then to repurchase the Notes.
23
<PAGE>
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on June 11, 1998 to a small number of institutional investors
and are eligible for trading in the Private Offering, Resale and Trading through
Automated Linkages (PORTAL) Market, the National Association of Securities
Dealers' screenbased, automated market for trading of securities eligible for
resale under Rule 144A. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for the remaining untendered Old Notes
could be adversely affected. There is no existing trading market for the New
Notes, and there can be no assurance regarding the future development of a
market for the New Notes, or the ability of Holders of the New Notes to sell
their New Notes or the price at which such Holders may be able to sell their New
Notes. If such a market were to develop, the New Notes could trade at prices
that may be higher or lower than the initial offering price of the Old Notes
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. Although the Initial
Purchaser has informed the Company that it currently intends to make a market in
the New Notes, it is not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Notes. The Company does
not intend to apply for listing of the New Notes on any securities exchange or
for quotation through the National Association of Securities Dealers Automated
Quotation System. The liquidity of, and trading market for, the Notes may also
be adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independent of the financial performance of, and prospects
for, the Company. See "Description of the Notes."
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
gross proceeds of the Offering of Old Notes were used in part to repay in full
indebtedness outstanding under the Old Credit Agreement and the Old Senior
Notes, to finance the acquisition of ODDA and to pay fees and expenses related
to the Transactions, including the discount to the Initial Purchaser. See
"Summary--The Transactions." The following table sets forth the uses of the
proceeds of the Offering of Old Notes in connection with the Transactions.
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Repayment of amounts outstanding under Old Credit Agreement(a)................ $ 12,200
Repayment of amounts under subsidiaries' credit facilities(b)................. 34,664
Repayment of amounts outstanding under Old Senior Notes(c).................... 23,597
ODDA Acquisition(d)........................................................... 19,000
Tax-Related Reimbursements(e)................................................. 2,740
Repayment of 8 1/2% Subordinated Notes(f)..................................... 322
Redemption of Preferred Stock(g).............................................. 680
Discharge intercorporate affiliate debt(h).................................... 482
MRT Transaction(i)............................................................ 1,020
General corporate purposes(j)................................................. 1,295
Fees and expenses(k).......................................................... 4,000
--------
Total......................................................................... $100,000
--------
--------
</TABLE>
- ------------------
(a) As of June 11, 1998, $12.2 million in principal amount and unpaid interest
was outstanding under the Old Credit Agreement, which had a maturity date of
October 1, 1998 and bore interest at a weighted average rate of 8.6% per
annum.
(Footnotes continued on next page)
24
<PAGE>
(Footnotes continued from previous page)
(b) As of June 11, 1998, $34.7 million principal amount and unpaid interest was
outstanding under various revolving credit and term loan facilities of
subsidiaries (including $34.3 million under facilities of certain of the
Company's foreign subsidiaries and $.4 million under a facility between
Koffolk USA and The Berkshire Bank) which matured at various dates through
2004 and bore interest at a weighted average rate of 7.1% per annum.
(c) As of June 11, 1998, the annual interest rate of borrowings under the Old
Senior Notes was 11% and the maturity date of the Old Senior Notes was
June 29, 2004. The Old Senior Notes provided for a prepayment fee of
$2.6 million. Such prepayment fee was based on the amount to "make whole"
the lender, and was calculated in respect of the yield on government
securities with maturities corresponding to the weighted average life to
maturity of such notes being prepaid. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Liquidity."
(d) Does not include assumption of approximately $18.2 million in indebtedness.
See "Summary--Recent Developments."
(e) Constituted reimbursement for tax liability resulting from the cancellation
of certain indebtedness owed by certain executives to Phibro-Tech in the
aggregate principal amount plus accrued interest of approximately
$2.7 million. See "Certain Relationships and Related Transactions."
(f) These notes, initially issued in the aggregate principal amount of $.4
million, were issued as consideration by the Company for its redemption of
3,450 shares of its Second Preferred Stock. See "Certain Relationships and
Related Transactions."
(g) Includes redemption of shares of Second Preferred Stock from Jack and Philip
Bendheim and certain members of their families. See "Certain Relationships
and Related Transactions."
(h) Represents accounts payable to an affiliate of the Company.
(i) The Company acquired from Jack Bendheim his 29.2% interest in MRT for
$25,000 and repaid $995,000 in advances made by Mr. Bendheim to MRT. See
"Certain Relationships and Related Transactions."
(j) Includes potential acquisitions and capital expenditures in addition to the
ODDA Acquisition. Although the Company is continually reviewing and
negotiating with respect to acquisitions of complementary businesses, the
Company has no firm commitment or other agreement, arrangement or
understanding with respect to any such material acquisition.
(k) Represents fees and expenses related to the Transactions, including
(i) discounts to the Initial Purchaser and (ii) legal, accounting and other
professional fees and expenses related to the Transactions.
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1998 and the consolidated capitalization of the Company
on a pro forma basis after giving effect to the ODDA Acquisition as if it had
occurred at September 30, 1998. This table should be read in conjunction with
the Company's historical consolidated financial statements and "Unaudited Pro
Forma Condensed Consolidated Financial Information," and the respective notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
ACTUAL PRO FORMA(A)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Loans payable and other debt............................................. $ 6,251 $ 24,446
The Notes................................................................ 100,000 100,000
-------- --------
Total long-term debt.................................................. 106,251 124,446
Redeemable securities...................................................... 4,666 4,666
Total stockholders' equity................................................. 22,766 22,766
-------- --------
Total capitalization.................................................. 133,683 151,878
-------- --------
-------- --------
</TABLE>
- ------------------
(a) Reflects consummation of the ODDA Acquisition.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information (the "Unaudited Pro Forma Condensed Consolidated Financial
Information") has been derived by the application of pro forma adjustments to
the Company's consolidated historical financial statements included elsewhere
herein. The Unaudited Pro Forma Financial Information gives effect to (i) the
Odda Acquisition using the purchase method of accounting as if such transaction
had occurred on July 1, 1997 for purposes of the unaudited pro forma condensed
consolidated statements of operations, and September 30, 1998 for purposes of
the unaudited pro forma condensed consolidated balance sheet and (ii) the
Company's issuance on June 11, 1998 of $100 million 9 7/8% Senior Subordinated
Notes due 2008 as if the Notes had been issued on July 1, 1997 for purposes of
the unaudited pro forma condensed consolidated statements of operations.
The financial position and results of operations of ODDA Smeltverk, AS and
BOC Carbide Industries are presented on a combined basis because the companies
were acquired as part of a single transaction, were under the common control and
management of BOC Industries and are vertically integrated operations. The pro
forma consolidated balance sheet reflects the combined balance sheet of ODDA as
of September 30, 1998. The pro forma adjustments are described in the
accompanying notes and are based upon available information and certain
assumptions that management believes are reasonable.
The Unaudited Pro Forma Condensed Consolidated Financial Information is
presented for informational purposes only and does not purport to represent what
the Company's financial position or results of operations would actually have
been if the aforementioned events or transactions had occurred on the dates
specified or to project the Company's financial position or results of
operations at any future date or for any future periods. The Unaudited Pro Forma
Condensed Consolidated Financial Information should be read in conjunction with
the Company's consolidated historical financial statements, and the notes
thereto, included elsewhere herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Use of Proceeds."
27
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ODDA(A) ADJUSTMENTS(B) ADJUSTED
---------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales............................................ $277,983 $ 39,684 $ 317,667
Cost of goods sold................................... 208,913 23,410 232,323
-------- -------- ---------
Gross profit....................................... 69,070 16,274 85,344
Selling, general and administrative expenses......... 63,297 17,461 $ 278 81,036
Curtailment of operations at manufacturing
facility........................................... 10,000 10,000
-------- -------- -------- ---------
Operating income (loss)............................ (4,227) (1,187) (278) (5,692)
Other:
Interest expense................................... 6,865 962 4,225 12,052
Interest income.................................... (383) (230) (613)
Other expense, net................................. 1,045 (234) 811
-------- -------- -------- ---------
Income (loss) before income taxes.................... (11,754) (1,685) (4,503) (17,942)
Provision (benefit) for income taxes................. (4,689) (425) (1,503) (6,617)
-------- -------- -------- ---------
Net income (loss) before extraordinary items......... (7,065) (1,260) (3,000) (11,325)
Extraordinary items--net of tax...................... (1,962) (1,962)
-------- -------- -------- ---------
Net income (loss).................................... $ (9,027) $ (1,260) $ (3,000) $ (13,287)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
28
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ODDA(A) ADJUSTMENTS(B) ADJUSTED
---------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales............................................ $ 59,209 $ 9,422 $ 68,631
Cost of goods sold................................... 46,703 6,424 53,127
-------- -------- ---------
Gross profit....................................... 12,506 2,998 15,504
Selling, general and administrative expenses......... 11,888 4,310 $ 70 16,268
-------- -------- -------- ---------
Operating income (loss)............................ 618 (1,312) (70) (764)
Other:
Interest expense................................... 2,721 392 3,113
Interest income.................................... (343) (171) 238 (276)
Other expense, net................................. 340 (95) 245
-------- -------- -------- ---------
Income (loss) before income taxes.................... (2,100) (1,438) (308) (3,846)
Provision (benefit) for income taxes................. (1,013) (501) (98) (1,612)
-------- -------- -------- ---------
Net income (loss).................................... $ (1,087) $ (937) $ (210) $ (2,234)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
29
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ODDA(A) ADJUSTMENTS(B) ADJUSTED
---------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 32,117 $ 32 $(19,000) $ 13,149
Trade receivables................................... 40,628 6,223
46,851
Other receivables................................... 4,080 644
4,724
Inventories......................................... 43,360 10,519
53,879
Prepaid expenses and other current assets........... 6,883 --
6,883
-------- -------- -------- ---------
Total current assets.............................. 127,068 17,418 (19,000) 125,486
Property, plant and equipment, net.................... 41,076 17,575
58,651
Intangibles........................................... 3,628 -- 6,953 10,581
Other assets.......................................... 17,206 2,576
19,782
-------- -------- -------- ---------
$188,978 $ 37,569 $ 12,047 $ 214,500
-------- -------- -------- ---------
-------- -------- -------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks.............................. $ 2,204 $ 1,681
$ 3,885
Current portions of long-term debt.................. 1,684 7,453
9,137
Accounts payable.................................... 28,813 4,850
33,663
Other loans payable................................. 261 --
261
Accrued expenses and other current liabilities...... 16,803 2,363
19,166
-------- -------- ---------
Total current liabilities......................... 49,765 16,347
66,112
Long-term debt........................................ 102,102 9,061
111,163
Other liabilities..................................... 9,679 114
9,793
-------- -------- ---------
Total liabilities................................. 161,546 25,522
187,068
-------- -------- ---------
Commitments and contingencies
Redeemable securities................................. 4,666
4,666
Stockholders' equity:
Series A preferred stock............................ 521
521
Common stock........................................ 3
3
Paid-in capital..................................... 435
435
Retained earnings................................... 22,134 12,047 (12,047) 22,134
Foreign currency translation adjustment............. (327)
(327)
-------- -------- -------- ---------
Total stockholders' equity........................ 22,766 12,047 (12,047) 22,766
-------- -------- -------- ---------
$188,978 $ 37,569 $(12,047) $ 214,500
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
The following adjustments are reflected in the Unaudited Pro Forma
Condensed Consolidated Financial Information:
(a) The normal historical year end of ODDA is September 30, 1998. Balance
sheet and statement of operations data of ODDA as of and for the period
ended September 30, 1998 has been derived from the audited financial
statements of ODDA included elsewhere in this Prospectus, after
conversion to U.S. GAAP and U.S. dollars. Such amounts have been
combined with balance sheet and statement of operations data of the
Company as of and for the fiscal year ended June 30, 1998 in the
accompanying pro forma financial information because it represents the
most relevant audited financial information of ODDA available. The pro
forma statement of operations for the three months ended September 30,
1998 also includes ODDA's operating data for the fourth fiscal quarter
ended September 30, 1998 (revenues of $9,422 and net loss of $937),
thereby eliminating the difference in fiscal year ends that exists in
the full year pro forma statement of operations.
(b) The acquisition of ODDA will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price will be allocated to tangible and
identifiable intangible assets and liabilities based upon their fair
values, with the excess of purchase price over fair value allocated to
goodwill.
The Company is in the process of completing its valuation of the assets
and liabilities of ODDA. Pending the completion of its valuation, the
Company has assumed for purposes of pro forma information that the fair
values of assets and liabilities will approximate underlying book
values. Purchase price ($19,000) in excess of the assumed fair value
of net assets acquired ($12,047) has been ascribed to goodwill and
amortized over 25 years. This resulted in adjustments to record $6,953
of goodwill and annual amortization of $278. The final allocation of
purchase price may differ materially from amounts assumed in the
accompanying pro forma information.
For purposes of the unaudited pro forma condensed consolidated
statement of operations, the $100 million 9 7/8% Senior Subordinated
Notes due June 2008 are assumed to have been issued on July 1, 1997,
with deferred financing costs of $3,724 amortized using the interest
method over the life of the Notes. Debt repaid with the proceeds of the
Notes of approximately $70 million is also assumed to have been repaid
on July 1, 1997. The adjustment for interest expense reflects the
interest associated with the Notes offset by the interest expense
attributable to the $70 million in debt repaid with the proceeds of the
Notes, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Interest expense on Notes................................. $ 9,875
Amortization of issuance costs............................ 375
Historical interest expense on debt repaid................ (6,025)
-------
$ 4,225
-------
-------
</TABLE>
Interest income for the three months ended September 30, 1998 has been
reduced by $238, which represents interest income on $19 million of
available cash from the Notes, which cash has been considered utilized
in the ODDA Acquisition as of the beginning of the period for pro
forma purposes.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical financial
and other data of the Company on a consolidated basis for each of the years in
the five-year period ended June 30, 1998 and the three months ended
September 30, 1998 and 1997 and pro forma financial and other data of the
Company on a consolidated basis for the fiscal year ended June 30, 1998 and the
three months ended September 30, 1998. The Company's selected consolidated
historical financial data for each of the years in the five-year period ended
June 30, 1998 were derived from the audited consolidated financial statements of
the Company. The summary consolidated historical data for the three months ended
September 30, 1998 and 1997 were derived from unaudited condensed consolidated
financial statements of the Company, which reflect all adjustments (consisting
of normal recurring adjustments necessary for a fair presentation of such data).
The results of operations for the three months ended September 30, 1998 and 1997
are not indicative of results for the full year. The selected consolidated pro
forma data for the fiscal year ended June 30, 1998 were derived from the
"Unaudited Pro Forma Condensed Consolidated Financial Information," giving
effect to the events described therein, included elsewhere in this Prospectus.
The pro forma financial data are not necessarily indicative of operating results
or financial positions that would have been achieved had these events been
consummated on the dates indicated and should not be construed as representative
of future operating results or financial position. The information contained in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Condensed Consolidated Financial Information" and the Company's historical
consolidated financial statements, including the notes thereto, included
elsewhere in this Prospectus.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA(A)
THREE MONTHS THREE MONTHS THREE MONTHS PRO FORMA(A)
ENDED ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, ------------------------------
1998 1998 1997 1998 1998 1997 1996
------------- ------------- ------------- ------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $68,631 $ 59,209 $ 62,630 $317,667 $277,983 $268,362 $241,395
Cost of goods sold......... 53,127 46,703 47,995 232,323 208,913 201,038 181,033
Gross profit............... 15,504 12,506 14,635 85,344 69,070 67,324 60,362
Selling, general and
administrative
expenses................. 16,268 11,888 13,921 81,036 63,297 56,093 51,171
Curtailment of operations
at manufacturing
facility................. -- -- -- 10,000 10,000 -- --
Operating income (loss).... (764) 618 714 (5,692) (4,227) 11,231 9,191
Interest expense........... 3,113 2,721 1,566 12,052 6,865 6,253 5,546
Interest income............ (276) (343) (141) (613) (383) (252) (377)
Other (income) expense(d).. 245 340 1,723 811 1,045 (3,874) 1,371
Income (loss) before
provision (benefit)
for income taxes and
extraordinary item....... (3,846) (2,100) (2,434) (17,942) (11,754) 9,104 2,651
Provision (benefit) for
income taxes............. (1,612) (1,013) (862) (6,617) (4,689) 1,068 2,661
Net income (loss) before
extraordinary items...... (2,234) (1,087) (1,572) (11,325) (7,065) 8,036 (10)
Extraordinary items........ 0 -- -- (1,962) (1,962) -- --
Net income (loss).......... $(2,234) $ (1,087) $ (1,572) $(13,287) $ (9,027) $ 8,036 $ (10)
CASH FLOW DATA:
Provided by operating
activities............... -- 9,274 4,526 -- 1,339 2,923 680
Used in investing
activities............... -- (2,538) (1,489) -- (8,031) (4,697) (12,773)
Provided by (used in)
financing activities..... -- 1,160 2,272 -- 26,820 436 13,944
Net (decrease) increase in
cash..................... -- 7,896 5,309 -- 20,128 (1,338) 1,851
OTHER FINANCIAL DATA:
Depreciation and
amortization............. $ 2,741 $ 1,986 $ 2,433 $ 12,576 $ 9,253 $ 9,342 $ 8,006
Capital expenditures....... 4,253 2,538 1,489 13,647 8,031 4,697 8,892
Ratio of earnings to fixed
charges(e)............... -- -- -- -- -- 2.3x 1.4x
EBITDA(f).................. 1,977 2,604 3,147 12,418 10,560 20,573 17,197
Ratio of EBITDA to interest
expense(g)............... -- -- 2.0x 1.0x 1.5x 3.3x 3.1x
Ratio of debt to
EBITDA(h)................ -- -- -- 9.5x 9.9x 3.3x 4.1x
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1995(B) 1994(C)
-------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $230,805 $197,287
Cost of goods sold......... 168,500 143,290
Gross profit............... 62,305 53,997
Selling, general and
administrative
expenses................. 51,282 44,550
Curtailment of operations
at manufacturing
facility................. -- --
Operating income (loss).... 11,023 9,447
Interest expense........... 5,409 4,205
Interest income............ (437) (587)
Other (income) expense(d).. 766 719
Income (loss) before
provision (benefit)
for income taxes and
extraordinary item....... 5,285 5,110
Provision (benefit) for
income taxes............. 2,303 2,350
Net income (loss) before
extraordinary items...... 2,982 2,760
Extraordinary items........ -- --
Net income (loss).......... $ 2,982 $ 2,760
CASH FLOW DATA:
Provided by operating
activities............... 2,774 13,256
Used in investing
activities............... (12,134) (4,272)
Provided by (used in)
financing activities..... 6,092 (9,064)
Net (decrease) increase in
cash..................... (3,268) (80)
OTHER FINANCIAL DATA:
Depreciation and
amortization............. $ 7,777 $ 6,554
Capital expenditures....... 12,666 4,307
Ratio of earnings to fixed
charges(e)............... 1.9x 2.1x
EBITDA(f).................. 18,800 16,001
Ratio of EBITDA to interest
expense(g)............... 3.5x 3.8x
Ratio of debt to
EBITDA(h)................ 3.0x 3.1x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(A) AS OF JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, -----------------------------------------
1998 1998 1998 1997 1996 1995(B)
------------- ------------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $ 59,374 $ 77,303 $ 79,667 $ 23,504 $ 35,942 $ 31,298
Total assets......................................... 214,500 188,978 192,196 162,700 158,182 149,798
Debt(h).............................................. 124,446 106,251 104,296 67,259 70,269 56,171
Stockholders' equity................................. 22,766 22,766 23,577 35,404 33,514 34,039
<CAPTION>
AS OF
JUNE 30,
--------
1994(C)
--------
<S> <C>
BALANCE SHEET DATA:
Working capital...................................... $ 26,840
Total assets......................................... 126,558
Debt(h).............................................. 49,313
Stockholders' equity................................. 30,415
</TABLE>
See accompanying Notes to Selected Consolidated Financial Data
33
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) See "Unaudited Pro Forma Condensed Consolidated Financial Information" and
related notes thereto.
(b) Reflects the acquisition of Planalqumica effective December 7, 1995.
(c) Reflects the acquisition of La Cornubia S.A. effective June 1, 1994.
(d) In 1997, includes $5.6 million gain related to proceeds from the life
insurance policy received on the death of the then Chairman of the Board of
the Company.
(e) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary items and
fixed charges. "Fixed charges" consist of interest expense, amortization of
deferred financing costs and that portion of rental expense deemed
representative of the interest factor. The Company's earnings were less than
its fixed charges by $11,754, $17,955, $2,100, $3,846 and $2,434 for the
year ended June 30, 1998 on a historical and pro forma basis, and for the
three months ended September 30, 1998 (historical and pro forma) and 1997,
respectively. The decrease in earnings for the year ended June 30, 1998, was
primarily due to non-recurring charges related to the curtailment of
operations at a manufacturing facility and the forgiveness of promissory
notes related to stock of a subsidiary.
(f) EBITDA represents the sum of consolidated operating income (loss) plus
depreciation and amortization and other non-cash operating charges that do
not require future cash payments. EBITDA is presented here because the
Company believes it provides additional information about the Company's
ability to meet future debt service, capital expenditures and working
capital requirements. The definition of EDITDA is substantially consistent
with the definition of Cash Flow under the Indenture for the Notes used in
calculating the consolidated Cash Flow Coverage Ratio of the Company under a
covenant which provides limitations on the incurrence of indebtedness.
EBITDA is not a measure of financial performance under GAAP and should not
be considered as an alternative to either net income as an indicator of the
Company's operating performance, or to cash flows as a measure of the
Company's liquidity. In computing EBITDA and pro forma EBITDA for the year
ended June 30, 1998, asset write downs related to the curtailment of
operations at a manufacturing facility of $5.5 million have been added back
to consolidated operating income (loss). There were no "other non-cash
operating charges" reflected in the calculation of EBITDA for the years
ended June 30, 1997 through 1994 or the three months ended September 30,
1998 and 1997.
(g) For the purpose of the computation, interest expense includes both interest
expensed and capitalized. For the three months ended September 30, 1998,
EBITDA was less than interest expense by (pro forma) $1,136 and (historical)
$117.
(h) Debt is equal to loans payable to banks plus other loans payable plus long
term debt plus current portion of long term debt. The ratio of debt to
EBITDA is not presented for the three months ended September 30, 1998 and
1997, historical and pro forma, since such ratio is based on annual amounts.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, contained in
this Prospectus. See also "Selected Consolidated Financial Data."
GENERAL
The Company is a leading diversified global manufacturer and marketer of a
broad range of specialty and industrial chemicals, which are sold world-wide for
use in numerous markets including animal nutrition and health, electronics, wood
treatment, agricultural, pharmaceutical and personal care products, glass,
construction and concrete. The Company also provides recycling and hazardous
waste services primarily to the electronics and metal treatment industries.
The Company operates in one industry segment, with revenues derived from
sales in four core product groups: Animal Nutrition and Health, Intermediates
and Industrial Chemicals, Electronics and Metal Treatment, and Crop Protection.
The revenues of each of the Company's product groups are affected by factors
such as trends in the industries of each of the customers of the Company, the
impact of lower prices for competing products, changes in production levels of
certain products resulting from expansion of Company production facilities, the
inclusion of revenues from acquisitions, and seasonality.
The Company net sales have increased through internal growth, selective
acquisitions, strategic alliances and new product introductions. In 1994, the
Company acquired La Cornubia, S.A. a producer of copper chemicals and crop
protection chemicals in France. In 1995, the Company acquired Planalqumica, the
sole manufacturer of nicarbazin in Latin America. In 1996, Koffolk USA, an
affiliate of the Company that will become a subsidiary through the Transactions,
purchased the right to sell nicarbazin from Merck. Koffolk USA became the
registered transferee and owner of the NADA for nicarbazin approved by the FDA.
Separately, Merck appointed Koffolk USA as its exclusive U.S. distributor of
amprolium for poultry markets. In 1996, Elanco Animal Health, a division of Eli
Lilly, agreed to act as the Company's exclusive distributor in the United States
and Brazil for nicarbazin. This arrangement was terminated by the Company with
respect to the United States in August 1998. In June 1998, Koffolk USA became a
subsidiary of the Company upon the closing of the Offering. In October 1998, the
Company closed the ODDA Acquisition.
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30
------------------ --------------------------------
1998 1997 1998 1997 1996
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PRODUCT GROUPS
Animal Nutrition and Health....................... $29,370 $30,313 $129,358 $118,744 $ 95,340
Intermediates and Industrial Chemicals............ 15,928 17,334 74,110 74,606 68,607
Electronics and Metal Treatment................... 9,135 10,343 38,582 39,134 42,761
Crop Protection................................... 4,776 4,640 35,933 35,878 34,687
------- ------- -------- -------- --------
Total............................................. $59,209 $62,630 $277,983 $268,362 $241,395
------- ------- -------- -------- --------
------- ------- -------- -------- --------
</TABLE>
35
<PAGE>
Comparison of Three Months Ended September 30, 1998 and 1997
Net Sales. Net sales decreased by $3.4 million, or 5.5%, to $59.2 million
in the three months ended September 30, 1998, as compared to the same period of
the prior year. This decrease was primarily due to lower volume sales of $.9
million in the Company's Animal Nutrition and Health products group. Sales of
the Company's Animal Nutrition and Health products were lower ($1.7 million)
primarily as a result of lower customer demand for amprolium. Lower volume sales
of animal nutritional supplements ($.8 million) in Israel was due to competitive
pressures causing decreased unit prices. These decreases were offset by higher
net sales of animal feed supplements in the United States ($1.6 million). Lower
net sales of the Company's Intermediates and Industrial Chemicals product group
was primarily due to lower volume sales of organic and inorganic chemical
intermediate products ($1.6 million), due to lower customer demand and to
competitive pressures. Lower net sales of the Company's Electronics and Metal
Treatment product group was primarily attributable to lower volume sales of
metal finishing chemicals ($.8 million) and lower recycling fees ($.4 million),
due to a slowdown in the printed circuit board industry.
Gross Profit. Gross profit decreased by $2.1 million, or 14.6%, to $12.5
million and 21.1% of net sales in the three months ended September 30, 1998, as
compared to 23.4% of net sales in the same period of the prior year. This
decrease was primarily attributable to lower sales of the Company's Animal
Nutrition and Health products in Israel ($.7 million), lower sales of the
Company's organic chemical intermediates ($.6 million) and lower sales of the
Company's Electronics and Metal Treatment product group ($.7 million).
Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased $2.0 million, or 14.6% to $11.9 million for
the three months ended September 30, 1998, as compared to the same period of the
prior year. This decrease was primarily due to curtailment of operations at the
Company's Sewaren, New Jersey facility ($.6 million) and lower commissions on
sales of Crop Protection products ($.3 million) and by non-cash adjustments of
$.3 million to reflect the lower repurchase value of the redeemable common stock
of certain minority shareholders.
Operating Income. Operating income decreased by $.1 million, or 13.5%, to
$.6 million in the three months ended September 30, 1998, as compared to the
same period of the prior year primarily due to lower net sales and gross
profits, partially offset by lower selling, general and administrative expenses.
Interest Expense. Interest expense increased by $1.2 million, or 73.8%, to
$2.7 million in the three months ended September 30, 1998, as compared to the
same period of the prior year primarily due to increased principal and interest
expense associated with the $100 million Note offering on June 11, 1998.
Interest Income. Interest income increased by $.2 million to $.3 million,
as compared to the same period of the prior year. This increase is primarily due
to excess cash on hand after repayment of most of the Company's indebtedness
from the proceeds of the Note offering.
Other Expense, Net. Other expenses for the three months ended September
30, 1998 decreased by $1.4 million to $.3 million, as compared to the same
period of the prior year. This decrease is attributable to lower translation
differences from the Company's Israeli operations occurring during the September
30, 1998 quarter due to lower rates of currency devaluations as compared to the
same period of the prior year.
Net Loss. Net loss for the three months ending September 30, 1998
decreased to $1.1 million as compared to $1.6 million in the same period of the
prior year.
36
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities. Net cash provided by operations
for the three months ending September 30, 1998 was $9.3 million, an increase of
$4.8 million from the same period of the prior year. This increase is primarily
due to higher collection levels of receivables which were somewhat offset by
increased purchases of inventories.
Net Cash Used in Investing Activities. Net cash used in investing
activities for the three months ending September 30, 1998 was $2.5 million, an
increase of $1.0 million from the same period of the prior year. This increase
is mainly attributable to increased spending associated with the Company's Crop
Protection facilities, both in the United States and in France.
Net Cash Provided by Financing Activities. Net cash provided by financing
activities for the three months ending September 30, 1998 was $1.2 million, a
decline of $1.1 million from the same period of the prior year, primarily due to
lower levels of cash overdrafts and increases in short-term debt.
Liquidity. As of September 30, 1998, the Company had $77.3 million of
working capital and $79.7 million as of June 30, 1998. Cash on hand as of
September 30, 1998 amounted to $32.1 million.
In June 1998, the Company issued $100 million aggregate principal amount of
9 7/8% Senior Subordinated Notes due June 1, 2008. The Notes are general
unsecured obligations of the Company and are subordinated in right of payment to
all existing and future Senior Debt and will rank pari passu in right of payment
with all other existing and future senior subordinated indebtedness of the
Company. The Notes are unconditionally guaranteed on a senior subordinated basis
by the current domestic subsidiaries of the Company. Additional future domestic
subsidiaries may become Guarantors under certain circumstances. Proceeds from
the Offering were used in part to repay indebtedness of the Company.
The Indenture contains certain covenants with respect to the Company and
the Guarantors, which will restrict, among other things, (a) the incurrence of
additional indebtedness, (b) the payment of dividends and other restricted
payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain
payment restrictions affecting subsidiaries, and (f) transactions with
affiliates. The Indenture will also restrict the Company's ability to
consolidate, or merge with or into, or to transfer all or substantially all of
its assets to, another person.
In August 1998, the Company and certain of its domestic subsidiaries
terminated the Loan and Security Agreement dated as of August 31, 1994 with
Fleet Bank (formerly National Westminster Bank NJ). Simultaneously, the Company
and all of its domestic subsidiaries entered into the New Credit Agreement with
PNC Bank, National Association, providing, among other things, for the extension
of a $60 million senior secured facility, consisting of a $35 million revolving
credit facility (subject to the availability of certain eligible receivables and
eligible inventory, with a sub-limit for inventory of $15 million), including a
$7.5 million letter of credit sub-facility, and a $25 million acquisition
facility. See "Description of Certain Indebtedness."
At September 30, 1998, the Company had no outstanding borrowings under the
New Credit Agreement, and had availability thereunder of $35.0 million, subject
to a borrowing base. The Company expects that cash flows from operations and
available borrowing arrangements will provide sufficient working capital to
operate the Company's business, to make expected capital expenditures and
service interest and principal on outstanding debt and meet the Company's
foreseeable liquidity requirement for the next twelve months.
On October 1, 1998, the Company closed the acquisition of all of the
outstanding capital stock of ODDA Smelteverk, AS, a Norwegian company, and the
related business of BOC Carbide Industries in the United Kingdom, from the BOC
Group Plc for $19.0 million in cash and the assumption of $18.2 million in debt.
37
<PAGE>
Comparison of Fiscal Year Ended June 30, 1998 to Fiscal Year Ended June 30, 1997
Net Sales. Net sales increased by $9.6 million, or 3.6%, to
$278.0 million in fiscal 1998 as compared to the prior year. This increase was
primarily attributable to higher net sales of the Company's Animal Nutrition and
Health products, primarily due to higher net sales of animal feed supplements
($4.2 million) and higher net sales of animal health products ($1.8 million).
Gross Profit. Gross profit increased by $1.7 million, or 2.6%, to
$69.1 million and 24.9% of net sales in fiscal 1998, as compared to 25.1% of net
sales in the prior year. This gross profit increase was primarily attributable
to higher sales of the Company's Animal Nutrition and Health products for animal
feed supplements ($2.1 million) and higher sales and lower costs for animal
health products ($1.1 million). This was somewhat offset by lower margins of
crop protection products ($1.9 million), which also contributed to the decline
in gross margin as a percentage of net sales.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $7.2 million, or 12.8%, to $63.3 million in
fiscal 1998 as compared to the prior year. This increase was primarily
attributable to compensation expense associated with the forgiveness by the
Company of limited recourse notes receivable from certain executives of the
Company in connection with their acquisition of 10.7% of the stock of a
subsidiary of the Company and payment to the executives for income taxes
resulting from the cancellation of the Notes (totalling $5.6 million), a
$1.2 million provision for personnel reductions at one of the Company's foreign
subsidiaries and the Company's Sewaren, New Jersey facility, and a $.8 million
increase in the environmental provision. These expenses were partially offset by
a non-cash compensation adjustment of $1.2 million to reflect a lower repurchase
value of the redeemable common stock of a minority shareholder and officer of
the Company as a result of decreases in the Company's book value. See "Certain
Relationships and Related Transactions" and "Business--Restructuring and Other
Charges."
Curtailment of Operations. During the fourth quarter of fiscal 1998, the
Company curtailed manufacturing operations of its Sewaren, New Jersey facility.
Consequently, the Company recorded a non-recurring charge of $10.0 million
related to curtailment of operations, site restoration and ongoing groundwater
monitoring and remediation activities. Of these charges, $5.6 million represents
non-cash asset write downs related to the manufacturing facility, $1.1 million
represents associated site restoration (which are classified as other current
liabilities) and $3.3 million represents long-term groundwater monitoring and
remediation costs that will continue in accordance with the Company's
environmental plans.
Operating Income (Loss). The operating loss of $4.2 million for the fiscal
year ended June 30, 1998 is primarily attributable to non-recurring charges
associated with the Company's curtailment of its Sewaren, New Jersey facility
and the forgiveness of executive notes and related income tax reimbursements
amounting to $10.0 million and $5.6 million, respectively. Excluding the effect
of these charges, operating income in fiscal year 1998 was comparable to the
prior year.
Interest Expense. Interest expense increased by $.6 million to
$6.9 million in fiscal 1998 as compared to the prior year primarily due to
interest associated with the $100 million Notes issued June 11, 1998.
Taxes. The fiscal 1998 net benefit for income taxes includes a deferred
benefit at the statutory tax rate of 34% for the U.S. pre-tax loss and the
impact of lower tax rates on foreign pre-tax income. No valuation allowance has
been provided on the Company's net deferred tax assets, as management believes
that it is more likely than not that such amounts will be recovered in future
periods.
Extraordinary Loss. The extraordinary loss of $2.0 million (net of an
income tax benefit of $1.0 million) for the fiscal year ended June 30, 1998 is
comprised of prepayment fees in connection with early extinguishment of the
$20 million Old Senior Notes and the write-off of deferred financing costs
associated with indebtedness of the Company repaid from proceeds of the Notes.
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Net Income (Loss). The net loss of $9.0 million for the fiscal year ended
June 30, 1998 is primarily attributable to non-recurring operating charges. Net
income of $8.0 million for the 1997 fiscal year included a $5.6 million
nontaxable gain on life insurance.
Comparison of Fiscal Year Ended June 30, 1997 to Fiscal Year Ended June 30, 1996
Net Sales. Net sales increased by $27.0 million, or 11.2%, to $268.4
million in fiscal 1997, as compared to the prior year. The increase was
primarily attributable to higher sales of the Company's Animal Nutrition and
Health products due to completion of the Company's amprolium plant in Israel
($8.4 million), higher unit sales for animal feed supplements ($7.7 million),
higher unit sales and prices for nicarbazin ($2.8 million), and higher sales
associated with the acquisition of Planalqumica ($2.5 million). Higher net sales
of the Company's Intermediates and Industrial Chemicals product group for
mineral oxides (as a result of strength in the construction and automotive
markets), anisic aldehyde and anisyl alcohol, accounted for approximately $2.9
million, $0.9 million and $1.6 million, respectively, of the increase from the
prior year. MRT had revenues of $1.3 million, as compared to zero in the prior
year. Electronic and Metal Treatment product sales decreased as compared to the
prior year, primarily due to lower unit sales of alkaline etchants and copper
sulfate crystal.
Gross Profit. Gross profit increased by $7.0 million, or 11.5%, to
$67.3 million and 25.1% of net sales in fiscal 1997, as compared to 25% of net
sales in the prior year. This increase was primarily attributable to higher
sales of the Company's Animal Nutritional and Health products, including higher
unit sales of the Company's animal health products (nicarbazin and amprolium),
amounting to $3.4 million, higher unit sales of animal nutrition supplements
such as copper sulfate feed grade in the United States amounting to
$1.0 million, as well as higher prices for the Company's animal nutrition
premixes in Israel, amounting to $1.5 million, as compared to the prior year.
These increases were partially offset by lower net sales of Electronics and
Metal Treatment products.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $4.9 million, or 9.6%, to $56.1 million in
1997 from $51.2 million in fiscal 1996, primarily due to the first full year of
expenses associated with MRT, the Company's acquisition of Planalqumica, higher
freight expenses associated with the Company's recycling activities, and other
administrative costs. Selling, general and administrative expenses as a
percentage of revenues for fiscal 1997 represented 20.9% of net sales, as
compared to 21.2% of net sales for fiscal 1996.
Operating Income. Operating income increased by $2.0 million, or 22.2%, to
$11.2 million in fiscal 1997, as compared to the prior year, primarily due to
higher net sales and gross profits from the Company's Animal Nutrition and
Health products, partially offset by increases in selling, general and
administrative expenses.
Interest Expense. Interest expense increased by $.7 million to $6.3
million in fiscal 1997, as compared to the prior year, primarily due to higher
levels of bank borrowings by the Company's Israeli subsidiary, Koffolk Israel,
in connection with the construction of the amprolium plant in Ramat Hovav. The
fiscal 1996 year reflects the capitalization of interest in the amount of
approximately $.4 million by Koffolk Israel, related to the financing of such
construction.
Taxes. The provision for income taxes for fiscal 1997 is lower than the
federal statutory rate, primarily due to the non-taxability of insurance gain.
The fiscal 1996 tax provision was impacted principally by taxes relating to
reorganization of foreign subsidiaries and substantially higher effective state
taxes.
Net Income. Net income for fiscal 1997 increased to $8.0 million, from a
negligible loss in fiscal 1996. The increase included a $5.6 million gain on
life insurance and higher gross profits from the Company's Animal Nutrition and
Health products.
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LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided By Operating Activities. Net cash provided by operations
was $1.3 million for fiscal 1998, a decline of $1.6 million from fiscal 1997.
This was primarily a result of the loss before extraordinary item, and higher
levels of accounts receivable (due to Crop Protection product group sales having
occurred later in the season than the prior year), offset by depreciation and
amortization and non-cash, non-recurring charges. Net cash provided by operating
activities in fiscal 1997 was $2.9 million, an increase of $2.2 million, as
compared to the prior year. This increase was primarily due to increased net
income, and increased depreciation due to the Company's new amprolium plant in
Israel.
Net Cash Used In Investing Activities. Net cash used in investing
activities for fiscal 1998 was $8.0 million, an increase of $3.3 million, as
compared to the prior year. This increase was primarily due to increased capital
expenditures (approximately $2.0 million) at the Company's Ramat Hovav, Israel
facility and $1.8 million for site paving at the Company's Sewaren, New Jersey
facility.
Net cash used in investing activities for fiscal 1997 was $4.8 million, a
decrease of $8.8 million, as compared to the prior year. Included in the 1996
fiscal year is a cash payment of $3.9 million for the acquisition of
Planalqumica, the Company's Brazilian subsidiary, and approximately
$4.5 million for capital expenditures for construction of the amprolium plant in
Israel.
Net Cash Provided By Financing Activities. Net cash provided by financing
activities for fiscal 1998 was $26.8 million, primarily as a result of proceeds
from issuance of the $100 million Old Notes less discounts and fees of $3.8
million and after repayments of the Company's long-term and short-term
indebtedness.
Capital Expenditures. Capital expenditures for the years ended June 30,
1998, 1997 and 1996 were $8.0 million, $4.7 million, and $8.9 million,
respectively. Capital expenditures over this period were primarily for
construction of the amprolium plant in Israel, expansion and modernization of
product facilities in France, and expansion of the Company's production
facilities in the United States for fungicides and animal nutrition supplements.
The Company anticipates spending $11.0 million and $7.0 million for capital
expenditures for its existing businesses for fiscal 1999 and 2000, respectively,
including expenditures for the registration and acquisition of generic
fungicides under FIFRA. In addition, the Company has budgeted $10.0 million and
$1.6 million associated with the growth of MRT for 1999 and 2000, respectively,
and $5.0 million related to the ODDA Acquisition for each of 1999 and 2000.
These budgets are subject to change, depending upon, among other factors, the
actual needs of the Company, MRT and ODDA.
YEAR 2000 ISSUE
The term "Year 2000 ("Y2K") Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the dates in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues affect the Company and most companies in the
world.
The Company has conducted a review of its core management information
systems and equipment with embedded chips or processors ("Management Systems")
used in the Company's operations, and also its internal manufacturing systems at
its plants, including computer-based manufacturing, logistical and related
systems ("Manufacturing Systems").
Over the last three years, the Company has replaced or upgraded most of its
Management Systems and Manufacturing Systems. The Company has substantially
upgraded its desktop computers, networks and servers and software applications
and packages. The Company has expended approximately $580,000, $587,000 and
$920,000 in the fiscal years ended June 30, 1996, 1997 and
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1998, respectively, towards compliance with Y2K issues. Such amounts during such
periods were allocated as follows: for 1996, $380,000 for outside consultants
and $200,000 for internal costs (including internal programmers and MIS
activities); for 1997, $72,700 for hardware, $9,000 for software, $300,800 for
outside consultants and $205,000 for internal costs; for 1998, $229,700 for
hardware, $35,600 for software, $235,000 for outside consultants and $420,000
for internal costs. The Company believes that its Manufacturing Systems
worldwide are currently in Y2K compliance. With regard to its Management
Systems, the Company estimates that 90 percent of its U.S. operations are Y2K
compliant, other than the current conversion of the order entry and inventory
tracking systems of one of its domestic subsidiaries, resulting in estimated
overall U.S. completion of 75 percent. The Company expects that its U.S.
operations will be in full compliance during calendar 1999. The Company's
operations in France and the United Kingdom are presently in Y2K compliance,
while the Company estimates that its Israeli and Norwegian operations are
currently 90 percent and 75 percent compliant, respectively, and that they will
be in full compliance during calendar 1999. The Company expects that any
required modifications will be made on a timely basis. The Company continues to
test its Management and Manufacturing Systems, on a system-by-system basis, as
it completes its ongoing compliance efforts. The Company estimates that future
expenditures will not exceed $150,000, of which $30,000 is expected to be spent
on hardware, $70,000 on software modifications and systems testing by outside
consultants and $50,000 is allocated to internal costs and contingencies. The
Company's estimates of completion are based on management's estimates of the
number and complexity of the systems involved and the status of its Y2K effort
with respect to such systems. Such estimates may not necessarily be consistent
with the timing of the Company's incurrence of Y2K-related expenditures.
As part of the Company's Y2K readiness program, the Company has identified
significant service providers, vendors, suppliers and customers ("Key Business
Partners") that it believes are critical to business operations after January
1, 2000 and has sent questionnaires in an attempt to reasonably ascertain their
stage of Y2K readiness. The Company may follow-up responses to the
questionnaires through interviews and other available means. In conjunction with
this effort, key utilities upon which the Company and its operating subsidiaries
rely will be approached on a worldwide basis to identify their level of Y2K
preparedness. In many cases, these entities (particularly outside North America)
have a lower level of Y2K awareness and are less willing to provide information
concerning their state of Y2K readiness.
The Company is considering business interruption contingency plans to
address internal and external issues specific to the Y2K problem, to the extent
practicable. These contingency plans, which are intended to enable the Company
to continue to operate on January 1, 2000 and beyond, may include stockpiling
raw and packaging materials, increasing inventory levels, securing alternate
sources of supply, performing certain functions manually, repairing or obtaining
replacement systems to interface with third-party systems and other
appropriate measures. The Company's Manufacturing Systems rely on control
systems which include process manufacturing and mixing controls, production
monitoring power, and emission and safety. While comparable control systems are
used at plants having similar processes, specific facility-related
configurations exist to meet the needs of production equipment at each plant. If
a failure were to occur, the potential impact would be isolated to the affected
facility and, more particularly, the product or products manufactured with the
affected equipment. Also, in many cases, the Company has the ability to
manufacture the same product at different facilities. The Company's Management
Systems include administrative and financial applications, such as for order
processing and collection. In the event one of these systems were not corrected,
the Company's ability to capture, schedule and fulfill customer demands could be
impaired. Similarly, if a collection processing system were to fail, the Company
may not be able to properly apply payments to customer balances or correctly
determine cash balances. However, as discussed above, the Company will consider
various alternatives, including performing manually certain functions that it
had performed manually before the applicable computer system was in use.
The Company's plans are intended to provide a means of managing risk, but
cannot eliminate the potential for disruption due to third party failure. To the
extent that responses to Y2K readiness are unsatisfactory, the Company may
consider changing suppliers, service providers or contractors to those which
have demonstrated Y2K readiness. However, the Company believes that due to the
widespread nature of the potential Y2K issues, its contingency planning is an
ongoing process which
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will require further consideration as the Company obtains additional information
regarding the Company's internal systems and equipment during completion of the
testing of its systems and regarding the status of its suppliers, customers and
other third party providers regarding their becoming Y2K compliant. The Company
is defining a strategy based on the importance of each relationship. The
Company's efforts with respect to specific problems identified will depend in
part upon its assessment of the risk that such problem may have an adverse
impact on its operations. The Company has not yet developed contingency plans in
the event of a Y2K failure caused by a supplier or third party, but would intend
to do so if a specific problem is identified through the program described
above. In some cases, particularly with respect to its utility vendors,
alternative suppliers may not be available.
Because of the substantial number of Manufacturing and Management Systems
used by the Company and its operating subsidiaries, the significant
number of Key Business Partners, the extent of the Company's foreign operations,
including operations within countries that are not actively promoting
remediation of the Y2K issue, the Company presently believes that it may
experience some disruption in its business due to the Y2K issue. The Company
currently believes that the greatest risk of disruption in its business exists
in certain international markets. The possible consequences of the Company or
Key Business Partners not being fully Y2K complaint by January 1, 2000 include,
among other things, temporary plant closings, delays in the delivery of
products, delays in the receipt of supplies, invoice and collection errors, and
inventory and supply obsolescence.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. More specifically, the
Company and its operating subsidiaries could be materially adversely affected if
utilities and private businesses with which they do business or that provide
essential products or services are not Y2K ready. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K
readiness of the Company's customers, suppliers, and other third-party
providers, the Company is unable to determine at this time whether the
consequences of any Y2K failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Company believes
that, with the implementation of new business systems and completion of the
Company's Y2K modifications, the possibility of significant interruptions of
normal operations should be mitigated.
The preceding "Y2K Issue" discussion contains various Forward-Looking
Statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Y2K problem" discussion, the words "believes,"
"expects," "estimates," and similar expressions are intended to identify
forward-looking statements. Forward-Looking Statements include, without
limitation, the Company's expectations as to when it will complete the
remediation and testing phases of its systems as well as its Y2K contingency
plans, its estimated cost of becoming Y2K compliant; and the Company's belief
that its internal systems and equipment will be Y2K compliant in a timely
manner. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results, including problems that may arise on the part of third
parties. Factors that may cause these differences include, but are not limited
to, the availability of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment; and the actions of governmental agencies or other third parties with
respect to Y2K compliance which are not made or are not completed on a timely
basis. The resulting problems could have a material impact on the operations of
the Company, and could, in turn, have a material adverse effect on the Company's
results of operations, financial position or cash flows. The "safe harbor" for
Forward-Looking Statements does not apply to statements made in connection with
an initial public offering.
EFFECT OF INFLATION; FOREIGN CURRENCY EXCHANGE RATES
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
any material effect on the Company's business over the last three years.
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The Company's substantial foreign operations expose it to risk of exchange
rate fluctuations. Balance sheet accounts of the Company's foreign subsidiaries,
with the exception of the Brazilian subsidiary and a subsidiary of Koffolk
Israel, are translated at current rates of exchange and income and expense items
are translated at the average exchange rate for the year. The resulting
translation adjustments are reflected as a separate component of stockholders'
equity. The Brazilian subsidiary operates in a highly inflationary economy and
the subsidiary of Koffolk Israel transacts substantially all of its business in
U.S. dollars. Accordingly, the U.S. dollar is designated as the functional
currency of these operations and translation gains and losses are included in
net income.
Foreign currency transaction gains and losses are included in net income.
Currency translation losses relating principally to short and long-term debt of
Koffolk Israel are denominated or linked to foreign currencies, and have been
translated to the functional currency, the Shekel, and included in earnings.
Such translation losses were $979,000, $2,270,000 and $1,055,000 for 1998, 1997
and 1996 fiscal years, respectively. See Note 1 to the Company's Consolidated
Financial Statements.
IMPACT OF RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"). SFAS No. 121, effective for the Company's fiscal year 1997,
established criteria for recognizing, measuring and disclosing impairments of
long-lived assets, including intangibles and goodwill. The adoption of SFAS
No. 121 has not had a significant impact on the Company's results of operations,
financial position or cash flows.
Commencing with fiscal 1998, the Company has adopted American Institute of
Certified Public Accountants Statement of Position (SOP) 96-1, "Environmental
Remediation Liabilities." This SOP requires that accrued environmental
remediation-related expenses include direct costs of remediation and indirect
costs related to the remediation effort. The effect of adoption of this SOP is
accounted for as a change in accounting estimate and did not have a material
effect on financial position, results of operations or cash flows upon initial
application at the beginning of fiscal 1998.
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132 "Employers' Disclosures about Pension and Other
Postretirement Benefits" in fiscal 1999. These standards will require additional
disclosure, but are not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
The Company will also be required to adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" in fiscal 2001. This standard
will require the Company to record all its derivative financial instruments as
assets or liabilities measured at fair value. Management has not yet assessed
the potential impact of this standard on its financial position, results of
operations or cash flows.
ENVIRONMENTAL LIABILITIES
The Company and its subsidiaries are subject to various federal, state,
local and foreign environmental laws and regulations which govern the management
of chemical wastes. The most significant regulation governing the recycling
activities of certain of the Company's subsidiaries is the Resource Conservation
and Recovery Act of 1976 ("RCRA"). In connection with applying for RCRA "Part B"
permits, such subsidiaries have been required to perform extensive site
investigations at each of their operating facilities (and inactive sites) to
identify possible contamination and to provide the regulatory authorities with
plans and schedules for remediation. Some soil and groundwater contamination has
been identified at several plant sites and will require corrective action over
the next several years.
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures related to improving the condition
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of property compared with the condition of that property when constructed or
acquired are capitalized. The Company also capitalizes expenditures that prevent
future environmental contamination.
The Company's subsidiary, C.P. Chemicals, Inc., has been named as a
potentially responsible party ("PRP") in connection with an action commenced by
the EPA, involving a third party fertilizer manufacturing site in South
Carolina. The Company has also received a settlement proposal approximating $.8
million, which it believes is unfairly high in relation to settlements offered
to other PRPs. While the outcome of ongoing negotiation is uncertain, the
Company has accrued its best estimate of the amount for which this matter can be
settled.
Total accruals for environmental matters are $5.3 million as of June 30,
1998, including $3.3 million for long-term groundwater monitoring and
remediation costs associated with curtailment of operations at the Company's
Sewaren, New Jersey facility. See Note 11 to the Company's Consolidated
Financial Statements.
SEASONALITY OF BUSINESS
The Company's sales are typically highest in the fourth fiscal quarter. The
Company's sales of copper-based fungicides and other agricultural products are
typically highest in the first and fourth fiscal quarters, and its sales of
gibberellic acid are highest in the fourth quarter, due to the seasonal nature
of the agricultural industry. The Company's sales of finished chemicals to the
wood treatment industry are typically highest in the first and fourth fiscal
quarters due to the increased level of home construction during these periods.
Additionally, sales of these products may be more concentrated in one of these
quarters due to weather conditions.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result, future earnings, cash flows and fair values
of assets and liabilities are subject to uncertainty. The Company uses a variety
of derivative financial instruments, including interest rate caps and foreign
currency forward contracts as a means of hedging exposure to floating interest
rate bank borrowings and foreign currency risks. The Company also utilizes, on a
limited basis, certain commodity derivatives, primarily on copper used in its
manufacturing processes, to hedge the cost of its anticipated purchase
requirements. The Company and its subsidiaries do not utilize derivative
instruments for trading purposes. The Company does not hedge its exposure to
market risks in a manner that completely eliminates the effects of changing
market conditions on earnings, cash flows and fair values. The Company monitors
the financial stability and credit standing of its major counterparties. See
Notes 1 and 12 to the Company's Consolidated Financial Statements.
Interest Rate Risk
The Company has mitigated its floating interest rate exposure on
substantially all floating rate bank borrowings of its Israeli subsidiary by
purchasing interest caps expiring at various dates through October 2001, with
interest caps of 11% based on 3-month LIBOR for domestic debt and 9% for U.S.
dollar debt. The fair values of the interest rate caps does not differ
materially from their carrying values. The interest rate caps were terminated in
connection with the repayment of the Israeli floating rate debt in June 1998.
The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. The carrying amounts of cash and cash
equivalents, trade receivables, trade payables and short term debt is considered
to be representative of their fair value because of their short maturities. The
fair value of the Company's long-term debt is estimated using discounted cash
flow analyses, based on the Company's incremental borrowing rates for similar
types of borrowing arrangements. As of June 30 and September 30, 1998, the fair
value of
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the Company's total debt did not differ materially from its carrying amount. A
100 basis point increase in interest rates could result in a $6.0 million
reduction in the fair value of total debt.
Foreign Currency Exchange Rate Risk
A significant portion of the financial results of the Company is derived
from activities conducted outside the U.S. and denominated in currencies other
than the U.S. dollar. Because the financial results of the Company are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. Dollar. Exchange rate risks are
reduced, however, by the diversity of the Company's foreign operations and the
fact that international activities are not concentrated in any single non-U.S.
currency. Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. The
Company covers known and anticipated operating exposures by using purchased
foreign currency exchange option and forward contracts. The primary currencies
for which the Company has foreign currency exchange rate exposure are the German
deutsche mark and Japanese yen.
The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined for these
purposes as the potential change in fair value resulting from an adverse
movement in foreign currency exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date. At June 30 and September 30, 1998, the fair value did not differ
materially from its carrying amount. Based on the limited amount of foreign
currency contracts at September 30, 1998, the Company does not believe that an
instantaneous 10% adverse movement in foreign currency rates from their levels
at September 30, 1998, with all other variables held constant, would have a
material effect on the Company's results of operations, financial position or
cash flows.
Also, the Company obtains third party letters of credit in connection with
certain inventory purchases and insurance obligations. At June 30 and September
30, 1998, the contract values of these letters of credit were $4.6 million and
their fair values did not differ from their carrying amount.
Commodity Price Risk
The Company purchases certain raw materials, such as copper, under
short-term supply contracts. The purchase prices thereunder are generally
determined based on prevailing market conditions. The Company uses commodity
derivative instruments to modify some of the commodity price risks. Assuming a
10% change in the underlying commodity price, the potential change in the fair
value of commodity derivative contracts held at June 30 and September 30, 1998
would not be material when compared to the Company's earnings and financial
position.
The foregoing market risk discussion and the estimated amounts presented
are Forward-Looking Statements that assume certain market conditions. Actual
results in the future may differ materially from these projected results due to
developments in relevant financial markets and commodity markets. The methods
used above to assess risk should not be considered projections of expected
future events or results.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; provided, that if the Company has
extended the period of time for which the Exchange Offer is open pursuant to
applicable law, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $100.0 million aggregate principal
amount of the Old Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about the date of this
Prospectus, to all Holders of Old Notes known to the Company. The Company's
obligation to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "--Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to The Chase Manhattan Bank (the
"Exchange Agent") at the address set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
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SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program ("ATOP") to tender private
securities. To effect a tender pursuant to the ATOP system, Holders should
transmit their acceptance to DTC through ATOP by causing DTC to transfer
securities to the Exchange Agent in accordance with ATOP's procedures for
transfer. DTC will then send an Agent's Message to the Exchange Agent. The term
"Agent's Message" means a message transmitted by DTC to, and received by, the
Exchange Agent and forming a part of the Book-Entry Confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering the securities referred to in such Agent's Message, that such
participant has received the Letter of Transmittal and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered Holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a
financial institution (including most banks, savings and loan associations and
brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchanges Medallion Program (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than a signer of the
Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered Holder with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Note which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
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If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the Holder, and that neither the Holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. In the case of a Holder that is not a
broker-dealer, each such Holder, by tendering, will also represent to the
Company that such Holder is not engaged in and does not intend to engage in, a
distribution of the New Notes. If any Holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company, or
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, such Holder or any such other person
(i) could not rely on the applicable interpretations of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering such a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from June 11, 1998. Accordingly, registered Holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from June 11, 1998. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old
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Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering Holder
thereof (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under "--Exchange Agent" on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the Expiration Date, the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three NYSE trading days after the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having tendered the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes), (iii) contain a statement that such holder is withdrawing his election
to have such Old Notes exchanged, (iv) be signed by the holder in the same
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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 to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which such Old Notes are
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination 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 and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered for exchange but which are not
exchanged for any reason will be returned to the Holder thereof without cost to
such Holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with the Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to 5:00 p.m., New York City
time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that (i) the Exchange Offer
violates applicable law or any applicable interpretation of the staff of the
SEC, (ii) an action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of the Company to proceed with the Exchange Offer, or a material adverse
development shall have occurred in any existing action or proceeding with
respect to the Company or (iii) any governmental approval shall not have been
obtained, which approval the Company deems necessary for the consummation of the
Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order 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, as
amended.
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EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Chase Manhattan Bank, Exchange Agent
By Mail or Hand Delivery:
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Attention: Mr. Sheik Wiltshire
By Facsimile Transmission
(for Eligible Institutions only):
(212) 946-8161
Attention: Mr. Sheik Wiltshire
Confirm by Telephone:
(212) 946-3082
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The estimated cash expenses to be
incurred in connection with the Exchange Offer will be paid by the Company and
are estimated in the aggregate to be $200,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights." Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by Holders thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
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without compliance with the registration and prospectus delivery provisions of
the Securities Act; provided, that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and such Holders are not engaged in and do not intend to be engaged in a
distribution of such New Notes. However, the SEC has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a broker-
dealer, must acknowledge that it is acquiring the New Notes in the ordinary
course of such Holder's business, such Holder is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, it is not
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes. If any Holder is an affiliate of the Company, or is engaged in or intends
to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified therein,
to register or qualify the New Notes for offer or sale under the securities laws
of such jurisdictions as any Holder reasonably requests in writing. Unless the
Company is so requested, the Company does not intend to register or qualify the
sale of the New Notes in any such jurisdictions.
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BUSINESS
Philipp Brothers Chemicals, Inc. is a leading diversified global
manufacturer and marketer of a broad range of specialty and industrial
chemicals, which are sold world-wide for use in numerous markets including
animal nutrition and health, electronics, wood treatment, agricultural,
pharmaceutical and personal care products, glass, construction and concrete. The
Company also provides recycling and hazardous waste services primarily to the
electronics and metal treatment industries. The Company has leading positions in
certain of its end markets, and has global marketing and manufacturing
capabilities. The Company's net sales and EBITDA were $278.0 million and
$10.6 million, respectively, for the year ended June 30, 1998, $268.4 million
and $20.6 million, respectively, for the year ended June 30, 1997,
$59.2 million and $2.6 million, respectively, for the quarter ended
September 30, 1998, and $62.6 million and $3.1 million, respectively, for the
quarter ended September 30, 1997. Approximately 35% of the Company's fiscal 1998
net sales consisted of sales made by the Company outside the United States.
During fiscal 1998, the Company's products were manufactured at nine facilities
in the United States, two facilities in Europe, two facilities in Israel and one
facility in South America.
The Company manufactures and markets more than 350 specialty and industrial
chemicals, of which 50 products accounted for approximately 80% of fiscal 1998
net sales. The Company focuses on specialty and industrial chemicals for which
it has a strong market position or an advantage in product development,
manufacturing or distribution. Many of the Company's products provide critical
performance attributes to its customers' products, while representing a
relatively small percentage of total end-product costs. The Company has four
core product groups:
o ANIMAL NUTRITION AND HEALTH. The Company manufactures and markets trace
minerals, trace mineral premixes and animal feed ingredients, as well as
vitamins, vitamin premixes and other animal health products to the animal
feed, poultry and pet food industries.
o INTERMEDIATES AND INDUSTRIAL CHEMICALS. The Company manufactures and
markets a number of specialty and fine organic chemicals and
intermediates, as well as industrial pigments and other mineral products
for use in the chemical, catalyst, pharmaceutical and personal care,
construction, concrete, wood treatment, automotive, aerospace, glass and
coal mining industries.
o CROP PROTECTION. The Company manufactures and markets fungicides and
other agricultural products for the United States, French and other
international markets. Products in this group are primarily copper-based
fungicides, which are used in the treatment of crop bacteria and fungal
diseases, and gibberellins, which are plant growth regulators used in
table grape and citrus production, as well as value-added branded crop
protection chemicals.
o ELECTRONICS AND METAL TREATMENT. The Company believes that it is the
largest volume manufacturer and recycler of alkaline etchants in the
United States. Through five of its facilities, the Company sells fresh
etchant to printed circuit board manufacturers and recycles spent
etchants.
BUSINESS STRATEGY
The Company's objective is to continue to enhance its revenue growth and
profitability. The Company plans to achieve its objective through the following
key strategies:
o Enhance Growth through Selective Acquisitions and Strategic
Alliances. The Company will continue to seek acquisitions of businesses
and products that improve profitability. In 1994, the Company acquired
Agtrol International (formerly La Cornubia, S.A.), a producer of copper
chemicals and crop protection chemicals in France. In 1995, the Company
acquired Planalqumica, the sole manufacturer of nicarbazin in Latin
America. In 1996, Koffolk USA purchased the right to sell nicarbazin from
Merck. Koffolk USA became the registered transferee and owner of the NADA
for nicarbazin approved by the FDA. Separately, Merck appointed Koffolk
USA as its exclusive U.S. distributor of amprolium for poultry markets.
In 1996, Elanco Animal Health, a division of Eli Lilly, agreed to act as
the Company's exclusive distributor in the United States and Brazil for
nicarbazin. This arrangement was terminated by the Company with respect
to the United States in August 1998. In June 1998 Koffolk USA became a
subsidiary of the
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Company upon the closing of the Offering. In October 1998, the Company
completed the ODDA Acquisition.
o Increase Product Offerings to Primary Markets. The Company seeks to
offer an extensive animal nutrition and crop protection product portfolio
to a given customer, thereby enhancing its position as a valuable
supplier to the industries it serves and increasing its unit sales per
customer. The Company seeks to increase its product lines through
identification and registration of generic fungicides under FIFRA either
directly or through joint ventures or strategic alliances. In 1998, the
Company obtained a U.S. registration under FIFRA to sell a TPTH-based
product, under the name Agri-tin, a fungicide used primarily in the sugar
beet, pecan and potato industry. In 1998, the Company also launched a
mefenoxam-based product, under the name Ultra Flourish, a systemic
fungicide used in the tobacco, citrus and vegetable industries, for use
in a variety of end use formulations.
o Introduce New or Technologically Improved Products. The Company focuses
on the acquisition and development of new and technologically advanced
products to respond to customer demands, changes in the marketplace,
technology and environmental regulations. The Company continues to use
its recycling expertise, hydro-metallurgical experience and chemical
formulation capability to develop new products and services. The Company
continues to seek and develop opportunities that enable it to offer new
products and technologies. For example, Mineral Resource Technologies, a
subsidiary of the Company which commenced operations in 1996, has
recently obtained two patents for the development of a new series of
cement products. Such products, called MRT Cement, are made primarily
from fly ash, an ash residue generated chiefly by coal-burning electric
utilities. The Company believes that MRT Cement could serve as a
competitive alternative to portland cement for use in the building and
construction industries. The Company has recently entered into an
agreement with an electronic component manufacturer to recycle for that
manufacturer. In 1998, the Company introduced a livestock litter
treatment product that improves poultry-house conditions and productivity
and also benefits the environment by aiding in the control of phosphorous
runoff, and a line of animal nutrition palatants (flavor enhancers) for
the United States feed market. The Company is also capitalizing on its
technology to develop a fourth generation copper-based fungicide expected
to have enhanced biological activity and reduced cost of disease control.
o Continue to Improve Operating Efficiencies. With the curtailment of the
Company's Sewaren, New Jersey facility, the Company expects to realize
significant cost savings. The Company intends to implement additional
cost-saving and productivity-enhancing programs in the future, including
yield improvement programs. The Company intends to move or expand product
capacity to improve production efficiency and reduce transportation
costs. The Company is analyzing additional opportunities to increase
operating efficiencies and profitability. See "Summary--Restructuring and
Other Charges."
o Expand and Strengthen Customer Base. The Company intends to expand and
strengthen its customer base by (i) focusing on relationships with key
accounts, (ii) continuing to incentivize its sales force to concentrate
on fast-growing, high-margin areas within existing product groups, and
(iii) pursuing growth opportunities for its existing products in new
markets outside the United States.
COMPETITIVE STRENGTHS
o Leadership Positions in Targeted Markets. The Company believes it holds
leading positions in several specialty agricultural markets, including
copper-based feed additives and fungicides, and in specialty and
industrial chemical markets, including metal ore-based colorants,
etchants and certain organic compounds. The Company's brand names in its
target markets include Nicarb, Champion, Champ Flowable, GibGro,
Macclesfield, Nicarmix, Necoxine, Ac-Cu- Guard, Ac-Cu-Fine 9, High Speed
Ac-Cu-Guard Plus, Phibro-Guard TFT, Kastab, D Stab, Chromax, Chromox,
Brickox, Agri-tin and Ultra Flourish. The Company believes these
leadership positions will enhance its ability to broaden its product
lines within its markets, and its brand name recognition will increase
its ability to launch its existing products in new markets.
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o Manufacturing Expertise. The Company's extensive experience in various
metal recovery processes provides the Company with a high quality, low
cost source of raw material for use in products sold to the agricultural
and animal nutrition markets. In addition, the Company's expertise in
certain organic synthesis processes has led to long-term manufacturing
relationships with its customers. Further, the Company's formulation
expertise is recognized by its customers in the animal health and
nutrition market. In 1994, the Company entered into a long-term supply
agreement whereby Merck agreed to purchase all of its requirements for
amprolium from the Company.
o Proven Experience in New Product Development. The Company is a leader in
the development of new agricultural and industrial products and
applications. The Company has introduced high quality generic
formulations of fungicides and has further enhanced the bio-availability
of the active ingredient. In addition, the Company has modified
formulations as required by crop and soil conditions and market demand,
and is currently developing and field testing the fourth generation of
one of its fungicides. The Company has also developed several specialty
nutrient blends. The Company is also expert in the innovative use of
fluorine compounds to produce its chemical intermediates. New products
introduced by the Company since 1994 accounted for approximately
$29 million of the Company's total revenues in fiscal year 1998.
o Established Global Network and Diverse Customer Base. The Company
manufactures and markets over 350 products sold through multiple
distribution channels to over 3,100 customers in a wide variety of
end-use markets. The Company sells its products through an established
global sales, marketing and distribution network to customers in 81
countries. Approximately 35% of the Company's total sales for fiscal 1998
were made by the Company outside the United States, with 11% of sales
from Europe, 22% of sales from Israel and 2% of sales from South America.
The Company's U.S., Israeli and European manufacturing operations provide
it with cost-effective access to major geographic markets. In fiscal
1998, no single customer accounted for over 5% of total revenues and the
top 10 customers accounted for less than 17% of total revenues.
o Strong Management Team. The Company has assembled a strong and
experienced management team at both the corporate and operating levels.
The Company's top operating managers have an average of over 25 years of
experience in the chemicals industry.
RESTRUCTURING AND OTHER CHARGES
The Company has begun to implement a restructuring program and has incurred
or will incur the Restructuring and Other Charges described below. See Note
11(d) and (e) to the Company's Consolidated Financial Statements.
o Curtailment of operations at the Company's Sewaren, New Jersey
manufacturing facility, which manufactured products primarily in the
Intermediates and Industrial Chemicals product group. The curtailment
program has resulted or will result in non-recurring charges of
approximately $10 million, of which $5.6 million is associated with the
non-cash write down of fixed assets, $1.1 million for one time costs
associated with the actual shutdown and $3.3 million for ongoing site
monitoring and ground water remediation.
o Charges associated with the forgiveness of certain promissory notes
issued to Phibro-Tech by certain executives and tax-related adjustments,
which aggregate $5.6 million. See "Certain Relationships and Related
Transactions."
o Charges of approximately $1.2 million arising out of severance payments
associated with personnel changes.
The Company will continue to analyze opportunities to increase operating
efficiencies and profitability, which may result in additional restructuring and
other charges in the future. Additional matters have not currently been
identified.
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PRODUCTS
The Company manufactures and markets more than 350 specialty and industrial
chemicals. Many of the Company's products provide critical performance
attributes to its customers' products, but represent a relatively small
percentage of their total end-product costs.
The table below sets forth the Company's fiscal 1998 net sales by product
group, principal products and brands, principal end markets or users, and
selected well-known customers.
<TABLE>
<CAPTION>
PRODUCT GROUP PRINCIPAL PRODUCTS PRINCIPAL END SELECTED WELL-KNOWN
(1998 NET SALES) AND BRANDS MARKETS OR USERS CUSTOMERS
<S> <C> <C> <C>
ANIMAL NUTRITION Amprolium Animal Feed Agway
AND HEALTH Animal Feed Ingredients Coccidiocides* Cargill
($129 MILLION) Copper Sulfate F.G. Feed Mills Continental Grain
Nicarbazin Nutritional Eli Lilly
Trace Mineral Premixes Supplements Farmland
Trace Minerals Poultry and Pet Food Meriel
(Merck/Rhone-Poulenc)
Perdue
Purina Mills
(Koch Industries)
Tyson Foods
INTERMEDIATES Anisic Alcohol Acetylene BOC
AND INDUSTRIAL Anisic Aldehyde Adhesion Promoter Colgate Palmolive
CHEMICALS Calcium Carbide Brick and Tile Elementis
($74 MILLION) Copper Oxide Catalysts Engelhard Ferro
Dicyandiamide Cement Coatings Hoffman La Roche
DL Panthenol Concrete Laporte
Fly Ash Flame Retardation Morton International
Iron Oxide Frits** Osmose
Manganese Dioxide Glass Owens Corning
Selenium Disulfide Pharmaceutical Fiberglass
Sodium Fluoride Intermediates Pfizer
Superchlon Preservatives PPG Industries
1,3-Difluorobenzene Shampoo Procter & Gamble
Toothpaste Sherwin-Williams
Wood Treatment SmithKline Beecham
Unilever
CROP PROTECTION Copper Fungicides Citrus BASF
($36 MILLION) Champ Flowable Grapes Helena (Marubeni)
Champion Nuts Sivam
Macclesfield 50 and 80 Vegetables Sumitomo
Gibberellic Acid Vines United Agri Products
GibGro 4% LC (Conagra)
GibGro 20% SP
ELECTRONICS AND Alkaline Etchant Chemical Milling Ashland
METAL TREATMENT Phibro-Guard TFT Metal Finishers Automata
($39 MILLION) Ac-Cu-Guard Plus Printed Circuit Board Hadco
Ac-Cu-Fine9 Manufacturers Hutchinson
Ferric Chloride MacDermid
PF Etchant Sanmina
High Speed Circuit Etch Shipley
Rapid Circuit Etch Tyco International
Metal Treatment Van Waters & Rogers
Recycling Activities
</TABLE>
No single customer accounted for more than 5% of the Company's 1998 net
sales.
- ------------------
* Cocciocides are a pharmaceutical product used for the prevention of
coccidiosis (a parasitic infection) in chickens.
** A frit is a smelted chemical composition rapidly quenched to produce glasses
that are used to coat ceramics or metal substrates.
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The Company manufactures and markets a broad range of specialty and
industrial chemicals, comprising four core product groups:
ANIMAL NUTRITION AND HEALTH
The Company manufactures and markets trace minerals, trace mineral
premixes, as well as vitamins, vitamin premixes and animal health care products,
to the animal feed, poultry and pet food industries. The Company believes the
world is experiencing and will continue to experience a growing demand for food,
due to population increases and economic growth of developing countries and an
increasing desire for and consumption of protein.
Animal Nutritional Supplements
Through its subsidiary, Prince Agri Products, Inc. ("Prince Agri"), the
Company manufacturers and markets trace minerals, trace mineral and selenium
premixes and other ingredients to the animal and poultry feed and pet food
industries predominantly in the United States. These products generally fortify,
enhance or make more nutritious or palatable the animal and poultry feeds and
pet foods with which they are mixed. The Company has a full line of all trace
mineral additives used by the U.S. animal feed industry. The majority of the
ingredients the Company sells are nutrients which are used as supplement for
animal feed. The Company serves customers in all the major feed segments,
including swine, dairy, poultry, and beef as well as pet food and aquaculture.
The Company's foundation and strength in the animal feed industry have come from
its basic position in several trace minerals. The Company also manufactures and
markets copper sulfate as an animal feed supplement. Copper is a nutritional
requirement for the production of hemoglobin and for the normal growth and well
being of animals. Supplemental rates higher than nutritional levels are
frequently recommended for use in poultry and swine for growth performance or
therapeutic benefits. The Company believes it is one of the largest volume
manufacturers and marketers of copper sulfate to the animal feed industry, both
in the United States and in France.
The Company customizes trace mineral and selenium premixes at its blending
facilities in Marion, Iowa, Quincy, Illinois and Bowmanstown, Pennsylvania, and
makes a diverse line of other trace minerals and macro-minerals. The Company's
major customers for these products are medium to large companies, co-ops,
blenders, integrated poultry operations and pet food companies. Typical
customers include Purina Mills, Continental Grain, Cargill, ADM, Agway,
Farmland, Perdue and Tyson Foods. The Company sells other ingredients, such as
buffers, vitamin K and amino acids, including lysine, tryptophan and threonine.
The Company has recently begun marketing new value added products to the feed
industry. In 1996, it introduced Chromax brand chromium picolinate. Prince Agri
has the exclusive marketing rights for this product to the animal feed industry.
The Company believes that it is the only chromium product which can be used
according to FDA regulations in animal feed in the United States. In 1997, the
Company introduced a line of yeast products, and in 1998 introduced a livestock
litter treatment product designed to improve poultry-house conditions and
productivity by increasing ammonia volatilization and also to aid the
environment by reducing phosphorous runoff from chicken litter fertilizer, and a
line of palatants for the U.S. feed market.
The Company believes that its Israeli subsidiary, Koffolk (1949) Ltd., is
the major producer and distributor of vitamins and premixes for the animal feed
and poultry industries in Israel. Koffolk Israel has developed proprietary
know-how for coating and stabilizing vitamins, including Vitamin K3 as well as
oil-soluble Vitamins A and D3. Koffolk Israel also provides a wide range of
services to the animal feed industry in Israel including: mobile computer units
for on-the-spot feed information, comprehensive feed laboratory services for
both chemical and microbiological assay, and an experimental farm for field
testing of feed additives and animal health products. Koffolk Israel's
nutritionists, field specialists and veterinary experts provide technical
assistance to ensure effective product use.
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Animal Health Products
Through Koffolk Israel and its Brazilian subsidiary, Planalqumica, the
Company produces nicarbazin and through Koffolk Israel, the Company also
produces amprolium for distribution to the world-wide poultry industry through
major multinational pharmaceutical and veterinary companies. The Company
believes it is the sole world-wide producer of amprolium, and is the largest
volume world-wide producer of nicarbazin through its facilities in Israel and
Brazil. The Company is the sole Latin American producer of nicarbazin. The
production operations of the Company in Israel for such animal drugs have been
approved by the FDA. Modern, large scale poultry production is based on
intensive animal management practices. This type of animal production requires
routine prophylactic medications in order to prevent health problems.
Coccidiosis is one of the critical diseases challenges which poultry producers
face, globally. Coccidiosis is an infection of coccidia, a microscopic parasite
which routinely infects chickens. Nicarbazin and amprolium are among the most
effective medications for the prevention of coccidiosis in chickens when used in
rotation with other coccidiocides. In 1994, the Company entered into a long-term
supply agreement whereby Merck agreed to purchase all of its requirements for
amprolium from the Company, subject to certain minimum purchase obligations.
Although the Company believes that industry-wide sales of amprolium have been
gradually declining, the Company believes that, for the next two-to-three years,
its sales to Merck will remain at approximately their current level, which is in
excess of such minimum purchase requirements. In 1996, Koffolk USA purchased
from Merck the right to sell nicarbazin, which Koffolk Israel had been
manufacturing in Israel. Koffolk USA became the registered transferee and owner
of the NADA for nicarbazin approved by the FDA. Separately, Merck appointed
Koffolk USA as its exclusive U.S. distributor of amprolium for poultry markets.
In 1996, the Elanco Animal Health Division of Eli Lilly agreed to act as the
Company's exclusive distributor for nicarbazin in the United States and Brazil.
This arrangement was terminated by the Company with respect to the United States
in August 1998. Elanco sells the product as part of its feed additive portfolio
and provides the necessary technical and commercial support to integrated
poultry producers. Koffolk Israel provides marketing support.
INTERMEDIATES AND INDUSTRIAL CHEMICALS
The Company manufactures and markets a number of specialty and fine organic
chemicals and intermediates, industrial grade pigments and specialty mineral
products for use in the chemical catalyst, pharmaceutical and personal care,
construction, concrete, wood treatment, automotive, aerospace, glass and coal
mining industries. Some of these products are produced from raw materials
derived from the Company's recycling operations. The Company also purchases
crude inorganic minerals in the form of ores and processes these in various
grades to produce chemicals for sale to manufacturers which incorporate the
resultant products into their finished products in various industrial markets,
including construction, with end-use applications in clay brick, ceramic,
masonry colorant, coatings, heavy media, foundry, glass, electrodes, abrasives,
dust control, and as an intermediate to various chemical applications.
Inorganic Chemical Intermediates
Using its recycling technology, the Company produces certain copper and
nickel chemicals. The Company also produces various mineral oxides.
Copper Chemicals. The Company manufactures and sells various copper
chemicals. The Company's major copper chemicals are described below:
Copper Oxide. Copper oxide is used as an ingredient in the production
of water-borne wood preservatives ("CCA"). The U.S. consumption of CCA is
estimated at approximately 144 million pounds per year, which equates to a
copper oxide consumption of approximately 30 million pounds. Due to its
recycling capabilities, the Company believes that it is a low cost supplier
of copper oxide to the CCA market. The Company also sells copper oxide to
the catalyst, dye, ceramic, and feed industries.
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<PAGE>
Copper Sulfate. The Company sells a high purity copper sulfate to
worldwide producers of electroless copper. Industrial uses of copper
sulfate include the manufacturing of pigments, electroplating, catalysts
and chemical intermediates, and water treatment. The Company markets copper
sulfate solution to the mining and wood treatment industries.
Nickel Chemicals. The Company manufactures and markets various nickel
chemicals, including nickel carbonate, nickel sulfate and nickel chloride, to
the metal finishing and ceramic frit industries. Certain of these nickel
chemicals are derived from the Company's recycling operations.
Mineral Oxides. The Company manufactures and sells various mineral oxides.
The Company's major mineral oxide products include iron compounds and manganese
compounds. The Company's iron compounds include red iron oxide (Hematite) (sold
to the brick, masonry, glass, foundry, electrode, abrasive, feed, and various
other chemical industries); black iron oxide (Magnetite) (sold under the "Magna
Float" brand name to the heavy media, coal, steel foundry, electrode, abrasive,
colorant, fertilizer, and various other chemical industries); iron chromite
(sold under the Chromox brand as a colorant or additive to the glass industry).
The Company's manganese compounds include manganese dioxide (sold under the
Brickox brand name, which is considered a standard color in many applications,
to the brick, masonry, glass, and various other chemical industries); and
manganous oxide (sold to customers requiring an acid soluble form of manganese,
such as animal feed, fertilizer and chemical manufacturers).
Organic Chemical Intermediates
The Company sells its organic chemical intermediates to multi-national
pharmaceutical companies, including Pfizer, Merck, Johnson & Johnson and Hoffman
La Roche. Often the Company's intermediate products are used as building blocks
in multi-stage pharmaceutical production.
Through Koffolk Israel, the Company sells anisic aldehyde and anisic
alcohol to worldwide manufacturers of sunscreen as a key intermediate in the
manufacture of an ingredient that blocks UVB rays and as a key building block in
the manufacture of certain pharmaceuticals. The Company also produces other
intermediates used in the manufacture of certain pharmaceuticals. The Company's
plant in Ramat Hovav, Israel operates under the FDA's GMP regulations, and has
received FDA approval for some of its processes.
The Company also manufactures and markets specialty chemicals to
manufacturers of health and personal care products. Among the Company's major
products for such applications are sodium fluoride and stannous fluoride, DL
Panthenol and selenium disulfide. The Company believes it is the largest volume
U.S. marketer of sodium fluoride for use in toothpaste. Sodium fluoride is the
active anti-cavity ingredient in fluoride toothpaste, powders and mouthwashes.
Koffolk Israel manufactures and markets DL Panthenol, a hair and skin care
ingredient. The use of Panthenol (Provitamin B-5) enables the formulation of
high performance shampoos, conditioners, styling and treatment products and
gives skin creams and lotions a smooth texture. The Company also manufactures
and markets selenium disulfide, which is used as a dandricide in shampoo and
hair care preparations.
Through its English subsidiary, Wychem Limited, the Company markets a wide
range of halogenated organic compounds, mainly brominated and fluorinated. These
chemical intermediates are sold mainly into the pharmaceutical industry as
building blocks for further synthesis. Wychem is able to tailor the quality and
supply characteristics of its chemicals to those desired by its customers by
close coordination with the customer at an early stage in the customer's product
development. Wychem's customers include Pfizer, Schering Plough, Merck Sharpe &
Dohme, Johnson & Johnson and SmithKline Beecham. In certain cases the product
supplied by Wychem is novel and included in the customer's regulatory
submissions.
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<PAGE>
ODDA
Through the acquisition of ODDA, the Company became a manufacturer and
distributor of calcium carbide and dicyandiamide. See "Summary--Recent
Developments."
Calcium Carbide. The principal uses of calcium carbide are in the
production of acetylene for welding and cutting, as a desulphurization agent in
the steel and foundry industry, and in the manufacture of chemicals.
Dicyandiamide. Dicyandiamide is used in several applications, including
as a fire retardant for fiber, wood and paint, for producing epoxy laminates for
circuit boards and adhesives, for producing paper chemicals, and as a dye
fixative for textiles.
Marketed Products
The Company markets and distributes nationally approximately 50 specialty
chemicals, which are sold to industries such as electronics, textiles, plastics,
automotive, chemical, metal finishing, pulp and paper. The majority of these
chemicals are imported from the Far East and Europe. The Company believes that
it offers end users a diverse product mix not available from other suppliers.
Among the major chemicals the Company distributes is the following:
Superchlon. Superchlon "chlorinated" polyolefins ("CPO") are used as
adhesion promoters for thermal plastic olefins substrates (automotive
parts--bumpers) and for gravure and thermal set printing inks on
polypropylene films.
Fly Ash Related Products
Through MRT, a business started by the Company in 1996, the Company manages
combustion and mineral by-products. It provides management and recycling of coal
combustion residues, including fly ash and bottom ash, and also mineral
processing residues and municipal solid waste incinerator ash. Through the MRT
Technology Center in Atlanta, MRT seeks to develop end-use markets for certain
of these by-products.
Coal is the largest indigenous fossil fuel resource in the United States.
The combustion of coal provides cost-effective electricity generation, but
results in a high percentage of residual material, which serves as the "raw
material" for MRT. Fly ash is the fine residue and bottom ash is the heavier
particles that result from the combustion of coal. Fly ash is a pozzolan, a
siliceous and aluminous mixture that, in the presence of water, will combine
with an activator (lime, portland cement or kiln dust) to produce a cement-like
material. It is this characteristic that allows fly ash to act as
cost-competitive substitute for other more expensive cementatious building
materials. Concrete manufacturers can typically use fly ash as a substitute for
15% to 40% of their cement requirements, depending on the quality of the fly ash
and the proposed end-use applications for the concrete.
Generally, coal combustion by-products and related industrial materials
require minimal processing or additives to fulfill their applications. MRT
typically provides these products to its customers directly from a client's site
or through its own terminals. In fiscal 1998, MRT sold coal combustion products
to traditional markets (e.g., the use of fly ash as a pozzolan in portland
cement concrete). MRT seeks various types of long-term source contracts that
range in the services provided and material managed. Such contracts can
generally be terminated at the convenience of the utility company.
MRT's research and development program has resulted, in March 1998, in two
issued U.S. patents and a proprietary value added product, called MRT Cement,
made primarily from fly ash. The Company believes that MRT Cement could serve as
a competitive alternative to traditional portland cement for use by the building
and construction industry as well as a new application for coal fly ash by
utilities. In late Fall 1998, MRT plans to make the initial MRT Cement products
available commercially. MRT Cement products are expected to consume less energy
during manufacturing, and be able to be made at a lower cost, in facilities that
require lower capital construction costs, than traditional portland cement. The
Company believes that MRT Cement uses less water, reducing concrete shrinkage
and cracking,
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<PAGE>
and is not as sensitive to temperature changes, so it can be used more easily
during cold weather. However, there is no assurance that MRT Cement will be, or
the Company's research and development efforts will result in the development
of, a commercially successful product.
MRT's success will depend in part on its ability to exploit the two U.S.
patents issued to it for MRT Cement and to operate without having third parties
circumvent MRT's patent rights. There can be no assurance that such issued
patents will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. Litigation, which could be
costly and time consuming, may be necessary to enforce patents issued to the
Company and/or determine the scope and validity of others' proprietary rights,
in either case in judicial or administrative proceedings. The Company's and in
particular MRT's competitive position is also dependent upon unpatented trade
secrets which generally are difficult to protect. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to MRT's trade secrets, that
MRT's trade secrets will not be disclosed or that MRT can effectively protect
its rights to unpatented trade secrets.
In recent years, the power industry has been impacted by federal
legislation. The Clean Air Act Amendments of 1990 require power producers to
meet certain emission levels. This has caused some utilities to modify fuel,
equipment or change burner design parameters that have usually resulted in a
higher carbon-content fly ash than acceptable for use in traditional end-use
markets. MRT holds the license to Michigan Technological University's patented
fly ash beneficiation process. This process removes excess carbon from fly ash.
MRT is currently engaged in negotiations with a number of utilities regarding
the installation of systems utilizing this process. There can be no assurance
that MRT will enter into agreements regarding such installation, or if entered
into, as to the profitability of any such agreement.
MRT is in the development stage and has generated limited revenues. Its
operations include (i) providing materials management services to utilities and
other producers of coal combustion residues, (ii) selling the fly ash and other
residues produced by utilities, (iii) marketing products derived from such fly
ash and related industrial materials to consumers of building materials and
construction-related products and (iv) selling fly ash beneficiation services to
remove excess carbon from fly ash. MRT has incurred losses since commencement of
operations in 1996 and through June 1998 had cumulative net losses of
approximately $4.5 million since its inception. Losses have resulted principally
from costs incurred in research activities aimed at developing MRT Cement and
from general and administrative costs. MRT believes it will achieve
profitability in fiscal year 1999. MRT has recently entered into long-term sales
and distribution agreements relating to the management and disposition by MRT of
fly ash products at utility generating stations and providing for certain
minimum payments by MRT. MRT's ability to achieve long-term revenue growth and
profitability is dependent upon securing additional long-term ash management
contracts with utilities, developing fly ash beneficiation facilities and
successfully commercializing MRT Cement. The Company is in the process of
evaluating methods to exploit such technology, including constructing cement
manufacturing plants. Consideration is also being given to partnership
relationships with utilities or cement manufacturers in relation to development
of MRT Cement manufacturing capacity. However, there can be no assurance that
the Company will enter into any such relationships, or, if it does, as to the
terms thereof. The Company anticipates that MRT will enter into long-term
contracts with coal-fired electric generating utilities to purchase and manage
their fly ash as the source of raw material for MRT Cement. The utilities are
required to manage, or contract to manage, fly ash in accordance with state and
federal environmental regulations. Consistent with industry practice, in
connection with such long-term contracts, the Company has furnished and expects
to furnish substantial performance bonds or guarantees to such utilities, and
has made and expects to make purchase and other commitments to such utilities.
CROP PROTECTION
Through its division, Agtrol International, the Company focuses on
developing, registering, manufacturing and marketing crop protection chemicals.
The Company has a large and diversified portfolio of more than 50 products
registered under FIFRA for use in crop protection in the United
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States, and holds product registrations for its crop protection chemicals in
more than 80 foreign countries. The principal markets are in the Northern
Hemisphere, particularly in North America and Europe. The business is seasonal,
with approximately 70% of sales occurring between March and June.
The Company's current product line consists of a variety of copper
fungicides and gibberellins, a plant growth regulator used in table grapes and
citrus production. The Company also seeks to increase its product lines through
identification and registration of generic fungicides under FIFRA either
directly or through joint ventures or strategic alliances. In 1998, the Company
obtained the U.S. registration under FIFRA required to sell a triphenyltin
hydroxide-based product ("TPTH"), under the name Agri-tin, a fungicide used
primarily in the sugar beet, pecan and potato industry. In 1998, the Company
also launched a mefenoxam-based product, under the name Ultra Flourish, for use
in a variety of end use formulations. Mefenoxam is a systemic fungicide used in
the tobacco, citrus and vegetable industries. The Company is currently
developing three new fungicides, one plant growth regulator, one bactericide and
one miticide for launch over the next three years. The Company intends to
continue developing a strong product line focusing on fungicides, bactericides,
and plant growth regulators used in specialty crop production.
Copper Fungicides. The Company sells copper fungicides for the citrus,
vegetable, nut and vine industries. These copper fungicides generally have
greater efficacy than traditional copper sulfate and copper oxychloride
preparations. The Company sells its copper hydroxide fungicides under the names
Champion and Champ Flowable and, in France, Macclesfield 50. The Company also
sells its proprietary Bordeaux mixtures under the name Macclesfield 80.
Gibberellins. The Company sells gibberellic acid, a plant growth
regulator, under the name GibGro, for use primarily in the table grape and
citrus industries.
ELECTRONICS AND METAL TREATMENT
The Company manufacturers various different etchants to remove excess
copper from printed circuit boards and metal parts. The Company manufactures a
range of alkaline etchants for the printed circuit board industry. In addition,
the Company recycles spent alkaline and acidic etchants generated by the printed
circuit board industry. The Company also manufactures ferric chloride as an
etchant for the chemical milling industry. The Company recycles other
metal-containing chemicals generated principally by printed circuit board
manufacturers and metal finishers, and uses the copper, nickel and other
materials it recovers to manufacture finished chemical products.
Alkaline Etchants
Through its U.S. subsidiary, Phibro-Tech, Inc. ("Phibro-Tech"), the Company
believes that it is the largest volume manufacturer and recycler of alkaline
etchants in the United States. Of the Company's five facilities involved with
these products, four have final RCRA Part B hazardous waste treatment and
storage permits and one is in an interim permit status. See "--Environmental
Matters." The Company's etchants are used to remove excess copper from printed
circuit boards, leaving the desired circuit pattern. The Company sells fresh
etchant to printed circuit board manufacturers and recycles spent etchants.
Phibro-Tech generates its revenue from the sale of fresh etchants as well as the
recovery of the dissolved copper contained in the spent etchants, which are
processed into saleable copper-based products. The Company believes that it is
the only national recycler of spent etchants generated principally from the
printed circuit board industry, with an etchant plant in every major geographic
area except New England. These plants generally allow the Company to distribute
product and transport spent etchant, a freight intensive product which is
classified as hazardous waste, over relatively short distances. The Company
believes that it has a competitive advantage in the etchant market based on the
broad range of services it provides to its recycling customers, including
transportation, recycling, manufacturing, regulatory advice and technical
services.
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Ferric Chloride
Ferric chloride is used by the chemical milling industry as an etchant, to
remove excess metal from metal parts and highly engineered metallic electronic
components, including aperture masks and computer disk drive suspensions. The
Company operates a facility in California for recycling spent ferric chloride
generated by the chemical milling industry. The Company has recently expanded
its Joliet, Illinois facility to produce ferric chloride for the electronic
component market, and has entered into a long-term supply and recycling
arrangement with a manufacturer of electronic components.
Recycling Activities
The Company is a leading recycler in the United States of hazardous
chemical waste streams that contain copper or nickel. These waste streams are
generated principally by printed circuit board manufacturers and metal
finishers. The metal finishing and printed circuit board industries also
generate other spent chemicals, which are raw material sources of acid, copper
and nickel, and the Company charges fees for processing such materials based on
metal content. The Company also recycles a variety of other metal-containing
chemical waste, including spent catalysts, pickling solutions and metal
strippers containing brass, cobalt, copper, nickel, iron, tin and zinc, in
liquid, solid or slurry form. The Company also uses these recovered materials to
produce copper and nickel chemicals for use as raw materials in certain of its
products.
Metal-containing waste is either collected by the Company or delivered
directly to one of its facilities by the waste generator. The Company collects
and transports chemical waste in its specially-constructed tankers and
semi-trailers and drum transporting trailers. In some locations, rail
transportation by tank cars or piggyback trailers is also utilized. Upon arrival
at one of the Company's recycling and processing facilities, and prior to
unloading, a representative sample of the delivered waste is tested and analyzed
to assure that it conforms to the customer's contracted waste profile
specifications. The Company recycles and processes metal-containing hazardous
chemical waste streams using hydrometallurgical technology. This technology
involves the reclamation of various metals and the production of finished
chemical products using chemical reactions such as leaching, extraction and
precipitation. The Company determines the precise chemical process required to
treat each batch of hazardous waste based on the type and amount of the waste as
well as the proportion of useful raw materials it contains.
Metal Treatment
The Company markets a wide range of chemicals used in the metal treatment
industry. These products include nickel and copper chemicals, fluorborates,
cyanides and fluoride salts. The Company is the exclusive U.S. agent to the
metal finishing industry for one of the three global cyanide producers.
Applications for these products are as electrolytes in metal plating baths
and as a source of the metal to be electro-deposited. Metal finishing has two
primary applications: decorative and functional. The Company services both
applications, but the functional aspect is being emphasized due to the growth in
the electronics industry. Both electro and electroless metal deposition are used
in the printed circuit board industry, and in computer disc manufacturing.
SALES, MARKETING AND DISTRIBUTION
The Company sells specialty chemicals to manufacturers who incorporate the
Company's products into their finished goods. The Company has more than 3,100
customers. Sales to the top ten customers represented approximately 17% of the
Company's 1998 net sales and no single customer represented more than 5% of the
Company's 1998 net sales.
The Company's sales and marketing network consists of a direct sales force
of more than 83 persons, with average industry experience of over 25 years, as
well as over 40 independent agents and distributors, who specialize in
particular markets. This market specialization allows the Company's
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products to gain access to a broader range of distribution channels and end
users and further strengthens the Company's brand names.
The Company's products are often critical to the performance of its
customers' products while representing a relatively small percentage of the
total end-product cost. Management believes that there are three key factors to
marketing its products successfully:
o Quality. Many of the Company's specialty and industrial chemicals are
used to ensure and enhance the performance or appeal of their customers'
end products and therefore consistency and high quality are essential.
The Company believes that its reputation as a manufacturer of
value-added, high-quality specialty and industrial chemicals provides it
with a competitive advantage when marketing its products to existing and
potential customers.
o Highly Trained and Technical Sales Force. The sales force works closely
with customers to satisfy existing product needs and to identify new
applications and product improvement opportunities. The Company's sales
efforts are complemented by its product development and technical support
staff, who work together with the sales force to develop new products
based on customer needs. Because of the specialized nature of many of the
niche markets the Company serves, its direct sales force must have
advanced technical knowledge of the Company's products and the
applications for which they are used. As a result, many of the Company's
direct salespeople have a number of years of industry experience and
significant technical expertise related to the products they sell.
o Superior Customer Service. The Company's technical sales force provides
technical support services directly to the customer, enabling the Company
to offer its operational expertise and develop a better understanding of
the customer's process technology. The Company's sales and marketing
efforts and customer relationships are enhanced by the numerous
customer-specific technical approvals the Company has secured. These
approvals typically involve significant customer time and effort and
result in a strong competitive position for the qualified products. In
addition to technical support, the Company endeavors to meet the demands
of its customers, including those who operate "just-in-time" inventory
systems, requiring prompt and reliable delivery of the Company's
specialty chemical products, guided by ISO-based procedures.
The Company has recently expanded both its direct selling efforts and its
international sales network. The Company could experience growth in certain of
its product groups as the world-wide demand for food grows, developing countries
continue to develop economically, and consumption of food, brick, and other
products containing products manufactured by the Company increases. In addition,
the Company intends to add products for its sales force to market. The Company
believes there are opportunities to enhance international revenues by increasing
international registrations of agricultural products, and by focusing on
increasing the level of technical service, providing more assistance in product
development, and increasing the scope of the Company's product line offered to
its international customers. The Company is in the process of expanding its
world-wide registration of agricultural products. This will enable the Company
to sell certain agricultural products and enable agricultural distributors to
use the Company's registrations to sell into various local markets around the
world.
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FACILITIES
The Company maintains its principal executive offices and a sales office in
Fort Lee, New Jersey. The Company has 14 manufacturing facilities which allow it
to produce a broad array of products. The chart below sets forth the locations
and sizes of the principal manufacturing and other facilities operated by the
Company and uses of such facilities, all of which are owned, except as noted.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USES
- ----------------------------------------------- -------------- -----------------------------------------------
<S> <C> <C>
Fort Lee, New Jersey (a)....................... 23,500 Corporate Headquarters
Atlanta, Georgia (a)........................... 5,000 MRT Administrative and Sales, Laboratory
Bowmanstown, Pennsylvania...................... 56,500 Intermediates and Industrial Chemicals; Animal
Nutrition and Health
Garland, Texas................................. 20,000 Animal Nutrition and Health; Electronics and
Metal Treatment
Houston, Texas (a)............................. 10,300 Administrative and Sales
Joliet, Illinois............................... 34,500 Electronics and Metal Treatment; Intermediates
and Industrial Chemicals
Ladora, Iowa................................... 9,500 Warehouse
Marion, Iowa................................... 32,500 Animal Nutrition and Health
Phoenix City, Alabama.......................... 6,000 Intermediates and Industrial Chemicals
Quincy, Illinois (b)........................... 187,300 Intermediates and Industrial Chemicals; Animal
Nutrition and Health; Warehouse; Administrative
and Sales
Santa Fe Springs, California (c)............... 90,000 Electronics and Metal Treatment; Intermediates
and Industrial Chemicals
Sumter, South Carolina......................... 123,000 Crop Protection; Electronics and Metal
Treatment
Union City, California......................... 20,600 Electronics and Metal Treatment; Intermediates
and Industrial Chemicals
Wilmington, Illinois........................... 119,000 Warehouse
Bordeaux, France............................... 141,000 Animal Nutrition and Health; Crop Protection;
Administrative and Sales
Braganca Paulista, Brazil...................... 35,000 Animal Nutrition and Health; Administrative and
Sales
Meerbusch, Germany (a)......................... 700 Sales
Petach Tikva, Israel........................... 60,000 Animal Nutrition and Health; Administrative and
Sales
Ramat Hovav, Israel (a)........................ 140,000 Animal Nutrition and Health; Intermediates and
Industrial Chemicals
Reading, Berks, United Kingdom (a)............. 3,100 Administrative and Sales
Stradishall, United Kingdom.................... 20,000 Intermediates and Industrial Chemicals;
Administrative and Sales
</TABLE>
- ------------------
(a) This facility is leased. The Company's leases expire from 1998 to 2027. For
information concerning the Company's rental obligations, see Note 11 to the
Company's Consolidated Financial Statements included herein.
(b) Comprises four facilities, including two manufacturing, one sales and one
warehouse facility.
(c) The Company leases the land under this facility from a partnership owned by
Jack Bendheim, Marvin Sussman and James Herlands. See "Certain Relationships
and Related Transactions."
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The Company's subsidiary, C.P. Chemicals, Inc., owns a manufacturing
facility in Sewaren, New Jersey at which operations have been curtailed and
another subsidiary of the Company owns inactive, former manufacturing facilities
in Powder Springs, Georgia and Union, Illinois. See "--Environmental
Matters--Particular Facilities." MRT leases terminal facilities in Atlanta,
Georgia and Spartanburg, South Carolina. ODDA owns the buildings on its 160,000
square meter factory site and the land under such buildings located in the town
of Odda at the end of a deep water fjord in Western Norway, including two
wharves, production facilities, storage and office areas, a diesel steam plant
and a landfill site, and leases a facility in Bremen, Germany, used for
warehousing and, to a lesser extent, repacking of product containers, pursuant
to a lease expiring in 2000. BOC Carbide Industries, a related U.K. distributor
included as part of the ODDA Acquisition, licenses the site and a warehouse on
the site and owns the plant and other buildings used by it at Althorpe Wharf,
Scunthorpe, Humberside, in the United Kingdom, including a carbide mill plant,
bagging areas, drum store, and an office and laboratory facility. Such license
is for a term of twenty years, expiring October 31, 1999. At the time BOC
Limited entered into such license for its BOC Carbide Industries division, it
also entered into a management agreement, appointing the licensor as the
managing agent of the facility. The Company believes that its existing and
planned facilities are and will be adequate for the conduct of its business as
currently conducted and as currently contemplated to be conducted.
ODDA has direct access to low cost hydro-electric power through its
approximately 21% holding in Aktieselskabet Tyssefaldene ("Tyssefaldene") which
operates three power stations within the region of Norway in which ODDA is
located, two of which are leased from the Government of Norway by Tyssefaldene
and one of which is owned by Tyssefaldene. The other shareholders in
Tyssefaldene are the other two major industrial foundries within the town of
Odda. All such shareholders receive concessions from the Government of Norway to
buy power at cost until 2006 or 2010, depending on the power station.
The Company and its subsidiaries are subject to extensive regulation by
numerous governmental authorities, including the FDA and corresponding state and
foreign agencies, and to various domestic and foreign safety standards.
Manufacturing facilities of the Company in Ramat Hovav and Brazil manufacture
products that conform to the FDA's GMP regulations. Of the Company's five
domestic facilities involved with recycling, four have final RCRA Part B
hazardous waste storage and treatment permits and one is in an interim permit
status. The Company's regulatory compliance programs have been expanded to
encompass compliance with international standards known as ISO 9002 standards,
which will become mandatory in Europe in 1999. The FDA is in the process of
adopting the ISO 9002 standards as regulatory standards for the United States,
and it is anticipated that these standards will be phased in for U.S.
manufacturers over a period of time. The Company's plants in Bowmanstown,
Pennsylvania and Petach Tikva, Israel have achieved ISO 9002 certification, and
in France ISO 9003 certification, and the Company plans to implement the ISO
9002 standards at other facilities. ODDA's facility in Norway has achieved ISO
9001 certification. The Company does not believe that adoption of the ISO 9002
standards by the FDA will have a material effect on its financial condition or
results of operations. See "--Government Regulation."
RAW MATERIALS
The raw materials used in the Company's business consist chiefly of a wide
variety of organic intermediates and inorganic chemicals which are purchased
from manufacturers in the United States, Europe and Asia. In fiscal 1998, no
single raw material accounted for more than 6% of the Company's cost of goods
sold. Total raw materials cost was approximately $133 million or 48% of net
sales in 1998.
The Company believes that its raw materials are generally available in
sufficient quantities to meet its supply needs. The Company believes that for
most of its raw materials alternate sources of supply are available to the
Company at competitive prices. In addition, the Company's ability to recycle
hazardous waste streams allows the Company to recover certain metals and other
raw materials that it substitutes in its products for virgin materials, thereby
reducing the Company's cost of goods and its reliance on suppliers of certain
virgin materials.
RESEARCH AND DEVELOPMENT
Research, development and technical service efforts are conducted by
approximately 78 chemists and technicians at the various facilities of the
Company. The Company operates a Research and Development Center in Sumter, South
Carolina, relating to inorganic chemicals and crop protection
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products, and at Stradishall, England, relating to organic chemical
intermediates. In addition, Koffolk Israel conducts substantial research and
development at its Ramat Hovav facility. Most of the Company's plants have
chemists and technicians on staff involved in product development, quality
assurance, quality control and also providing technical services to customers.
Technical assurance is an important aspect of the Company's overall sales
effort.
Technology is an important component of the Company's competitive position,
providing the Company with a low cost position and enabling the Company to
produce high quality products. Patents protect some of the Company's technology,
but a great deal of the Company's competitive advantage revolves around know-how
built up over many years of commercial operation.
The Company possesses important formulation and compounding technology for
the animal feed industry. The Company also possesses what it believes to be
unique technology and know-how for the production of copper-containing
fungicides. This technology enables the Company to produce fungicides of
extremely fine particle size, which improves efficacy while reducing the
quantity of active ingredients needed through enhanced bio-availability.
Finally, the Company and its predecessors have over 20 years experience in the
use of hydrometallurgical technology for recycling metal-containing by-products
and a strong technological position in the production of metal-containing
chemicals. The Company recently commercialized a process to recycle ferric
chloride for manufacturers of electronic components.
PATENTS AND TRADEMARKS
The Company owns certain patents, tradenames and trademarks and uses
know-how, trade secrets, formulae and manufacturing techniques which assist in
maintaining the competitive positions of certain of its products. Formulae and
know-how are of particular importance in the manufacture of a number of the
products sold in the Company's specialty chemical business. The Company believes
that no single patent or trademark is of material importance to its business,
and, accordingly, that the expiration or termination thereof would not
materially affect its business. See "--Government Regulation."
CUSTOMERS
The Company does not consider its business to be dependent on a single
customer or a few customers, and the loss of any of its customers would not have
a material adverse effect on the Company's results. No single customer accounted
for more than 5% of the Company's 1998 net sales. The Company typically does not
enter into long-term contracts with its customers. However, the Company has
entered into certain long-term contracts with respect to nicarbazin and
amprolium, as well as its ferric chloride recycling activities. For additional
information on the Company's customers, see "--Products" and "--Sales, Marketing
and Distribution."
COMPETITION
The Company is engaged in highly competitive industries and, with respect
to all of its major products, faces competition from a substantial number of
global and regional competitors. Some of the companies with which the Company
competes have greater financial, research and development, production and other
resources than the Company. The Company's competitive position is based
principally on customer service and support, product quality, manufacturing
technology, facility location and price. See "--Sales, Marketing and
Distribution."
The Company has competitors in every market in which it participates. Many
of the Company's products, including its Animal Nutrition and Health and Crop
Protection products, face competition from products which may be used as an
alternative or substitute therefor, including amprolium and nicarbazin. The
Company competes with several regional companies of varying sizes and financial
resources in the hazardous metal-containing chemical waste recycling industry.
The Company also competes with large national companies which offer alternative
methods of treatment or disposal of hazardous metal-containing chemical waste
and which have substantially greater financial resources than the Company. While
these national companies do not currently offer recycling services similar to
those offered by the Company, their entry into the recycling business could have
a material adverse effect on the Company. In addition, the Company competes with
several large chemical companies in the chemical production business, none of
which obtains a significant portion of its raw materials from recycling. To the
extent these companies, or new entrants into the market, offer comparable
finished chemical products at lower prices, the Company's business could be
adversely affected.
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EMPLOYEES
As of June 30, 1998, the Company had approximately 852 employees worldwide,
of whom 41% were salaried employees and 59% were hourly employees. Of these,
191 employees were in management and administration, 83 in sales and marketing,
78 were chemists or technicians and 500 were in production. Approximately 10% of
the Company's domestic employees were covered by collective bargaining
agreements with three unions, including 5 employees at the Company's Sewaren,
New Jersey facility, at which operations have been curtailed. These agreements
expire from 1998 through 2000. Certain employees of Koffolk Israel are covered
by individual employment agreements. Koffolk Israel continues to operate under
the terms of Israel's national collective bargaining agreement, portions of
which expired in 1994. In Norway, approximately 75% of ODDA's employees were
covered by collective bargaining agreements, which expire in 2000.
The Company considers its relations with both its union and non-union
employees to be good.
ENVIRONMENTAL MATTERS
Like similar companies, the Company and its subsidiaries are subject to a
wide variety of complex and stringent federal, state, local and foreign
environmental laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials and wastes, the manufacture, sale and use of pesticides and
the health and safety of employees. Pursuant to the Environmental Laws, the
Company is required to obtain and retain numerous governmental permits and
approvals to conduct various aspects of its operations, any of which may be
subject to revocation, modification or denial under certain circumstances. Under
certain circumstances, the Company or any of its subsidiaries might be required
to curtail its operations until a particular problem is remedied. Known costs
and expenses under such Environmental Laws incidental to ongoing operations are
generally included within operating budgets. Potential costs and expenses may
also be incurred in connection with the repair or upgrade of facilities to meet
existing or new requirements under Environmental Laws or to investigate or
remediate potential or actual contamination and from time to time the Company
establishes reserves for such contemplated investigation and remediation costs.
In many instances, the ultimate costs under Environmental Laws and the time
period during which such costs are likely to be incurred are difficult to
predict.
The Company and its subsidiaries have from time to time implemented
procedures at its facilities designed to respond to its obligations to comply
with Environmental Laws. The Company believes that its operations are currently
in material compliance with such Environmental Laws, although at various sites
the Company's subsidiaries are engaged in continuing investigation and/or
remediation efforts to address contamination associated with their historic
operations. As many Environmental Laws impose a strict liability standard,
however, there can be no assurance that future environmental liability will not
arise.
In addition, the Company cannot predict the extent to which any future
Environmental Laws may affect any market for the Company's products or services
or its costs of doing business. For instance, if governmental enforcement
efforts should lessen, the market for the Company's recycling services could
decline. Alternatively, changes in Environmental Laws might increase the cost of
the Company's products and services by imposing additional requirements on the
Company. States that have received authorization to administer their own
hazardous waste management programs may also amend their applicable statutes or
regulations, and may impose requirements which are stricter than those imposed
by U.S. Environmental Protection Agency (the "EPA"). No assurance can be
provided that such changes will not adversely affect the Company's ability to
provide products and services at competitive prices and thereby reduce the
market for the Company's products and services.
As such, the nature of the Company's current and former operations exposes
it to the risk of claims with respect to such matters and there can be no
assurance that material costs and liabilities will not be incurred in connection
with such claims. Based upon its experience to date, the Company believes that
the future cost of compliance with existing Environmental Laws, and liability
for known environmental claims pursuant to such Environmental Laws, will not
have a material adverse effect on the Company. However, future events, such as
new information, changes in existing Environmental Laws or their interpretation,
and more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.
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For all purposes of the discussion under this caption, under
"--Litigation," and elsewhere in this Prospectus, it should be noted that the
Company takes and has taken the position that neither the parent company,
Philipp Brothers Chemicals, Inc. nor any of its subsidiaries is liable for
environmental or other claims made against one or more of its other subsidiaries
or for which any of such other subsidiaries may ultimately be responsible.
References to the Company should accordingly not be read or interpreted as a
statement or admission that Philipp Brothers or any of its subsidiaries is
liable for activities of or claims made against any of its other subsidiaries.
Federal Regulation
The following summarizes the principal federal Environmental Laws affecting
the business of the Company:
Resource Conservation and Recovery Act of 1976, as amended
("RCRA"). Congress enacted RCRA to regulate, among other things, the
generation, transportation, treatment, storage and disposal of solid and
hazardous wastes. RCRA required the EPA to promulgate regulations governing the
management of hazardous wastes, and to allow individual states to administer and
enforce their own hazardous waste management programs as long as such programs
were equivalent to and no less stringent than the federal program.
The EPA's regulations, and most state regulations in authorized states,
establish categories of regulated entities and set standards and procedures
those entities must follow in their handling of hazardous wastes. The three
general categories of waste handlers governed by the regulations are hazardous
waste generators, hazardous waste transporters, and owners and operators of
hazardous waste treatment, storage and/or disposal facilities. Generators are
required, among other things, to obtain identification numbers and to arrange
for the proper treatment and/or disposal of their wastes by licensed or
permitted operators and all three categories of waste handlers are required to
utilize a document tracking system to maintain records of their activities.
Transporters must obtain permits, transport hazardous waste only to properly
permitted treatment, storage or disposal facilities, and maintain required
records of their activities. Treatment, storage and disposal facilities are
subject to extensive regulations concerning their location, design and
construction, as well as the operating methods, techniques and practices they
may use. Such facilities are also required to demonstrate their financial
responsibility with respect to compliance with RCRA, including closure and
post-closure requirements.
The Federal Water Pollution Control Act, as amended (the "Clean Water
Act"). The Clean Water Act prohibits the discharge of pollutants to the waters
of the United States without governmental authorization. Like RCRA, the Clean
Water Act provides that states with programs approved by the EPA may administer
and enforce their own water pollution control programs. Pursuant to the mandate
of the Clean Water Act, the EPA has promulgated "pretreatment" regulations,
which establish standards and limitations for the introduction of pollutants
into publicly owned treatment works.
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA" or "Superfund"). Under CERCLA and similar state
laws, the Company and its subsidiaries may have strict and, under certain
circumstances, joint and several liability for the investigation and remediation
of environmental pollution and natural resource damages associated with real
property currently and formerly owned or operated by the Company or a subsidiary
and at third-party sites at which the Company's subsidiaries disposed of or
treated, or arranged for the disposal of or treatment of, hazardous substances.
Federal Insecticide, Fungicide and Rodenticide Act, as amended
("FIFRA"). FIFRA governs the manufacture, sale and use of pesticides, including
the copper-based fungicides sold by the Company. FIFRA requires such products
and the facilities at which they are formulated to be registered with the EPA
before they may be sold. If the product in question is generic in nature (i.e.,
chemically identical or substantially similar to a previously registered
product), the new applicant for registration is entitled to cite and rely on the
test data supporting the original registrant's product in lieu of submitting
data of its own. Should the generic applicant choose this citation option, it
must offer monetary compensation to the original registrant and must agree to
binding arbitration if the parties are unable to agree on the terms and amount
of compensation. The Company has elected this citation option in the past; has a
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currently-outstanding offer to pay compensation with respect to citation of data
in registering one of its products with respect to which a demand for payment
has been made; and intends to use the citation option in the future should it
conclude it is economically desirable to do so. While there are cost savings
associated with the opportunity to avoid one's own testing and demonstration to
the EPA of test data, there is, in each instance, a risk that the level of
compensation ultimately required to be paid to the original registrant will be
substantial.
Under FIFRA, the EPA also has the right to "call in" additional data from
existing registrants of a pesticide, should the EPA determine, for example, that
the data already in the file need to be updated or that a specific issue or
concern needs to be addressed. The existing registrants have the option of
submitting data separately or by joint agreement. Alternatively, if one
registrant agrees to generate and submit the data, the other(s) may meet their
obligations under the statute by making a statutory offer to jointly develop or
share in the costs of developing the data. In that event, the offering party
must, again, agree to binding arbitration to resolve any dispute as to the terms
of the data development arrangement.
The Clean Air Act. The federal Clean Air Act of 1970 ("Clean Air Act") and
Amendments to the Clean Air Act ("Clean Air Act Amendments"), and corresponding
state laws regulate the emissions of materials into the air.
Such laws affect the coal industry both directly and indirectly. The coal
industry is directly affected by Clean Air Act permitting requirements and/or
emissions control requirements relating to particulate matter (such as "fugitive
dust"), and may also be impacted by future regulation of fine particulate
matter. In July 1997, the EPA adopted new, more stringent National Ambient Air
Quality Standards ("NAAQS") for particulate matter and ozone. The extent of the
potential impact of the new NAAQS on the coal industry will depend on the
policies and control strategies associated with the state implementation process
under the Clean Air Act, as well as on pending legislative proposals to delay or
eliminate aspects of the standard.
The Clean Air Act indirectly affects the Company's operations by
extensively regulating the air emissions of sulfur dioxides and other compounds
emitted by coal-fired utility power plants. Title IV of the Clean Air Act
Amendments places limits on sulfur dioxide emissions from electric power
generation plants, setting baseline emission standards for such facilities. The
effect of the Clean Air Act Amendments on MRT cannot be completely ascertained
at this time.
The Clean Air Act Amendments also require that utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone nonattainment areas
install reasonably available control technology for nitrogen oxides, which are
precursors of ozone. The Ozone Transport Assessment Group ("OTAG"), formed to
make recommendations to the EPA for addressing ozone problems in the eastern
United States, submitted its final recommendations to the EPA in June 1997.
Based on the OTAG's recommendations, the EPA recently announced a proposal (the
"SIP call") that would require 22 eastern states to make substantial reductions
in nitrogen oxide emissions. Under this proposal, the EPA expects that states
will achieve these reductions by requiring power plants to make substantial
reductions in their nitrogen oxide emissions. Installation of reasonably
available control technology and additional control measures required under the
SIP call will make it more costly to operate coal-fired utility power plants
and, depending on the requirements of individual state attainment plans and the
development of revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility power plants
in the future. The effect such regulation or other requirements that may be
imposed in the future could have on the coal industry in general and on MRT in
particular cannot be predicted with certainty. No assurance can be given that
the implementation of the Clean Air Act Amendments or any future regulatory
provisions will not materially adversely affect MRT.
In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of certain toxic substances, including mercury, and direct the
EPA to regulate these substances, if warranted. Future federal or state
regulatory or legislative activity may seek to reduce mercury emissions and such
requirements, if enacted, could result in reduced use of coal if utilities
switch to other sources of fuel.
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State and Local Regulation
In addition to those state programs described above, a number of states and
some local governments have also enacted laws and regulations similar to the
federal laws described above governing hazardous waste generation, handling and
disposal, emissions to the water and air and the design, operation and
maintenance of recycling facilities.
Foreign Regulation
The Company's foreign operations and subsidiaries are subject to a variety
of foreign Environmental Laws relating to pollution and protection of the
environment, including the generation, handling, storage, management,
transportation, treatment and disposal of solid and hazardous materials and
wastes, the manufacture and processing of pesticides and animal feed additives,
emissions to the air, discharges to land, surface water and subsurface water,
human exposure to hazardous and toxic materials and the remediation of
environmental pollution relating to their past and present properties and
operations.
Regulation of Recycling Activities
The Company's recycling activities may be broken down into the following
segments for purposes of regulation under RCRA or equivalent state programs:
(i) transport of wastes to the Company's facilities, (ii) storage of wastes
prior to processing, (iii) treatment and/or recycling of wastes, and
(iv) corrective action at its RCRA facilities. Although all aspects of the
treatment and recycling of waste at its recycling facilities are not currently
the subject of federal RCRA regulation, the Company made the strategic decision
to permit its recycling facilities as RCRA regulated facilities and has been
issued final RCRA "Part B" permits to operate as hazardous waste treatment and
storage facilities at its facilities in Santa Fe Springs, California; Garland,
Texas; Joliet, Illinois; Sumter, South Carolina; and Sewaren, New Jersey. The
Company has also obtained an interim status RCRA permit from the California
Department of Health Services and has filed a Part B permit application with the
Department for its Union City, California facility.
In connection with RCRA Part B permits for the waste storage and treatment
units of the Company's facilities, the Company has been required to perform
extensive site investigations at such facilities to identify possible
contamination and to provide regulatory authorities with plans and schedules for
remediation. Soil and groundwater contamination has been identified at several
plant sites and has required and will continue to require corrective action and
monitoring over future years. In order to maintain compliance with RCRA Part B
permits, which are subject to suspension, revocation, modification or denial
under certain circumstances, the Company has been, and in the future may be,
required to undertake additional capital improvements or corrective action.
The Company is required by RCRA and its Part B permits to develop and
incorporate in its Part B permits estimates of the cost of closure and
post-closure monitoring for its operating facilities. In general, in order to
close a facility which has been the subject of a RCRA Part B permit, a RCRA Part
B closure permit is required which approves the investigation, remediation and
monitoring closure plan, and requires post-closure monitoring and maintenance
for up to 30 years. Accordingly, additional costs are incurred in connection
with any such closure. These cost estimates are updated annually for inflation,
developments in available technology and corrective actions already undertaken
by the Company. The Company has in most instances chosen to provide the
regulatory guarantees required in connection with these matters by means of its
coverage under an environmental impairment liability insurance policy. There can
be no assurance that such policy will continue to be available in the future at
economically acceptable rates, in which event other methods of financial
assurance will be necessary.
In addition to certain operating facilities, the Company has been and will
be required to investigate and remediate certain environmental contamination at
shutdown plant sites. The Company is also required to monitor such sites and
continues to develop controls to manage these sites within the requirements of
RCRA corrective action programs.
Based upon available information, accruals for management estimates of the
cost of further environmental investigation and remediation at operating,
curtailed and closed sites are approximately $5.3 million as of June 30, 1998.
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Waste Byproducts
In connection with the Company's subsidiaries' production of finished
chemical products, limited quantities of waste by-products are generated
primarily in the form of sludge. Depending on the contents of the sludge, the
subsidiaries of the Company either send it to smelters for metal recovery or
sent it for treatment or disposal to regulated facilities.
Particular Facilities
The following is a description of certain environmental matters relating to
certain facilities of certain subsidiaries of the Company. As noted above,
references throughout to the Company are intended to refer only to the
applicable subsidiary unless the context otherwise requires. These matters
should be read in conjunction with the description of litigation matters below
under "Litigation," certain of which involve such facilities, and Note 11 to the
Company's Consolidated Financial Statements.
In 1984, Congress enacted certain amendments to RCRA under which facilities
with RCRA permits were required to have RCRA facility assessments ("RFA") by the
EPA or the authorized state agency. Following an RFA, a RCRA facility
investigation, a corrective measures study, and corrective measure
implementation must, if warranted, be developed and implemented. As indicated
below, the Company's subsidiaries are in the process of developing or completing
various actions associated with these regulatory phases at certain of its
facilities.
Sewaren, New Jersey. In April 1989, the New Jersey Department of
Environmental Protection, Division of Waste Management and Division of Water
Resources (collectively the "DEP"), issued an Administrative Order and Notice of
Civil Administrative Penalty Assessment against C.P. Chemicals, Inc. ("CP"), a
subsidiary of the Company, relating to CP's recycling and manufacturing facility
in Sewaren, New Jersey. This proceeding resulted in an Administrative Consent
Order (the "ACO"), effective March 11, 1991. The ACO mandates the development
and implementation of an environmental remediation plan and requires payment of
a penalty in the amount of $2.2 million plus interest calculated at 8.57% per
annum, to be paid in ten yearly installments. This charge was previously
reflected in the Company's consolidated financial statements. In addition, the
ACO sets forth stipulated penalties for specified violations of the ACO and
requires reimbursement by CP to the DEP for prior costs and future oversight
costs. The Company has posted $500,000 in financial assurances which amount may
be modified based on cost reviews which the Company is required to submit
annually as part of its investigation and remediation program. The Company has
substantially completed its investigation and remediation efforts which include
installation of a hydraulic control system to pump and pre-treat ground water on
the site and capping to address soil contamination concerns and satisfy waste
water management requirements. Such efforts remain subject to continuing review
by the DEP. The Company has determined to curtail operations at the Sewaren
facility. See "--Litigation."
Sumter, South Carolina. In connection with the RCRA Part B permit for its
Sumter, South Carolina facility in 1991, CP undertook the closure of certain
waste water treatment impoundments pursuant to RCRA closure requirements and
installed a waste water treatment system at the plant and is engaged in an
additional phase of facility investigation at the site. CP will also shortly
undertake remedial action to remove material from an area used by the former
owner of the site. See "--Litigation."
Santa Fe Springs, California. In connection with its RCRA Part B permit
for its Santa Fe Springs, California facility, and the administrative order
noted below, for this facility, Phibro-Tech has implemented various phases of
environmental investigation and corrective measure study and assessments. It is
currently in a continuing investigation and corrective measure phase which will
involve additional sampling to determine the level of corrective action. At this
time it is anticipated that this will involve a pump and treat system through an
existing on-site pre-treatment plant. Phibro-Tech is also subject to an
investigative and enforcement order, the ultimate scope of which is currently
being discussed with the California Department of Toxic Substance Control
("DTSC"). The principal outstanding issue under the order is the requirement of
further soil investigation and the development of a remediation plan, if
necessary, beyond that already covered by the facility investigation originally
conducted. See "--Litigation."
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Union City, California. Phibro-Tech's Union City, California facility is
an interim status facility with an application for a RCRA Part B permit pending.
In lieu of conducting investigation activities under a final Part B permit,
Phibro-Tech entered into a consent order with the California DTSC requiring the
assessment and investigation of soil and ground water quality and remediation,
if required, similar to that which would be required under a Part B permit.
Phibro-Tech has initiated the first phase of the investigation process and does
not currently anticipate any extensive ongoing corrective measures.
In 1997, Phibro-Tech settled a civil enforcement action brought by the
Alameda County District Attorney, captioned People of the State of California v.
Phibro-Tech (in the Alameda County Superior Court), alleging ammonia air
releases at the facility to be a nuisance. The settlement called for
reimbursement payment for costs of investigation and enforcement, and an
injunction restraining violations of applicable provisions of the California
Health and Safety Code, and a compliance schedule for sensory monitoring plans
if there is to be future use of anhydrous ammonia at the facility.
Joliet, Illinois. In connection with the RCRA Part B permit for this
facility, Phibro-Tech completed an initial RCRA facility investigation and an
additional sampling and investigative phase. The results of such sampling and
investigation are to be submitted to the Illinois Environmental Protection
Agency, and, based on the agency's response, Phibro-Tech will develop a plan for
further investigation or monitoring, or, if necessary, corrective action.
Garland, Texas. In connection with the RFA for its Garland, Texas facility
no action was recommended. However, during a subsequent inspection some
discoloration of soil was noted. Accordingly, Phibro-Tech developed a corrective
action plan to address discolored top soil at the site. The project included the
upgrading of pollution control equipment. The next phase will be limited soil
removal, which will commence shortly.
Powder Springs, Georgia. Phibro-Tech's facility in Powder Springs, Georgia
has been operationally closed since 1985. Phibro-Tech retains environmental
compliance responsibility for this facility and has effected a RCRA closure of
the regulated portion of the facility, a surface impoundment. Post-closure
monitoring and the implementation of a corrective measures plan are required.
Under this plan, Phibro-Tech initiated a RCRA facility investigation phase and
submitted for regulatory review a survey as part of its Part B permit renewal.
Phibro-Tech is awaiting a response to determine if more investigation is needed
or if corrective measures are to be implemented.
Union, Illinois. Phibro-Tech's facility in Union, Illinois has also been
operationally closed since 1986. Phibro-Tech has recently performed additional
soil sampling and expects to close the site in the coming year. Phibro-Tech has
performed investigation and closure activities in conjunction with the Illinois
EPA, and the U.S. EPA is expected to review such work.
Third Party Sites. The Company has, and certain of the Company's
subsidiaries have, sent products to customers at chemical processing or
manufacturing sites and sent wastes from their operations to various third party
waste disposal sites. In addition to the litigation described below with respect
to the Jericho, South Carolina site, from time to time the Company or a
subsidiary receives notices from representatives of governmental agencies and
private parties, or is named as a potentially responsible party in legal
proceedings, in which claims are made that it is potentially liable for a
portion of the investigation and remediation costs and natural resource damages
at such third party sites. Such claims are for strict liability and carry with
them the possibility of joint and several liability under applicable
Environmental Laws such as CERCLA, regardless of the relative fault or level of
involvement of the Company and other potentially responsible parties. Although
there can be no assurance, the Company does not believe that liabilities in
connection with such third party sites as to which claims have been received to
date will have a material adverse effect on the Company's consolidated financial
position or result of operations.
Ramat Hovav, Israel. Koffolk Israel's Ramat Hovav plant produces a wide
range of organic chemical intermediates for the chemical, pharmaceutical,
fragrance and veterinary industries. Israeli legislation enacted in 1997 amended
certain environmental laws by authorizing the relevant administrative and
regulatory agencies to impose certain sanctions, including issuing an order
against any person that violates such environmental laws to remove the
environmental hazard. In addition, such law imposes criminal liability on the
officers and directors of a corporation that violates such environmental related
laws, and increases the monetary sanctions that such officers, directors and
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corporations may be ordered to pay as a result of such violations. The Ramat
Hovav plant operates under the supervision of the Ministry of Environment of the
State of Israel. The sewage system of the plant is connected to the Ramat Hovav
Local Industrial Council's central installation, where Koffolk Israel's sewage
is treated together with sewage of other local plants. Recently, the owners of
all the plants in the area, including Koffolk Israel, were required by the
Israeli Ministry of Environment to build a facility for pre-treatment of their
sewage. Koffolk Israel submitted a detailed plan to the Israeli Ministry of
Environment for the construction of such an installation according to the
Ministry's requirements. The plant must be built by December 1999. The budget
for this installation is approximately $750,000.
Odda, Norway. Like other Norwegian companies, ODDA has to ensure that the
activities of the enterprise are planned, organized, performed and maintained in
conformity with requirements laid down in or pursuant to Norwegian health,
environmental and safety legislation. Norwegian law requires the person
responsible for an enterprise to ensure compliance with the requirements of the
Working Environment Act, the Pollution Control Act, in legislation on prevention
of fires and explosions, the Products Control Act, the Civil Defense Act and the
Electrical Installations and Electrical Equipment Act.
The applicable supervisory authority pursuant to such legislation is
responsible for supervising and providing guidance on implementation of and
compliance with such regulations. The supervisory authorities can respond to
violations of health, environmental and safety legislation with various
sanctions, including orders, fines, pollution charges and/or notification to the
police.
Norwegian legislation requires that ODDA produce its products according to
its discharge permit and implementation system for environmental control and
improvements. Both local and central authorities are now focusing on the
environmental situation in the fjord at Odda and on waste disposal there by the
three primary manufacturers in the area, including ODDA. In ODDA's case, the
focus has been on the discharge of polynucleated aromatic hydrocarbons ("PAH")
from the Venturi scrubber in the calcium carbide plant and the nitrogen content
in the filtercake (1%) discharge from the dicyandiamide plant. In a meeting
between ODDA and SFT (Norwegian Pollution Control Authority) in June 1998, SFT
indicated that ODDA should make a diligent effort to develop a commercial use
for filtercake within three years, and consider the reduction of discharges of
PAH from existing levels (which discharges are in compliance with ODDA's
permits).
GOVERNMENT REGULATION
Certain agricultural feed products offered by the Company, namely
nicarbazin and amprolium products, require licensing by a governmental agency
before marketing. In the United States, governmental oversight of animal
nutrition and health products is shared primarily by the United States
Department of Agriculture ("USDA") and the Food and Drug Administration. A third
agency, the Environmental Protection Agency, has jurisdiction over certain
products applied topically to animals or to premises to control external
parasites.
Within the FDA, two Centers are responsible for the safety and
wholesomeness of the human food supply. The Center for Food Safety and Applied
Nutrition regulates foods intended for human consumption. The Center for
Veterinary Medicine ("CVM") regulates the manufacture and distribution of animal
drugs, including feed additives and drugs that will be given to animals from
which human foods are derived, as well as feed additives and drugs for pet (or
companion) animals.
To protect the food and drug supply for animals, the FDA develops technical
standards for animal drug safety and effectiveness and evaluates data bases
necessary to support approvals of veterinary drugs. The USDA monitors the food
supply for animal drug residues.
Before a new animal drug may receive FDA approval, it must be clinically
tested for quality, effectiveness and safety. If a product is intended for use
in a food-producing animal, not only must the safety to the animal be
demonstrated, but it must also be tested for safety to human consumers, and the
edible animal products must be free of unsafe drug residues. The sponsor must
also develop analytical methods to detect and measure drug residues in edible
animal products.
The Office of New Animal Drug Evaluation ("NADE") is responsible for
reviewing information submitted by drug sponsors who wish to obtain approval to
manufacture and sell animal drugs. A new animal drug is deemed unsafe unless
there is an approved new animal drug application ("NADA"). Virtually all animal
drugs are "new animal drugs" within the meaning of the term in the Federal Food,
Drug, and Cosmetic Act. Although the procedure for licensing products by the
USDA are formalized, the
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acceptance standards of performance for any product are agreed upon between the
manufacturer and the NADE. For novel products that are unlike others already
licensed, the agreement on expected performance standards is typically reached
through a dialogue between the NADE and the manufacturer. When a sponsor feels
that adequate data have been gathered to support the safety and effectiveness
requirements of a new animal drug, the data are organized and submitted as a
NADA, requesting approval for the manufacture, marketing and commercial shipment
of the product.
CVM's pre-marketing group is involved in two processes in regulating the
interstate shipment of animal drug products. The first process, the
Investigational New Animal Drug exemption ("INAD"), involves the interstate
shipment of experimental drugs used for testing in animals. This testing may
require drugs be given to animals that will later be used to produce human food
products. FDA must ensure that the food products derived from these experimental
animals will be safe for human consumption.
The second process is the NADA review. It includes the evaluation of data
regarding an animal drug's safety to the target animal and to humans who might
consume products from the treated animal; the review also evaluates
effectiveness for the purposes claimed. To be legally marketed, a new animal
drug product must be approved under an NADA.
A sponsor must conduct certain tests to show that a drug is safe for the
target animal, has the intended effect, and that edible products derived from
treated animals are safe for human consumption. If animals receiving an
investigational drug are to be slaughtered for consumption, authorization to do
so is needed from the FDA. These animals must be slaughtered in a federally
inspected facility. The USDA, in coordination with the FDA, provides for a USDA
inspector to monitor the slaughter of research animals intended for human
consumption.
To market a generic animal drug product in the United States, a person or a
company must obtain approval of an Abbreviated New Animal Drug Application
("ANADA"). Under the Generic Animal Drug and Patent Term Restoration Act of
1988, a generic animal drug product may be approved by providing evidence that
it has the same active ingredients, in the same concentration, as the approved
animal drug product, and that it is bioequivalent to the approved animal drug
product. This information is submitted to NADE in the form of an ANADA.
An NADA in animal health is analogous to a New Drug Application ("NDA") in
human pharmaceuticals. Both are administered by the FDA. However, the drug
development process for human therapeutics can be more involved than that for
animal drugs. The company sponsor of a human drug must obtain FDA marketing
approval in a multi-phase process, as follows: First, extensive preclinical
studies in animal models to assess safety and efficacy as well as laboratory
toxicology and pharmacokinetic studies of the drug must be conducted. The
company must then submit to the FDA an application for an Investigational New
Drug which must become effective before human clinical trials can commence.
Human clinical trials are then conducted in three sequential phases. Phase I,
which is safety testing, generally involves a small group of patients or healthy
volunteers. Phase II, in which the drug is tested for efficacy, optimal dosage
and safety risks, is conducted in a larger, but still limited, patient
population. If the drug proves efficacious in Phase II trials, expanded Phase
III trials are conducted to evaluate the overall risks and benefits of the drug
in relation to available therapies for the disease. Only after these clinical
trials are complete may the company submit a NDA to the FDA for marketing
approval of the drug.
The time requirement for animal drugs is shorter than the analogous time
requirement for human drugs, in part because clinical trials may be conducted
immediately in the animal for which the drug is intended. Also, for animal
drugs, unlike human drugs, advantages over existing therapies do not have to be
demonstrated. However, for food-producing animals, food safety residue levels
are an issue, making the approval process longer than for animal drugs for
non-food producing animals, such as pets.
The FDA may deny a NADA if applicable regulatory criteria are not
satisfied, require additional testing or information, or require postmarketing
testing and surveillance to monitor the safety or efficacy of a product. There
can be no assurances that FDA approval of any NADA will be granted on a timely
basis or at all. Moreover, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Among the conditions for NADA approval is the requirement that the
prospective
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manufacturer's quality control and manufacturing procedures conform to GMP
regulations, which must be followed at all times in the manufacture of the
approved product. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, monies and effort in the area of
production and quality control to ensure full compliance.
Both before and after approval is obtained, a product, its manufacturer,
and the holder or the holders of the NDA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the testing process, the review process, or thereafter
(including after approval) may result in various adverse consequences, including
the FDA's delay in approving or refusal to approve a product, withdrawal of an
approved product from the market, and/or the imposition of criminal penalties
against the manufacturer and/or NADA holder. In addition, later discovery of
previously unknown problems may result in restrictions on a product,
manufacturer, or NADA holder, including withdrawal of the product from the
market. Also, new government requirements may be established that could delay or
prevent regulatory approval of the Company's products under development.
For clinical investigation and marketing outside the United States, the
Company is also subject to foreign regulatory requirements governing
investigation, clinical trials and marketing approval for animal drugs. The
foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above. Currently, in the European Union ("EU"), feed
additives which are successfully sponsored by a manufacturer are assigned to an
Annex. Initially, they are assigned to Annex II. During this period, member
states may approve the feed additive for local use. After five years or earlier,
the product passes to Annex I if no adverse reactions or trends develop over the
probationary period.
The Company currently markets nicarbazin directly and through Elanco, a
division of Eli Lilly, in the EU. Nicarbazin holds an Annex I registration. This
means that the compound must be registered in each of the member states and can
be used legally by customers in the EU. Any manufacturer, including generic
producers, is permitted to sell nicarbazin in the EU on the basis of a
Certificate of Analysis. The distributor selling the product warrants that it
contains what is indicated on the label. The registration may not be transferred
in a manner similar to an FDA registration. The originator of the registration,
however, retains certain rights. For one, the originator or a successor to the
rights of the originator may refer to the data file of the originator and any
predecessors when making a submission.
The EU is in the process of centralizing the regulatory process for animal
drugs for member states. In 1997, the EU drafted new regulations requiring the
re-registration of feed additives, including coccidiocides. Part of these
regulations include a provision for manufacturers to submit quality data for
their own formulation, in effect adopting a Product License procedure similar to
that of the FDA. The provision is known as Brand Specific Approval ("BSA"), and
provides manufacturers with the opportunity to register their own unique brands,
instead of simply the generic compound. The BSA process is being implemented
over time. The new system is more like the U.S. system, where regulatory
approval is for the formulated product or "brand." Successful Brand Specific
Approvals will allow the individual manufacturer a 10-year period of exclusivity
for the formulation as well as the compound. The procedure will, in effect,
restart the patent clock. The Company has taken the necessary steps to apply for
a BSA for nicarbazin in the EU. However, there is no assurance that the Company
will receive a BSA for nicarbazin in the EU, or if its does receive such BSA,
when it will be granted or whether it will be unlimited.
LITIGATION
Reference is made to the discussion above under "Environmental Regulation"
for information as to various environmental investigation and remediation
obligations of the Company's subsidiaries associated principally with their
recycling and production facilities and to certain legal proceedings associated
with such facilities.
In addition to such matters, the Company or certain of its subsidiaries is
subject to certain litigation described below.
On or about April 17, 1997, CP and the Company were served with a complaint
filed by Chevron USA, Inc. ("Chevron") in the United States District Court for
the District of New Jersey, alleging that operations of CP at its Sewaren plant
affected adjoining property owned by Chevron and that Philipp Brothers, as the
parent of CP, is also responsible to Chevron. The complaint includes statutory
claims under RCRA and common law claims. There are several other defendants in
the action, including the
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former owner of the Sewaren site and Chevron's site and a prior tenant of the
Chevron site, and the Company has recently filed a complaint against certain
third parties. This litigation is in the discovery stages. The Company is not,
at this time, in a position to assess the extent of any ultimate liability it
may have in connection with this suit or the potential responsibility of other
defendants, or the future cost of remediation of the Chevron site, and is
actively defending the action.
CP was named in 1993 as a potentially responsible party ("PRP") in
connection with an action commenced under CERCLA by the EPA, involving a former
fertilizer manufacturing site in Jericho, South Carolina. CP responded that it
had supplied a useful product to the operator of the site and that it believes
this constitutes a defense to the claims brought against it. CP and various
other PRPs participated in settlement discussions, but recently the South
Carolina Department of Health and Environmental Control ("SCDHEC") concluded
certain settlements with a number of PRPs, without participation by CP and
certain other PRPs. CP has also received a settlement proposal from SCDHEC which
it believes is unfairly high in relation to settlements offered to other PRPs.
CP has submitted comments to such effect to SCDHEC and has requested an
opportunity to be heard. CP believes that the most recent settlement proposal
made to CP would involve payment obligations of approximately $800,000 but is
hopeful that it will obtain a substantially lower settlement proposal. See Note
11 to the Company's Consolidated Financial Statements. There can be no assurance
that such a lower proposal will be forthcoming and under applicable law all
non-settling PRPs could be found to have strict, joint and several liability
under CERCLA. Accordingly, CP will continue to assess how best to respond to
claims raised in this proceeding.
CP has been sued in the United States District Court in the Central
District of California in an action captioned BKK Corporation v. North American
Rockwell, filed May 20, 1997. The lawsuit names CP as one of many defendants and
alleges CP is liable for clean up costs, equitable relief and damages associated
with waste materials transported to or located at the Basin By-Products Site
located in Los Angeles, California. The complaint alleges that CP is liable as
the successor to Southern California Chemical ("SCC") which allegedly sent waste
materials to such Site prior to 1984; CP bought assets of SCC, including its
name, after 1984. The Company has answered the claims asserting that it did not
assume liabilities of, and is not legally responsible as a successor to, SCC in
connection with the matters underlying the suit. This litigation is in the
discovery phase. A "phase one" trial on the collective liability of the entire
defendant group occurred in September 1998. Later phases of trial will calculate
the proper measure of damages and apportion damages among the individual
defendants. Given the preliminary phase of the proceedings and CP's denial of
any liability, it remains impossible to determine the eventual outcome of this
matter, or any costs associated with its resolution.
The Company and its subsidiaries are party to a number of claims and
lawsuits arising out of the normal course of business including product
liabilities and governmental regulation. Certain of these actions seek damages
in various amounts. In most cases, such claims are covered by insurance. The
Company believes that none of the claims or pending lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial position or results of operations.
CONDITIONS IN ISRAEL
The following information discusses certain conditions in Israel that could
affect the Company's Israeli subsidiary, Koffolk Israel. As of June 30, 1998 and
for the year then ended, Israeli operations (excluding Koffolk Israel's
non-Israeli subsidiaries) accounted for approximately 28% of the Company's
consolidated assets and approximately 22% of its consolidated net sales. All
figures and percentages are approximate. A portion of the information with
respect to Israel presented hereunder and under "Risk Factors--Israeli
Operations" has been taken from Annual Reports of the Bank of Israel and
publications of the Israeli General Bureau of Statistics.
POLITICAL CONDITIONS
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and the
Palestine Liberation
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Organization ("PLO")--Palestinian Authority representatives have been signed. In
addition, Israel and several other Arab states have announced their intention to
establish trade and other relations and are discussing certain projects. As of
the date hereof, Israel has not entered into any peace agreement with Syria or
Lebanon. Recently there has been stagnation in the peace process in the Middle
East. There can be no assurance as to whether or how the "peace process" will
develop or what effect it may have upon the Company. Beginning in 1948, nearly
all Arab countries formally adhered to a boycott of Israel and Israeli companies
and, since the early 1950's of non-Israeli companies doing business in Israel or
with such companies. Despite measures to counteract the boycott, including
anti-boycott legislation in the United States, the boycott has had an
indeterminate negative effect upon trade with and foreign investment in Israel.
The Company does not believe that the boycott has had a material adverse effect
on the Company, but there can be no assurance that restrictive laws, policies or
practices directed toward Israel or Israeli businesses will not have an adverse
impact on the operation or expansion of the Company's business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of the employees of the
Company's Israeli subsidiaries currently are obligated to perform annual reserve
duty. While the Company's Israeli subsidiaries have operated effectively under
these and similar requirements in the past, no assessment can be made of the
full impact of such requirements on the Company in the future, particularly if
emergency circumstances occur.
ECONOMIC CONDITIONS
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts,
security incidents and for at least the five years preceding 1997, expansion.
The Israeli government has, for these and other reasons, intervened in the
economy by utilizing, among other means, fiscal and monetary policies, import
duties, foreign currency restrictions and control of wages, prices and exchange
rates. The Israeli government periodically changes its policies in all these
areas.
In 1997, growth decelerated markedly, for the first time since 1989,
despite the contraction of the trade deficit, along with accelerated export
growth and a significant decline in inflation. These developments reflected
primarily the deceleration of domestic demand as the expansionary effects of
both the influx of immigrants and the political process waned, and the effect of
the tight fiscal and monetary policies implemented in 1997. Other factors
contributing to the slowdown in economic activity were the security and
political uncertainty, the wage path (influenced by the rise in the minimum wage
and existing wage-contracts), and the intensification of the process of
structural economic changes--the expansion of high-tech industries and the
contraction of traditional ones.
Israel has high balance of payments deficit, primarily as a result of its
defense burden, the absorption of immigrants, especially from the former Soviet
Union, the provision of a minimum standard of living for lower income segments
of the community and the maintenance of a minimum level of net foreign reserves.
In order to finance this deficit, Israel must sustain an adequate inflow of
capital from abroad. The major sources of the country's capital imports include
U.S. military and economic aid, personal remittances from abroad, sales of
Israeli government bonds (primarily in the United States) and loans from foreign
governments, international institutions and the private sector.
ASSISTANCE FROM THE UNITED STATES
The State of Israel receives significant amounts of economic and military
assistance from the United States, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States approved
the issuance of up to $10 billion in loan guarantees during United States fiscal
years 1993-1998 to help Israel absorb a large influx of new immigrants,
primarily from the republics of the former Soviet Union. Under the loan
guarantee program, Israel may issue up to $2 billion in principal amount of
guaranteed loans each year, subject to reduction in certain circumstances. There
is no assurance that foreign aid from the United States will continue at or near
amounts received in the past. If the grants for economic and military assistance
or the United States
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loan guarantees are eliminated or reduced significantly, the Israeli economy
could suffer material adverse consequences.
TRADE AGREEMENTS
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.
Israel and the European Union concluded a Free Trade Agreement in July,
1975 which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from these countries over a number of years.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA"). Under the FTA, most products received
immediate duty-free status, and by 1995 all other tariffs and certain non-tariff
barriers on most trade between the two countries were ultimately eliminated.
On January 1, 1993, an agreement between Israel and EFTA, which at present
includes Norway, Switzerland, Iceland and Liechtenstein, established a
free-trade zone between Israel and the EFTA nations.
In recent years, Israel has established commercial and trade relations with
a number of other nations, including Russia, China and nations in Eastern
Europe, with which Israel had not previously had such relations.
EMPLOYEES
Most of Koffolk Israel's employees are members of the Histadrut (the
General Federal of Labor in Israel), and are represented by collective
bargaining units. Koffolk Israel is subject to various Israeli labor laws and
collective bargaining agreements between Histadrut and the federation of
industrial employers. Such laws and agreements cover a wide range of areas,
including hiring practices, wages, promotions, employment conditions (such as
working hours, overtime payment, vacations, sick leave and severance pay),
benefits programs (such as pension plans and education funds) and special
issues, such as equal pay for equal work, equal opportunity in employment and
employment of women. The collective bargaining agreements also cover the
relations between management and the employees' representatives, including
Histadrut's involvement in certain aspects of hiring and dismissing employees
and procedures for settling labor disputes. Koffolk Israel continues to operate
under the terms of Israel's national collective bargaining agreement, portions
of which expired in 1994. Israeli employers and employees are required to pay
predetermined sums to the National Insurance Institute, an organization similar
to the United States Social Security Administration. These contributions entitle
the employees to receive a range of medical services and other benefits. Certain
employees of Koffolk Israel are covered by individual employment agreements.
INVESTMENT INCENTIVES
Certain of the Israeli production facilities of the Company have been
granted Approved Enterprise status pursuant to the Law for the Encouragement of
Capital Investments, 1959, and consequently may enjoy certain tax benefits and
investment grants. Taxable income of Koffolk Israel derived from these
production facilities is subject to a lower rate of company tax than the normal
rate applicable in Israel. Dividends distributed by Koffolk Israel out of the
same income are subject to lower rates of withholding tax than the rate normally
applicable to dividends distributed by an Israeli company to a non-resident
corporate shareholder. The grant available to newly approved Approved
Enterprises was decreased throughout recent years. Certain of the Israeli
production facilities of the Company further enjoyed accelerated depreciation
under regulation extended from time to time and other deductions. There can be
no assurance that the Company will, in the future, be eligible for or receive
such or similar grants.
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MANAGEMENT
The executive officers and directors of the Company on the date hereof are
named below. Each director and executive officer will hold the office listed
until his successor is elected and qualified or until his earlier death,
resignation or removal.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Jack Bendheim............................. 51 Director, President and Chief Executive Officer
Marvin S. Sussman......................... 51 Director and Executive Vice President; President, Prince Group
James O. Herlands......................... 56 Director and Executive Vice President; President, CP/PhibroChem
Group
I. David Paley............................ 59 President and Chief Operating Officer, Phibro-Tech
Nathan Z. Bistricer....................... 47 Vice President and Chief Financial Officer
Joseph Katzenstein........................ 56 Treasurer and Secretary
</TABLE>
Jack Bendheim, Director, President and Chief Executive
Officer. Mr. Bendheim has been President since 1988. He was appointed Chief
Operating Officer in 1988 and Chief Executive Officer in 1998. He has been a
director since 1984. Mr. Bendheim joined the Company in 1969 and served as
Executive Vice President and Treasurer from 1983 to 1988 and as Vice President
and Treasurer from 1975 to 1983. Mr. Bendheim is also a director of The
Berkshire Bank, in New York, N.Y.
Marvin S. Sussman, Director and Executive Vice President, and President of
the Company's Prince Group. He has been a director since 1988. Mr. Sussman
joined the Company in 1971. Since then, he has served in various executive
positions at the Company and at the Prince Group. Since 1988, Mr. Sussman has
been President of the Company's Prince Group and Executive Vice-President of the
Company. Mr. Sussman is the brother-in-law of Jack Bendheim.
James O. Herlands, Director and Executive Vice President, and President of
CP/PhibroChem.
Mr. Herlands joined the Company in 1964. Since then, he has served in various
capabilities in sales/marketing and purchasing. He has been a director since
1988. Since 1992, Mr. Herlands has been President of the Company's CP/PhibroChem
Group. From 1988 to 1992, Mr. Herlands was Senior Vice President of the Company.
Mr. Herlands is the first cousin of Jack Bendheim.
I. David Paley, President and Chief Operating Officer of Phibro-Tech,
Inc. Mr. Paley has been President and Chief Operating Officer of Phibro-Tech
since 1989. Prior to his joining the Company, Mr. Paley served as President of
the IMC Industry Group, Inc. of International Minerals & Chemical Corporation, a
manufacturer and miner of minerals, metals and fertilizers, from 1981 to 1988,
and was Division Vice President and General Manager from 1973 to 1981 of the
Ferroalloys & Metals Division. Mr. Paley is also a director of Miller & Company.
Nathan Z. Bistricer, Vice President and Chief Financial
Officer. Mr. Bistricer has served as Vice President and Chief Financial Officer
since he joined the Company in 1985. From 1981 to 1985, Mr. Bistricer served as
Vice President--Administrator and Treasurer of Belco Petroleum Corporation, an
oil and gas exploration company.
Joseph Katzenstein, Treasurer and Secretary. Mr. Katzenstein joined the
Company in 1962. Since 1982, he has been Secretary and Treasurer of the Company.
Mr. Katzenstein served as corporate controller from 1966 to 1985.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
and its subsidiaries for services during fiscal 1998, 1997 and 1996 to each of
the Company's five most highly compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION**
- ------------------------------ ---- ---------- -------- --------------
<S> <C> <C> <C> <C>
Jack Bendheim, 1998 $1,725,000 $ -- $ --
President and CEO 1997 967,500 -- --
1996 1,205,000 -- --
Marvin S. Sussman,* 1998 479,500 423,700 --
Executive Vice President; 1997 517,500 450,780 --
President of Prince Group 1996 510,000 450,000 --
James O. Herlands, 1998 350,000 250,000 1,030,100
Executive Vice President; 1997 337,000 145,000 --
President of CP/PhibroChem 1996 320,000 165,000 --
I. David Paley, 1998 360,000 -- 3,450,700
President and COO of 1997 347,500 -- --
Phibro-Tech 1996 320,000 100,000 --
Nathan Z. Bistricer, 1998 223,700 60,000 1,030,100
Vice President and CFO 1997 215,000 60,000 --
1996 205,000 60,000 --
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
AWARDS
----------------------- PAYMENTS
RESTRICTED SECURITIES --------
STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION***
- ---------------------------------------- ------------ -------- ---------------
<S> <C> <C> <C> <C>
Jack Bendheim, -- -- $ -- $ 5,200
President and CEO -- -- -- 4,925
-- -- -- 4,925
Marvin S. Sussman,* -- -- -- 5,200
Executive Vice President; -- -- -- 4,925
President of Prince Group -- -- -- 4,925
James O. Herlands, -- -- -- 5,200
Executive Vice President; -- -- -- 4,925
President of CP/PhibroChem -- -- -- 4,925
I. David Paley, -- -- -- 5,200
President and COO of -- -- -- 4,925
Phibro-Tech -- -- -- 4,925
Nathan Z. Bistricer, -- -- -- 5,200
Vice President and CFO -- -- -- 4,925
-- -- -- 4,925
</TABLE>
- ------------------
* Pursuant to a Stockholders Agreement between Mr. Sussman and the Company, the
Company is required to purchase at book value all shares of the Company's
Class B Common Stock owned by Mr. Sussman in the event of his retirement,
death, permanent disability or the termination of his employment by the
Company. See "Certain Relationships and Related Transactions." As a result,
the Company is required to record as compensation to Mr. Sussman each year
the change in the book value of the Company attributable to Mr. Sussman's
shares. For 1998, 1997 and 1996 the amount attributable to Mr. Sussman's
shares was $(1,250,000), $130,000 and ($28,000), respectively. Such amounts
have not been distributed to Mr. Sussman.
** In fiscal 1998, Phibro-Tech, a subsidiary of the Company, canceled the
limited recourse notes issued by executives related to acquiring 10.7% of
the stock of Phibro-Tech, and forgave all amounts due the Company, resulting
in compensation expense. The Company also paid the executives an additional
amount as reimbursement for their income tax liability related to the
forgiveness, which was also recorded as compensation expense. See "Certain
Relationships and Related Transactions."
*** Represents contributions by the Company under its 401(k) Retirement and
Savings Plan. See "--Compensation Pursuant to Plans."
In fiscal 1998, the Company granted no options or long-term incentive plan
awards to the named executive officers and no options were held or exercised by
any of the named executive officers.
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<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company entered into an employment agreement with Marvin S. Sussman in
December 1987. Mr. Sussman, as President of the Company's Prince Group, is
responsible for the day-to-day operations of that group. The term of employment
is from year to year, unless terminated by the Company at any time or by his
death or permanent disability. Upon the termination of his employment, the
Company is obligated to make a severance payment to Mr. Sussman in an amount
equal to the principal balance of and all accrued interest on certain promissory
notes dated June 30, 1993 made by Mr. Sussman and his wife to Jack Bendheim and
his wife. As of June 30, 1998, the aggregate balance of such notes was $60,000
plus accrued interest at 6% per annum.
In 1995, Nathan Bistricer, I. David Paley and James O. Herlands purchased
stock in Phibro-Tech. In connection therewith, the Company entered into
severance agreements with Nathan Bistricer and James O. Herlands, and
Phibro-Tech entered into a severance agreement with I. David Paley. The
agreements provide that, upon the Actual or Constructive Termination of such
executive or a Change in Control Event (as such terms are defined), the
executive is entitled to receive a cash Severance Amount (as defined therein),
based upon a multiple of Phibro-Tech's pretax earnings (as defined therein). In
addition, if an Extraordinary Event (as defined) occurs within 12 months after
the occurrence of an Actual or Constructive Termination, the executive is
entitled to receive an additional Catch-up Payment (as defined). At June 30,
1998, severance payments equal to an aggregate of approximately $800,000 would
have been due the executives if they were terminated. See "Certain Relationships
and Related Transactions."
COMPENSATION PURSUANT TO PLANS
401(k) Plan. The Company maintains for the benefit of its employees a
401(k) Retirement and Savings Plan (the "Plan"), which is a defined
contribution, profit sharing plan qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). Employees of the Company are
eligible for participation in the Plan once they have attained age 21 and
completed a year of service (in which the employee completed 1,000 hours of
service). Up to $150,000 (indexed for inflation) of an employee's base salary
may be taken into account for Plan purposes. Under the Plan, employees may make
pre-tax contributions of up to 6.0% of such employee's base salary, and the
Company will make non-matching contributions equal to 1% of an employee's base
salary and matching contribution equal to 50.0% of an employee's pre-tax
contribution up to 3.0% of such employee's base salary and 25.0% of such
employee's pre-tax contribution over 3.0% of base salary. Participants are
vested in Employer contributions in 20% increments beginning after completion of
the second year of service and become fully vested after five years of service.
Distributions are generally payable in a lump sum after termination of
employment, retirement, death, disability, plan termination, attainment of age
59 1/2, disposition of substantially all of the Company's assets or upon
financial hardship. The Plan also provides for Plan loans to participants.
The accounts of Messrs. Bendheim, Sussman, Paley, Herlands and Bistricer
were credited with employer contributions of $4,925, respectively, for fiscal
1998.
Retirement Plan. The Company has adopted The Retirement Plan of Philipp
Brothers Chemicals Inc. and Subsidiaries and Affiliates which is a defined
benefit pension plan (the "Retirement Plan"). Employees of the Company are
eligible for participation in the Retirement Plan once they have attained age 21
and completed a year of service (which is a Plan Year in which the employee
completes 1,000 hours of service). The Retirement Plan provides benefits equal
to the sum of (a) 1.0% of an employee's "average salary" plus 0.5% of the
employee's "average salary" in excess of the average of the employee's social
security taxable wage base, times years of service after July 1, 1989, plus
(b) the employee's frozen accrued benefit, if any, as of June 30, 1989
calculated under the Retirement Plan formula in effect at that time. "Average
salary" for these purposes means the employee's salary over the consecutive five
year period in the last ten years preceding retirement or other termination of
employment which produces the highest average; or, if an employee has fewer than
five years of service, all such years of service. An employee becomes vested in
his plan benefit once he completes
82
<PAGE>
five years of service with the Company. In general, benefits are payable after
retirement or disability in the form of a 50%, 75% or 100% joint or survivor
annuity, life annuity or life annuity with a five or ten year term certain. In
some cases benefits may also be payable under the Retirement Plan in the event
of an employee's death.
The following table shows estimated annual benefits payable upon retirement
in specified compensation and years of service classifications, assuming a life
annuity with a ten year term certain.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
AVERAGE COMPENSATION 15 20 25 30 35
- ------------------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
25,000................................................ $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
50,000................................................ 7,500 10,000 12,500 15,000 17,500
75,000................................................ 12,770 16,510 20,150 23,970 27,930
100,000............................................... 18,390 24,010 29,520 35,220 41,060
150,000............................................... 29,640 39,010 48,270 57,720 67,310
200,000............................................... 31,890 42,010 52,020 62,220 72,560
</TABLE>
As of June 30, 1998, Messrs. Bendheim, Sussman, Paley, Herlands and
Bistricer had 29, 27, 9, 34 and 13 estimated credited years of service,
respectively, under the Retirement Plan. The compensation covered by the
Retirement Plan for each of these officers as of June 30, 1998 is $160,000. Such
individuals, at age 65, will have 43, 41, 15, 43 and 31 credited years of
service, respectively. The annual expected benefit after normal retirement at
age 65 for each of these individuals, based on the compensation taken into
account as of June 30, 1998, is $110,960, $125,230, $36,200, $125,080 and
$65,500, respectively.
Most of the Company's foreign subsidiaries have retirement plans covering
substantially all employees. Contributions to these plans are generally
deposited under fiduciary-type arrangements. Benefits under these plans are
primarily based on levels of compensation. Funding policies are based on
applicable legal requirements and local practices.
Deferred Compensation Plan. In 1994, the Company adopted a non-qualified
Deferred Compensation Plan and Trust, as an incentive for certain executives.
The plan provides for (i) a Retirement Income Benefit (as defined), (ii) a
Survivor's Income Benefit (as defined), and (iii) Deferred Compensation Benefit
(as defined). Five employees currently participate in this plan. A trust has
been established to provide the benefits described above.
The following table shows the estimated benefits from this plan as of
June 30, 1998.
<TABLE>
<CAPTION>
ANNUAL SURVIVOR'S DEFERRED
RETIREMENT INCOME COMPENSATION
INCOME BENEFIT BENEFIT BENEFIT
-------------- ---------- ------------
<S> <C> <C> <C>
Jack C. Bendheim................................................. $ 10,317 $ 950,000 $105,758
Nathan Z. Bistricer.............................................. 7,800 455,000 72,634
James O. Herlands................................................ 10,317 710,000 87,106
I. David Paley................................................... 10,317 730,000 105,758
Marvin S. Sussman................................................ 10,317 934,000 34,742
</TABLE>
The Retirement Income Benefit is determined by the Company based upon the
employee's salary, years of service and age at retirement. At present, it is
contemplated that a benefit of 1% of each participant's eligible compensation
will be accrued each year. The benefit is payable upon retirement (after age 65
with at least 10 years of service) in monthly installments over a 15 year period
to the participant or his named beneficiary. The Survivor's Income Benefit for
the current participants is two times annualized compensation at the time of
death, payable in 24 equal monthly installments. The Deferred Compensation
Benefit is substantially funded by compensation deferred by the participants.
Such benefit is based upon a participant making an election to defer no less
than $3,000 and no more than $20,000 of his compensation in excess of $150,000,
payable in a lump sum or in monthly installments for up to 15 years. The Company
makes a matching contribution of $3,000. The plan is substantially funded.
Participants have no claim against the Company other than as unsecured
83
<PAGE>
creditors. To assist in providing benefits, the Company has obtained a life
insurance policy on each participant.
Executive Income Program. On March 1, 1990, the Company entered into an
Executive Income Program to provide a pre-retirement death benefit and a
retirement benefit to certain of its executives. The Program consists of a Split
Dollar Agreement and a Deferred Compensation Agreement with Jack Bendheim,
Marvin S. Sussman and James O. Herlands (the "Executives"). The Split Dollar
Agreement provides for the Company to own a whole life insurance policy in the
amount of $1,000,000 (plus additions) on the life of each Executive. Each policy
also contains additional paid-up insurance and extended term insurance. On the
death of the Executive prior to his 60th birthday or his actual retirement date,
whichever is later: (i) the first $1,000,000 of the death benefit is payable to
the Executive's spouse, or issue; (ii) the excess is payable to the Company up
to the aggregate amount of premiums paid by the Company; and (iii) any balance
is payable to the Executive's spouse or issue. The Split Dollar Agreement
terminates and no benefit is payable if the Executive dies after his retirement
from the Company. The Deferred Compensation Agreement provides that upon the
Executive's retirement, at or after attaining age 65, the Company will make a
monthly retirement payment to the Executive during his life for 10 years or
until he or his beneficiaries have received a total of 120 monthly payments. The
Company intends to fund the payments using the cash value or the death benefit
from the life insurance policy insuring each Executive's life. The monthly
retirement benefits are as follows: Jack Bendheim $2,500; Marvin S. Sussman
$2,500; and James O. Herlands $1,666.
MEETINGS AND COMPENSATION OF DIRECTORS
During fiscal 1998, the Board of Directors took certain action by written
consent. There were no formal meetings of the Board. Directors are elected
annually and serve until the next annual meeting of Shareholders or until their
successors are elected and qualified. The Company's directors do not receive any
cash compensation for service on the Board of Directors, but directors may be
reimbursed for certain expenses in connection with attendance at board meetings.
The Company has entered into certain transactions with certain of the directors.
See "Certain Relationships and Related Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has not created any committees.
REPORT OF BOARD OF DIRECTORS AS TO COMPENSATION
The Company does not have a compensation committee or other Board committee
performing equivalent functions. Executive compensation is determined by Jack
Bendheim, the President and Chief Executive Officer of the Company. During
fiscal 1998, Messrs. Bendheim, Sussman and Herlands participated in
deliberations regarding compensation of the Company's other officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jack Bendheim, Marvin S. Sussman and James O. Herlands are Members of the
Board of Directors and executive officers of the Company. No executive officer
of the Company serves as a member of the Board of Directors of any other
non-Company entity which has one or more members serving as a member of the
Company's Board of Directors. Messrs. Bendheim, Sussman and Herlands have
participated in certain transactions with the Company and its subsidiaries and
affiliates. See "Certain Relationships and Related Transactions."
84
<PAGE>
PRINCIPAL STOCKHOLDERS
The table sets forth certain information as of June 30, 1998 regarding
beneficial ownership of the Company's capital stock by each director and named
executive officer of the Company, each beneficial owner of 5% or more of the
outstanding shares of capital stock and all directors and officers as a group.
See "Description of Capital Stock."
<TABLE>
<CAPTION>
NUMBER OF SHARES (PERCENTAGE OF CLASS)
----------------------------------------------------
NAME CLASS A VOTING(1) CLASS B NON-VOTING(2)
- -------------------------------------------------- ---------------------- ---------------------------
<S> <C> <C>
Jack Bendheim(3).................................. 12,600 (100%) 10,699.65 (90%) (4)
Marvin S. Sussman................................. -- 1,188.85 (10%)
All other officers and directors.................. -- --
All officers and directors as a group............. 12,600 (100%) 11,888.50 (100%)
</TABLE>
- ------------------
(1) The entire voting power of the Company is exercised by the holders of
Class A Common Stock, except that the Class B Common Stock elect one of the
five directors but do not vote on any other matters.
(2) Class B shareholders will receive the entire equity of the Company upon its
liquidation, after payment of preferences to holders of all classes of
preferred stock and Class A Common Stock.
(3) Jack Bendheim also owns 5,207 (100%) shares of Series A Preferred Stock
(formerly designated Third Preferred Stock).
(4) Includes 2,914.24 shares owned by trusts for the benefit of Jack Bendheim,
his spouse, his children and their spouses and his grandchildren.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,300 shares of
Common Stock, allocated as follows: 16,200 shares of Class A Common Stock, par
value $.10 per share, and 14,100 shares of Class B Common Stock, par value $.10
per share, and 155,750 shares of Preferred Stock, of which a series of 5,207
shares of Series A Preferred Stock (formerly designated Third Preferred Stock),
par value $100 per share, has been established.
At the date of this Prospectus, there are issued and outstanding 12,600
shares of Class A Common Stock, 11,888.50 shares of Class B Common Stock, and
5,207 shares of Series A Preferred Stock.
Subsequent to the consummation of the Offering, the Company simplified its
capitalization by eliminating classes of authorized but unissued preferred stock
and common stock, establishing "blank check" preferred stock, redesignating the
Third Preferred Stock as Series A Preferred Stock, combining on a basis to
preserve as nearly as practicable the rights and benefits of the former Class A
Common shares and Class C Common shares into a single class designated as Class
A Common Stock, and the former Class B Common shares and Class E Common shares
into a single class designated as Class B Common Stock. The following
description of the terms of all classes and series of the Company's common and
preferred stock is not complete and is subject to and qualified in its entirety
by reference to the Company's amended and restated certificate of incorporation
(the "Certificate of Incorporation").
The entire voting power of the Company is vested in the holders of Class A
Common Stock. The holders of shares of Class A Common Stock are entitled to one
vote per share upon all matters submitted for a vote to the shareholders of the
Company and are entitled to elect all but one of the directors. The holders of
Class B Common Stock are entitled to elect one director and are not entitled to
vote on any other corporate action. Directors elected by the holders of Class A
Common Stock have the exclusive right and power to cause the Company to declare
and pay dividends. The Certificate of Incorporation of the Company does not
provide for cumulative voting. The shareholders of the Company are entitled to
preemptive rights.
85
<PAGE>
Non-cumulative dividends are payable on the outstanding preferred and
common stock of the Company, in the following order of priority only when and as
declared by the Board: each share of Series A Preferred Stock-- $1.00 per year;
each share of Class A Common Stock--$.0055 per year; and each share of Class B
Common Stock--as determined by the Board.
The shares of Series A Preferred Stock are redeemable at the option of the
Company, in whole or part, at any time or from time to time, for a redemption
price equal to the par value thereof plus any declared but unpaid dividends.
In the event of any complete liquidation, dissolution or winding up of the
business, or sale of all of the assets of the Company, each share of Series A
Preferred Stock is entitled to a distribution equal to the par value thereof and
any declared but unpaid dividends. Thereafter, the remaining assets of the
Company shall be distributed, first to the holders of Class A Common Stock in an
amount equal to $.10 per share, and then to the holders of Class B Common Stock.
In the event that no shares of Class B Common Stock are then outstanding, all
remaining assets will be paid to the holders of Class A Common Stock.
The Board of Directors is authorized to issue shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any
shares of Preferred Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Phibro-Tech leases the property underlying its Santa Fe Springs, California
facility from First Dice Road Company, a California limited partnership ("First
Dice"), in which Jack Bendheim, the Company's President and principal
stockholder, Marvin S. Sussman and James O. Herlands, directors of the Company,
own 39.0%, 40.0% and 20.0% limited partnership interests, respectively. The
general partner, having a 1% interest in the partnership, is Western Magnesium
Corp., a wholly-owned subsidiary of the Company, of which Jack Bendheim is the
president. The lease expires on June 30, 2008. The annual rent is $250,000.
Phibro-Tech is also required to pay all real property taxes, personal property
taxes and liability and property insurance premiums. On June 30, 1995, Jack
Bendheim borrowed $1,500,000 from NatWest Bank N.A. (now Fleet Bank) which he
reloaned to First Dice. The repayment to Jack Bendheim of such loan by First
Dice is personally guaranteed by each of the limited partners of First Dice in
proportion to their respective limited partnership interests. The Company
believes that the terms of such lease and loan are on terms no less favorable to
Phibro-Tech than those that reasonably could be obtained at such time in a
comparable arm's-length transaction from an unrelated third-party.
The Company was assigned a 10-year secured note for collection of
obligations receivable from a partnership controlled by the Company's
shareholders. The receivable ($332,000 at June 30, 1996) was paid in full in
fiscal 1997.
Following the death in May 1997 of Charles H. Bendheim, a founder of the
Company and its Chairman of the Board, the Company redeemed, for $6,032,000 in
cash, 55,123.14 shares of Second Preferred Stock held by certain members of his
family, using the proceeds of an insurance policy on the life of Mr. Bendheim
having a face value of $6,000,000. Such redemptions were effected in accordance
with the Company's Certificate of Incorporation. In addition, the Company
redeemed 3,450 shares of its Second Preferred stock by issuing to the holders
thereof the Company's five year, 8 1/2% subordinated promissory notes in the
aggregate principal amount of $399,475. Such notes were guaranteed by Jack
Bendheim and subordinate to all institutional and publicly held debt of the
Company. These notes were
86
<PAGE>
paid in full from proceeds of the Offering. After such redemption, 6,800 shares
of Second Preferred Stock remained outstanding, which shares were redeemed upon
closing of the Offering.
In fiscal 1996, Jack Bendheim canceled a promissory note payable to him by
the Company in the principal amount of $578,000, including interest, in exchange
for 5,207 shares of the Company's Third Preferred Stock.
Pursuant to a Shareholders Agreement dated December 29, 1987 between Marvin
S. Sussman and the Company, the Company is required to purchase at book value
all shares of the Company's Class B Common Stock owned by Mr. Sussman, in the
event of his retirement, death, permanent disability or the termination of his
employment by the Company.
In 1995, Phibro-Tech sold shares of its Class B common stock to I. David
Paley (240.08 shares), Nathan Z. Bistricer (71.67 shares) and James O. Herlands
(71.67 shares) (the "Executives"), which resulted in the Executives owning an
aggregate of 10.7% of the capital stock of Phibro-Tech. Phibro-Tech received, as
consideration for such shares, cash equal to the par value thereof ($.01 per
share) and limited recourse promissory notes from Messrs. Paley, Bistricer and
Herlands in the principal amount of $1,392,461, $415,685 and $415,685,
respectively, bearing interest at the rate of 7.74% per annum. Both principal
and accrued interest were due on the earlier of the Executive's death or
termination of his employment. An aggregate of $628,000 of interest had accrued
under such notes as of June 11, 1998. The Company has recognized no interest
income on such notes since their issuance. Payment of each Executive's note was
secured by a pledge of such Executive's Phibro-Tech shares. In connection with
the consummation of the Offering, Phibro-Tech canceled such notes and forgave
all amounts due thereunder, and paid the Executives an additional aggregate
amount of $2,740,000 as reimbursement for their resulting income tax liability.
A Shareholders Agreement among the Executives and Phibro-Tech provides, among
other things, for restrictions on such shares as to voting, dividends,
liquidation, transfer rights and conversion to Phibro-Tech Class A common stock.
As a result of the repayment of the Old Senior Notes with proceeds of the
Offering of the Old Notes, the Class B common stock of the Executives converted
into an equal number of Class A common stock of Phibro-Tech. The Shareholders
Agreement also provides that upon the death of an Executive or termination of an
Executive's employment, Phibro-Tech must purchase the Executive's shares at
their fair market value, as determined by a qualified appraiser. In the event of
a Change of Control (as defined), the Executive has the option to sell his
shares to Phibro-Tech at such value. The Shareholders Agreement provides, that,
upon the consent of Phibro-Tech, the Executives and the Company, the Executives'
shares of Phibro-Tech Common Stock may be exchanged for a number of shares of
the Company's Common Stock, which may be non-voting Common Stock, having an
equivalent value, and upon any such exchange such shares of the Company's Common
Stock will become subject to the Shareholders Agreement. The Company and
Phibro-Tech also entered into Severance Agreements with the Executives which
provide, among other things, for certain severance payments. See "Management--
Employment and Severance Agreements."
In November 1995, the Company formed MRT Management Corp. ("MMC"), as a
subsidiary of Phibro-Tech, to manage MRT. Before giving effect to the
acquisition by MMC of membership units in MRT held by Jack Bendheim, MMC owned
57.6% of the membership interests in MRT, and Jack Bendheim and certain
employees of MRT owned 29.2% and 13.2% interests in MRT, respectively. Prior to
the Offering, Mr. Bendheim from time to time made loans and advances to MRT when
and as needed, in response to MRT's working capital requirements. As of
June 11, 1998, the aggregate principal amount of such loans and advances was
$995,000. Upon the closing of the Offering, the Company acquired Mr. Bendheim's
interest in MRT for $25,000 and repaid all loans made by Mr. Bendheim to MRT.
The MRT Limited Liability Company Agreement provides for the grant of
contingent member units to employees of MRT, in an amount which, together with
the 13.2% interests retained by such employees, does not exceed an aggregate of
20% in MRT, and for the purchase of the interest of minority members of MRT
under certain circumstances in connection with a termination of employment at
the Appraised Value of the purchased interest as determined pursuant to such
agreement. The
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Company's interest in MRT is held through its Phibro-Tech subsidiary. As noted
above, executives of Phibro-Tech hold an aggregate of 10.7% of the outstanding
capital stock of Phibro-Tech.
Prior to the Offering, Koffolk USA had a $1.0 million secured line of
credit with The Berkshire Bank. Such credit facility was guaranteed by Jack
Bendheim, who had also loaned $200,000 to Koffolk USA on a subordinated basis.
Upon the closing of the Offering, the Company repaid $401,000, equal to all
amounts owed by Koffolk USA to The Berkshire Bank, and pursuant to the Koffolk
USA Purchase, Mr. Bendheim sold all of the stock of Koffolk USA to the Company,
in exchange for the cancellation of $1.5 million in indebtedness owed by
Mr. Bendheim to the Company.
The Company periodically advances funds to Jack Bendheim on a short-term,
non-interest-bearing basis.
The Company has advanced $200,000 to Marvin Sussman and his wife pursuant
to a secured promissory note that is payable on demand and bears interest at the
annual rate of 9%.
The Company's policy with respect to the sale, lease or purchase of assets
or property of any related party is that such transaction should be on terms
that are no less favorable to the Company or its subsidiary, as the case may be,
than those that could reasonably be obtainable at such time in a comparable
arm's length transaction from an unrelated third party, on the same basis as the
Indenture and the New Credit Agreement. The Indenture and the New Credit
Agreement both include a similar restriction on the Company and its Restricted
Subsidiaries with respect to the sale, purchase, exchange or lease of assets,
property or services, subject to certain limitations as to the applicability
thereof. See "Description of Notes--Certain Covenants--Limitation on
Transactions with Affiliates."
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the New Credit Agreement and other
loan documents, such descriptions do not purport to be complete and are
qualified in their entirety by reference to such documents, which are available
upon request from the Company.
NEW CREDIT AGREEMENT
In August 1998, the Company and certain of its domestic subsidiaries
terminated the Old Credit Agreement with Fleet Bank (formerly National
Westminster Bank NJ), and the Company and all of its domestic subsidiaries
entered into the New Credit Agreement with PNC Bank, as agent and on behalf of
itself.
Pursuant to the New Credit Agreement, PNC and the other lenders thereunder
(collectively, the "Lenders") are obligated to provide up to $60.0 million in
senior secured financing, comprised of a $35.0 million revolving credit facility
("Revolving Facility") and a $25.0 million acquisition facility ("Acquisition
Facility").
Borrowings under the Revolving Facility are limited to percentages of
eligible domestic receivables and domestic inventory, with a sub-limit for
inventory of $15.0 million. The Revolving Facility also includes a $7.5 million
letter of credit sub-facility. Under the Revolving Facility, the Company may
choose between two interest rate options: (i) the bank's or agent's published
base rate as defined and (ii) the LIBOR rate as defined plus 2%, with such LIBOR
margin subject to adjustment based on the Company's EBITDA as specified (which
margin could range from 1 1/4% to 2%). The Company may also choose the duration
(one to three months) for which the applicable interest rate may apply.
Indebtedness under the Revolving Facility is secured by a first priority lien on
domestic receivables and domestic inventory. The Company has agreed to pay a
facility fee of 3/8% on the unused portion of the Revolving Facility, and has
agreed to pay standard letter of credit fees to issuing banks. Borrowings under
the Revolving Facility are available until, and are repayable no later than,
August 28, 2003.
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Amounts outstanding under the Acquisition Facility can be drawn down, under
certain circumstances, within two years, will amortize over the five-year term
of the New Credit Agreement and will bear interest at PNC's published base rate
plus 3/4% per annum or, at the Company's option, the LIBOR rate plus 2 1/2% per
annum. Indebtedness outstanding under the Acquisition Facility will be
guaranteed by each company acquired by the Company with financing under the
Acquisition Facility, and each such guaranty will be secured by a first priority
lien on substantially all of the assets of the acquired company.
The indebtedness outstanding under the New Credit Agreement is guaranteed
by all of the Company's domestic subsidiaries, and the Revolving Facility and
Acquisition Facility are cross-defaulted.
The New Credit Agreement also contains various covenants which restrict the
Company and its subsidiaries with respect to, among other things, incurring
indebtedness, entering into merger or consolidation transactions, disposing of
assets (other than in the ordinary course of business), acquiring assets (with
permitted exceptions), making certain restricted payments, repaying the Notes,
creating any liens on the Company's assets, making investments, creating
guarantee obligations and entering into sale and leaseback transactions and
transactions with affiliates. The New Credit Agreement also requires that the
Company comply with various financial covenants, including a fixed charge
coverage ratio and a minimum net worth requirement. The New Credit Agreement
provides for certain events of default, including default upon the nonpayment of
principal, interest, fees or other amounts, a cross default with respect to
other obligations of the Company and its subsidiaries, failure to comply with
certain covenants, conditions or provisions under the New Credit Agreement, the
existence of certain unstayed or undischarged judgments, the invalidity or
unenforceability of the relevant security documents, the making of materially
false or misleading representations or warranties, commencement of
reorganization, bankruptcy, insolvency or similar proceedings and the occurrence
of certain ERISA events. Upon the occurrence of an event of default under the
New Credit Agreement, the Lenders may declare all obligations thereunder to be
immediately due and payable.
The Company is likely from time to time, prior to the maturity date of the
Notes, to refinance, replace, restructure, substitute for, amend or supplement
the New Credit Agreement. The actual terms of any new or modified Credit
Facility which replaces the New Credit Agreement could differ substantially from
the facility summarized above.
OTHER CREDIT FACILITIES
Certain of the Company's foreign subsidiaries, including subsidiaries in
Israel, France and Norway, have existing local credit arrangements. All amounts
outstanding under such foreign credit arrangements were paid in full from the
proceeds of the Offering.
Koffolk Israel is in the process of negotiating a $10,000,000 working
capital facility with Israeli banks for loans in various currencies, including
dollars, deutsche marks, francs and shekels. Borrowings under such facility are
expected to bear interest at the LIBOR rate as defined plus 1 1/2%. Such
facility is expected to mature every 12 months, subject to renewal, and is
expected to be secured by a general floating lien over the accounts receivables
and inventories of Koffolk Israel and its Israeli subsidiaries. No assurance can
be given that Koffolk Israel can successfully complete the entry into such or
any other credit facility on terms acceptable to the Company.
The Company's French subsidiary has entered into two Fr 7,500,000
(approximately $1,200,000 as of June 30, 1998) short-term bank facilities
secured by French receivables, one with Banque Nationale de Paris, with interest
at an average monthly money market rate ("T4M") plus 1%, and the other with
Credit Agricole de la Gironde, with interest at T4M plus 1.5%. Such subsidiary
has medium-term facilities with each of such banks of Fr 1,500,000. An
additional facility with Societe Bordelaise de CIC provides for a Fr 3,000,000
unsecured overdraft with interest at T4M plus 1.5%. "T4M" was 3.377% at
June 30, 1998. Each facility is subject to annual renewal and may be terminated
by the lender on 60 days notice.
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For further information concerning such credit facilities, see Note 6 to
the Company's Consolidated Financial Statements.
ODDA has recently entered into two separate multi-currency revolving
facilities, as follows:
In August 1998, ODDA entered into a five year multi-currency credit
facility, for NOK (Norwegian Kroner) 90,000,000 (approximately $11,750,000 as of
June 30, 1998), in agreed Euro-currencies. Borrowings under such facility bear
interest at the LIBOR or NIBOR rate as defined plus 0.475%. ODDA has agreed to
pay a commitment fee of 1/4% on the unused portion of such facility. In August
1998, ODDA entered into a five-year multi-currency revolving credit facility,
for NOK 65,000,000 (approximately $8,500,000 as of June 30, 1998), in agreed
Euro-currencies. Borrowings under such facility bear interest at the LIBOR (or
NIBOR) rate as defined plus the applicable margin. Such LIBOR or NIBOR margin
shall be subject to adjustment based on ODDA's debt service coverage and equity
ratios (which margins could be 3/4% or 1%). ODDA has agreed to pay a commitment
fee equal to 50% of the applicable margin. In connection with both such
facilities, ODDA may choose the duration (one, three or six months) for which
the interest rate may apply. Indebtedness under both such currency facilities is
secured by a lien on ODDA's receivables and inventory and a pledge of ODDA's
shares of and receivables from Tyssefaldene, and a negative pledge on ODDA's
other property and production facilities. In connection with the completion of
the ODDA Acquisition, Philipp Brothers guaranteed both such credit facilities.
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DESCRIPTION OF THE NOTES
GENERAL
The New Notes offered hereby will be issued under an Indenture (the
"Indenture"), dated as of June 11, 1998, by and among the Company, the
Guarantors and The Chase Manhattan Bank, as trustee (the "Trustee"). The
following is a summary of the material provisions of the Indenture. This summary
does not purport to be complete and is subject to the detailed provisions of,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), the Notes and the Indenture,
including the definitions of certain terms contained therein and including those
terms made part of the Indenture by reference to the Trust Indenture Act. A copy
of the Indenture is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." Reference
is made to the Indenture for the full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided. As
used in this "Description of the Notes" section, reference to the "Company"
means Philipp Brothers Chemicals, Inc., but not any of its subsidiaries (unless
the context otherwise requires).
MATURITY AND INTEREST
The New Notes will be unsecured senior subordinated obligations of the
Company limited in aggregate principal amount to $100,000,000. The New Notes
will mature on June 1, 2008. Additional amounts may be issued in one or more
series from time to time subject to the limitation set forth under the first
paragraph of "--Certain Covenants--Limitation on Incurrence of Indebtedness" and
restrictions contained in the Credit Facility. Interest on the Notes will accrue
at the rate of 9 7/8% per annum and will be payable semi-annually in arrears on
June 1 and December 1 in each year, commencing on December 1, 1998, to holders
of record on the immediately preceding May 15 and November 15, respectively.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from June 11, 1998 (the
"Issue Date"). Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders of Old
Notes whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after the consummation of the
Exchange Offer. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Trustee will authenticate and deliver from time to time New Notes for
original issue only in exchange for a like principal amount of Old Notes.
Principal of, premium, if any, and interest on the New Notes will be
payable at the office or agency of the Company maintained for such purpose in
The City of New York or, at the option of the Company, payment of interest may
be made by check mailed to the holders of the Notes at their respective
addresses as set forth in the register of holders of Notes. Until otherwise
designated by the Company, the Company's office or agency in The City of New
York will be the office of the Trustee maintained for such purpose. The New
Notes will be issued in fully registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof. No service charge will
be made for any transfer, exchange or redemption of New Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Notes.
All Old Notes and New Notes will be treated as a single class of securities
under the Indenture.
THE GUARANTEES
The Notes are guaranteed on a senior subordinated basis by each of the
Guarantors. Each of the Guarantors has fully and unconditionally guaranteed
(each, a "Guarantee") on a joint and several basis all of the Company's
obligations under the Notes and the Indenture, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. The
Guarantees are subordinated to all existing and future Senior Debt of the
respective Guarantors, including such Guarantor's guarantees
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of the Company's obligations under the Credit Facility. Except as provided in
"--Certain Covenants" below, the Company is not restricted from selling or
otherwise disposing of any of the Guarantors.
Pursuant to the Guarantees, if the Company defaults in payment of any
amount owing in respect of any Notes, each Guarantor is obligated to duly and
punctually pay the same. Pursuant to the terms of the Indenture, each of the
Guarantors has agreed that its obligations under its Guarantee are
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or the Indenture, the absence of any action to enforce the same or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a Guarantor.
If no Default exists or would exist under the Indenture, concurrently with
any sale or disposition (by merger or otherwise) of any Guarantor (other than a
transaction subject to the provisions described under "--Merger, Consolidation
and Sale of Assets") by the Company or a Restricted Subsidiary to any person or
entity that is not a Subsidiary of the Company which transaction is in
compliance with the terms of the Indenture, such Guarantor will automatically
and unconditionally be released from all obligations under its Guarantee.
REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
Optional Redemption. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2003 at the
redemption prices (expressed as percentages of the principal amount of the
Notes) set forth below plus in each case accrued and unpaid interest, if any, to
the date of redemption, if redeemed during the twelve-month period beginning on
June 1, of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------- ----------
<S> <C>
2003......................................................... 104.938%
2004......................................................... 103.292%
2005......................................................... 101.646%
2006 and thereafter.......................................... 100.000%
</TABLE>
In addition, at any time prior to June 1, 2001, the Company may, at its
option, redeem up to 30% of the sum of (i) the initial aggregate principal
amount of the Notes issued in the Offering and (ii) the respective initial
aggregate principal amount of the Notes issued under the Indenture after the
Issue Date, on one or more occasions with the net proceeds of one or more Public
Equity Offerings at 109 7/8% of the principal amount thereof, plus accrued
interest to the date of redemption; provided, that immediately after giving
effect to such redemption, at least 70% of the sum of (i) $100 million (the
initial aggregate principal amount of the Notes issued in the Offering) and
(ii) the respective initial aggregate principal amount of the Notes issued under
the Indenture after the Issue Date remain outstanding (other than any Notes
owned by the Company or any of its Affiliates). In order to effect the foregoing
redemption with the proceeds of any Public Equity Offering, the Company shall
make such redemption not more than 90 days after the consummation of any such
Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Stock) of the Company pursuant to an effective
registration statement filed under the Securities Act.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis or by lot or any other method as the
Trustee shall deem fair and appropriate; provided, that Notes redeemed in part
shall only be redeemed in integral multiples of $1,000; and provided, further,
that any such redemption pursuant to the provisions relating to a Public Equity
Offering shall be made on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to the procedures of The Depository Trust Company or any
other depositary), unless such method is otherwise prohibited. Notices of any
optional or mandatory redemption shall 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
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redeemed at such holder's registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed, and the Trustee shall
authenticate and mail to the holder of the original Note a new Note in principal
amount equal to the unredeemed portion of the original Note promptly after the
original Note has been canceled. On and after the redemption date, interest will
cease to accrue on Notes or portions thereof called for redemption.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, or
Liquidated Damages, if any, with respect to, the Notes is subordinated, as set
forth in the Indenture, in right of payment to the prior payment in full of all
existing and future Senior Debt (including the indebtedness under the Credit
Facility). The Notes are senior subordinated indebtedness of the Company ranking
pari passu with all other existing and future senior subordinated indebtedness
of the Company.
Upon any payment or distribution of cash, securities or other property of
the Company to creditors upon any liquidation, dissolution or winding up of the
Company, or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property or securities, an assignment
for the benefit of creditors or any marshalling of the Company's assets or
liabilities, the holders of any Senior Debt of the Company will be entitled to
receive payment in full, in cash in the case of the Credit Facility, or in cash
or Cash Equivalents in the case of any other Senior Debt, of all obligations due
in respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the agreements governing such Senior
Debt) before the holders of the Notes or the Trustee on behalf of such holders
will be entitled to receive any payment or distribution with respect to the
Notes.
The Company also may not make any payment upon or in respect of the Notes
(except from the trust described under "--Defeasance" below) if (i) a default in
the payment of the principal of, premium, if any, or interest on any Designated
Senior Debt occurs and is continuing, whether at maturity or on a date fixed for
payment or prepayment or by declaration of acceleration or otherwise, or
(ii) the Trustee has received written notice ("Payment Blockage Notice") from
the representative of any holders of Designated Senior Debt that a nonpayment
default has occurred and is continuing with respect to such Designated Senior
Debt that permits such holders to accelerate the maturity of such Designated
Senior Debt. Payments on the Notes shall resume (and all past due amounts on the
Notes, with interest thereon as specified in the Indenture, shall be paid)
(i) in the case of a payment default in respect of any Designated Senior Debt,
on the date on which such default is cured or waived or otherwise ceases to
exist; and (ii) in the case of a nonpayment default in respect of any Designated
Senior Debt, on the earlier of (a) the date on which such nonpayment default is
cured or waived, or (b) 179 days after the date on which the Payment Blockage
Notice with respect to such default was received by the Trustee, in each case,
unless the maturity of any Designated Senior Debt has been accelerated and the
Company has defaulted with respect to the payment of such Designated Senior
Debt, or (c) the date on which such Payment Blockage Period (as defined below)
shall have been terminated by written notice to the Company or the Trustee from
the representative of the holders of Designated Senior Debt initiating such
Payment Blockage Period. During any consecutive 365-day period, the aggregate
number of days in which payments due on the Notes may not be made as a result of
nonpayment defaults on Designated Senior Debt (a "Payment Blockage Period")
shall not exceed 179 days, and there shall be a period of at least 186
consecutive days in each consecutive 365-day period during which no Payment
Blockage Period is in effect. No event or circumstance that creates a nonpayment
default under any Designated Senior Debt that (i) gives rise to the commencement
of a Payment Blockage Period or (ii) exists at the commencement of or during any
Payment Blockage Period shall be made the basis for the commencement of any
subsequent Payment Blockage Period unless such default has been cured or waived
for a period of not less than 90 consecutive days.
As a result of the subordination provisions described above, holders of
Notes may recover less ratably than creditors holding Senior Debt of the
Company. In such circumstances, funds which would otherwise be payable to the
holders of the Notes will be paid to the holders of the Senior Debt to the
extent necessary to pay the Senior Debt in full in cash in the case of the
Credit Facility, or in cash or
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Cash Equivalents in the case of any other Senior Debt, and the Company may be
unable to meet its obligations fully with respect to the Notes.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
As of June 30, 1998, after giving effect to the Transactions, the Company
and the Guarantors had approximately $4.3 million in aggregate principal amount
of Senior Debt and $35.0 million of availability, subject to a borrowing base,
under the Credit Facility.
The Company's operations are predominantly conducted through subsidiaries.
Although the Company's domestic subsidiaries have guaranteed the Notes, the
Company's foreign subsidiaries have not guaranteed or otherwise become obligated
with respect to the Notes. Claims of creditors of such subsidiaries, including
trade creditors, will generally have priority as to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Notes. The Notes will therefore be effectively
subordinated to all existing and future liabilities, including indebtedness, of
the Company's foreign subsidiaries. As of June 30, 1998, after giving effect to
the Transactions, the Company's foreign subsidiaries had no indebtedness for
borrowed money (other than to Philipp Brothers) and had other liabilities of
approximately $22.5 million reflected on the Company's consolidated balance
sheet. In addition, in the event a Guarantor's obligations under a Guarantee
were voided, the Notes will be similarly subordinated to the Indebtedness and
the liabilities of the Guarantors. As of June 30, 1998, after giving effect to
the Transactions, the Guarantors had $40.9 million of Indebtedness and other
liabilities reflected on the Company's consolidated balance sheet. See "Risk
Factors--Fraudulent Transfer Considerations."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of the Indenture, to require the Company to offer to purchase all
or any portion (equal to $1,000 or an integral multiple thereof) of such
holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
The New Credit Agreement contains a "change of control" provision that is
similar to the provision in the Indenture relating to a Change of Control, and
the occurrence of such a "change of control" would constitute a default under
the New Credit Agreement. The Company's obligations under the New Credit
Agreement represent obligations senior in right of payment to the Notes and the
New Credit Agreement will not permit the purchase of the Notes absent consent of
the lenders thereunder in the event of a change of control thereunder (although
the failure by the Company to comply with its obligations in the event of a
Change of Control under the Indenture would constitute a Default under the
Notes).
In addition, other debt instruments of the Company may in the future
restrict the Company's ability to purchase Notes pursuant to a Change of Control
Offer. Moreover, such debt instruments may contain a "change of control"
provision that is similar to the provision in the Indenture relating to a Change
of Control, and the occurrence of such a "change of control" would constitute a
default under such debt instruments. The Company's obligations under such debt
instruments may represent obligations senior in right of payment to the Notes,
and such debt instruments may not permit the purchase of the Notes absent
consent of the lenders thereunder in the event of a Change of Control.
Notwithstanding the foregoing, the failure of the Company to effect a Change of
Control Offer would constitute an Event of Default under the Indenture.
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which restricts the Company's ability to repurchase the Notes upon
the occurrence of a Change of Control, the Company may not be able to commence a
Change of Control Offer to purchase the Notes within 30 days of the occurrence
of the Change of Control. Such failure would constitute an Event of Default
under the Indenture. If a Change of Control were to occur, there can be no
assurance that the Company
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would have sufficient assets to first satisfy its obligations under any other
agreements relating to indebtedness, if accelerated, and then to purchase all of
the Notes that might be delivered by holders seeking to accept a Change of
Control Offer.
The Indenture provides Noteholders protection in the event of a highly
leveraged transaction to the extent that the Company's ability to effect a
highly leveraged transaction, in connection with any Change of Control or
otherwise, is subject to the provisions of the Indenture described below under
the caption "--Certain Covenants," including without limitation the provisions
described thereunder under the headings "Limitation on Incurrence of
Indebtedness" and "Limitation on Issuance of Senior Subordinated Indebtedness."
The covenant described below under the heading "Limitation on Incurrence of
Indebtedness" does not specifically limit the leverage of any particular
transaction, but requires that the Company and its Restricted Subsidiaries
maintain a ratio of consolidated cash flow to interest expense above a specified
level, subject to certain enumerated exceptions.
In general, the Change of Control provisions would not be triggered if the
Company were to recapitalize or to enter into transactions with management or
their affiliates unless at least one of the events specified in the definition
of the term "Change of Control" were also to occur. See "--Certain Definitions."
The Company currently has no outstanding securities or liabilities that are
pari passu with the Notes and also contain Change of Control repayment
provisions.
Without the consent of each Noteholder affected, no amendment of the
Indenture or waiver of any Default or Event of Default thereunder, will,
following the occurrence of a Change of Control, amend, change or modify the
Company's obligation to make and consummate a Change of Control Offer by reason
of such a Change of Control or modify the provisions or definitions with respect
thereto in a manner adverse to the holders of the Notes with respect to such
Change of Control. See "--Amendment, Supplement and Waiver."
On or before the 30th day following the occurrence of any Change of
Control, the Company shall mail to each holder of Notes at such holder's
registered address a notice stating: (i) that a Change of Control has occurred
and that such holder has the right to require the Company to purchase all or a
portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), which shall be a business day, specified in
such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Change of Control Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Change of
Control Offer, any Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on the Change of Control Purchase Date,
(v) the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept a Change of Control Offer or to withdraw such
acceptance, and (vi) such other information as may be required by the Indenture
and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (i) accept for
payment all Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent the aggregate purchase price of all
Notes or portions thereof accepted for payment, and (iii) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Change of Control
Offer. The Paying Agent shall promptly mail to each holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall
promptly authenticate and mail to each holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes, and any Note not accepted for payment in whole or in part shall be
promptly returned to the holder of such Note. On and after a Change of Control
Purchase Date, interest will cease to accrue on the Notes or portions thereof
accepted for payment, unless the Company defaults in the payment of the purchase
price therefor. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
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As used in the definition of Change of Control, the phrase "all or
substantially all" of the capital stock or assets of the Company and its
Restricted Subsidiaries will likely be interpreted under applicable state law
and will be dependent upon particular facts and circumstances. As a result,
there may be a degree of uncertainty in ascertaining whether a sale or
disposition of "all or substantially all" of the capital stock or assets of the
Company and its Restricted Subsidiaries has occurred, in which case a holder's
ability to obtain the benefit of a Change or Control Offer may be impaired.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Change
of Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict with
such covenants.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or directly or indirectly guarantee or in any other manner become
directly or indirectly liable for ("incur") any Indebtedness (including Acquired
Debt), except that the Company and any Restricted Subsidiary may incur
Indebtedness (including Acquired Debt) if, at the time of, and immediately after
giving pro forma effect to, such incurrence of Indebtedness, the Consolidated
Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal
quarters would be at least 2.0 to 1.0 if incurred during the period from the
Issue Date through June 1, 2000, and 2.25 to 1.0 if incurred thereafter.
The foregoing limitations do not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(i) Indebtedness of the Company arising under the Credit Facility, in
an aggregate principal amount not to exceed at any time outstanding the
greater of (x) $35.0 million and (y) the sum, at such time, of (I) 80% of
the consolidated book value of eligible receivables of the Company and the
Restricted Subsidiaries and (II) 60% of the consolidated book value of
inventory of the Company and the Restricted Subsidiaries;
(ii) Indebtedness of the Company and the Guarantors represented by the
Notes, the Guarantees and the New Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness");
(iv) Indebtedness owed or issued by any Restricted Subsidiary to the
Company or to another Restricted Subsidiary, or owed or issued by the
Company to any Restricted Subsidiary; provided, however, that any such
Indebtedness shall at all times be held by a Person which is either the
Company or a Restricted Subsidiary; provided, further, however, that upon
either (a) the transfer or other disposition of any such Indebtedness to a
Person other than the Company or another Restricted Subsidiary or (b) the
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of any such Restricted Subsidiary to
a Person other than the Company or another Restricted Subsidiary, the
incurrence of such Indebtedness shall be deemed to be an incurrence that is
not permitted by this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding or with respect to any receivable or liability the payment of
which is determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds and assurances provided by or for the Company or
any Restricted Subsidiary in the ordinary course of business;
(vii) any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part (a
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"refinancing"), of any Indebtedness incurred as permitted under the first
paragraph of this covenant or any Indebtedness described in any of
clauses (ii) or (iii) above, this clause (vii) and clauses (x), (xi) or
(xii) below ("Refinancing Indebtedness"); provided, however, that (a) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less, or in the case of a
revolving credit facility the maximum amount of the facility, if more) of
the Indebtedness so refinanced (plus the premiums and reasonable expenses
to be paid in connection therewith, which, with respect to such premiums,
shall not exceed the stated amount of any premium or other payment required
to be paid in connection with such a refinancing pursuant to the terms of
the Indebtedness being refinanced); (b) if the Weighted Average Life to
Maturity of the Indebtedness being refinanced is equal to or greater than
the Weighted Average Life to Maturity of the Notes, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; (c) with respect to Refinancing Indebtedness other than
Senior Debt incurred by the Company or a Guarantor, such Refinancing
Indebtedness shall rank no more senior than, and, if applicable, shall be
at least as subordinated in right of payment to the Notes as, the
Indebtedness being refinanced; and (d) the obligor on such Refinancing
Indebtedness shall be the obligor on the Indebtedness being refinanced or
the Company;
(viii) Indebtedness of the Company or any Restricted Subsidiary
(a) representing Capital Lease Obligations and any amendments,
modifications, renewals, refundings, replacements or refinancings thereof
and/or (b) in respect of Purchase Money Obligations for property acquired,
constructed or improved in the ordinary course of business and any
refinancings thereof, which taken together in the aggregate principal
amount do not exceed the greater of (i) $5.0 million and (ii) 5% of
Consolidated Tangible Assets of the Company at any one time outstanding;
(ix) commodity agreements entered into in the ordinary course of
business to protect against fluctuations in the prices of raw materials and
not for speculative purposes;
(x) Indebtedness incurred by the Company or any Restricted Subsidiary
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(xi) Indebtedness of Koffolk arising under the Koffolk Credit
Facility, in an aggregate principal amount not to exceed at any time
outstanding the greater of (x) $10.0 million and (y) the sum, at such time,
of (I) 80% of the book value of eligible receivables of Koffolk and its
Israeli subsidiaries and (II) 50% of the book value of inventory of Koffolk
and its Israeli subsidiaries; provided that the aggregate principal amount
at any time outstanding shall not, in any case, exceed $15.0 million and
such Indebtedness is issued for working capital purposes;
(xii) Indebtedness of Foreign Subsidiaries of the Company incurred to
finance working capital of such Foreign Subsidiaries in an aggregate
principal amount at any time outstanding not to exceed the sum of (x) 80%
of the book value of net accounts receivable of such Foreign Subsidiaries
and (y) 50% of the book value of the inventory of such Foreign
Subsidiaries;
(xiii) Guarantees by the Company and its Restricted Subsidiaries of
each other's Indebtedness; provided that such Indebtedness is permitted to
be incurred under the Indenture; and
(xiv) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (xiii) above, and any
amendments, modifications, renewals, refundings, replacements or
refinancings of such Indebtedness, so long as the aggregate principal
amount of all such Indebtedness incurred pursuant to this clause (xiv) does
not exceed $5.0 million at any one time outstanding.
For purposes of determining any particular amount of Indebtedness under
this covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included.
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Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary shall be deemed to have been incurred at
the time such Person becomes a Restricted Subsidiary or is merged with or into
or consolidated with the Company or a Restricted Subsidiary, and Indebtedness
which is assumed at the time of the acquisition of any asset shall be deemed to
have been incurred at the time of such acquisition.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined reasonably and in
good faith by the Board of Directors of the Company):
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "--Limitation on Incurrence of Indebtedness;" and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis during the period
(treated as one accounting period) beginning on the first day of the
first calendar month after the Issue Date and ending on the date of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income for such period shall be a deficit, minus 100%
of such deficit); plus
(b) the aggregate amount of all net cash proceeds received since
the Issue Date by the Company from the issuance and sale (other than to
a Restricted Subsidiary) of, or equity contribution with respect to,
Capital Stock (other than Disqualified Stock) and the principal amount
of Indebtedness of the Company or any Restricted Subsidiary issued or
incurred on or after the Issue Date that has been converted into or
exchanged for Capital Stock (other than Disqualified Stock), in any such
case and solely for purposes of avoiding duplication, to the extent that
such proceeds are not theretofore used (x) to redeem, repurchase, retire
or otherwise acquire Capital Stock or any Indebtedness of the Company or
any Restricted Subsidiary pursuant to clause (ii) of the next paragraph
or (y) to make any Restricted Investment pursuant to clause (iv) of the
next paragraph; plus
(c) the amount of the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) the payment of dividends or the
repayment in cash of the principal of loans or the cash return on any
Investment, in each case to the extent received by the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or
extinguishment of any Guarantee of Indebtedness of any Unrestricted
Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued as provided in the definition of
"Investment"), such aggregate amount of the net reduction in Investments
not to exceed in the case of any Unrestricted Subsidiary the amount of
Restricted Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in
the calculation of the amount of Restricted Payments; plus
(d) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or the proceeds of such sale are
converted into cash or otherwise liquidated or repaid for cash, the
amount of cash proceeds received with respect to such Restricted
Investment, net of taxes and the cost of disposition, not to exceed the
amount of Restricted Investments made after the Issue Date.
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The foregoing provisions do not prohibit, so long as no Default or Event of
Default is continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture (which payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph);
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(iii) any purchase or defeasance of Subordinated Indebtedness to the
extent required upon a Change of Control or Asset Sale (as defined therein)
by the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued or any refinancing of Subordinated
Indebtedness permitted by the indenture or other agreement or instrument
pursuant to which such Subordinated Indebtedness was issued, but only if
the Company (x) in the case of a Change of Control, has complied with its
obligations under the provisions described under "--Change of Control" or
(y) in the case of an Asset Sale, has applied the Net Proceeds from such
Asset Sale in accordance with the provisions described under "--Limitation
on Asset Sales;"
(iv) any Restricted Investment to the extent the sole consideration
for which consists of, or is made with the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(v) the repurchase of Capital Stock of the Company (including options,
warrants or other rights to acquire such Capital Stock) from departing or
deceased directors, officers and employees of the Company and its
Subsidiaries pursuant to the terms of an employee benefit plan or employee
agreement in an amount that shall not exceed $250,000 in any fiscal year
plus any amount available for such payments hereunder since the Issue Date
which have not been used for such purpose and in no event shall such
payments exceed $1.0 million in any fiscal year, in each case, plus the
aggregate cash proceeds from any payments on insurance policies in which
the Company or any of its Subsidiaries is the beneficiary with respect to
any directors, officers or employees of the Company and its Subsidiaries
which proceeds are used to purchase the Capital Stock of the Company or any
Restricted Subsidiary of the Company held by any of such directors,
officers or employees; and the repurchase of Capital Stock of the Company
or a Restricted Subsidiary by the Company or such Restricted Subsidiary
pursuant to the terms of any of the Shareholders Agreements;
(vi) loans or advances to employees of the Company or any of its
Subsidiaries which loans or advances exist on the Issue Date, and other
loans or advances to employees of the Company or any Subsidiary to pay
reasonable relocation expenses or otherwise entered into in the ordinary
course of business not to exceed $500,000 in the aggregate principal amount
at any one time;
(vii) Restricted Investments in an amount such that the sum of the
aggregate amount of Restricted Investments made pursuant to this clause
(vii) after the Issue Date does not exceed $5.0 million at any one time
outstanding; and
(viii) payments made in accordance with the table appearing under the
caption "Use of Proceeds" (other than the ODDA Acquisition, other
acquisitions and general corporate purposes) in the Offering Memorandum
pursuant to which the Notes are offered and sold.
For purposes of clause (iii) of the first paragraph of this covenant, the
Permitted Payments referred to in clauses (i), (v) and (vii) above shall be
included in the aggregate amount of Restricted Payments made since the Issue
Date, and any other Permitted Payments described above shall be excluded.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to
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the Fair Market Value (as evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) of the assets or
other property sold or disposed of in the Asset Sale and (ii) at least 75% of
such consideration consists of either cash or Cash Equivalents; provided,
however, that for purposes of this covenant, "cash" shall include (x) the amount
of any Indebtedness (other than any Indebtedness that is by its terms
subordinated to the Notes and/or the Guarantees) of the Company or such
Restricted Subsidiary as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto that is assumed by the
transferee of any such assets or other property in such Asset Sale (and
excluding any liabilities that are incurred in connection with or in
anticipation of such Asset Sale), but only to the extent that such assumption is
effected on a basis such that there is no further recourse to the Company or any
of the Restricted Subsidiaries with respect to such liabilities and (y) any
notes, obligations or securities received by the Company or such Restricted
Subsidiary from such transferee that are converted within 60 days by the Company
or such Restricted Subsidiary into cash (to the extent of the cash received).
Within 270 days after receipt of Net Proceeds from any Asset Sale, the
Company may elect to apply the Net Proceeds from such Asset Sale to
(a) permanently reduce any Senior Debt and/or (b) make an investment in, or
acquire assets and properties that will be used in, the business of the Company,
or a Restricted Subsidiary, existing on the Issue Date or in a Related Business.
Pending the final application of any such Net Proceeds, the Company or any
Restricted Subsidiary may temporarily reduce Indebtedness of the Company under
the Credit Facility or temporarily invest such Net Proceeds in cash or Cash
Equivalents. Any Net Proceeds from an Asset Sale not applied or invested as
provided in the first sentence of this paragraph within 270 days of such Asset
Sale will be deemed to constitute "Excess Proceeds."
Each date that the aggregate amount of Excess Proceeds in respect of which
an Asset Sale Offer (as defined below) has not been made exceeds $5.0 million
shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but
in no event later than 20 business days after each Asset Sale Offer Trigger
Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be
purchased pro rata based on the aggregate principal amount of Notes outstanding,
and all Notes shall be purchased at an offer price in cash in an amount equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. To the extent that any Excess Proceeds remain after
completion of an Asset Sale Offer, the Company may use the remaining amount for
general corporate purposes otherwise permitted by the Indenture. In the event
that the Company is prohibited under the terms of any agreement governing
outstanding Senior Debt of the Company from repurchasing Notes with Excess
Proceeds pursuant to an Asset Sale Offer as set forth in the first sentence of
this paragraph, the Company shall promptly use all Excess Proceeds to reduce
permanently such outstanding Senior Debt of the Company. Upon the consummation
of any Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be
reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 20th business day after the related Asset Sale Offer Trigger Date to each
holder of Notes at such holder's registered address, stating: (i) that an Asset
Sale Offer Trigger Date has occurred and that the Company is offering to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds (to the extent provided in the immediately preceding paragraph),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the purchase
(the "Asset Sale Offer Purchase Date"), which shall be a business day, specified
in such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Asset Sale
Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the
procedures, consistent with the Indenture, to be followed by a holder of Notes
in order to accept an Asset Sale Offer or to withdraw such acceptance, and
(vi) such other information as may be required by the Indenture and applicable
laws and regulations.
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On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer,
(ii) deposit with the Paying Agent the aggregate purchase price of all Notes or
portions thereof accepted for payment, and (iii) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Asset Sale Offer. If
less than all Notes tendered pursuant to the Asset Sale Offer are accepted for
payment by the Company for any reason consistent with the Indenture, selection
of the Notes to be purchased by the Company shall be 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 so listed, on a pro rata basis or by
lot; provided, however, that Notes accepted for payment in part shall only be
purchased in integral multiples of $1,000. The Paying Agent shall promptly mail
to each holder of Notes or portions thereof accepted for payment an amount equal
to the purchase price for such Notes plus accrued and unpaid interest, if any,
thereon, and the Trustee shall promptly authenticate and mail to such holder of
Notes accepted for payment in part a new Note equal in principal amount to any
unpurchased portion of the Notes, and any Note not accepted for payment in whole
or in part shall be promptly returned to the holder of such Note. On and after
an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or
portions thereof accepted for payment, unless the Company defaults in the
payment of the purchase price therefor. The Company will publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Asset
Sale Offer Purchase Date.
The foregoing provisions will not apply to a transaction consummated in
compliance with the provisions of the Indenture described under "--Merger,
Consolidation and Sale of Assets" below.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Asset
Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness that is pari
passu with or subordinated in right of payment to the Notes (other than
Permitted Liens) on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom to
secure any such Indebtedness, unless (i) if such Lien secures Indebtedness which
is pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to a Lien granted
to the holders of the Notes in the same collateral as that securing such Lien to
the same extent as such Subordinated Indebtedness is subordinated to the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause to become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions to the Company or any other Restricted Subsidiary on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees
for the benefit of, the Company or any other Restricted Subsidiary or
(iii) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (a) the Credit Facility as in effect on the Issue Date,
and any amendments, modifications, renewals, refundings, replacements or
refinancings thereof; provided that such amendments, modifications, renewals,
refundings, replacements or refinancings are no more restrictive in the
aggregate with respect to such dividend and other payment restrictions than
those contained in the Credit Facility (or, if more restrictive, than those
contained in the Indenture) immediately prior to any such amendment,
restatement, renewal, replacement or refinancing, (b) applicable law, (c) any
instrument governing Indebtedness or Capital Stock of an Acquired Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such
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Indebtedness was incurred in connection with or in contemplation of such
acquisition); provided, however, that no such encumbrance or restriction is
applicable to any Person, or the properties or assets of any Person, other than
the Acquired Person, (d) by reason of customary non-assignment, subletting or
net worth provisions in leases or other agreements entered into the ordinary
course of business, (e) Purchase Money Obligations for property acquired in the
ordinary course of business that impose restrictions only on the property so
acquired, (f) an agreement for the sale or disposition of assets or the Capital
Stock of a Restricted Subsidiary; provided, however, that such restriction or
encumbrance is only applicable to such Restricted Subsidiary or assets, as
applicable, and such sale or disposition otherwise is permitted by the
provisions described under "--Limitation on Asset Sales;" provided, further,
however, that such restriction or encumbrance shall be effective only for a
period from the execution and delivery of such agreement through a termination
date not later than 270 days after such execution and delivery, (g) Refinancing
Indebtedness permitted under the Indenture; provided, however, that the
restrictions contained in the agreements governing such Refinancing Indebtedness
are no more restrictive in the aggregate than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing, (h) the Indenture, the Notes and the Guarantees and
(i) encumbrances and restrictions imposed by amendments, restatements, renewals,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (a) through (h) above; provided that such encumbrances
and restrictions are, in the good faith judgment of the Company's Board of
Directors, no more restrictive, in any material respect, than those contained in
such contracts, instruments or obligations immediately prior to such amendment,
restatement, renewal, replacement or refinancing.
Limitation on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company unless (1) such transaction or series of transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could reasonably be obtainable at such time in a
comparable transaction in arm's-length dealings with an unrelated third party,
and (2) the Company delivers to the Trustee (a) with respect to any transaction
or series of transactions involving aggregate payments in excess of $500,000, an
Officers' Certificate certifying that such transaction or series of related
transactions complies with clause (1) above and (b) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$2.0 million, an Officer's Certificate certifying that such transaction or
series of related transactions has been approved by a majority of the members of
the Board of Directors of the Company, and (c) with respect to any transaction
or series of transactions involving aggregate payments in excess of $5.0
million, an opinion as to the fairness of the transaction to the Company from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing. Notwithstanding the foregoing, this covenant does not
apply to (i) employment agreements or compensation or employee benefit
arrangements with any officer, director or employee of the Company or any of its
Restricted Subsidiaries entered into in the ordinary course of business
(including customary benefits thereunder and including reimbursement or
advancement of out-of-pocket expenses, and director's and officer's liability
insurance), (ii) any transaction entered into by or among the Company or one of
its Restricted Subsidiaries with one or more Restricted Subsidiaries of the
Company, (iii) any transaction permitted by the second paragraph under
"--Limitation on Restricted Payments," (iv) transactions permitted by, and
complying with, the provisions described under "--Merger, Consolidation and Sale
of Assets," and (v) any transaction described under the caption "Use of
Proceeds" in the Offering Memorandum pursuant to which the Notes are offered and
sold.
Limitation on Designation of Unrestricted Subsidiaries. The Indenture
provides that the Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
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(b) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant described under "--Limitation on
Incurrence of Indebtedness;" and
(c) the Company would not be prohibited under the Indenture from
making an Investment at the time of Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in an amount equal to the Designation Amount.
The Indenture further provides that the Company will not designate an
Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of the Indenture.
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default
with respect to any Indebtedness of such Unrestricted Subsidiary (including any
right which the holders thereof may have to take enforcement action against it)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity, except in the case of clause
(a) to the extent permitted under the covenant described above under the caption
"--Limitation on Restricted Payments."
None of the Company's Subsidiaries were Unrestricted Subsidiaries as of the
Issue Date. All Designations and Redesignations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions. Subsidiaries that are not designated by the Board of Directors as
Restricted or Unrestricted Subsidiaries will be deemed to be Restricted
Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be deemed a Designation of all of the Subsidiaries of such
Unrestricted Subsidiary as Unrestricted Subsidiaries.
Sale and Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any sale and leaseback transaction; provided that the Company or any Restricted
Subsidiary may enter into a sale and leaseback transaction if (a) the Company
could have (i) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to either (1) the
Consolidated Cash Flow Coverage Ratio test set forth in the first paragraph of
the covenant described under "--Limitation on Incurrence of Indebtedness" or
(2) clause (xiv) of the definition of the term "Permitted Indebtedness" and
(ii) incurred a Lien to secure such Indebtedness pursuant to the covenant
described under "--Limitation on Liens," and (b) the sale portion of such sale
and leaseback transaction complies with the covenant described under
"--Limitation on Asset Sales," and the net proceeds from such sale are applied
in accordance with such covenant and (c) the cash proceeds of such sale and
leaseback transaction are at least equal to the Fair Market Value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction.
Business Activities. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, engage in any business
other than a Related Business.
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Limitation on Incurrence of Senior Subordinated Indebtedness. The
Indenture provides that the Company (i) will not, directly or indirectly, incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinated or junior in right of payment to any Senior Debt of the
Company and senior in any respect in right of payment to the Notes and
(ii) will not, directly or indirectly, permit any Guarantor to incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinated or junior in right of payment to its Senior Debt and senior in any
respect in right of payment to its Guarantee. For purposes of this provision, no
Indebtedness shall be deemed to be subordinated in right of payment to any other
Indebtedness by reason of the fact that such other Indebtedness is secured by
any Lien or is subject to a Guarantee.
Limitation on Guarantees of Indebtedness by Subsidiaries. The Indenture
provides that in the event that any Restricted Subsidiary guarantees any
Indebtedness of the Company other than the Notes (the "Other Debt"), the Company
will cause such Restricted Subsidiary to concurrently guarantee the Company's
obligations under the Indenture and the Notes to the same extent that such
Restricted Subsidiary guaranteed the Company's obligations under the Other Debt
(including waiver of subrogation, if any); provided, however, that if such Other
Debt is (i) Senior Debt, such Guarantee will be subordinated in right of payment
to all Senior Debt of such Guarantor (which will include such Guarantee of such
Other Debt) pursuant to the subordination provisions of the Indenture (which
subordination will be substantially identical to the subordination provisions of
the Indenture applicable to the Notes), (ii) Indebtedness which is not Senior
Debt or Subordinated Indebtedness, such Guarantee will be pari passu in right of
payment with the Guarantee of the Other Debt, or (iii) Subordinated
Indebtedness, such Guarantee will be senior in right of payment to the Guarantee
of the Other Debt (which Guarantee of such Subordinated Indebtedness will
provide that such Guarantee is subordinated to the Guarantee to the same extent
and in the same manner as the Notes are subordinated to Senior Debt); provided,
further, however, that each Restricted Subsidiary issuing a Guarantee pursuant
to the provisions of this covenant will be automatically and unconditionally
released and discharged from its obligations under such Guarantee upon the
release or discharge of the Guarantee of the Other Debt that resulted in the
Company's obligations under the Notes and the Indenture being so guaranteed. The
Company will cause each Restricted Subsidiary required to issue a Guarantee
after the date of issuance of the Notes to execute and deliver an indenture
supplemental to the Indenture, as described below under "Future Guarantors."
Future Guarantors. The Indenture provides that the Company and each
Guarantor shall cause each Restricted Subsidiary of the Company (other than any
Foreign Subsidiary) which, after the date of the Indenture (if not then a
Guarantor), becomes a Restricted Subsidiary to execute and deliver an indenture
supplemental to the Indenture and thereby become a Guarantor which shall be
bound by the Guarantee of the Notes in the form set forth in the Indenture
(without such future Guarantor being required to execute and deliver the
Guarantee endorsed on the Notes).
Provision of Financial Statements and Information. Whether or not the
Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the
Indenture provides that the Company will file with the Securities and Exchange
Commission (the "Commission") following the effectiveness of the Exchange Offer
Registration Statement, so long as any Notes are outstanding, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company were so subject, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject; provided the Commission will accept such filings. The
Company will also in any event (i) within 15 days of each Required Filing Date
following the effectiveness of the Exchange Offer Registration Statement, file
with the Trustee, and supply the Trustee with copies for delivery to the holders
of the Notes and prospective purchasers, the annual reports, quarterly reports
and other periodic reports which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to such Sections and (ii) if the Commission will not
accept the filing of such documents promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective holder of the Notes. Prior to the effectiveness of the
Exchange Offer Registration Statement, the
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Company will provide upon request from holders of the Notes or prospective
holders the information required by Rule 144A(d)(4) under the Securities Act.
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest;
(ii) maintenance of an office or agency in The City of New York;
(iii) maintenance of corporate existence; (iv) payment of taxes and other
claims; (v) maintenance of properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company shall not, in any single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the Surviving Person), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries) in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes (and the Guarantees
of the Company's Restricted Subsidiaries shall be confirmed as applying to such
Surviving Person's obligations), the Indenture and, if then in effect, the
Registration Rights Agreement pursuant to a supplemental indenture or other
written agreement, as the case may be, in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) after giving pro forma
effect to such transaction, the Surviving Person (x) would have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately preceding such transaction and (y) would be permitted to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant described under "--Limitation on Incurrence of
Indebtedness." Notwithstanding clauses (iii) and (iv) above, any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or another Restricted Subsidiary.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under, the
Indenture, the Notes and the Registration Rights Agreement.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on, or
Additional Interest (if any) with respect to, any Note (whether or not
prohibited by the subordination provisions of the Indenture);
(ii) a default in the payment when due of principal on any Note
(whether or not prohibited by the subordination provisions of the
Indenture), whether upon maturity, acceleration, optional or mandatory
redemption, required repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in
clauses (i) and (ii) above) which failure continues for 30 days after
written notice thereof has been given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $5.0 million in
the aggregate and, if not already matured at its final maturity in
accordance
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with its terms, such Indebtedness shall have been accelerated and such
acceleration is not rescinded, annulled or cured within 10 days thereafter;
(v) one or more judgments, orders or decrees for the payment of money
in excess of $5.0 million, either individually or in the aggregate, shall
be entered against the Company or any Restricted Subsidiary or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed or stayed pending appeal for a period of
60 days after their entry;
(vi) certain events of bankruptcy, insolvency or reorganization (of
the Company or any Significant Subsidiary); or
(vii) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect (other than as expressly provided for under the Indenture)
or is declared null and void, or any Guarantor which is a Significant
Subsidiary denies that it has any further liability under any Guarantee, or
gives notice to such effect (other than by reason of the termination of the
Indenture or the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than as specified in clause (vi) of the
preceding paragraph with respect to the Company) occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the then
outstanding Notes may, and the Trustee at the request of such holders shall,
declare all the Notes to be due and payable immediately by notice in writing to
the Company, and to the Company and the Trustee if by the holders, specifying
the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
the events specified in clause (vi) of the preceding paragraph with respect to
the Company, the principal of, premium, if any, and any accrued interest on all
outstanding Notes shall ipso facto become immediately due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture or
the Notes except as provided in the Indenture.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may
only be waived with the consent of each holder of Notes affected), or (ii) in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest) if it determines that withholding
notice is in their interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, interest on or Additional Interest, if any, with respect to
any of the Notes or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture, or in any of the Notes or because of the creation of
any Indebtedness represented thereby, shall be had against any officer,
employee, incorporator, direct or indirect controlling person, shareholder,
member, partner or affiliate of the Company or of any successor Person thereof.
Each Holder and the Trustee, by accepting the Notes, waives and releases all
such liability.
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DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and to have satisfied all other obligations under the Notes and the Indenture
except for (i) the rights of holders of the outstanding Notes to receive, solely
from the trust fund described below, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due,
(ii) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes, and the maintenance of an office or agency for payment, (iii) the rights,
powers, trusts, duties and immunities of the Trustee under the Indenture, and
(iv) the defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("covenant defeasance") and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "--Events of
Default" will no longer constitute Events of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust, for
the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the report of a nationally recognized
firm of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel in the United States
to the effect that the holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance or covenant defeasance, as the case may be, 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 defeasance or covenant defeasance, as the
case may be, had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax laws); (iii) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
clause (vi) under the first paragraph under "--Events of Default" is concerned,
at any time during the period ending on the 91st day after the date of deposit;
(iv) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any other
agreement or instrument to which the Company is a party or by which it is bound;
(v) the Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of holders of
Indebtedness (other than holders of the Notes) and (B) after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all 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 and thereafter
repaid to the Company) 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 and the Company has irrevocably deposited or caused to be
deposited with the Trustee an amount in United States dollars sufficient to pay
and discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation, for the principal of, premium, if any, and
interest to the date of deposit; (ii) the Company has paid or caused to be paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an Officers' Certificate and an opinion of counsel
each stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
RELEASE OF GUARANTEE
So long as no Event of Default shall have occurred and be continuing upon
the sale or disposition (whether by merger, stock purchase, asset or sale or
otherwise) of a Guarantor (or all or substantially all of the assets of any such
Guarantor or 50% or more of the Capital Stock of any such Guarantor) to an
entity which is not a Subsidiary of the Company, which transaction is otherwise
in compliance with the Indenture, such Guarantor shall be deemed released from
all its obligations under its Guarantee of the Notes and under the Indenture;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Guarantor under all its guarantees of, and under all of
its pledges of assets or other security interests which secure, any Indebtedness
of the Company shall also terminate upon such release, sale or transfer. Upon
the release of any Guarantor from its Guarantee pursuant to the provisions of
the Indenture, each other Guarantor not so released shall remain liable for the
full amount of principal of, and interest on, the Notes as and to the extent
provided in the Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes), and any existing Default or Event of Default or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the holders of a majority in aggregate principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note, or alter or waive the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes other
than with respect to a Change of Control Offer or an Asset Sale Offer,
(iii) reduce the rate of or change the time for payment of interest on any
Notes, (iv) waive a Default or Event of Default in the payment of principal of,
premium, if any, or interest on the Notes (except that holders of at least a
majority in aggregate principal amount of the then outstanding Notes may
(a) rescind an acceleration of the Notes that resulted from a non-payment
default, and (b) waive the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to the
right of Holders to waive past Defaults or the rights of holders of Notes to
receive payments of principal of, or premium, if any, or interest on, the Notes,
(vii) following the occurrence of a Change of Control, amend, change or modify
the Company's obligation to make and consummate a Change of Control Offer by
reason of such a Change of Control or modify any of the provisions or
definitions with respect thereto in a manner adverse to the holders of the Notes
with respect to such Change of Control, or following the occurrence of an Asset
Sale, amend,
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change or modify the Company's obligation to make and consummate an Asset Sale
Offer with respect to such Asset Sale or modify any of the provisions or
definitions with respect thereto in a manner adverse to the holders of the Notes
with respect to such Asset Sale, or (viii) modify or change any of the
provisions of the Indenture relating to the subordination of the Notes in a
manner adverse to the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
provide for the assumption of the Company's obligations to holders of the Notes
in the event of any Disposition involving the Company in which the Company is
not the Surviving Person, (iv) to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the rights of any such holder, (v) to release any Guarantee
permitted to be released under the Indenture, or (vi) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of such Note
for all purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company and ending at the close of business on
the day the notice of redemption is sent to holders, (ii) selected for
redemption, in whole or in part, except the unredeemed portion of any Note being
redeemed in part may be transferred or exchanged, and (iii) during a Change of
Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such
Change of Control Offer or Asset Sale Offer and not withdrawn.
THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) contains limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture is, and the New Notes and the Guarantees will be, governed by
the laws of the State of New York, without regard to the principles of conflicts
of law.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Restricted Subsidiary of, such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is
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redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Acquired Person merges with
or into or becomes a Restricted Subsidiary of such specified Person shall not be
Acquired Debt.
"Additional Interest" has the meaning set forth in the Registration Rights
Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of
each of (i) and (ii), whether in a single transaction or a series of related
transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $250,000. The (i) disposition of property of the Company or any of its
Restricted Subsidiaries that, in the reasonable judgment of the Company, is no
longer useful in the conduct of the business of the Company and its Restricted
Subsidiaries or (ii) a Permitted Investment in a Permitted Joint Venture of the
Company shall not constitute an Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency or instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Rating Services or
Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from Standard & Poor's Rating Services or at
least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit,
time deposits or bankers' acceptances (or, with respect to foreign banks,
similar instruments) maturing within one year from the date of acquisition
thereof issued by any bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or any member of the
European Union or any U.S. branch of a foreign bank or (with respect to any
Restricted Subsidiary) any foreign country in which such Restricted Subsidiary
is located, having at the date of acquisition thereof combined capital and
surplus of not less than $250 million and a Thompson or Keefe Bank Watch Rating
of "B" or better (including bank accounts in such banks); (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
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qualifications specified in clause (iv) above; (vi) in the case of any Foreign
Subsidiary, Investments: (a) in direct obligations of the sovereign nation (or
any agency or instrumentality thereof) in which such Foreign Subsidiary is
organized or is conducting business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency or instrumentality thereof),
(b) of the type and maturity described in clauses (i) through (v) above of
foreign obligors, which Investments or obligors (or the parents of such
obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies or (c) of the type and maturity described in
clauses (i) through (v) above of foreign obligors (or the parents of such
obligors), which Investments or obligors (or the parents of such obligors), are
not rated as provided in such clauses or in clause (vi)(b) but which are, in the
reasonable judgment of the Company, comparable in investment quality to such
Investments and obligors (or the parents of such obligors); and
(vii) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (vi) above.
"Cash Flow" means, with respect to any period, Consolidated Net Income for
such period, plus, to the extent deducted in computing such Consolidated Net
Income: (i) extraordinary net losses, plus (ii) provision for taxes based on
income or profits and any provision for taxes utilized in computing the
extraordinary net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense, plus (iv) depreciation, amortization and all other non-cash
charges (including amortization of goodwill and other intangibles but excluding
any items that will require cash payments in the future for which an accrual or
reserve is made).
"Change of Control" means the occurrence of any of the following events
after the Issue Date: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) (other than one or more Permitted
Holders) is or becomes (including by merger, consolidation or otherwise) the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 50%
or more of the voting power of the total outstanding Voting Stock of the
Company; (ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors, or
whose nomination for election by the stockholders of the Company, was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of such Board of Directors of the Company then in office; (iii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company as a whole and not any
Restricted Subsidiary or Guarantor (whether or not otherwise in compliance with
the terms of the Indenture); or (iv) the sale or other disposition (other than
by way of merger or consolidation) of all or substantially all of the Capital
Stock or assets of the Company and its Restricted Subsidiaries taken as a whole
to any Person or group (as defined in Rule 13d-5 of the Exchange Act) (other
than to one or more of the Permitted Holders) as an entirety or substantially as
an entirety in one transaction or a series of related transactions, unless the
"beneficial owners" of the Voting Stock of such Person immediately prior to such
transaction own, directly or indirectly, more than 50% of the total voting power
of such Person immediately after such transaction.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated
Interest Expense for such period, determined on a pro forma basis after giving
pro forma effect to (a) the incurrence of the Indebtedness giving rise to the
calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such period; (b) the
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incurrence, repayment or retirement of any other Indebtedness by the Company and
its Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (c) in the case
of Acquired Debt, the related acquisition as if such acquisition had occurred at
the beginning of such period; and (d) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of such period.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (a) amortization of debt discount,
(b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by the Company and its Restricted Subsidiaries during such period, and all
capitalized interest of the Company and its Restricted Subsidiaries, plus
(iii) all dividends paid during such period by the Company and its Restricted
Subsidiaries with respect to any Disqualified Stock (other than by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other than any dividend paid in Capital Stock (other than Disqualified Stock)),
in each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains (less all fees and
expenses relating thereto), (ii) the portion of net income (or loss) of the
Company and its Restricted Subsidiaries allocable to interests in unconsolidated
Persons or Unrestricted Subsidiaries, except to the extent of the amount of
dividends or distributions actually paid to the Company or its Restricted
Subsidiaries by such other Person during such period, (iii) for purposes of the
covenant entitled "--Limitation on Restricted Payments," net income (or loss) of
any Person combined with the Company or any of its Restricted Subsidiaries on a
"pooling-of-interests" basis attributable to any period prior to the date of
combination, (iv) net gains and losses (less all fees and expenses relating
thereto) in respect of disposition of assets (including, without limitation,
pursuant to sale and leaseback transactions) other than in the ordinary course
of business, (v) the net income of any Restricted Subsidiary to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income to the Company is not at the time permitted, directly
or indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, or (vi) the
cumulative non-cash effect of any change in accounting principles; provided that
any net gain referred to in clause (iv) above that relates to a Restricted
Investment and which is received in or converted into cash by the Company or a
Restricted Subsidiary during such period shall be included in the consolidated
net income of the Company.
"Consolidated Net Worth" means, with respect to any Person at any date, the
sum of (i) the consolidated stockholders' equity of such Person less the amount
of such stockholders' equity attributable to Disqualified Stock of such Person
and its Subsidiaries (Restricted Subsidiaries, in the case of the Company), as
determined on a consolidated basis in accordance with GAAP consistently applied
and (ii) the amount of any Preferred Stock of such Person not included in the
stockholders' equity of such Person in accordance with GAAP, which Preferred
Stock does not constitute Disqualified Stock.
"Consolidated Tangible Assets" means, with respect to any Person, as of any
date of determination, the total assets, less goodwill, deferred financing costs
and other intangibles and less accumulated amortization, shown on the most
recent balance sheet of such Person, determined on a consolidated basis in
accordance with GAAP.
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"Credit Facility" means the Loan and Security Agreement dated as of
August 31, 1994 and as amended between the Company, certain of its Subsidiaries
and the lenders named therein as the same may be further amended, modified,
renewed, refunded, replaced or refinanced from time to time (including extending
the maturity of, increasing the amount of available borrowings under, extending
the purpose to include acquisition, working capital and other facilities of,
changing the conditions and basis of borrowing of, combining the seniority of,
changing the covenants and other provisions of, and adding Subsidiaries of the
Company as additional borrowers or guarantors, or otherwise restructuring all or
any portion of the Indebtedness under such agreement or any successor or
replacement and whether with the same or any other agent, lender or group of
lenders), including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with any such
amendment, modification, renewal, refunding, replacement or refinancing.
"Currency Agreement Obligations" means the obligations of any person under
a foreign exchange contract, currency swap agreement or other similar agreement
or arrangement to protect such person against fluctuations in currency values.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Designated Senior Debt" means (i) the Indebtedness under the Credit
Facility, and (ii) any other Senior Debt permitted to be incurred under the
Indenture the principal amount of which is $15.0 million or more (including to a
syndicate of lenders or an agent thereof) at the time of the designation of such
Senior Debt as "Designated Senior Debt" by the Company in a written instrument
delivered to the Trustee.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary (other than Preferred Stock owned by the Company or any Wholly Owned
Restricted Subsidiary) and (ii) that portion of any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof (other than upon a Change of
Control of the Company in circumstances where the holders of the Notes would
have similar rights), in whole or in part on or prior to the stated maturity of
the Notes.
"Dollars" and "$" means lawful money of the United States of America.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Foreign Subsidiary" means a Restricted Subsidiary not organized under the
laws of the United States or any political subdivision thereof and the
operations of which are located entirely outside the United States.
"GAAP" means generally accepted accounting principles in the United States
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
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accounting profession in the United States of America, which are applicable as
of the Issue Date and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor" means (i) the domestic Subsidiaries of the Company on the Issue
Date (ii) each of the Company's Restricted Subsidiaries which become Restricted
Subsidiaries after the Issue Date and which are organized in the United States,
and (iii) each of the Company's 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.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto,
(iii) all Capital Lease Obligations of such Person, (iv) all obligations of such
Person in respect of letters of credit or bankers' acceptances issued or created
for the account of such Person, (v) to the extent not otherwise included in this
definition, all net obligations of such Person under Interest Rate Agreement
Obligations or Currency Agreement Obligations of such Person, (vi) all
liabilities of others of the kind described in the preceding clause (i),
(ii) or (iii) secured by any Lien on any property owned by such Person;
provided, however, if the obligations secured by a Lien (other than a Permitted
Lien not securing any liability that would itself constitute Indebtedness) on
any assets or property have not been assumed by such Person in full or are not
such Person's legal liability in full, the amount of such Indebtedness for
purposes of this definition shall be limited to the lesser of the amount of
Indebtedness secured by such Lien and the Fair Market Value of the property
subject to such Lien, (vii) all Disqualified Stock issued by such Person and all
Preferred Stock issued by a Subsidiary of such Person (other than Preferred
Stock of a Restricted Subsidiary owned by the Company or a Wholly Owned
Restricted Subsidiary), and (viii) to the extent not otherwise included, any
Guarantee by such Person of any other Person's indebtedness or other obligations
described in clauses (i) through (vii) above. "Indebtedness" of the Company and
the Restricted Subsidiaries shall not include current trade payables incurred in
the ordinary course of business, and non-interest bearing installment
obligations and accrued liabilities incurred in the ordinary course of business.
The principal amount outstanding of any Indebtedness issued with original issue
discount is the accreted value of such Indebtedness. Notwithstanding the
foregoing, Indebtedness shall not include Indebtedness arising from the honoring
by a bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within 3 business days
of the incurrence thereof. In addition, Indebtedness shall not include a
government grant and any Guarantee of the Company or a Restricted Subsidiary
required by such grant which obligates the Company or a Restricted Subsidiary to
repay such grant at the discretion of such government or upon the failure of the
conditions of such grant specified therein to be fulfilled, but which is
forgiven solely by reason of the passage of time or the fulfillment of such
grant conditions (other than repayment); provided that if the conditions for
forgiveness of such government grant lapse for whatever reason and the Company
or a Restricted Subsidiary becomes obligated to repay such grant, the grant
shall be deemed Indebtedness which is incurred at the time such obligation to
repay is triggered.
"Interest Rate Agreement Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a Guarantee) or
capital contribution to (by means of any transfer of
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cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person. "Investment" shall exclude extensions
of trade credit by the Company and its Restricted Subsidiaries on commercially
reasonable terms in accordance with normal trade practices of the Company or
such Restricted Subsidiary, as the case may be. For the purposes of the
"Limitation on Restricted Payments" covenant, (i) "Investment" shall include and
be valued at the Fair Market Value of the net assets of any Restricted
Subsidiary (to the extent of the Company's equity interest in such Restricted
Subsidiary) at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the Fair Market Value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its 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, however, 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 the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
and/or such Restricted Subsidiary 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 such Restricted Subsidiary not sold or disposed of.
"Issue Date" means June 11, 1998, the date of the original issuance of the
Notes.
"Koffolk" means Koffolk (1949) Ltd., an Israeli corporation and wholly
owned Subsidiary of the Company.
"Koffolk Credit Facility" means such credit agreement as may be entered
into, from time to time, by Koffolk and one or more lenders as the same may be
amended, modified, renewed, refunded, replaced or refinanced from time to time,
including (i) any related notes, letters of credit, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time, and (ii) any notes, guarantees, collateral documents, instruments
and agreements executed in connection with any such amendment, modification,
renewal, refunding, replacement or refinancing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or similar encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to give a security
interest in any asset).
"MRT" means Mineral Resource Technologies, L.L.C., a Delaware limited
liability company, and any corporation into which such limited liability company
may be converted.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash or Cash Equivalent proceeds received by such Person and/or its
Affiliates in respect of such Asset Sale, which amount is equal to the excess,
if any, of (i) the cash or Cash Equivalents received by such Person and/or its
Affiliates (including any cash payments received by way of deferred payment
pursuant to, or monetization of, a note or installment receivable or otherwise,
but only as and when received) in connection with such Asset Sale, over
(ii) the sum of (a) the amount of any Indebtedness that is secured by such asset
and which is repaid by such Person in connection with such Asset Sale, plus
(b) all fees, commissions and other expenses incurred by such Person in
connection with such Asset Sale, plus (c) provision for taxes, including income
taxes, directly attributable to the Asset Sale or to prepayments or repayments
of Indebtedness with the proceeds of such Asset Sale, plus (d) if such Person is
a Restricted Subsidiary, any dividends or distributions payable to holders of
minority interests in such
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Restricted Subsidiary from the proceeds of such Asset Sale, plus
(e) appropriate amounts to be provided or established by the Company or any
Restricted Subsidiary as a reserve against any liabilities associated with 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; provided that upon the release of any such reserves, such amounts shall
constitute "Net Proceeds" hereunder.
"obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of a Person by
two Officers of such Person, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
such Person, that meets the requirements set forth in the Indenture.
"Permitted Holders" means (i) Jack Bendheim; (ii) each of his spouse,
siblings, ancestors, descendants (whether by blood, marriage or adoption, and
including stepchildren) and the spouses, siblings, ancestors and descendants
thereof (whether by blood, marriage or adoption, and including stepchildren) of
such natural persons, the beneficiaries, estates and legal representatives of
any of the foregoing, the trustee of any bona fide trust of which any of the
foregoing, individually or in the aggregate, are the majority in interest
beneficiaries or grantors, and any corporation, partnership, limited liability
company or other Person in which any of the foregoing, individually or in the
aggregate, own or control a majority in interest; and (iii) all Affiliates
controlled by the individual named in clause (i) above.
"Permitted Investments" means (i) any Investment in or in securities of the
Company or any Wholly Owned Restricted Subsidiary; (ii) any investment in cash
or Cash Equivalents; (iii) any Investment in or in securities of a Person
engaged in a Related Business (an "Acquired Person") if, as a result of such
Investment, (a) the Acquired Person becomes a Wholly Owned Restricted
Subsidiary, or (b) the Acquired Person either (1) is merged, consolidated or
amalgamated with or into the Company or one of its Wholly Owned Restricted
Subsidiaries and the Company or such Wholly Owned Restricted Subsidiary is the
Surviving Person, or (2) transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or one of its Wholly Owned Restricted
Subsidiaries; (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any notes, obligations or other securities
received in connection with an Asset Sale that complies with the covenant
described under "Limitations on Asset Sales" or any other disposition not
constituting an Asset Sale; (vi) Interest Rate Agreement Obligations and
Currency Agreement Obligations permitted pursuant to the second paragraph of the
covenant described under "Limitation on Incurrence of Indebtedness" above;
(vii) investments in or acquisitions of Capital Stock or similar interests in
Persons (other than Affiliates of the Company) received in the bankruptcy or
reorganization of or by such Person or any exchange of such investment with the
issuer thereof or taken in settlement of or other resolution of claims or
disputes; (viii) any Investment in or in securities of a Restricted Subsidiary
of the Company in which at least 80% of the outstanding voting securities (other
than directors" qualifying shares) are owned, directly or indirectly, by the
Company or one or more Restricted Subsidiaries or a Surviving Person of any
Disposition involving the Company, as the case may be; provided that for the
purposes of the term "Permitted Investments" an Investment in a Foreign
Subsidiary of the Company pursuant to clauses (i) and (viii) above shall mean
only any direct or indirect loan or other extension of credit at then prevailing
market rates payable in cash (including, without limitation, a guarantee) or any
purchase or acquisition of any bonds, notes, debentures or other securities or
evidences of Indebtedness issued by such Foreign Subsidiary at commercially
reasonable rates payable in cash; provided further, however, that the previous
proviso does not apply in the case of clause (iii) above or to any Investment in
a Foreign Subsidiary existing on the Issue Date; and (ix) any Investment
comprised of property (which shall not include Capital Stock, cash or Cash
Equivalents or Indebtedness) contributed to or in a Permitted Joint Venture of
the Company or a Restricted Subsidiary in the aggregate amount not to exceed 5%
of Consolidated Tangible Assets of the Company for which the Person making such
Investment receives equity interests in such Permitted Joint Venture.
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"Permitted Joint Venture" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited liability
partnership, limited liability company or other business entity, in which the
Company or any of its Restricted Subsidiaries shall contribute capital in the
form of cash or Cash Equivalents or intangible assets, including without
limitation technology and contracts related thereto; provided, however, that
(i) such Person or any Subsidiary of such Person is engaged in a Related
Business, (ii) any cash, Cash Equivalents or assets contributed by such Person
to the capital of such entity shall be treated no less favorably to the Company
or the Restricted Subsidiary than like amounts or values of cash, Cash
Equivalents or assets contributed by other shareholders, partners, members or
other investors, and (iii) if, in the case of a corporation, association or
other business entity, the Company and its Restricted Subsidiary shall own or
control, directly or indirectly, less than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
or, in the case of a partnership, joint venture, limited liability partnership,
limited liability company or similar entity, the Company and its Restricted
subsidiaries shall own or control, directly or indirectly, less than 50% of the
total equity and voting interests, then in each such case the Company or its
Restricted Subsidiary shall obtain the agreement of the other shareholders,
partners or members of such entity that no technology or other non-cash assets
contributed to the capital of such entity by the Company or a Restricted
Subsidiary may be voluntarily disposed of or distributed to any Person other
than the Company or a Restricted Subsidiary without the prior written consent of
the Company or a Restricted Subsidiary.
"Permitted Liens" means (i) Liens on assets or property of the Company that
secure Senior Debt and Liens on assets or property of a Guarantor that secure
Senior Debt; (ii) Liens securing Indebtedness of a Person existing at the time
that such Person is merged into or consolidated with the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of such Person; (iii) Liens on property acquired by the Company
or a Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such acquisition and do not extend to any other
property other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary; (iv) Liens in respect of Interest Rate
Agreement Obligations and Currency Agreement Obligations permitted under the
Indenture; (v) Liens in favor of the Company or any Restricted Subsidiary;
(vi) Liens existing or created on the Issue Date; (vii) Liens securing the Notes
or the Guarantees; (viii) Liens to secure Attributable Debt that is permitted to
be incurred pursuant to the covenant described above under the caption
"--Certain Covenants--Sale and Leaseback Transactions;" (ix) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company and its Restricted Subsidiaries; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding leases;
(xi) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods; (xii) Liens to secure obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or any of its Restricted
Subsidiaries, including the performance of statutory obligations, surety or
appeal bonds or performance bonds, or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's or other like Liens, in any case incurred
in the ordinary course of business and rights to offset and set-off;
(xiii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (xiv) Liens securing Indebtedness incurred
to amend, modify, renew, refund, replace or refinance Indebtedness that has been
secured by a Lien permitted under the Indenture, provided that (a) any such Lien
not extend to or cover any assets or property not securing the Indebtedness so
refinanced and (b) the Refinancing Indebtedness secured by such Lien shall have
been permitted to be incurred under the Indenture; and (xv) Liens on assets of
Foreign Subsidiaries securing Indebtedness permitted by the Indenture.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
"Purchase Money Obligation" means any Indebtedness (as amended, modified,
renewed, refunded, replaced or refinanced) secured by a Lien on assets related
to the business of the Company or the Restricted Subsidiaries, and any additions
and accessions thereto, which are purchased, constructed or improved by the
Company or any Restricted Subsidiary at any time after the Issue Date; provided,
however, that (i) any security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively, a "Security Agreement") shall be entered into within 90 days
after the purchase or substantial completion of the construction or improvement
of such assets and shall at all times be confined solely to the assets so
purchased, constructed or improved, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Security Agreement is entered into exceed 100% of the
purchase price or cost of construction or improvement to the Company or any
Restricted Subsidiary of the assets subject thereto or (B) the Indebtedness
secured thereby shall be with recourse solely to the assets so purchased,
constructed or improved, any additions and accessions thereto and any proceeds
therefrom.
"Related Business" means any business that is reasonably related to or
complementary to the businesses conducted by the Company, or the Restricted
Subsidiaries, on the Issue Date.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company (other than (A) dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock) of
the Company or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary or (C) dividends or distributions by MRT to its members to
permit such members to make payments upon tax obligations); (ii) any payment to
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company; (iii) any payment to purchase, redeem, defease or otherwise acquire
or retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, any Subordinated Indebtedness other than a purchase, redemption,
defeasance or other acquisition or retirement for value that is paid for with
the proceeds of Refinancing Indebtedness that is permitted under the covenant
described under "--Certain Covenants--Limitation on Incurrence of Indebtedness;"
or (iv) any Restricted Investment. A Permitted Investment is not a Restricted
Payment.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Debt" means (A) with respect to the Company, the principal of and
interest (including post-petition interest) on, and all other amounts owing in
respect of, (x) the Credit Facility and (y) any other Indebtedness incurred by
the Company (including, but not limited to, reasonable fees and expenses of
counsel and all other charges, fees and expenses incurred in connection with
such Indebtedness), unless the instrument creating or evidencing such
Indebtedness or pursuant to which such Indebtedness is outstanding expressly
provides that such Indebtedness is on a parity with or subordinated in right of
payment to the Notes, and (B) with respect to any Guarantor, the principal of
and interest (including post-petition interest) on, and all other amounts owing
in respect of, (i) such Guarantor's obligations in respect of the Credit
Facility, including its obligations as a guarantor thereof, and (ii) any other
Indebtedness incurred by such Guarantor (including, but not limited to,
reasonable fees and expenses of counsel and all other charges, fees and expenses
incurred in connection with such Indebtedness), unless the instrument creating
or evidencing such Indebtedness or pursuant to which such Indebtedness is
outstanding expressly provides that such Indebtedness is on a parity with
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or subordinated in right of payment to the Guarantee of such Guarantor.
Notwithstanding the foregoing, Senior Debt shall not include (i) any
Indebtedness for federal, state, local or other taxes, (ii) any Indebtedness
among or between the Company, any Restricted Subsidiary and/or any of their
Affiliates, (iii) any Indebtedness that is incurred in violation of the
Indenture, (iv) Indebtedness evidenced by the Notes or the Guarantees, or
(v) Indebtedness of a Person that is expressly subordinate or junior in right of
payment (other than as a result of the Indebtedness being unsecured) to any
other Indebtedness of such Person.
"Shareholders Agreements" means (i) the Shareholders Agreement dated
December 29, 1987 by and between Marvin S. Sussman and the Company; (ii) the
Shareholders Agreement dated February 21, 1995 among Phibro-Tech, Inc., I. David
Paley, Nathan Z. Bistricer and James O. Herlands; (iii) the Limited Liability
Company Agreement of MRT dated as of November 21, 1995; and (iv) each of the
Severance Agreements between Phibro-Tech, Inc. and I. David Paley, Nathan Z.
Bistricer and James O. Herlands, respectively, each dated February 21, 1995;
each as amended and in effect on the Issue Date, and as thereafter amended,
except for any amendment subsequent to the Issue Date which causes the terms of
such agreement to be less favorable to the Company, Phibro-Tech or MRT, as the
case may be.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated
pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue
Date.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor which (A) if incurred by the Company, is subordinated in right of
payment to the Notes, or (B) if incurred by a Guarantor, is subordinated in
right of payment to the Guarantee of such Guarantor.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under
"--Limitation on Designations of Unrestricted Subsidiaries" and not redesignated
a Restricted Subsidiary in compliance with such covenant.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with
(b) the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary with
respect to which all of the outstanding voting securities (other than directors'
qualifying shares or nominee shares held by a third party to comply with local
law) of which are owned, directly or indirectly, by the Company or a Surviving
Person of any Disposition involving the Company, as the case may be.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons. Except as described below, the New Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depository"), and registered in the name of Cede & Co. ("Cede") as
the Depository's nominee in the form of a global Note (the "Global Note").
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository Participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchaser), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. The Depository agrees with and represents to its
participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
The Depository will credit, on its book-entry registration and transfer
system, the respective principal amounts of the New Notes represented by such
Global Note to the accounts of participants. Ownership of beneficial interests
in the Global Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the Global
Note will be shown on, and the transfer of those ownership interests will be
effected only through, records maintained by the Depository (with respect to
participants' interest) and such participants (with respect to the owners of
beneficial interests in the Global Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole owner and holder of the related New Notes for all
purposes of such New Notes. Owners of beneficial interests in the Global Note
will not be entitled to have the New Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Notes in definitive form and will not be considered to
be the owners or holders of any New Notes under the Global Note. Accordingly,
each person owning a beneficial interest in the Global Note must rely on the
procedures of the Depository and, if such person is not a participant, on the
procedures of the participant through which such person owns its interests, to
exercise any right of a holder of New Notes under the Global Note. The Company
understands that under existing industry practice, in the event an owner of a
beneficial interest in the Global Note desires to take any action that the
Depository, as the holder of the Global Note, is entitled to take, the
Depository would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal or interest in respect of the 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 the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Notes through such participants will be governed by standing instructions and
customary practices, and will be the responsibility of such
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participants. The Company will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Notes for any Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for other aspect of the relationship between the Depository and its
participants or the relationship between such participants and the owners of
beneficial interests in the Global Notes owning through such participants.
Unless and until they are exchanged in whole or in part for certificated
New Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Beneficial owners of New Notes registered in the name of the Depository or
its nominee will be entitled to be issued, upon request, New Notes in definitive
certificated form.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes in
denominations of U.S.$1,000 and integral multiples thereof if (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Global Note or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act, (ii) the Company in its discretion at
any time determines not to have all of the New Notes represented by the Global
Note or (iii) a default entitling the holders of the Notes to accelerate the
maturity thereof has occurred and is continuing. Any New Note that is
exchangeable pursuant to the preceding sentence is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as the
Depository shall direct.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the initial issuance and sale of the Old Notes, the
Initial Purchaser and its assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement
with the Initial Purchaser, for the benefit of the holders of the Old Notes, the
Company and the Guarantors are obligated, at their expense, (i) to file the
Registration Statement of which this Prospectus forms a part with the SEC with
respect to a registered offer to exchange the Old Notes for the New Notes, which
will have terms substantially identical in all material respect to those of the
Old Notes (except that the New Notes will not contain terms with respect to
transfer restrictions) on or before October 9, 1998 and (ii) to use their best
efforts to cause the Registration Statement to be declared effective under the
Securities Act by December 8, 1998. Upon the effectiveness of the Registration
Statement, the Company will offer the New Notes in exchange for surrender of the
Old Notes. The Company will keep the Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date the
Exchange Offer Registration Statement is declared effective. For each Old Note
surrendered to the Company pursuant to the Exchange Offer, the Holder of such
Old Note will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Interest on each New Note will accrue from the last
interest payment date on which interest was paid on the Old Note surrendered in
exchange thereof or, if no interest has been paid on such Old Note, from
June 11, 1998.
Under existing interpretations of the staff of the Commission's Division of
Corporation Finance (the "Staff"), the New Notes will generally be freely
transferable after the Exchange Offer without further
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registration under the Securities Act if the holder of the New Notes represents
that it is acquiring the New Notes in the ordinary course of its business, that
it has no arrangement or understanding with any person to participate in the
distribution of New Notes and that it is not an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company, as such terms are
interpreted by the Commission and the Holder is not engaged in and does not
intend to be engaged in a distribution of such New Notes; provided, however,
that broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such New Notes. To date, the Staff has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (where such securities were acquired as
a result of market-making or other trading activities, other than a resale of an
unsold allotment from the sale of the Old Notes to the Initial Purchaser) with
the prospectus contained in the Exchange Offer Registration Statement. Pursuant
to the Registration Rights Agreement, the Company and the Guarantors have agreed
to permit Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such New Notes.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
the Company and the Guarantors, including that (i) any New Notes to be received
by it will be acquired in the ordinary course of its business, (ii) it has no
arrangement or understanding with any person to participate in a public
distribution (within the meaning of the Securities Act) of the New Notes, (iii)
it is not engaged in and does not intend to engage in a distribution of such New
Notes and (iv) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company, or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
In addition, each holder who is not a broker-dealer will be required to
represent that it is not engaged in, and does not intend to engage in, a public
distribution of the New Notes. Each holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
In the event that applicable interpretations of the Staff do not permit the
Company and the Guarantors to effect the Exchange Offer or if for any other
reason the Exchange Offer is not consummated by January 7, 1999, or if the
Initial Purchaser so requests with respect to the Old Notes not eligible to be
exchanged for New Notes in the Exchange Offer or if any holder of Old Notes is
not eligible to participate in the Exchange Offer or does not receive freely
tradeable New Notes in the Exchange Offer, the Company and the Guarantors will,
at their expense, (a) promptly (but in no event prior to October 9, 1998) file a
Shelf Registration Statement permitting resales from time to time of the Notes,
(b) use their best efforts to cause the Shelf Registration Statement to become
effective and (c) use their best efforts to keep the Shelf Registration
Statement current and effective until two years from the Issue Date or such
shorter period that will terminate when all the Notes covered by the Shelf
Registration Statement have been sold pursuant thereto. The Company and the
Guarantors, at their expense, will provide to each holder of the Notes copies of
the prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes from time to time. A holder of Notes who sells such Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
In the event that (i) the Exchange Offer Registration Statement is not
filed with the SEC on or prior to October 9, 1998 (the 120th day after the Issue
Date) or declared effective on or prior to December 8, 1998 (the 180th day after
the Issue Date), (ii) the Exchange Offer is not consummated on or prior to
January 7, 1999 (the 210th day following the Issue Date), (iii) the Shelf
Registration Statement is not filed or declared effective within the required
time periods or (iv) the Exchange Offer Registration
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Statement or the Shelf Registration Statement is declared effective but
thereafter ceases to be effective (except as specifically permitted therein) for
a period of 15 consecutive days without being succeeded immediately by an
additional Exchange Offer Registration Statement or Shelf Registration
Statement, as the case may be, filed and declared effective (each such event, a
"Registration Default"), the interest rate borne by the Notes shall be increased
by 0.50% per annum for the 90-day period following such Registration Default.
Such interest rate will increase by an additional 0.25% per annum at the
beginning of each subsequent 90-day period following such Registration Default,
up to a maximum aggregate increase of 1.0% per annum. From and after the date
that all Registration Defaults have been cured, the Notes will bear interest at
the rate set forth on the cover page of this Prospectus.
Interest on each New Note will accrue from June 11, 1998 or from the most
recent interest payment date to which interest was paid on the Old Note
surrendered in exchange therefor or on the New Note, as the case may be. The New
Notes will bear interest at 9 7/8% per annum, except that, if any interest
accrues on the New Notes in respect of any period prior to their issuance, such
interest will accrue at the rate or rates borne by the Notes from time to time
during such period.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the material United States federal income tax
consequences associated with the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquired the New Notes
pursuant to the Exchange Offer. It is based upon current laws, regulations,
rulings and judicial decisions, all of which are subject to change. The
information below does not address all aspects of United States federal income
taxation that may be relevant to particular holders in the context of their
specific investment circumstances or certain types of holders subject to special
treatment under such laws (for example, financial institutions, banks,
tax-exempt organizations and insurance companies). In addition, the information
does not address any aspect of state, local or foreign taxation and assumes that
a holder of the New Notes (i) will hold them as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
and (ii) will not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote.
For purposes hereof, a "United States holder" is an individual who is a
citizen or resident of the United States, a corporation, partnership or other
entity created under the laws of the United States or any political subdivision
thereof, or an estate or trust that is subject to United States federal income
taxation without regard to the source of income and a "Non-United States holder"
is any holder who is not a United States holder.
PROSPECTIVE ACQUIRORS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES OF ACQUIRING, OWNING AND
DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. federal income tax
purposes because under Treasury regulations, the New Notes will not be
considered to differ materially in kind or extent from the Old Notes. Rather,
the New Notes received by a holder will be treated as a continuation of the Old
Notes in the hands of such holder. As a result, there will be no U.S. federal
income tax consequences to holders who exchange Old Notes for New Notes pursuant
to the Exchange Offer and any such holder will have
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the same tax basis and holding period in the New Notes as it had in the Old
Notes immediately before the exchange.
UNITED STATES HOLDERS
Interest payable on the New Notes will be includible in the income of a
United States holder in accordance with such holder's regular method of
accounting. If a New Note is redeemed, sold or otherwise disposed of, a United
States holder generally will recognize gain or loss equal to the difference
between the amount realized on the sale or other disposition of such New Note
(to the extent such amount does not represent accrued but unpaid interest) and
such holder's tax basis in the New Note. Subject to the market discount rules
discussed below, such gain or loss will be capital gain or loss, assuming that
the holder has held the New Note as a capital asset, and will be long-term if
the holder's holding period in the New Note (which includes its holding period
in the Old Note for which it was exchanged) exceeds one year at the time of
disposition.
Under the market discount rules of the Code, a holder (other than a holder
who made the election described below) who purchased an Old Note with "market
discount " (generally defined as the amount by which the stated redemption price
at maturity exceeds the holder's purchase price) will be required to treat any
gain recognized on the redemption, sale or other disposition of the New Note
received in the exchange as ordinary income to the extent of the market discount
that accrued during the holding period of such New Note (which would include the
holding period of the Old Note). A holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not, however, be required to treat any gain recognized as ordinary
income under these rules. Holders should consult their tax advisors as to the
portion of any gain that would be taxable as ordinary income under these
provisions.
NON-UNITED STATES HOLDERS
An investment in the New Notes by a Non-United States holder generally will
not give rise to any United States federal income tax consequences if the
interest received or any gain recognized on the sale, redemption or other
disposition of the New Notes by such holder is not treated as effectively
connected with the conduct by such holder of a trade or business in the United
States, and in the case of gains derived by an individual, such individual is
not present in the United States for 183 days or more and certain other
requirements are met. Under current Treasury regulations, in order to avoid
withholding of up to 31% on payments of interest (i) a Non-United States holder
of the New Notes generally must certify to the issuer or its agent, under
penalties of perjury, that it is not a United States person (or, in the case of
an individual, that he is not a U.S. citizen or resident) and complete and
provide the payor with a U.S. Treasury Form W-8 (or a suitable substitute form),
which includes its name and address, or (ii) a securities clearing organization,
bank or other financial organization that holds customers' securities in the
ordinary course of business (a "financial institution") and holds the New Note,
must certify under penalties of perjury that such a Form W-8 (or suitable
substitute form) has been received from the beneficial owner of the New Notes by
it or by a financial institution between it and the beneficial owner, and must
furnish the payor with a copy thereof.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the date of this Prospectus, as extended, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998 (90 days after the
date of this Prospectus), all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
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The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The 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 date of this Prospectus (as extended)
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters as to the validity of the New Notes and the
Guarantees offered hereby will be passed upon for the Company and certain of the
Guarantors by Golenbock, Eiseman, Assor & Bell, New York, New York. Certain
legal matters relating to the issuance of the Guarantees offered hereby will be
passed upon for the Guarantors, as to matters of California law by Blanc
Williams Johnston & Kronstadt, LLP, Los Angeles, California, as to matters of
Pennsylvania law by Martin H. Philip, Esq., Palmerston, Pennsylvania, and as to
matters of Illinois law by Schmiedeskamp, Robertson, New & Mitchell, Quincy,
Illinois.
EXPERTS
The consolidated balance sheets of Philipp Brothers Chemicals, Inc. and
Subsidiaries as of June 30, 1998 and 1997 and the consolidated statements of
operations, changes in stockholders equity, and cash flows for the years then
ended, included in this Prospectus have been included herein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing. As indicated in
their report, the opinion of PricewaterhouseCoopers LLP with respect to the 1997
financial statements is based, in part, on the report of other auditors.
The consolidated statements of operations, changes in stockholders equity,
and cash flows of Philipp Brothers Chemicals, Inc. and Subsidiaries for the year
ended June 30, 1996, included in this Prospectus, have been included herein in
reliance on the report of Edward Isaacs & Company LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing. As
indicated in their report, the opinion of Edward Isaacs & Co. LLP is based, in
part, on the reports of other auditors.
The combined balance sheet of ODDA as of September 30, 1998 and the
combined statements of operations and cash flows for the year then ended,
included in this Prospectus have been included herein in reliance on the report
of PricewaterhouseCoopers DA, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
125
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements for the fiscal years ended June 30, 1998, 1997 and 1996:
Reports of Independent Accountants...................................................................... F-2
Consolidated Balance Sheets--June 30, 1998 and 1997..................................................... F-8
Consolidated Statements of Operations--for the years ended
June 30, 1998, 1997 and 1996......................................................................... F-9
Consolidated Statements of Changes in Stockholders' Equity--for the years ended
June 30, 1998, 1997 and 1996......................................................................... F-10
Consolidated Statements of Cash Flows--for the years ended
June 30, 1998, 1997 and 1996......................................................................... F-11
Notes to Consolidated Financial Statements.............................................................. F-12
Financial Statements for the three months ended September 30, 1998: (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998 and June 30, 1998........................ F-40
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1998 and 1997.......................................................................... F-41
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and 1997.......................................................................... F-42
Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended
September 30, 1998................................................................................... F-43
Notes to Condensed Consolidated Financial Statements.................................................... F-44
Combined Financial Statements of ODDA:
Report of Independent Accountants....................................................................... F-51
Combined Balance Sheet as of September 30, 1998......................................................... F-52
Combined Statement of Operations for the fiscal year ended September 30, 1998........................... F-53
Combined Statement of Cash Flows for the fiscal year ended September 30, 1998........................... F-54
Notes to Combined Financial Statements.................................................................. F-55
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Philipp Brothers Chemicals, Inc.:
In our opinion, based on our audits and, in fiscal 1997, the report of other
auditors, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Philipp Brothers Chemicals, Inc. and Subsidiaries as of June 30, 1998 and 1997,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the fiscal 1997 financial statements of LC Holding
S.A., a wholly owned subsidiary located in France, which statements reflect
total assets and revenues constituting 6.6 percent and 7.4 percent,
respectively, of the related consolidated totals as of and for the year ended
June 30, 1997. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for LC Holding S.A., is based solely on the report of the other
auditors. We conducted our audits of the consolidated financial statements in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Parsippany, New Jersey
September 11, 1998
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders of
Philipp Brothers Chemicals, Inc.
We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity and cash flows of Philipp Brothers Chemicals, Inc. and
Subsidiaries (the "Company") for the year ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of consolidated
subsidiaries located outside the United States, which statements reflect total
assets of 45% of the consolidated total as of June 30, 1996, and total revenues
of 34% of the consolidated totals for the year ended June 30, 1996. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to those subsidiaries, is based
solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Philipp Brothers
Chemicals, Inc. and Subsidiaries for the year ended June 30, 1996, in conformity
with generally accepted accounting principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
September 6, 1996
F-3
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Koffolk (1949) Ltd:
We have audited the consolidated financial statements of Koffolk (1949) Ltd.
(the "Company") and its subsidiaries - translated into U.S. dollars: balance
sheet as of March 31, 1996 and the related statement of income, shareholders'
equity, and cash flows for the year ended. These financial statements are the
responsibility of the Company's board of directors and management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We did not audit the financial statements of the foreign subsidiaries whose
assets constitute 16.8% of the total consolidated assets included in the
consolidated balance sheet and whose revenues constitute 10.3% of the total
consolidated sales included in the consolidated statement of income. The
financial statements of those companies were audited by other independent
auditors, whose reports have been furnished to us, and our opinion, insofar as
it relates to the amounts included for those companies is based solely on the
reports of the other independent auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement either due to error or to intentional
misrepresentation. 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 the Company's board of directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audits and the
reports of other independent auditors provide a fair basis for our opinion.
In our opinion, based on our audits and the reports of other independent
auditors, the financial statements present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
March 31, 1996 and the consolidated results of their operations and the changes
in shareholders' equity and the cash flows for the year ended in conformity with
generally accepted accounting principles in the United States.
DOV KAHANA & CO.
Certified Public Accountants (Isr.)
Tel Aviv, Israel
May 13, 1998
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Philipp Brothers Chemicals, Inc.
We have audited the consolidated balance sheet of LC Holding S.A. and subsidiary
as of June 30, 1997 and the related consolidated statements of income and
retained earnings and cash flows for the years ended June 30, 1996 and June 30,
1997 (not included herein). These consolidated 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 audit in accordance with generally accepted auditing standards.
These 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 audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements (not
included herein), present fairly, in all material respects, the consolidated
financial position of LC Holding S.A. and its subsidiary as at June 30, 1996 and
1997 and the consolidated results of operations and cash flows for the year
ended June 30, 1996 and the year ended June 30, 1997, in conformity with
generally accepted accounting principles in the United States.
CONSTANTIN ASSOCIES
Paris, France
August 24, 1998
F-5
<PAGE>
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Stockholders
of Philipp Brothers Chemicals Inc.
We have audited the accompanying balance sheet of Ferro Metal and Chemical
Corporation Limited (the "Company") as of 30th June 1996, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended not presented herein. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
OPINION
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Ferro Metal and Chemical Corporation Limited as of 30th June 1996,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles in the United States.
WILSON WRIGHT & CO.,
Chartered Accountants
and Registered Auditors,
71 Kingsway,
London WC2B 6 ST.
Date: 28th August 1998
F-6
<PAGE>
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Stockholders
of Philipp Brothers Chemicals Inc.
We have audited the accompanying balance sheet of Wychem Limited (the "Company")
as of 30th June 1996, and the related statements of operations, stockholders'
equity and cash flows for the year then ended not presented herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audit.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
OPINION
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Wychem
Limited as of 30th June 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles in the United States.
WILSON WRIGHT & CO.,
Chartered Accountants
and Registered Auditors,
71 Kingsway,
London WC2B 6 ST.
Date: 29th September 1998
F-7
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
1998 1997
-------- --------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................................. $ 24,221 $ 4,093
Trade receivables, less allowance for doubtful accounts of $751 in
1998 and $656 in 1997.............................................................. 57,560 52,129
Other receivables..................................................................... 6,000 9,180
Inventories........................................................................... 37,567 37,639
Prepaid expenses and other current assets............................................. 5,491 4,138
-------- --------
Total current assets.................................................................... 130,839 107,179
Property, plant and equipment, net...................................................... 40,510 45,309
Intangibles............................................................................. 3,771 1,355
Other assets............................................................................ 17,076 8,857
-------- --------
$192,196 $162,700
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks................................................................ $ -- $ 13,332
Current portions of long-term debt.................................................... 1,646 19,127
Accounts payable...................................................................... 33,432 31,279
Other loans payable................................................................... 492 387
Accrued expenses and other current liabilities........................................ 15,602 19,550
-------- --------
Total current liabilities............................................................... 51,172 83,675
Long-term debt.......................................................................... 102,158 34,413
Other liabilities....................................................................... 10,103 5,395
-------- --------
Total liabilities....................................................................... 163,433 123,483
-------- --------
Commitments and contingencies
Redeemable securities:
Common stock.......................................................................... 2,563 3,813
Common stock of subsidiary............................................................ 2,623 --
-------- --------
Total redeemable securities............................................................. 5,186 3,813
-------- --------
Stockholders' equity:
Special preferred stock--$100 par value, 1,000 shares authorized; none issued at
June 30, 1998...................................................................... -- --
First preferred stock--$100 par value, 28,750 shares authorized; none issued.......... -- --
Second preferred stock--$100 par value, 66,000 shares authorized; none issued at
June 30, 1998 and 6,800 shares issued at June 30, 1997............................. -- 680
Third preferred stock--$100 par value, 6% noncumulative, 60,000 shares authorized;
5,207 shares issued at June 30, 1998 and 1997...................................... 521 521
Common stock--$0.10 par value, 38,400 shares authorized; 24,488 shares issued at
June 30, 1998 and 1997 (See Note 8)................................................ 3 3
Paid-in capital....................................................................... 435 2,364
Retained earnings..................................................................... 23,221 32,314
Foreign currency translation adjustment............................................... (603) (478)
-------- --------
Total stockholders' equity.............................................................. 23,577 35,404
-------- --------
$192,196 $162,700
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................................... $277,983 $268,362 $241,395
Cost of goods sold.......................................................... 208,913 201,038 181,033
-------- -------- --------
Gross profit.............................................................. 69,070 67,324 60,362
Selling, general and administrative expenses................................ 63,297 56,093 51,171
Curtailment of operations at manufacturing facility......................... 10,000 -- --
-------- -------- --------
Operating income (loss)................................................... (4,227) 11,231 9,191
Other:
Interest expense, net of capitalized interest of $377 in 1996............. 6,865 6,253 5,546
Interest income........................................................... (383) (252) (377)
Gain on life insurance policy............................................. -- (5,642) --
Other expense, net........................................................ 1,045 1,768 1,371
-------- -------- --------
Income (loss) before income taxes and extraordinary item.................. (11,754) 9,104 2,651
Provision (benefit) for income taxes........................................ (4,689) 1,068 2,661
-------- -------- --------
Income (loss) before extraordinary item................................... (7,065) 8,036 (10)
Extraordinary loss on extinguishment of debt (net of applicable income taxes
of $1,011)................................................................ (1,962) -- --
-------- -------- --------
Net income (loss)......................................................... $ (9,027) $ 8,036 $ (10)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK -----------------------------
------------------------- CLASS CLASS CLASS CLASS PAID-IN
SPECIAL SECOND THIRD "A" "B" "C" "E" CAPITAL
------- ------- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1,1995................................. $ 100 $ 6,537 $ -- $ 1 $ 1 $ 1 $-- $ 7,003
Issuance of third preferred stock.................. -- -- 521 -- -- -- -- 57
Translation adjustment............................. -- -- -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- -- -- --
----- ------- ----- --- --- --- --- -------
Balance, June 30, 1996............................... 100 6,537 521 1 1 1 -- 7,060
Redemption of preferred stock...................... (100) (5,857) -- -- -- -- -- (4,696)
Translation adjustment............................. -- -- -- -- -- -- -- --
Net income......................................... -- -- -- -- -- -- -- --
----- ------- ----- --- --- --- --- -------
Balance, June 30, 1997............................... -- 680 521 1 1 1 -- 2,364
Redemption of preferred stock...................... -- (680) -- -- -- -- -- --
Translation adjustment............................. -- -- -- -- -- -- -- --
Receivable from principal shareholder.............. -- -- -- -- -- -- -- (429)
Distribution to principal shareholder for
acquisition of business......................... -- -- -- -- -- -- -- (1,500)
Net income......................................... -- -- -- -- -- -- -- --
----- ------- ----- --- --- --- --- -------
Balance, June 30, 1998............................... $ -- $ -- $ 521 $ 1 $ 1 $ 1 $-- $ 435
----- ------- ----- --- --- --- --- -------
----- ------- ----- --- --- --- --- -------
<CAPTION>
APPRAISAL
FOREIGN VALUE
CURRENCY REFLECTED IN
RETAINED TRANSLATION PREFERRED
EARNINGS ADJUSTMENT STOCK TOTAL
-------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Balance, July 1,1995................................. $ 24,288 $ 97 $ (4,200) $33,828
Issuance of third preferred stock.................. -- -- -- 578
Translation adjustment............................. -- (882) (882)
Net loss........................................... (10) -- -- (10)
-------- ------ -------- -------
Balance, June 30, 1996............................... 24,278 (785) (4,200) 33,514
Redemption of preferred stock...................... -- -- 4,200 (6,453)
Translation adjustment............................. -- 307 -- 307
Net income......................................... 8,036 -- -- 8,036
-------- ------ -------- -------
Balance, June 30, 1997............................... 32,314 (478) -- 35,404
Redemption of preferred stock...................... -- -- -- (680)
Translation adjustment............................. -- (125) -- (125)
Receivable from principal shareholder.............. -- -- -- (429)
Distribution to principal shareholder for
acquisition of business......................... (66) -- -- (1,566)
Net income......................................... (9,027) -- -- (9,027)
-------- ------ -------- -------
Balance, June 30, 1998............................... $ 23,221 $ (603) $ -- $23,577
-------- ------ -------- -------
-------- ------ -------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-10
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30 , 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss).......................................................... $ (9,027) $ 8,036 $ (10)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization........................................... 9,253 9,342 8,006
Gain on life insurance.................................................. -- (5,642) --
Deferred income taxes................................................... (5,229) (859) 272
Forgiveness of promissory notes......................................... 2,591 -- --
Provision for curtailment of operations at manufacturing facility....... 10,000 -- --
Change in redemption amount of redeemable securities.................... (1,250) -- --
Extraordinary loss on extinguishment of debt, net of tax................ 1,962 -- --
Other................................................................... 1,391 (222) (694)
Changes in operating assets and liabilities, net of effect of business
acquired:
Accounts receivable................................................... (5,487) (4,356) 841
Inventories........................................................... 1,605 (868) (1,859)
Prepaid expenses and other current assets............................. (3,279) 439 844
Other assets.......................................................... (1,349) (529) (377)
Accounts payable...................................................... (879) (1,394) (6,644)
Accrued expenses and other current liabilities........................ 1,037 (1,024) 301
-------- ------- --------
Net cash provided by operating activities.................................... 1,339 2,923 680
-------- ------- --------
Investing activities:
Capital expenditures....................................................... (8,031) (4,697) (8,892)
Purchase of business, net of cash acquired................................. -- -- (3,881)
-------- ------- --------
Net cash used in investing activities........................................ (8,031) (4,697) (12,773)
-------- ------- --------
Financing activities:
Cash overdraft............................................................. 1,915 2,817 --
Net (decrease) increase in short-term debt................................. (13,533) (176) 3,993
Proceeds from long-term debt............................................... 100,380 1,691 13,050
Payments of long-term debt................................................. (52,922) (3,896) (3,099)
Payments of deferred financing costs....................................... (3,724) -- --
Extinguishment of debt..................................................... (2,600) -- --
Proceeds from life insurance............................................... 6,045 -- --
Distribution to principal shareholder for acquisition of business.......... (1,500) -- --
Receivable from principal shareholder...................................... (429) -- --
Redemption of preferred stock.............................................. (6,812) -- --
-------- ------- --------
Net cash provided by financing activities.................................... 26,820 436 13,944
-------- ------- --------
Net increase (decrease) in cash and cash equivalents......................... 20,128 (1,338) 1,851
Cash and cash equivalents at beginning of year............................... 4,093 5,431 3,580
-------- ------- --------
Cash and cash equivalents at end of year..................................... $ 24,221 $ 4,093 $ 5,431
-------- ------- --------
-------- ------- --------
Supplementary cash flow information:
Interest paid.............................................................. $ 6,060 $ 7,313 $ 4,157
-------- ------- --------
-------- ------- --------
Income taxes paid.......................................................... $ 1,930 $ 1,134 $ 2,595
-------- ------- --------
-------- ------- --------
Summary of significant noncash investing and financing activities:
Preferred stock redemption................................................. $ -- $ 6,453 $ --
-------- ------- --------
-------- ------- --------
Conversion of debt to preferred stock...................................... $ -- $ -- $ 578
-------- ------- --------
-------- ------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
Philipp Brothers Chemicals, Inc., is a diversified global manufacturer and
marketer of a broad range of specialty and industrial chemicals, which are sold
worldwide for use in numerous markets. Many of the Company's products provide
critical performance attributes to its customers' products, while representing a
relatively small percentage of total end-product costs. The Company has four
product groups: (i) Animal Nutrition and Health; (ii) Intermediates and
Industrial Chemicals; (iii) Crop Protection; and (iv) Electronics and Metal
Treatment. During fiscal 1998, the Company's products were manufactured at nine
facilities in the United States, two facilities in Europe, two facilities in
Israel and one facility in South America.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Philipp
Brothers Chemicals, Inc. and its subsidiaries, all of which are either wholly
owned or controlled (collectively, referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
The fiscal years of the Company's Israeli and Brazilian subsidiaries end on
March 31. Accordingly, the accounts of these subsidiaries are included in the
consolidated financial statements on a three month lag. The consolidated balance
sheets include a receivable from the subsidiaries in the amount of $2,686 at
June 30, 1998, included in other receivables, and a payable of $271 at June 30,
1997, included in accrued expenses and other current liabilities, which
represent net transactions (merchandise purchases and cash payments) with the
subsidiaries during the three months ended June 30.
RISKS AND UNCERTAINTIES:
As a specialty and industrial chemicals company, the Company is subject to
a variety of United States and foreign laws and regulations relating to
pollution and protection of the environment. In addition, the testing,
manufacturing and marketing of certain products are subject to extensive
regulation by several government authorities in the United States and other
countries. The Company is also required to obtain and retain governmental
permits and approvals to conduct various aspects of its operations. The Company
has significant assets located outside of the United States, and a significant
portion of the Company's sales and earnings are attributable to operations
conducted abroad. International manufacturing, sales and raw materials sourcing
are subject to certain inherent risks, including political instability, price
and exchange controls, unexpected changes in regulatory environments, and
potentially adverse tax consequences. In addition, the Company is affected by
social, political and economic conditions affecting Israel, and any major
hostilities involving Israel or curtailment of trade between Israel and its
current trading partners, either as a result of hostilities or otherwise, could
have a material adverse effect on the Company.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the periods reported. Actual results could differ from those estimates.
The most significant estimates include reserves for bad debts, inventory
obsolescence, and environmental matters.
F-12
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
REVENUE RECOGNITION:
Revenue is recognized upon shipment of products. Net sales are comprised of
total sales billed, net of goods returned, trade discounts and customer
allowances.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost or market. Cost is determined
principally under the first-in, first-out (FIFO) and average methods; however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing inventories. Obsolete or unsaleable inventory is reflected at its
estimated net realizable value. Inventory costs include materials, direct labor
and manufacturing overhead.
If the LIFO method of valuing certain inventories had not been used, total
inventories at June 30, 1998 and 1997 would have been higher by $928 and $796,
respectively. Inventories valued at LIFO amounted to $3,999 at June 30, 1998 and
$4,475 at June 30,1997.
Inventories consist of the following at June 30,1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Raw materials............................................... $18,511 $20,396
Work in process............................................. 2,604 2,425
Finished goods.............................................. 16,452 14,818
------- -------
$37,567 $37,639
------- -------
------- -------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are carried at cost less accumulated
depreciation. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed when incurred. Upon retirement or other disposition,
the cost and related accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations. Depreciation is
calculated using the straight-line method based upon estimated useful lives as
follows:
<TABLE>
<S> <C>
Building and improvements............................... 8-20 years
Machinery and equipment................................. 3-10 years
</TABLE>
DEFERRED FINANCING COSTS:
In connection with the issuance of notes described in Note 2, the Company
has recorded deferred financing costs of $3,724 that are included in Other
Assets. These costs will be amortized using the interest method over the ten
year life of the notes.
F-13
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INTANGIBLES:
The excess of cost over fair value of purchased subsidiaries is being
amortized over 10 to 15 years. Identifiable intangible assets are being
amortized on a straight-line basis over their estimated useful lives ranging
from 5 to 10 years. Accumulated amortization amounted to $ 7,843 and $7,073 at
June 30, 1998 and 1997, respectively.
At each balance sheet date, management evaluates the recoverability of
intangible assets using certain financial indicators, such as historical and
future ability to generate income from operations. The Company's policy is to
record an impairment loss in the period when it is determined that the carrying
amount of the asset may not be recoverable. This determination is based on an
evaluation of such factors as the occurrence of a significant event, a
significant change in the environment in which the business operates, or if the
expected future net cash flows (undiscounted and without interest) are less than
the carrying amount of the assets.
LICENSING AND PERMIT FEES:
Licensing and permit fees incurred to obtain the required federal, state
and local hazardous waste treatment, storage and disposal permits are included
in other assets and are amortized over the lives of the licenses and permits of
5 to 10 years. The balances included in other assets are $885 at June 30, 1998
and $1,109 at June 30, 1997, net of accumulated amortization.
FOREIGN CURRENCY TRANSLATION:
Balance sheet accounts of the Company's foreign subsidiaries, with the
exception of the Brazilian subsidiary and a subsidiary of Koffolk Israel are
translated at current rates of exchange, and income and expense items are
translated at the average exchange rate for the year. The resulting translation
adjustments are reflected as a separate component of stockholders' equity. The
Brazilian subsidiary operates in a highly inflationary economy and the
subsidiary of Koffolk Israel transacts substantially all of its business in U.S.
dollars. Accordingly, the U.S. dollar is designated as the functional currency
for these operations and translation gains and losses are included in
determining net income or loss.
Translation losses relating to short and long-term debt of the Company's
Israeli subsidiary that are denominated or linked to foreign currencies are
included in other expense, net in the amounts of $979, $2,270, and $1,055 in the
accompanying consolidated statements of operations for the years ended June 30,
1998, 1997 and 1996, respectively. Other foreign currency transaction gains and
losses are not material.
DERIVATIVE FINANCIAL INSTRUMENTS:
The Company uses a variety of derivative financial instruments, including
interest rate caps and foreign currency forward contracts as a means of hedging
exposure to interest rate and foreign currency risks. The Company utilized
interest rate caps to hedge its floating interest rate exposure on bank
borrowings. Reimbursements and amortization of the interest caps over their
terms are recorded as adjustments to interest expense. Gains or losses on
foreign currency forward contracts are included in cost of sales when
transactions are settled. The Company also utilizes, on a limited basis, certain
commodity derivatives, primarily on copper used in its manufacturing process, to
hedge the cost of its anticipated production requirements. The gains or losses
on these instruments are included in cost of sales upon expiration or sale of
the instruments. The Company and its subsidiaries do not utilize these
instruments for speculative purposes. The Company monitors the financial
stability and credit standing of its major counterparties.
F-14
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ADVERTISING COSTS:
Advertising expenditures, expensed when incurred, were $826, $799 and $930
for the years ended June 30, 1998, 1997 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS:
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
was effective for the Company's fiscal year 1997. This standard requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. The adoption of this
standard had no effect on the Company's financial position, results of
operations or cash flows.
ENVIRONMENTAL LIABILITIES:
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures related to improving the condition of property compared with the
condition of that property when constructed or acquired are capitalized. The
Company also capitalizes expenditures that prevent future environmental
contamination. Other expenditures are expensed as incurred. Liabilities are
recorded when environmental assessments indicate that remedial efforts are
probable and the costs can be reasonably estimated. Estimates of the liability
are based upon currently available facts, existing technology, and presently
enacted laws and regulations taking into consideration the likely effects of
inflation and other societal and economic factors. All available evidence is
considered, including prior experience in remediation of contaminated sites,
other companies' clean-up experience, and data released by the Environmental
Protection Agency or other organizations. When such costs are incurred over a
long-term period and can be reliably estimated as to timing, the liabilities are
included in the consolidated balance sheets at their discounted amounts.
The Company adopted American Institute of Certified Public Accountants
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities", in
fiscal 1998. This SOP prescribes that accrued environmental remediation-related
expenses include direct costs of remediation and indirect costs related to the
remediation effort. The effect of initially applying the provisions of this SOP
at the beginning of fiscal 1998 did not have a material effect on the Company's
financial position, results of operations or cash flows.
INCOME TAXES:
Income tax expense includes U.S. and foreign income taxes. The tax effect
of certain temporary differences between amounts recognized for financial
reporting purposes and amounts recognized for tax purposes are reported as
deferred income taxes. Deferred tax balances are adjusted to reflect tax rates,
based on current tax laws, that will be in effect in the years in which the
temporary differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts more likely
than not to be realized.
F-15
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RESEARCH AND DEVELOPMENT EXPENDITURES:
Research and development expenditures were $774, $754 and $610 for the
years ended June 30, 1998, 1997 and 1996, respectively.
NEW PRONOUNCEMENTS:
The Company intends to adopt SFAS No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosures About Pension and other
Postretirement Benefits" in fiscal 1999. These standards will require revised
disclosure but will not have a material effect on the Company's financial
position, results of operations, or cash flows.
The Company will also be required to adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" in fiscal 2001. This standard
will require the Company to record all its derivative financial instruments as
assets or liabilities measured at fair value. Management has not yet assessed
the potential impact of this standard on its financial position, results of
operations or cash flows.
2. ISSUANCE OF SENIOR SUBORDINATED NOTES AND RELATED TRANSACTIONS
On June 11, 1998, the Company issued $100 million aggregated principal
amount of 9-7/8% Senior Subordinated Notes due June 1, 2008. Proceeds from the
note offering were used to repay indebtedness of the Company.
In connection with the issuance of the Senior Subordinated Notes, the
Company (i) acquired Koffolk USA from its principal shareholder, (ii) acquired
the interest in MRT (Note 3) owned by its principal shareholder and (iii)
forgave certain indebtedness of executives related to stock ownership of a
subsidiary.
Koffolk USA was acquired from the principal shareholder of the Company for
$1.5 million in cancellation of advances due from the principal shareholder,
representing the fair value of the assets acquired based upon a valuation
performed on behalf of the principal shareholder of the Company. As a result of
common ownership, Koffolk USA has been included in the financial statements in a
manner similar to a pooling of interests. Consequently, the net assets of
Koffolk USA have been recorded at the carryover basis of the principal
shareholder (a net deficit of $66) and the $1.5 million consideration has been
reflected as a distribution of paid-in capital. The results of operations for
fiscal 1998 include the results of Koffolk USA from the beginning of the year.
Prior year financial statements have not been restated due to the immateriality
of Koffolk USA to the consolidated results of operations and financial position
of the Company.
Prior to issuance of the Notes, the Company owned 58% of MRT. As part of
the transaction, the Company acquired the principal shareholder's interest in
MRT of 29.2% for $25,000.
Additionally, in June 1998, a subsidiary of the Company canceled the
limited recourse notes issued by executives related to acquiring 10.7% of the
stock of the subsidiary and forgave all amounts due the Company. The Company
also paid the executives an additional aggregate amount of $2,740 as
reimbursement for their income tax liability related to the forgiveness. The
forgiveness of the notes and the income tax reimbursement totaling $5,604 is
reflected as compensation expense in selling, general and administrative
expenses in the accompanying consolidated statement of operations.
F-16
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
3. ACQUISITION AND FORMATION OF SUBSIDIARY
Effective December 7, 1995, the Company's Israeli subsidiary acquired all
of the outstanding shares of Planalqumica Industrial Ltda., a Brazilian company
engaged in the manufacture and sale of animal health products, for $3,881 in
cash and $202 in short-term debt. The acquisition cost was funded with long-term
borrowings. The acquisition was accounted for as a purchase and, accordingly,
the acquired assets and liabilities were recorded at their fair values at the
acquisition date. The operating results of Planalqumica Industrial Ltda. are
included in the Company's consolidated statements of operations from the date of
acquisition. The fair value of assets acquired, including goodwill, was $5,504,
and liabilities assumed totaled $1,421. Goodwill related to this acquisition of
$776 is being amortized over 10 years on a straight-line basis.
Effective November 21, 1995, a subsidiary of the Company formed Mineral
Resource Technologies, L.L.C., ("MRT"). The limited liability company agreement
of MRT provides for the vesting of interests to the minority members over
certain periods of employment and granting of additional membership interests to
the minority members based on certain performance goals. No additional
membership interests have been granted. The agreement also provides for the
purchase of the minority interests for fair value in connection with termination
of employment. MRT is engaged principally in the management and recycling
services of coal fly ash and municipal solid waste ash and related by-products
and residues generated by public utilities and other combustion and mineral
by-product producers. Refer to Note 2 concerning the Company's ownership of MRT.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land........................................................ $ 2,108 $ 2,124
Buildings and improvements.................................. 19,837 19,729
Machinery and equipment..................................... 74,491 79,514
------- -------
96,436 101,367
Less: Accumulated depreciation.............................. 55,926 56,058
------- -------
$40,510 $45,309
------- -------
------- -------
</TABLE>
Certain of the buildings of the Company's Israeli subsidiary are situated
on land leased for a nominal amount from the Israel Land Authority. The lease
expires on July 9, 2027.
Depreciation expense amounted to $8,023, $7,886 and $6,618 for the years
ended June 30, 1998, 1997 and 1996, respectively.
5. RELATED PARTY TRANSACTIONS
In June 1998, the Company acquired the stock of Koffolk Inc. ("Koffolk
USA") from the principal shareholder of the Company (refer to Note 2). Koffolk
USA was formed on February 6, 1996 to purchase from Merck & Co., Inc. ("Merck")
the United States distribution rights for Nicarb and Amprol, together with
certain labels and trademarks relating to Nicarb. These drugs are used in the
poultry production industry to prevent and treat a parasitic disease.
Prior to such acquisition and since the beginning of the operations of
Koffolk USA in 1996, a subsidiary of the Company sold products to Koffolk USA.
Sales by the subsidiary amounted to $4,371 in 1997, and accounts receivable in
the 1997 consolidated balance sheet includes $2,243 due from the affiliate in
connection with these sales. In addition, the Company charged the affiliate a
fee for certain administrative services including treasury, credit and
collections, customer service, order processing
F-17
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS--(CONTINUED)
and financial reporting functions. Fees charged for the year ended June 30,
1997, amounted to $367, and other receivables in the 1997 consolidated balance
sheet include $217 due from the affiliate in connection with these charges.
Refer to Note 2 for a description of the accounting for the acquisition of
Koffolk USA.
In November 1995, the Company formed MRT Management Corp. ("MMC"), to
manage Mineral Resource Technologies, L.L.C. Before giving effect to the
acquisition by MMC of membership units in MRT from the principal shareholder of
the Company, MMC owned 57.6% of the membership interests in MRT, and the
principal shareholder and certain unrelated parties owned 29.2% and 13.2%
interests in MRT, respectively. The principal shareholder has from time to time
made loans and advances to MRT when and as needed, in response to MRT's working
capital requirements. In June 1998, the Company has acquired the principal
shareholder's interest in MRT for $25 and repaid $995 of loans made by him to
MRT.
A subsidiary of the Company leases the property underlying its Santa Fe
Springs, California plant from an affiliate which is controlled by shareholders
of the Company. The lease requires annual base rent of $250. The Company is
responsible under the lease agreement to pay all real property taxes. In
connection with the sale by the Company of its Senior Subordinated Notes due
June 1, 2008, (refer to Note 2) the term of such lease was extended to June 30,
2008.
The Company had a liability to an affiliate controlled by the principal
shareholder of the Company in the amount of $482 and $436 at June 30, 1998 and
1997, respectively. The liability, which is non-interest bearing and was paid in
July 1998, was reflected in the consolidated balance sheets net of unamortized
discount of $0, $43 and $81 at June 30, 1998, 1997 and 1996, respectively, based
on imputed interest at 9.5%.
The Company periodically advances funds to the principal shareholder on a
short-term, non-interest-bearing basis. The amounts outstanding at June 30, 1998
have been reflected as a reduction of stockholders' equity and the amounts at
June 30, 1997 was not material.
F-18
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
6. DEBT
Long-term debt consists of the following at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Domestic:
Senior Subordinated Notes due June 1, 2008(a)...................... $100,000 $ --
Note payable in seven equal annual installments beginning June 29,
1998(b)......................................................... -- 20,000
Bank borrowings under revolving credit loan agreement(b)........... -- 11,400
Note payable by subsidiary in monthly installments of $21,
inclusive of interest at 10%, through December 1997(c).......... -- 123
Notes payable by subsidiary in connection with noncompete
agreements, payable through June 1999 without interest, less
unamortized discount of $69 in 1997 based on imputed interest at
10 1/2%(c)...................................................... 226 431
Environmental litigation settlement, with interest at 8.57%,
payable in annual installments through March 2001, interest
imputed at 10%(d)............................................... 836 1,044
Obligation, payable through March 2000 without interest, less
unamortized discount of $191, based on an effective interest
rate of 8.5%(e)................................................. 1,809 --
Capitalized lease obligations and other............................ 878 653
Foreign:
Loans payable to banks in U.S. dollars or linked to U.S. dollars
with variable interest based on LIBOR-approximately at 6.9% to
7.4% in 1997 maturing through fiscal 2004(f).................... -- 17,103
Bank term loan with interest at 7.75%, payable in French Francs in
annual installments through May 31, 2001(g)..................... -- 1,136
Bank term loan with interest at PIBOR plus 1.50%, payable in French
Francs in annual installments through May 31, 2001(g)........... -- 1,136
Capitalized lease obligations and other............................ 55 514
-------- -------
103,804 53,540
Less: Current maturities............................................. 1,646 19,127
-------- -------
$102,158 $34,413
-------- -------
-------- -------
</TABLE>
- ------------------
(a) In June 1998, the Company issued $100 million aggregate principal amount
of 9-7/8% Senior Subordinated Notes due June 1, 2008. The Notes are
general unsecured obligations of the Company and are subordinated in
right of payment to all existing and future senior debt (as defined in
the indenture agreement of the Company) and will rank pari passu in right
of payment with all other existing and future senior subordinated
indebtedness of the Company. The Notes are unconditionally guaranteed on
a senior subordinated basis by the current domestic subsidiaries of the
Company (the "Guarantors"). Additional future domestic subsidiaries may
become Guarantors under certain circumstances.
The Indenture contains certain covenants with respect to the Company and
the Guarantors, which will restrict, among other things, (a) the
incurrence of additional indebtedness, (b) the payment of dividends and
other restricted payments, (c) the creation of certain liens, (d) the
sale
F-19
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
6. DEBT--(CONTINUED)
of assets, (e) certain payment restrictions affecting subsidiaries, and
(f) transactions with affiliates. The Indenture will also restrict the
Company's ability to consolidate, or merge with or into, or to transfer
all or substantially all of its assets to, another person.
(b) On August 31, 1994, the Company issued a 10-year, $20,000 senior
unsecured note ("Note") with interest at 11%, payable semi-annually. This
Note was repaid in June 1998.
On that same date, the Company entered into a three-year renewable
revolving credit facility ("Revolving Facility") with a bank for up to
$20,000 in revolving credit advances. Borrowings were limited to
percentages of eligible receivables as defined. The Company, under terms
of this facility, was able to choose between two interest rate options:
(i) bank base rate as defined plus 3/4% or (ii) LIBOR rate as defined
plus 2-3/4%, and the duration (one to six months) for which the
applicable interest rate may apply. The facility had been extended
through October 1, 1998 before being repaid in June 1998.
The Note and Revolving Facility agreements required, among other things,
the maintenance of certain fixed charge coverage, leverage and current
ratios, and a certain level of tangible net worth for the domestic
operations of the Company, as defined. In addition, there are certain
restrictions on additional borrowings, additional liens on the Company's
assets, guarantees, dividend payments, redemption or purchase of the
Company's stock, sale of subsidiaries' stock, disposition of assets,
investments, mergers and acquisitions. At June 30, 1997, the Company was
in default of the fixed charge coverage ratio, which had been waived by
the lenders.
In connection with the termination of the Note and Revolving Facility
agreements the Company repaid all amounts outstanding under the Note and
Revolving Facility agreement, paid a prepayment fee of $2,600, terminated
certain interest rate caps on floating rate debt that was repaid for a
charge of $162 and wrote off unamortized financing costs of $210. These
charges of $1,962 (net of $1,011 in taxes) are reflected as an
extraordinary item in the accompanying consolidated statements of
operations.
(c) These notes were collateralized by real property and machinery of a
domestic subsidiary and were repaid in June 1998.
(d) The New Jersey Department of Environmental Protection Division of
Hazardous Waste Management and the Division of Water Resources and a
subsidiary of the Company entered into an Administrative Consent Order
(ACO) effective March 11, 1991, which resolved all previous enforcement
actions against the Company's subsidiary. The ACO required payment of a
penalty, which was provided for in prior years, in the amount of $2,200
with interest calculated at 8.57% per annum, in 10 equal annual
installments.
(e) This obligation is in connection with the acquisition of certain
intangible assets acquired by Koffolk USA (see Note 2).
(f) The loans are collateralized by certain assets of the Company's Israeli
subsidiary and were repaid in June 1998.
(g) These notes were secured by the pledge of shares of the Company's French
subsidiary and were repaid in June 1998. The loan agreement also
restricted the payment of dividends by the subsidiary.
F-20
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
6. DEBT--(CONTINUED)
The aggregate maturities of long-term debt after June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- -------------------------------------------------------------
<S> <C>
1999......................................................... $ 1,646
2000......................................................... 1,416
2001......................................................... 439
2002......................................................... 121
2003......................................................... 108
Thereafter................................................... 100,074
--------
Total...................................................... $103,804
--------
--------
</TABLE>
7. REDEEMABLE COMMON STOCK OF SUBSIDIARY
In fiscal 1995, a subsidiary of the Company sold restricted shares of
Class B common stock to certain key executives at fair market value, which
resulted in the executives having a 10.7% ownership in the subsidiary. The
Company received, as consideration for the shares, limited recourse notes in the
amount of $2,225 maturing the earlier of: (a) termination of the key executive,
(b) death or (c) February 21, 2003. Interest accrued at the annual rate of 7.74%
and was payable at maturity of the notes. The subsidiary's shares are redeemable
at fair market value, based on independent appraisal, upon death, disability or
termination of the key executive. Adjustments to record the shares at their
redeemable value have been charged to compensation expense. The redeemable value
of the shares at June 30, 1997 has been reduced by the outstanding amounts of
the notes and included in other liabilities in the consolidated financial
statements. In connection with the issuance of the Senior Subordinated Notes,
referred to in Note 2, the limited recourse notes have been forgiven.
In addition, in fiscal 1995 the Company and its subsidiary entered into
severance agreements with the executives, for payments based on a multiple of
pretax earnings, as defined, and which were subject to certain restrictions
pursuant to terms of the Note Agreement. At June 30, 1998, aggregate severance
payments of approximately $800 would have been due the executives if they were
terminated.
8. PREFERRED STOCK, COMMON STOCK AND PAID-IN CAPITAL
PREFERRED STOCK:
In connection with the death of the Chairman of the Board of the Company in
May 1997, pursuant to terms of an agreement with shareholders, the Company
recorded a liability in the amount of $6,453 for the effective redemption of
59,573 shares of special and second preferred stock and reduced this number of
shares from the amount outstanding. The Company was required to redeem the
preferred stock at approximately 116% of par value payable over five years with
interest at 2% below prime. An insurance policy with a face value of $6,000 on
the life of the Chairman funded such redemption.
The redemption obligation, of which $6,131 was paid in fiscal 1998, was
recorded at its present value at June 30, 1997 ($6,131 included in other current
liabilities and $322 included in other liabilities). In connection therewith,
the Company reversed the $4,200 of an appraisal increment of certain assets
which pursuant to a prior year recapitalization was included in the par value of
the preferred stock, and recorded a charge to paid-in capital in the amount of
$4,696 for the difference between the redemption value and carrying value of the
stock. Current assets in the 1997 consolidated balance sheet included a
receivable in the amount of $6,032 for the proceeds, plus interest, from the
life insurance policy which
F-21
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
8. PREFERRED STOCK, COMMON STOCK AND PAID-IN CAPITAL--(CONTINUED)
was collected in July 1997. The proceeds, net of cash surrender value, in the
amount of $5,642, is reflected as a gain on life insurance policy in the 1997
consolidated statement of operations. The net effect of these transactions
resulted in a reduction in stockholders' equity of $811, for the year ended
June 30, 1997.
In fiscal 1996, the principal shareholder of the Company exchanged a
promissory note due to him by the Company in the amount of $578 including
interest for 5,207 shares of the Company's third preferred stock. The third
preferred stock are nonvoting, 6% noncumulative and are redeemable at par, in
whole or in part, at the option of the Company.
COMMON STOCK:
Common stock consisted of the following at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
AUTHORIZED
SHARES ISSUED SHARES AMOUNT AT PAR
---------- ------------- -------------
<S> <C> <C> <C>
Class A........................................ 8,100 6,300 $ 1
Class B........................................ 8,100 6,713 1
Class C........................................ 8,100 6,300 1
Class D........................................ 8,100 -- --
Class E........................................ 6,000 5,175 --
------ ------- ---
38,400 24,488 $ 3
------ ------- ---
------ ------- ---
</TABLE>
Holders of Class A, Class C and Class D common stock have voting rights and
are entitled to share pro rata in dividends, if any, that may be declared by the
Company. Thereafter, holders of Class B and Class E common stock are entitled to
share pro rata in any such dividends. No dividends may be paid to common
stockholders until all dividends have been paid or declared and set apart on all
preferred stock. In the event of any complete liquidation, dissolution, winding
up of the business, or sale of all the assets of the Company, and after the
redemption of the preferred stock, the Class A, Class C and Class D common
stockholders are entitled to a distribution equal to the par value of the stock
plus declared and unpaid dividends. Thereafter, holders of Class B and Class E
common stock would participate ratably in all distributions.
Issued shares include redeemable shares of a minority shareholder (see
below).
REDEEMABLE COMMON STOCK:
Pursuant to terms of an agreement with a minority shareholder, who is also
an officer of the Company, the Company is required to purchase the Class B
shares of such shareholder upon his death, disability, termination of employment
or upon his exercise of the right to sell such shares at any time at a price
based on the book value of the Company's common shares. Adjustments to record
the shares at redeemable value have been charged or credited to compensation
expense.
9. EMPLOYEE BENEFIT PLANS
The Company and its domestic subsidiaries maintain noncontributory defined
benefit pension plans for all eligible nonunion employees who meet certain
requirements of age, length of service and hours worked per year. The benefits
provided by the plans are based upon years of service and the employees' average
compensation, as defined. The Company's policy is to fund the pension plans in
amounts which comply with contribution limits imposed by law.
F-22
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following tables set forth the plans' funded status at June 30, 1998
and 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$3,468 and $2,715 in 1998 and 1997, respectively......... $(3,844) $(3,010)
------- -------
------- -------
Projected benefit obligation.................................. $(6,240) $(5,038)
Plan assets at fair value..................................... 4,834 3,402
------- -------
Projected benefit obligation in excess of plan assets......... (1,406) (1,636)
Unrecognized net loss (gain).................................. (336) 20
Unrecognized prior service credit............................. (1,411) (1,576)
Unrecognized net transition asset............................. (28) (31)
------- -------
Accrued pension liability..................................... $(3,181) $(3,223)
------- -------
------- -------
</TABLE>
Plan assets at fair value consisted primarily of listed stocks, bonds and
short-term money market instruments.
Accrued pension liability is included in the consolidated balance sheets at
June 30 as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accrued expenses and other current liabilities................ $ 489 $ 489
Other liabilities............................................. 2,692 2,734
------- -------
$ 3,181 $ 3,223
------- -------
------- -------
</TABLE>
Net pension cost included in the consolidated statements of operations is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period................................. $900 $838 $670
Interest cost on projected benefit obligation.................................. 375 295 219
Actual return on plan assets................................................... (557) (279) (8)
Amortization of unrecognized prior service credit.............................. (165) (165) (165)
Net amortization and deferral.................................................. 265 68 (178)
---- ---- ----
$818 $757 $538
---- ---- ----
---- ---- ----
</TABLE>
The discount rate used in determining the present value of the projected
benefit obligation and the expected long-term rate of return on plan assets was
7.5%. The assumed rate of increase in future compensation levels was 4.0%.
The Company and its domestic subsidiaries have a 401(k) plan, under which
an employee may make a pretax contribution of up to 6% of base compensation, and
the Company makes a non-matching contribution equal to 1% of the employee's base
compensation and a matching contribution equal to 50% of the contribution up to
the first 3% of an employee's base compensation and 25% of any contribution in
excess of 3% of base compensation. All contributions are subject to the maximum
amount deductible for federal income tax purposes. The Company's contribution
amounted to $529, $497 and $474 in 1998, 1997 and 1996, respectively.
F-23
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The Company has a deferred compensation and supplemental retirement plan
for certain key executives of the Company and a subsidiary. The benefits
provided by the plan are based upon years of service and the employees' average
compensation subject to certain limits. The plan also provides for death
benefits before retirement. Deferred compensation expense was $89, $91 and $89
in 1998, 1997 and 1996, respectively. At June 30, 1998 and 1997, the aggregate
liability under this plan amounted to $387 and $316, respectively. To assist in
funding the retirement and death benefits of the plan, the Company invested in
corporate-owned life insurance policies, through a trust, which at June 30, 1998
and 1997 had cash surrender values of $729 and $548, respectively.
Most of the Company's foreign subsidiaries have retirement plans covering
substantially all employees. Contributions to these plans are generally
deposited under fiduciary-type arrangements. Benefits under these plans are
primarily based on levels of compensation. Funding policies are based on legal
requirements and local practices.
10. INCOME TAXES
Income (loss) from operations before provision for income taxes and
extraordinary item consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Domestic............................................................. $(15,750) $ 4,697 $ 2,116
Foreign.............................................................. 3,996 4,407 535
-------- ------- -------
$(11,754) $ 9,104 $ 2,651
-------- ------- -------
-------- ------- -------
</TABLE>
Components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Current tax provision (benefit):
U.S. Federal.......................................................... $ (306) $ (88) $ 624
State and local....................................................... 64 343 599
Foreign............................................................... 782 1,521 1,304
------- ------ ------
Total current tax provision........................................ 540 1,776 2,527
------- ------ ------
Deferred tax provision (benefit):
U.S. Federal.......................................................... (5,121) (889) 312
State and local....................................................... (115) 121 71
Foreign............................................................... 7 60 (249)
------- ------ ------
Total deferred tax provision (benefit)............................. (5,229) (708) 134
------- ------ ------
Provision (benefit) for income taxes before extraordinary item.......... (4,689) 1,068 2,661
Benefit for extraordinary item.......................................... (1,011) -- --
------- ------ ------
Provision (benefit) for income taxes.................................... $(5,700) $1,068 $2,661
------- ------ ------
------- ------ ------
</TABLE>
F-24
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
10. INCOME TAXES--(CONTINUED)
A reconciliation of the Federal statutory rate and the Company's effective
tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
U.S. Federal income tax rate............................................... (34.0)% 34.0% 34.0%
State and local taxes, net of federal income tax effect.................... (0.2) 3.4 16.7
Tax rate differences on foreign operations................................. (3.5) (0.3) 7.0
Non-taxable insurance policy gain.......................................... -- (21.1) --
Additional taxes (credit) on reorganization of foreign subsidiaries........ -- (7.4) 35.8
Expenses with no tax benefit............................................... -- 2.6 8.9
Other...................................................................... (2.2) 0.5 (2.0)
----- ----- -----
(39.9)% 11.7% 100.4%
----- ----- -----
----- ----- -----
</TABLE>
In June 1996, pursuant to a plan of reorganization of the Company's foreign
subsidiaries, including liquidation of two subsidiaries, the Company recorded a
charge of approximately $950 for additional foreign and United States taxes on
previously undistributed earnings of foreign subsidiaries. The credit recorded
in 1997 represents principally the final determination of U.S. foreign tax
credits on certain prior year transactions.
Provision has not been made for United States or additional foreign taxes
on undistributed earnings of other foreign subsidiaries of approximately
$18,000, whose earnings have been or are primarily intended to be reinvested. It
is not practicable at this time to determine the amount of income tax liability
that would result should such earnings be repatriated.
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Employee benefits......................................... $ 2,542 $ 2,132
Depreciation.............................................. 1,267 2,082
Insurance................................................. 368 442
Asset valuation allowances................................ 505 423
Inventory capitalization.................................. 379 341
Plant curtailment and environmental remediation........... 4,927 332
Alternative minimum tax................................... 503 557
Net operating loss carryforward........................... 1,841 --
Other..................................................... 346 290
------- -------
12,678 6,599
Deferred tax liabilities.................................... (456) (432)
------- -------
Net deferred tax asset...................................... $12,222 $ 6,167
------- -------
------- -------
</TABLE>
Deferred taxes are included in the following line items in the consolidated
balance sheets:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Prepaid expenses and other current assets................... $ 4,018 $ 2,023
Accrued expenses, taxes and other current liabilities....... (60) (169)
Other assets................................................ 8,599 4,492
Other liabilities........................................... (335) (179)
------- -------
$12,222 $ 6,167
------- -------
------- -------
</TABLE>
F-25
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
10. INCOME TAXES--(CONTINUED)
The Company has net operating loss carryforwards that begin to expire in
2018.
11. COMMITMENTS AND CONTINGENCIES
(a) Leases:
The Company leases office, warehouse and manufacturing facilities
through fiscal 2006 for minimum annual rentals (plus certain cost
escalations) as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED JUNE 30 LEASES LEASES
- ---------------------------------------------------- ------ ---------
<S> <C> <C>
1999................................................ $136 $ 1,134
2000................................................ 136 1,138
2001................................................ 127 1,153
2002................................................ 84 1,030
2003................................................ 63 978
Thereafter.......................................... -- 2,332
---- -------
Total minimum lease payments........................ 546 $ 7,765
-------
-------
Amounts representing interest....................... 91
----
Present value of minimum lease payments............. $455
----
----
</TABLE>
Property, plant and equipment under capitalized leases included in the
consolidated balance sheets at June 30, 1998 and 1997 amounted to $351 and
$382, net of accumulated depreciation of $1,086 and $1,267, respectively.
The commitment for facilities includes $2,000 with an affiliate
controlled by shareholders of the Company.
Rent expense for facilities and equipment for the years ended
June 30, 1998, 1997 and 1996 amounted to $2,126, $2,224 and $1,944,
respectively.
(b) Litigation:
The Company and its subsidiaries are a party to a number of claims and
lawsuits arising in the normal course of business, including patent
infringement, product liabilities and governmental regulation concerning
environmental and other matters. Certain of these actions seek damages in
various amounts. All such claims are being contested, and management
believes the resolution of these matters will not materially affect the
consolidated financial position, results of operations or cash flows of the
Company.
(c) Environmental Remediation:
The Company's domestic subsidiaries are subject to various federal,
state and local environmental laws and regulations which govern the
management of chemical wastes. The most significant regulation governing
the Company's recycling activities is the Resource Conservation and
Recovery Act of 1976 ("RCRA"). The Company has been issued final RCRA "Part
B" permits to operate as hazardous waste treatment and storage facilities
at its facilities in Santa Fe Springs, California; Garland, Texas; Joliet,
Illinois; Sumter, South Carolina and Sewaren, New Jersey. The Company has
also obtained an interim status RCRA permit for its Union City, California
facility.
In connection with applying for RCRA "Part B" permits, the Company has
been required to perform extensive site investigations at certain of its
operating facilities and inactive sites to identify
F-26
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
possible contamination and to provide the regulatory authorities with plans
and schedules for remediation. Some soil and groundwater contamination has
been identified at several plant sites and will require corrective action
over the next several years.
The Company has been named as a potentially responsible party ("PRP")
in connection with an action commenced by the EPA, involving a third party
fertilizer manufacturing site in South Carolina. The Company has also
received a settlement proposal approximating $800, which it believes is
unfairly high in relation to settlements offered to other PRPs. While the
outcome of ongoing negotiation is uncertain, the Company has accrued its
best estimate of the amount for which this matter can be settled.
Based upon information available, management estimates the cost of
further investigation and remediation of identified soil and groundwater
problems at operating sites, closed sites and third party sites to be
approximately $2,000, which is included in current and long-term
liabilities in the 1998 consolidated balance sheet ($1,400 in 1997). Such
amounts represent primarily the cost of feasibility studies and remediation
activities and are expected to be substantially incurred over a three year
period. No amounts have been discounted. Environmental provisions are $925,
$530 and $0 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively, and are included in selling, general and administrative
expenses in the consolidated statements of operations. In addition, such
amounts exclude the fiscal 1998 accrual related to the Sewaren facility
described in 11(d).
(d) Plant Curtailment:
During the fourth quarter of fiscal 1998, the Company decided to
curtail major manufacturing operations of its Sewaren, New Jersey facility
and recorded nonrecurring charges of $10.0 million related to this
curtailment. Of these charges, $5.6 million represents non-cash asset write
downs related to equipment without alternative uses, real property at the
manufacturing facility, $1.1 million represents primarily labor costs
related to disassembly of equipment, cleaning and accumulating
environmental waste and the cost of waste disposal of environmentally
hazardous material and associated related site restoration pursuant to the
remedial action workplan for the administrative consent order concerning
the site. The majority of these costs are expected to be expended during
fiscal 1999 and as a result are classified as other current liabilities.
The remaining $3.3 million represents the long-term cost of groundwater
monitoring and remediation activities that will continue pursuant to the
aforementioned remedial action workplan. The accrual for groundwater
monitoring represents personnel, utility and related costs necessary to
operate groundwater pumps and the waste water treatment facility on the
site, aggregating an estimated $4.7 million over 10 years and discounted at
a 7% rate.
(e) Employee Terminations:
In connection with the plant curtailment noted above and certain other
personnel changes, the Company has implemented a plan to reduce its
workforce by 24 employees resulting in a non-recurring charge for severance
of $1,173 in fiscal 1998, (reflected in selling, general and administrative
expenses in the accompanying consolidated statement of operations). These
employees are primarily involved in plant operations, both domestically and
foreign. Through June 30, 1998, 19 employees have been terminated and the
remainder are expected to be terminated in fiscal 1999. All severance
amounts will begin to be paid in fiscal 1999.
F-27
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
12. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to credit risk
consist principally of cash and cash equivalents, and trade receivables. The
Company places its cash and cash equivalents with high quality financial
institutions in various countries. The Company sells to customers in a variety
of industries, markets and countries. Concentrations of credit risk with respect
to receivables arising from these sales are limited due to the large number of
customers comprising the Company's customer base. Ongoing credit evaluations of
customers' financial conditions are performed and, generally, no collateral is
required. The Company maintains appropriate reserves for uncollectible
receivables.
The carrying amounts of cash and cash equivalents, trade receivables, trade
payables and short-term debt is considered to be representative of their fair
value because of their short maturities. The fair values of the Company's
long-term debt are estimated using discounted cash flow analyses, based on the
Company's incremental borrowing rates for similar types of borrowing
arrangements. At June 30, 1998 and 1997, the fair value does not differ
materially from its carrying amount.
The Company obtains third-party letters of credit in connection with
certain inventory purchases and insurance obligations. The contract values of
the letters of credit at June 30, 1998 and 1997 were $4,600 and $4,900,
respectively. The fair values of these letters of credit were not material.
The Company had mitigated its floating interest rate exposure on
substantially all floating rate bank borrowings of its Israeli subsidiary by
purchasing interest caps expiring at various dates through October 2001, with
interest caps of 11% based on 3-month LIBOR for domestic debt and 9% for U.S.
dollar debt. Reimbursements and amortization of the cost of interest rate caps
over their terms are recorded as adjustments to interest expense. The fair
values of the interest rate caps does not differ materially from their carrying
values. The interest rate caps were terminated in connection with the repayment
of the floating rate debt in June 1998.
The fair value associated with the foreign currency contracts has been
estimated by valuing the net position of the contracts using the applicable spot
rates and forward rates as of the reporting date. At June 30, 1998 and 1997, the
fair value does not differ materially from its carrying amount.
The fair value of commodity contracts is estimated based on quotes from the
market makers of these instruments and represents the estimated amounts that the
Company would expect to receive or pay to terminate the agreements as of the
reporting date. At June 30, 1998 and 1997, the Company has $1,127 and $664,
respectively, in carrying amounts of commodity contracts with a fair value of
$1,062 and $690, respectively.
F-28
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
13. GEOGRAPHIC SEGMENTS
The Company operates in one business segment, specialty and industrial
chemicals. The following is information about the Company's operations in
different geographic areas:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales:
North America................................................. $181,648 $165,447 $160,255
Western Europe................................................ 30,152 31,716 27,345
Israel........................................................ 62,399 67,659 52,798
South America................................................. 3,784 3,540 997
-------- -------- --------
Total Sales................................................ $277,983 $268,362 $241,395
-------- -------- --------
-------- -------- --------
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Income (loss):
North America................................................. $ (6,451) $ 8,509 $ 11,176
Western Europe................................................ 2,980 3,136 2,453
Israel........................................................ 4,711 6,078 1,422
South America................................................. 51 (80) (300)
Corporate..................................................... (5,518) (6,412) (5,560)
-------- -------- --------
Total Operating Income (loss).............................. $ (4,227) $ 11,231 $ 9,191
-------- -------- --------
-------- -------- --------
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets:
North America................................................. $ 82,556 $ 75,074 $ 77,265
Western Europe................................................ 20,504 18,075 17,770
Israel........................................................ 52,937 52,378 52,334
South America................................................. 4,932 4,185 4,504
Corporate..................................................... 31,267 12,988 6,309
-------- -------- --------
Total Identifiable Assets.................................. $192,196 $162,700 $158,182
-------- -------- --------
-------- -------- --------
</TABLE>
14. VALUATION AND QUALIFYING ACCOUNTS
Activity in the allowance for doubtful accounts consisted of the following
for the fiscal years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period................................................. $656 $756 $631
Provision for bad debts........................................................ 144 16 155
Bad debt write-offs............................................................ (49) (116) (30)
---- ---- ----
Balance at end of period....................................................... $751 $656 $756
---- ---- ----
---- ---- ----
</TABLE>
15. SUBSEQUENT EVENTS
a) Acquisition:
The Company has acquired all of the outstanding capital stock of ODDA
Smelteverk, a Norwegian company, and the business of BOC Carbide Industries
in the United Kingdom (together ODDA) from the BOC Group Plc for
approximately $19 million in cash and $18.2 million in debt. ODDA
manufactures calcium carbide and dicyandiamide which is distributed
worldwide. The principal uses of calcium carbide are for the production of
acetylene for welding and cutting, and desulphurization of iron and steel.
The principal uses of dicyandiamide are for pharmaceutical
F-29
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
15. SUBSEQUENT EVENTS--(CONTINUED)
manufacture and a fire-retarding agent for fabrics, wood and paint. The
acquisition will be accounted for using the purchase method of accounting.
b) Credit Facility:
On August 19, 1998, the Company entered into a $60 million senior
secured credit facility with PNC Bank, as agent and on behalf of itself.
The credit facility is structured as a five-year, $35 million revolving
credit facility subject to availability under a borrowing base formula for
domestic accounts receivable and inventories. The Company, under terms of
this facility, may choose between two interest rate options: (i) base rate,
as defined, or (ii) Euro rate as defined, plus 1 1/4%-2% depending on the
Companys operating performance. In addition, a two-year, $25 million
acquisition line of credit will be available to the Company. Drawdowns
under the acquisition line shall amortize on a five-year basis with the
balances due at maturity.
The credit agreement requires, among other things, the maintenance of
certain fixed charge coverage ratios and a certain level of net worth for
the domestic operations of the Company, as defined. In addition, there are
certain restrictions on additional borrowings, additional liens on the
Company's assets, guarantees, dividend payments, redemption or purchase of
the Company's stock, sale of subsidiaries stock, disposition of assets,
investments, and mergers and acquisitions.
c) Capital Stock
In September 1998, the Company simplified its capitalization by
eliminating classes of authorized but unissued preferred stock and common
stock, establishing "Blank Check" preferred stock, re-designating the third
preferred stock as Series A Stock Preferred Stock, combining on a basis to
preserve as nearly as practicable the rights and benefits of the following:
the former Class A common shares and the Class C common shares into a
single class designated as Class A Common Stock, and the former Class B
common shares and Class E common shares into a single class designated as
Class B Common Stock. These changes have not been reflected in the
accompanying consolidated financial statements.
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In June 1998, the Company issued $100 million in Senior Subordinated Notes
as described in Note 2. In connection with the issuance of these Notes, the
Company's majority-owned U.S. Subsidiaries fully and unconditionally guaranteed
such Notes on a joint and several basis. Foreign subsidiaries do not presently
guarantee the Notes.
The following condensed consolidating financial data summarizes the assets,
liabilities, and results of operations and cash flows of the Parent, Guarantors
and Non-Guarantor subsidiaries. The Parent is Philipp Brothers Chemicals, Inc.
("PBC"). The U.S. Guarantor Subsidiaries include all domestic subsidiaries
including the following: PBC and its subsidiaries (C.P. Chemicals, Inc.,
Koffolk, Inc., Phibro-Tech, Inc., MRT Management Corp., Mineral Resource
Technologies, L.L.C., Prince Agriproducts, Inc., The Prince Manufacturing
Company (PA), The Prince Manufacturing Company (IL) Phibrochem, Inc., Phibro
Chemicals, Inc., Western Magnesium Corp.). The Non-Guarantor Subsidiaries
include the following: (Koffolk (1949) Ltd., Agtrol International and Ferro
Metal and Chemical Corporation). The U.S. and foreign Guarantor and
Non-Guarantor Subsidiaries are majority owned by the Parent.
Investments in subsidiaries are accounted for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.
F-30
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The principal consolidation adjustments are to eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements of the U.S. Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
are not presented because management has determined that such financial
statements would not be material to investors.
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 18,312 $ 928 $ 4,981 $ 24,221
Trade receivables................................ 5,729 27,999 23,832 57,560
Other receivables................................ 952 60 4,988 6,000
Inventory........................................ 3,596 18,910 15,061 37,567
Prepaid expenses & other current assets.......... 3,599 1,241 651 5,491
-------- -------- ------- --------- --------
Total current assets............................... 32,188 49,138 49,513 $ 0 130,839
-------- -------- ------- --------- --------
Total property, plant, & equipment................. 3,280 44,748 48,408 96,436
Less: accumulated depreciation..................... 2,117 32,158 21,651 55,926
-------- -------- ------- --------- --------
Property, plant & equipment, net................... 1,163 12,590 26,757 40,510
-------- -------- ------- --------- --------
Intangibles........................................ 15 3,136 620 3,771
Deferred charges and other......................... 7,729 7,864 1,483 17,076
Investment in subsidiaries......................... 67,049 1,534 (2,483) (66,100) 0
Intercompany....................................... 28,932 (29,587) 655 0
-------- -------- ------- --------- --------
Total assets....................................... $137,076 $ 44,675 $76,545 ($ 66,100) $192,196
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 144 $ 1,491 $ 11 $ 1,646
Accounts payable................................. 3,281 12,801 17,350 33,432
Other loans payable.............................. 492 492
Accrued expenses and other....................... 4,223 8,281 3,098 15,602
-------- -------- ------- --------- --------
Total current liabilities.......................... 8,140 22,573 20,459 $ 0 51,172
-------- -------- ------- --------- --------
Long term debt..................................... 100,199 2,575 34,775 (35,391) 102,158
Other liabilities.................................. 1,679 6,437 1,987 10,103
Redeemable securities:
Common stock..................................... 2,563 2,563
Common stock of subsidiary....................... 2,623 2,623
-------- -------- ------- --------- --------
Total redeemable securities........................ 2,563 2,623 0 0 5,186
-------- -------- ------- --------- --------
Stockholders equity
Third preferred stock............................ 521 521
Common stock..................................... 3 3
Paid in capital.................................. 764 2,560 (429) (2,460) 435
Foreign currency translation adjustment.......... (14) 30 (619) (603)
Retained earnings................................ 23,221 7,877 20,372 (28,249) 23,221
-------- -------- ------- --------- --------
Total stockholders equity.......................... 24,495 10,467 19,324 (30,709) 23,577
-------- -------- ------- --------- --------
Total liabilities & stockholders' equity........... $137,076 $ 44,675 $76,545 ($ 66,100) $192,196
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
</TABLE>
F-31
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- -------------- ------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $36,318 $166,816 $ 104,555 $ (29,706) $277,983
Cost of goods sold...................... 29,914 123,828 84,877 (29,706) 208,913
------- -------- --------- --------- --------
Gross profit.......................... 6,404 42,988 19,678 0 69,070
Selling, general and administrative
expenses.............................. 9,878 41,483 11,936 63,297
Curtailment of operations at
manufacturing facility................ 10,000 10,000
------- -------- --------- --------- --------
Operating income (loss)................. (3,474) (8,495) 7,742 0 (4,227)
Other expense........................... 74 971 1,045
Interest expense........................ 3,798 287 2,780 6,865
Interest income......................... (253) (97) (33) (383)
Intercompany allocations................ (5,903) 5,863 40
(Profit) loss relating to
subsidiaries ......................... 6,430 (6,430) 0
------- -------- --------- --------- --------
Income/(loss) before income taxes and
extraordinary item.................... (7,620) (14,548) 3,984 6,430 (11,754)
Income taxes............................ (448) (5,080) 839 0 (4,689)
------- -------- --------- --------- --------
Net income/(loss) before extraordinary
item.................................. (7,172) (9,468) 3,145 6,430 (7,065)
Extraordinary loss (net of $1,011 of
tax).................................. (1,855) (107) (1,962)
------- -------- --------- --------- --------
Net income/(loss)....................... $(9,027) $ (9,468) $ 3,038 $ 6,430 $ (9,027)
------- -------- --------- --------- --------
------- -------- --------- --------- --------
</TABLE>
F-32
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)..................................... $ (9,027) $ (9,468) $ 3,038 $ 6,430 $ (9,027)
Adjustments to reconcile net income (loss)
Cash provided by operating activities:
Depreciation and amortization....................... 536 5,047 3,670 9,253
Deferred income taxes............................... (1,146) (4,138) 55 (5,229)
Forgiveness of promissory notes..................... 2,591 2,591
Provision for curtailment of operations at
manufacturing facility............................ 10,000 10,000
Change in redemption amount of redeemable
securities........................................ (1,250) (1,250)
Extraordinary loss on extinguishment of debt, net of
tax............................................... 1,855 107 1,962
Other............................................... (902) 729 1,564 1,391
Changes in operating assets and liabilities,
net effect of business acquired:
Accounts receivable................................... (566) (5,994) 1,073 (5,487)
Inventory............................................. (143) 1,842 (94) 1,605
Prepaid expenses and other............................ (1,985) 1,569 (2,863) (3,279)
Other assets.......................................... (956) (397) 4 (1,349)
Intercompany.......................................... (27,945) 742 33,633 (6,430) 0
Accounts payable...................................... (1,276) 425 (28) (879)
Accrued expenses and other............................ 1,117 942 (1,022) 1,037
-------- -------- ------- ------- --------
Net cash provided by (used in) operating activities... (41,688) 3,890 39,137 0 1,339
-------- -------- ------- ------- --------
Investing activities:
Capital expenditures.................................. (567) (4,230) (3,234) (8,031)
-------- -------- ------- ------- --------
Net cash used in investing activities................. (567) (4,230) (3,234) 0 (8,031)
-------- -------- ------- ------- --------
Financing activities:
Cash overdraft........................................ 913 1,002 1,915
Net (decrease) increase in short-term debt............ 149 (350) (13,332) (13,533)
Proceeds from long-term debt.......................... 100,000 380 100,380
Payments of long-term debt............................ (31,517) (1,570) (19,835) (52,922)
Payments of deferred financing costs.................. (3,724) (3,724)
Extinguishment of debt................................ (2,493) (107) (2,600)
Proceeds from life insurance.......................... 6,045 6,045
Distribution to principal shareholder for purchase of
subsidiary.......................................... (1,500) (1,500)
Receivable from principal shareholder................. (429) (429)
Redemption of preferred stock......................... (7,569) 757 (6,812)
-------- -------- ------- ------- --------
Net cash provided by (used in) financing activities... 60,304 219 (33,703) 0 26,820
-------- -------- ------- ------- --------
Net (decrease) increase in cash and cash
equivalents......................................... 18,049 (121) 2,200 0 20,128
Cash and cash equivalents at beginning of year........ 263 1,049 2,781 4,093
-------- -------- ------- ------- --------
Cash and cash equivalents at end of year.............. $ 18,312 $ 928 $ 4,981 $ 0 $ 24,221
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
</TABLE>
F-33
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 263 $ 1,049 $ 2,781 $ 4,093
Trade receivables................................. 5,267 21,823 25,039 52,129
Other receivables................................. 7,160 136 1,884 9,180
Inventory......................................... 3,453 19,219 14,967 37,639
Prepaid expenses & other current assets........... 1,856 1,475 807 4,138
-------- -------- ------- --------- --------
Total current assets................................ 17,999 43,702 45,478 $ 0 107,179
-------- -------- ------- --------- --------
Total property, plant and equipment................. 2,222 53,213 45,932 101,367
Less: accumulated depreciation...................... 1,839 35,112 19,107 56,058
-------- -------- ------- --------- --------
Property, plant & equipment, net.................... 383 18,101 26,825 0 45,309
-------- -------- ------- --------- --------
Intangibles....................................... 32 597 726 1,355
Deferred charges and other........................ 3,536 3,712 1,609 8,857
Investment in subsidiaries........................ 37,450 874 (2,483) (35,841) 0
Intercompany...................................... 27,360 (26,044) 101 (1,417) 0
-------- -------- ------- --------- --------
Total assets........................................ $ 86,760 $ 40,942 $72,256 ($ 37,258) $162,700
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable to banks............................. $13,332 $ 13,332
Current portion of long-term debt................. $ 14,397 $ 600 4,130 19,127
Accounts payable.................................. 3,644 10,257 17,378 31,279
Other loans payable............................... 387 387
Accrued expenses and other........................ 9,235 6,196 4,119 19,550
-------- -------- ------- --------- --------
Total current liabilities........................... 27,663 17,053 38,959 $ 0 83,675
-------- -------- ------- --------- --------
Long term debt...................................... 17,463 2,607 15,760 (1,417) 34,413
Other liabilities................................... 1,947 2,668 780 5,395
Redeemable securities:
Common stock...................................... 3,813 3,813
STOCKHOLDERS' EQUITY
Second preferred stock.............................. 680 680
Third preferred stock............................... 521 521
Common stock........................................ 3 1 (1) 3
Paid in capital..................................... 2,364 1,734 (1,734) 2,364
Foreign currency translation
adjustment........................................ (8) 30 (500) (478)
Retained earnings................................... 32,314 16,849 17,257 (34,106) 32,314
-------- -------- ------- --------- --------
Total stockholders' equity.......................... 35,874 18,614 16,757 (35,841) 35,404
-------- -------- ------- --------- --------
Total liabilities & stockholders' equity............ $ 86,760 $ 40,942 $72,256 ($ 37,258) $162,700
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
</TABLE>
F-34
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 34,360 $151,379 $ 108,822 $ (26,199) $268,362
Cost of goods sold.............................. 28,099 111,443 87,695 (26,199) 201,038
-------- -------- --------- --------- --------
Gross profit................................ 6,261 39,936 21,127 0 67,324
Selling, general and administrative expenses.... 10,360 33,740 11,993 56,093
-------- -------- --------- --------- --------
Operating income (loss)......................... (4,099) 6,196 9,134 0 11,231
Other (income)/expense.......................... (719) 0 2,487 1,768
Interest expense................................ 3,197 506 2,550 6,253
Interest income................................. (80) (14) (158) (252)
Intercompany allocations........................ (5,215) 5,215
Gain on life insurance policy................... (5,642) (5,642)
(Profit) loss relating to subsidiary............ (2,454) 2,454 0
-------- -------- --------- --------- --------
Income/(loss) before income taxes............... 6,814 489 4,255 (2,454) 9,104
Income taxes.................................... (1,222) 723 1,567 0 1,068
-------- -------- --------- --------- --------
Net income/(loss)............................... $ 8,036 $ (234) $ 2,688 $ (2,454) $ 8,036
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
</TABLE>
F-35
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 8,036 $ (234) $ 2,688 $ (2,454) $ 8,036
Adjustments to reconcile net
income (loss) cash provided by operating activities:
Depreciation and amortization........................... 585 5,056 3,701 9,342
Gain on life insurance.................................. (5,642) (5,642)
Deferred income taxes................................... (19) (132) (557) (708)
Other................................................... 135 (125) (383) (373)
Changes in operating assets and liabilities,
net of effect of business acquired:
Accounts receivable..................................... (5) 185 (4,536) (4,356)
Inventory............................................... (354) 38 (552) (868)
Prepaid expenses and other.............................. (80) (199) 718 439
Other assets............................................ (298) (141) (90) (529)
Intercompany............................................ (2,510) (1,627) 1,683 2,454 0
Accounts payable........................................ (2,258) 138 726 (1,394)
Accrued expenses and other.............................. (868) 270 (426) (1,024)
------- -------- ------- --------- --------
Net cash provided by (used in) operating activities....... (3,278) 3,229 2,972 0 2,923
------- -------- ------- --------- --------
Investing activities:
Capital expenditures.................................... (113) (2,964) (1,620) (4,697)
------- -------- ------- --------- --------
Net cash used in investing activities..................... (113) (2,964) (1,620) 0 (4,697)
------- -------- ------- --------- --------
Financing activities:
Cash overdraft.......................................... 2,817 2,817
Net (decrease) increase in short-term
debt.................................................. 5 (181) (176)
Proceeds from long term debt............................ 900 791 1,691
Payments of long term debt.............................. (104) (835) (2,957) (3,896)
------- -------- ------- --------- --------
Net cash provided by (used in) financing activities....... 3,618 (835) (2,347) 0 436
------- -------- ------- --------- --------
Net (decrease) increase in cash and cash equivalents...... 227 (570) (995) 0 (1,338)
Cash and cash equivalents at beginning of year............ 36 1,619 3,776 5,431
------- -------- ------- --------- --------
Cash and cash equivalents at end of year.................. $ 263 $ 1,049 $ 2,781 $ 0 $ 4,093
------- -------- ------- --------- --------
------- -------- ------- --------- --------
</TABLE>
F-36
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $35,474 $143,581 $ 85,614 $ (23,274) $241,395
Cost of goods sold............................. 29,634 103,140 71,533 (23,274) 181,033
------- -------- --------- --------- --------
Gross profit................................. 5,840 40,441 14,081 0 60,362
Selling, general and administrative expenses... 9,288 31,377 10,506 51,171
------- -------- --------- --------- --------
Operating income (loss)........................ (3,448) 9,064 3,575 0 9,191
Other (income)/expense......................... (1,738) 3,109 1,371
Interest expense............................... 3,124 527 1,895 5,546
Interest income................................ (94) (62) (221) (377)
Intercompany allocations....................... (5,040) 4,900 140 0
(Profit) loss relating to subsidiary........... 1,014 (1,014) 0
------- -------- --------- --------- --------
Income/(loss) before
income taxes................................. (714) 3,699 (1,348) 1,014 2,651
Income taxes................................... (704) 1,942 1,423 2,661
------- -------- --------- --------- --------
Net income/(loss).............................. $ (10) $ 1,757 $ (2,771) $ 1,014 $ (10)
------- -------- --------- --------- --------
------- -------- --------- --------- --------
</TABLE>
F-37
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATION
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss).................................... $ (10) $ 1,757 $ (2,771) $ 1,014 $ (10)
Adjustments to reconcile net income (loss) cash
provided by operating activities:
Depreciation and amortization........................ 512 4,918 2,576 8,006
Deferred income taxes................................ 782 (496) (152) 134
Other................................................ (1,152) (94) 690 (556)
Changes in operating assets and liabilities, net of
effect of business acquired:
Accounts receivable.................................. 422 (100) 519 841
Inventory............................................ 146 (2,294) 289 (1,859)
Prepaid expenses and other........................... 549 (84) 379 844
Other assets......................................... 7 (170) (214) (377)
Intercompany......................................... (2,570) 4,018 (434) (1,014) 0
Accounts payable..................................... (1,167) (2,035) (3,442) (6,644)
Accrued expenses and other........................... (1,423) (103) 1,827 301
-------- -------- -------- ------- --------
Net cash provided by (used in) operating
activities......................................... (3,904) 5,317 (733) 0 680
-------- -------- -------- ------- --------
Investing activities:
Capital expenditures................................. (157) (3,784) (4,951) (8,892)
Purchase of business, net of
cash acquired...................................... (3,881) (3,881)
-------- -------- -------- ------- --------
Net cash used in investing activities................ (157) (3,784) (8,832) 0 (12,773)
-------- -------- -------- ------- --------
Financing activities:
Net (decrease) increase in short-term debt........... 31 0 3,962 3,993
Proceeds from long term debt......................... 3,500 0 9,550 13,050
Payments of long term debt........................... (52) (425) (2,622) (3,099)
-------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities......................................... 3,479 (425) 10,890 13,944 0
-------- -------- -------- ------- --------
Net (decrease) increase in cash and cash
equivalents........................................ (582) 1,108 1,325 0 1,851
Cash and cash equivalents at beginning of year....... 671 458 2,451 3,580
-------- -------- -------- ------- --------
Cash and cash equivalents at end of year............. $ 89 $ 1,566 $ 3,776 $ 0 $ 5,431
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
</TABLE>
F-38
<PAGE>
[This page intentionally left blank]
F-39
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 32,117 $ 24,221
Trade receivables, less allowance for doubtful accounts of $784 at September 30,
1998 and $751 at June 30,1998.................................................. 40,628 57,560
Other receivables................................................................. 4,080 6,000
Inventories....................................................................... 43,360 37,567
Prepaid expenses and other current assets......................................... 6,883 5,491
--------- --------
Total current assets................................................................ 127,068 130,839
Property, plant and equipment, net.................................................. 41,076 40,510
Intangibles......................................................................... 3,628 3,771
Other assets........................................................................ 17,206 17,076
--------- --------
$ 188,978 $192,196
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................................................................... $ 1,602 $ 1,915
Loans payable to banks............................................................ 2,204 --
Current portions of long-term debt................................................ 1,684 1,646
Accounts payable.................................................................. 27,211 31,517
Other loans payable............................................................... 261 492
Accrued expenses and other current liabilities.................................... 16,803 15,602
--------- --------
Total current liabilities........................................................... 49,765 51,172
Long-term debt...................................................................... 102,102 102,158
Other liabilities................................................................... 9,679 10,103
--------- --------
Total liabilities................................................................... 161,546 163,433
--------- --------
Commitments and contingencies
Redeemable securities:
Common stock...................................................................... 2,530 2,563
Common stock of subsidiaries...................................................... 2,136 2,623
--------- --------
Total redeemable securities......................................................... 4,666 5,186
Stockholders' equity:
Series A preferred stock.......................................................... 521 521
Common stock...................................................................... 3 3
Paid-in capital................................................................... 435 435
Retained earnings................................................................. 22,134 23,221
Foreign currency translation adjustment........................................... (327) (603)
--------- --------
Total stockholders' equity.......................................................... 22,766 23,577
--------- --------
$ 188,978 $192,196
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-40
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net sales................................................................................. $59,209 $62,630
Cost of goods sold........................................................................ 46,703 47,995
------- -------
Gross profit............................................................................ 12,506 14,635
Selling, general and administrative expenses.............................................. 11,888 13,921
------- -------
Operating income........................................................................ 618 714
Other:
Interest expense........................................................................ 2,721 1,566
Interest income......................................................................... (343) (141)
Other expense, net...................................................................... 340 1,723
------- -------
Loss before income taxes................................................................ (2,100) (2,434)
Benefit for income taxes.................................................................. (1,013) (862)
------- -------
Net loss................................................................................ (1,087) (1,572)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-41
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Operating activities:
Net income (loss)........................................................................ $(1,087) $(1,572)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization......................................................... 1,986 2,433
Change in redemption amount of redeemable securities.................................. (488) (247)
Other................................................................................. 523 663
Changes in operating assets and liabilities:
Accounts receivable................................................................. 16,888 9,363
Inventories......................................................................... (5,793) (2,166)
Prepaid expenses and other current assets........................................... 528 (463)
Other assets........................................................................ (183) (49)
Accounts payable.................................................................... (4,306) (3,540)
Accrued expenses and other current liabilities...................................... 1,206 104
------- -------
Net cash provided by operating activities.................................................. 9,274 4,526
------- -------
Investing activities:
Capital expenditures..................................................................... (2,538) (1,489)
------- -------
Net cash used in investing activities...................................................... (2,538) (1,489)
------- -------
Financing activities:
Cash overdraft........................................................................... (313) 2,832
Net (decrease) increase in short-term debt............................................... 1,491 (1,216)
Proceeds from long-term debt............................................................. 42 68
Payments of long-term debt............................................................... (60) (5,557)
Proceeds from life insurance............................................................. -- 6,045
Capital contributions.................................................................... -- 100
------- -------
Net cash provided by financing activities.................................................. 1,160 2,272
------- -------
Net increase (decrease) in cash and cash equivalents....................................... 7,896 5,309
Cash and cash equivalents at beginning of period........................................... 24,221 4,093
------- -------
Cash and cash equivalents at end of period................................................. $32,117 $ 9,402
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-42
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED FOREIGN
STOCK ------------- CURRENCY
--------- CLASS CLASS PAID-IN RETAINED TRANSLATION
SERIES A "A" "B" CAPITAL EARNINGS ADJUSTMENT TOTAL
--------- ----- ----- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1,1998............................. $ 521 $ 2 $ 1 $ 435 $ 23,221 $ (603) $23,577
Translation adjustment......................... -- -- -- -- -- 276 276
Net loss....................................... -- -- -- -- (1,087) -- (1,087)
----- --- --- ----- -------- ------ -------
Balance, September 30,1998....................... $ 521 $ 2 $ 1 $ 435 $ 22,134 $ (327) $22,766
----- --- --- ----- -------- ------ -------
----- --- --- ----- -------- ------ -------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-43
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. GENERAL
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of September 30, 1998 and June 30, 1998 (unaudited) and the results of
operations and cash flows for the three months ended September 30, 1998 and 1997
(unaudited).
The consolidated balance sheet as of June 30, 1998 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. Additionally, it should be noted that the
accompanying condensed consolidated financial statements and notes thereto have
been prepared in accordance with accounting standards appropriate for interim
financial statements. While the Company believes that the disclosures presented
are adequate to make the information contained herein not misleading, it is
suggested that these financial statements be read in conjunction with the
Company's accompanying consolidated financial statements for the year ended
June 30, 1998.
The results of operations for the three months ended September 30, 1998 and
1997 are not indicative of results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Philipp
Brothers Chemicals, Inc. and its subsidiaries, all of which are either wholly
owned or controlled (collectively, referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in the
condensed consolidated financial statements.
The fiscal year of the Company's Israeli and Brazilian subsidiaries ends on
March 31. Accordingly, the accounts of these subsidiaries are included in the
consolidated financial statements on a three-month lag. The consolidated balance
sheets include a receivable from the subsidiaries in the amount of $991 at
September 30, 1998 and $2,686 at June 30, 1998, included in other receivables,
which represent net transactions (merchandise purchases and cash payments) with
the subsidiaries.
Inventories
Inventories are valued at the lower of cost or market. Cost is principally
determined using the first-in, first-out (FIFO) and average methods, however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing inventories.
Inventories at September 30, 1998 and June 30, 1998 are based on perpetual
records and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- --------
<S> <C> <C>
Raw materials...................................................... $19,599 $ 18,511
Work-in-process.................................................... 3,495 2,604
Finished goods..................................................... 20,266 16,452
------- --------
$43,360 $ 37,567
------- --------
------- --------
</TABLE>
F-44
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS)
3. CONTINGENCIES
a. Litigation
The Company is party to a number of claims and lawsuits arising in the
normal course of business, including patent infringement, product liabilities
and governmental regulation concerning environmental and other matters. Certain
of these actions seek damages in various amounts. All such claims are being
contested, and management believes the resolution of these matters will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.
b. Environmental Remediation
The Company's domestic subsidiaries are subject to various federal, state
and local environmental laws and regulations which govern the management of
chemical wastes. The most significant regulation governing the Company's
recycling activities is the Resource Conservation and Recovery Act of 1976
("RCRA"). The Company has been issued final RCRA "Part B" permits to operate as
hazardous waste treatment and storage facilities at its facilities in Santa Fe
Springs, California; Garland, Texas; Joliet, Illinois; Sumter, South Carolina
and Sewaren, New Jersey. The Company has also obtained an interim status RCRA
permit for its Union City, California facility.
In connection with applying for RCRA "Part B" permits, the Company has been
required to perform extensive site investigations at certain of its operating
facilities and inactive sites to identify possible contamination and to provide
the regulatory authorities with plans and schedules for remediation. Some soil
and groundwater contamination has been identified at several plant sites and
will require corrective action over the next several years.
The Company has been named as a potentially responsible party ("PRP") in
connection with an action commenced by the EPA, involving a third party
fertilizer manufacturing site in South Carolina. The Company has also received a
settlement proposal approximating $800, which it believes is unfairly high in
relation to settlements offered to other PRPs. While the outcome of ongoing
negotiation is uncertain, the Company accrued in fiscal 1998 its best estimate
of the amount for which this matter can be settled.
Based upon information available, management estimates the cost of further
investigation and remediation of identified soil and groundwater problems at
operating sites, closed sites and third party sites to be approximately $2,000
as of September 30, 1998, which is included in current and long-term
liabilities.
4. CAPITAL STOCK
In September 1998, the Company simplified its capital structure by
eliminating classes of authorized but unissued preferred stock and common stock,
establishing "Blank Check" preferred stock, re-designating the third preferred
stock as Series A Stock Preferred Stock, combining on a basis to preserve as
nearly as practicable the rights and benefits of the following: the former
Class A common shares and the Class C common shares into a single class
designated as Class A Common Stock, and the former Class B common shares and
Class E common shares into a single class designated as Class B Common Stock.
This combination of common stock and redesignation of preferred stock has been
retroactively reflected in the accompanying condensed consolidated financial
statements.
F-45
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS)
5. CREDIT FACILITY
On August 19, 1998, the Company entered into a $60 million senior secured
credit facility with PNC Bank, as agent and on behalf of itself ("Credit
Facility"). The Credit Facility is structured as a five-year, $35 million
revolving credit facility subject to availability under a borrowing base formula
for domestic accounts receivable and inventories. The Company, under terms of
this Credit Facility, may choose between two interest rate options: (I) base
rate, as defined, or (ii) Euro rate as defined, plus 1 1/4%-2% depending on the
Company's operating performance. In addition, a two-year, $25 million
acquisition line of credit is available to the Company. Drawdowns under the
acquisition line of credit shall amortize on a five-year basis with the balances
due at maturity. No amounts have been drawn under the Credit Facility or
acquisition line of credit.
6. SUBSEQUENT EVENTS
On October 1, 1998, the Company acquired all of the outstanding capital
stock of ODDA Smelteverk, a Norwegian company, and certain assets of the
business of BOC Carbide Industries in the United Kingdom (together "ODDA") from
the BOC Group Plc for approximately $19 million in cash and $16 million in debt.
ODDA manufactures calcium carbide and dicyandiamide which is distributed
worldwide. The principal uses of calcium carbide are for the production of
acetylene for welding and cutting, and desulphurization of iron and steel. The
principal uses of dicyandiamide are for pharmaceutical manufacturing and a
fire-retarding agent for fabrics, wood and paint. The acquisition will be
accounted for using the purchase method of accounting.
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In June 1998, the Company issued $100 million in Senior Subordinated Notes
as described in Note 2. In connection with the issuance of these Notes, the
Company's majority-owned U.S. Subsidiaries fully and unconditionally guaranteed
such Notes on a joint and several basis. Foreign subsidiaries do not presently
guarantee the Notes.
The following condensed consolidating financial data summarizes the assets,
liabilities and results of operations and cash flows of the Parent, Guarantors
and Non-Guarantor subsidiaries. The Parent is Philipp Brothers Chemicals, Inc.
("PBC"). The U.S. Guarantor Subsidiaries include all domestic subsidiaries
including the following: PBC and its subsidiaries (C.P. Chemicals, Inc.,
Koffolk, Inc., Phibro-Tech, Inc., MRT Management Corp., Mineral Resource
Technologies, L.L.C., Prince Agriproducts, Inc., The Prince Manufacturing
Company (PA), The Prince Manufacturing Company (IL) Phibrochem, Inc., Phibro
Chemicals, Inc., Western Magnesium Corp.). The Non-Guarantor Subsidiaries
include the following: (Koffolk (1949) Ltd., Agtrol International and Ferro
Metal and Chemical Corporation). The U.S. Guarantor and foreign Non-Guarantor
Subsidiaries are majority owned by the Parent.
Investments in subsidiaries are accounted for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.
F-46
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS)
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
U.S.
PARENT GUARANTOR FOREIGN SUBSIDIARIES CONSOLIDATION CONSOLIDATED
CONSOLIDATED SUBSIDIARIES NON-GUARANTORS ADJUSTMENTS BALANCE
------------ ------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 4,963 $ 178 $ 26,976 $ 32,117
Trade receivables................. 5,577 16,392 18,659 40,628
Other receivables................. 1,233 229 2,618 4,080
Inventory......................... 2,978 24,222 16,160 43,360
Prepaid expenses and other........ 4,841 1,137 905 6,883
-------- ------- -------- --------- --------
Total current assets................ 19,592 42,158 65,318 $ 0 127,068
-------- ------- -------- --------- --------
Property, plant and equipment
Land................................ 1,021 1,127 2,148
Building and improvements......... 135 9,957 7,287 17,379
Machinery and equipment........... 3,411 35,156 40,706 79,273
-------- ------- -------- --------- --------
Total property, plant, and
equipment......................... 3,546 46,134 49,120 0 98,800
Less accumulated depreciation....... 2,406 32,939 22,379 57,724
-------- ------- -------- --------- --------
Property, plant and equipment,
net............................... 1,140 13,195 26,741 0 41,076
-------- ------- -------- --------- --------
Intangibles......................... 15 3,043 570 3,628
Deferred charges and other.......... 7,850 7,890 1,466 17,206
Investment in subsidiaries.......... 1,609 1,961 (3,570) 0
Intercompany........................ 105,453 (24,489) (2,407) (78,557) 0
-------- ------- -------- --------- --------
Total assets........................ $135,659 $43,758 $ 88,118 $ (78,557) $188,978
-------- ------- -------- --------- --------
-------- ------- -------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................... $ 1,602 $ 1,602
Loan payable to banks............. $ 2,204 2,204
Current portion of long-term
debt............................ $ 144 1,528 12 1,684
Accounts payable.................. 1,984 12,180 13,047 27,211
Other loans payable............... 261 0 0 261
Accrued expenses and other........ 5,829 7,868 3,106 16,803
-------- ------- -------- --------- --------
Total current liabilities........... 8,218 23,178 18,369 $ 0 49,765
-------- ------- -------- --------- --------
Long term debt...................... 100,173 1,881 49,055 (49,007) 102,102
Other liabilities................... 1,226 6,485 1,968 9,679
Redeemable securities:
Common stock...................... 2,530 2,530
Common stock of subsidiaries...... 2,136 2,136
-------- ------- -------- --------- --------
2,530 2,136 0 0 4,666
STOCKHOLDERS' EQUITY
Series A preferred stock.......... 521 521
Common stock...................... 3 32 (32) 3
Paid-in capital................... 864 2,560 (429) (2,560) 435
Foreign currency translation
adjustment...................... (10) 30 (379) 32 (327)
Retained earnings................. 22,134 7,456 19,534 (26,990) 22,134
-------- ------- -------- --------- --------
Total stockholders' equity.......... 23,512 10,078 18,726 (29,550) 22,766
-------- ------- -------- --------- --------
Total liability and equity.......... $135,659 $43,758 $ 88,118 $ (78,557) $188,978
-------- ------- -------- --------- --------
-------- ------- -------- --------- --------
</TABLE>
F-47
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS)
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FOREIGN
PARENT U.S. GUARANTOR SUBSIDIARIES CONSOLIDATION CONSOLIDATED
CONSOLIDATED SUBSIDIARIES NON-GUARANTORS ADJUSTMENTS BALANCE
------------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 7,948 $ 36,637 $ 19,901 $(5,277) $59,209
Cost of goods sold............. 6,550 28,646 16,784 (5,277) 46,703
-------- -------- -------- ------- -------
Gross profit................. 1,398 7,991 3,117 0 12,506
Selling, general and
administrative expenses...... 2,578 7,024 2,286 11,888
-------- -------- -------- ------- -------
Operating income (loss)...... (1,180) 967 831 0 618
Interest expense............... 1,772 88 861 2,721
Interest income................ (302) (41) (343)
Other expense.................. 340 340
Intercompany allocations....... (2,506) 2,471 35
(Profit) loss relating to
subsidiary................... 989 (989) 0
-------- -------- -------- ------- -------
Income/(loss) before income
taxes........................ (1,133) (1,592) (364) 989 (2,100)
Income taxes................... (46) (767) (200) (1,013)
-------- -------- -------- ------- -------
Net income/(loss).............. $ (1,087) $ (825) $ (164) $ 989 $(1,087)
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
F-48
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS)
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(CONTINUED)
PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PARENT U.S. GUARANTOR FOREIGN SUBSIDIARIES CONSOLIDATION CONSOLIDATED
CONSOLIDATED SUBSIDIARIES NON-GUARANTORS ADJUSTMENTS BALANCE
------------ -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............... $ (1,087) $ (825) $ (164) $ 989 $ (1,087)
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation and
amortization................ 105 917 964 1,986
Change in redemption amount of
redeemable securities....... (33) (455) (488)
Other......................... 43 78 402 523
Changes in operating assets and
liabilities:
Accounts receivable......... 138 11,577 5,173 16,888
Inventory................... 1,034 (5,312) (1,515) (5,793)
Prepaid expenses and other
current assets........... (1,523) (65) 2,116 528
Other assets................ (131) (69) 17 (183)
Intercompany................ (11,251) (5,757) 17,997 (989) 0
Accounts payable............ (384) 381 (4,303) (4,306)
Accrued expenses and
other.................... 1,465 (437) 178 1,206
-------- -------- -------- ----- --------
Net cash provided by (used in)
operating activities............ (11,624) 33 20,865 0 9,274
-------- -------- -------- ----- --------
Investing activities:
Capital expenditures............ (73) (1,386) (1,079) (2,538)
-------- -------- -------- ----- --------
Net cash used in investing
activities...................... (73) (1,386) (1,079) 0 (2,538)
-------- -------- -------- ----- --------
Financing activities:
Cash overdraft.................. (913) 600 (313)
Net (decrease) increase in
short-term debt............... (713) 2,204 1,491
Proceeds from long-term debt.... 37 5 42
Payments of long-term debt...... (26) (34) (60)
-------- -------- -------- ----- --------
Net cash provided by (used in)
financing activities............ (1,652) 603 2,209 0 1,160
-------- -------- -------- ----- --------
Net (decrease) increase in cash
and cash equivalents............ (13,349) (750) 21,995 7,896
Cash and cash equivalents at
beginning of year............... 18,312 928 4,981 24,221
-------- -------- -------- ----- --------
Cash and cash equivalents at end
of year......................... $ 4,963 $ 178 $ 26,976 $ 0 $ 32,117
-------- -------- -------- ----- --------
-------- -------- -------- ----- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-49
<PAGE>
[This page intentionally left blank]
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of ODDA
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations and cash flows present fairly, in all material
respects, the combined financial position of ODDA (as described in Note 1) at
September 30, 1998 and the combined results of their operations and their cash
flows for the fiscal year ended September 30, 1998, in conformity with generally
accepted accounting principles in Norway. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards in
Norway and the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers DA
Bergen, Norway
November 18, 1998
F-50
<PAGE>
ODDA
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(AMOUNTS IN NOK 1,000S)
<TABLE>
<CAPTION>
(AMOUNT IN
NOK 1,000S)
-----------
<S> <C>
ASSETS
Current Assets
Cash in bank...................................................................................... 47,486
Accounts receivable, net--affiliates.............................................................. 8,159
Accounts receivable, net--trade................................................................... 50,565
Other short-term receivables...................................................................... 3,019
Inventories....................................................................................... 77,859
-------
Total current assets................................................................................ 187,088
-------
Long-Term Assets
Investment in affiliated company.................................................................. 1,065
Other investments................................................................................. 248
Note receivable from an affiliated company........................................................ 5,156
Other note receivables............................................................................ 5,235
Net pension asset................................................................................. 4,591
Property, plant and equipment..................................................................... 152,374
-------
Total long-term assets.............................................................................. 168,669
-------
Total Assets........................................................................................ 355,757
-------
-------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Bank overdraft.................................................................................... 12,442
Accounts payable.................................................................................. 37,764
Accrued expenses.................................................................................. 15,824
Income taxes payable.............................................................................. 2,000
Debt.............................................................................................. 55,165
Other short-term liabilities...................................................................... 3,815
-------
Total current liabilities........................................................................... 127,010
-------
Long-Term Liabilities
Debt.............................................................................................. 67,067
Due to parent..................................................................................... 50,554
Deferred taxes.................................................................................... 9,288
-------
Total long-term liabilities......................................................................... 126,909
-------
Total Liabilities................................................................................... 253,919
Shareholder's Equity
Net investment...................................................................................... 101,838
-------
Total Liabilities and Shareholder's Equity.......................................................... 355,757
-------
-------
Mortgages........................................................................................... 132,607
Guarantees.......................................................................................... 7,000
</TABLE>
See accompanying notes to these financial statements
F-51
<PAGE>
ODDA
COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
(AMOUNTS IN
NOK 1,000S)
-----------
<S> <C>
Operating Revenue................................................................................... 293,740
-------
Operating expenses:
Cost of goods sold................................................................................ 173,283
Salaries, wages and related costs................................................................. 93,356
Depreciation...................................................................................... 23,744
Other operating expenses.......................................................................... 11,828
-------
302,211
-------
Operating Loss...................................................................................... (8,471)
Financial items:
Interest income................................................................................... 778
Dividends and other income........................................................................ 923
Interest expense.................................................................................. (7,120)
Net loss on foreign currency translation.......................................................... (842)
-------
(6,261)
-------
Loss before income taxes............................................................................ (14,732)
Income tax benefit.................................................................................. 3,776
-------
Net loss............................................................................................ (10,956)
-------
-------
</TABLE>
See accompanying notes to these financial statements
F-52
<PAGE>
ODDA
COMBINED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
(AMOUNTS IN
NOK 1,000S)
<S> <C>
Cash Flows from Operating Activities:
Net loss.......................................................................................... (10,956)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................................... 23,744
Non-cash tax expense........................................................................... 3,232
Gain on sale of fixed assets................................................................... (2,170)
Other.......................................................................................... 221
Change in operating assets and liabilities:
Accounts receivable.......................................................................... 16,300
Other short-term receivables................................................................. 1,485
Inventories.................................................................................. (13,802)
Pensions..................................................................................... (3,020)
Accounts payable............................................................................. 16,425
Accrued expenses............................................................................. 4,730
Other short-term liabilities................................................................. 3,815
Deferred taxes............................................................................... (7,009)
-------
Net cash provided by operating activities........................................................... 32,995
-------
Cash Flows from Investing Activities:
Purchase of fixed assets.......................................................................... (41,914)
Proceeds on sale of fixed assets.................................................................. 2,314
Change in note receivables........................................................................ 1,516
-------
Net cash used in investing activities............................................................... (38,084)
-------
Cash Flows from Financing Activities:
Net increase in debt.............................................................................. 13,648
Net increase in bank overdraft.................................................................... 7,246
Net increase in due to parent..................................................................... 3,633
-------
Net cash provided by financing activities........................................................... 24,527
-------
Net increase in cash in bank........................................................................ 19,438
Cash in bank--beginning of year..................................................................... 28,048
-------
Cash in bank--end of year........................................................................... 47,486
-------
-------
</TABLE>
See accompanying notes to these financial statements
F-53
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE NO. 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In these notes to the combined financial statements references to the
"Company" or "ODDA" are to ODDA Smelteverk AS (a Norwegian subsidiary) and the
business of Carbide Industries (a UK division), which were entities under the
common control of British Oxygen Company ("BOC") prior to the agreed-upon sale
of ODDA to Philipp Brothers Chemicals, Inc. as of September 30, 1998. These
combined financial statements have been prepared in connection with BOC's
agreed-upon sale of ODDA to Philipp Brothers Chemicals, Inc.
The accompanying financial statements, presented in Norwegian kroner
("NOK"), have been prepared in accordance with accounting principles generally
accepted in Norway. These accounting principles differ in certain significant
respects from accounting principles generally accepted in the United States,
"U.S. GAAP". See Note 12 for a reconciliation of the principal differences
between Norwegian GAAP and U.S. GAAP affecting ODDA's net loss and shareholder's
equity.
PRINCIPLES OF COMBINATION
The combined financial statements have been prepared on the basis described
above. The combined financial statements have been prepared using the historical
basis in the assets and liabilities and historical results of operations related
to the Company's businesses. The combined financial statements generally reflect
the financial position, results of operations and cash flows of the Company as
if it were a consolidated entity. The assumptions and related adjustments
included herein are, in the view of management, reasonable and necessary to
present the financial position, results of operations and cash flows as if the
Company had operated on a consolidated basis as of and for the fiscal year ended
September 30, 1998. The combined financial statements, are, however, not
necessarily indicative of the financial position, results of operations and cash
flows in the future or what they would have been had the Company been a
consolidated entity as of and for the fiscal year ended September 30, 1998. The
effects of all significant transactions between the combined entities have been
eliminated.
The balance sheet of Carbide Industries was translated from Great Britain
pounds into Norwegian kroner ("NOK") at the exchange rate prevailing on the
balance sheet date, while the average exchange rate for the year was used for
translating its statement of operations. Differences arising upon translation
were charged directly against equity.
REVENUE RECOGNITION
Revenue is recognized upon shipment of products. Net sales are comprised of
total sales billed, net of goods returned and trade discounts.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out (FIFO) method. Obsolete or unsaleable inventory is
reflected at its estimated net realizable value. Inventory costs include direct
materials, direct labor, electric power, freight and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Fixed assets are carried at cost less accumulated depreciation. Major
renewals and improvements are capitalized, while maintenance and repairs are
expensed when incurred. Under the Norwegian government's incentive program, the
Company receives grants in support of fixed asset acquisitions.
F-54
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Such grants are recorded by the Company as one-time reductions in the historical
cost basis of fixed assets acquired.
Certain fixed assets were revalued upward in previous years based on their
appraised fair market values. Such revaluations have been depreciated on a
straight-line basis over the estimated useful lives of the underlying fixed
assets.
Depreciation is calculated using the straight-line method based upon
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements................................... 20 years
Machinery and equipment...................................... 10 years
Furniture and fixtures....................................... 3-5 years
</TABLE>
Upon retirement or other disposition, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
the results of operations.
INVESTMENTS
Investments in affiliated and unaffiliated companies are recorded at cost.
Provisions are made, where necessary, to reduce the cost to market value or
estimated net realizable value.
TAXES
Income tax expense includes current taxes and the change in deferred taxes.
Deferred tax assets and liabilities are calculated in accordance with the
liability method. Deferred income taxes are provided for all temporary
differences between the financial statement and tax basis of assets and
liabilities, and operating loss carryforwards.
PENSION PLANS
The Company has implemented the Norwegian accounting standard for pensions
as of October 1, 1997. The implementation effect, net of deferred tax, of NOK
1.598 million was charged directly to shareholder's equity. The projected
benefit obligation for the Company's defined benefit plans is the actuarial
present value of plan benefits based upon the pensions benefit formula,
considering years of service rendered and assumptions about future compensation
levels. Pension plan assets are measured at fair market value, and differences
between the actual return on assets and the expected return are deferred and
amortized. Net periodic pension cost (gross pension cost less estimated return
on plan assets) is included in salaries, wages and related costs. The gross
pension cost includes service cost and interest cost on the projected benefit
obligation, and amortization of any unrecognized gain or loss. For pension plans
in which plan assets exceed the projected benefit obligation or those in which
projected benefit obligation exceeds plan assets, the aggregate net asset or
obligation, respectively, is recorded as a long-term receivable or liability,
respectively.
FOREIGN CURRENCY
Transactions in foreign currencies are translated into Norwegian kroner
("NOK") at the exchange rate prevailing at the date of the transaction. Cash in
bank, short-term receivables and payables denominated in foreign currency are
translated using the year-end exchange rate. Currency gains and losses are
classified under financial items in the statement of operations.
The Company uses foreign currency forward contracts as a means of hedging
exposure to foreign currency risks. Gains or losses on such contracts are
included in the statement of operations when transactions are settled. The
Company does not utilize these derivative financial instruments for speculative
purposes. However, forward foreign exchange contracts entered for purposes of
hedging
F-55
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
anticipated transactions do not qualify as hedges of firm commitments.
Accordingly, from the date such contracts are entered, unrealized losses are
recognized in the statement of operations while unrealized gains are generally
not recognized until final settlement of the contracts and the underlying
anticipated transactions.
NOTE NO. 2--ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
(AMOUNTS IN
NOK 1,000S)
-----------
<S> <C>
Accounts receivable, gross.................................. 59,401
Allowance for doubtful accounts............................. (677)
-------
Accounts receivable, net.................................... 58,724
-------
-------
</TABLE>
Bad debt expense for the fiscal year ended September 30, 1998 was NOK
77,365.
NOTE NO. 3--INVENTORIES
<TABLE>
<CAPTION>
RAW
MATERIALS
AND SPARE WORK IN FINISHED
PARTS PROGRESS GOODS TOTAL
--------- -------- -------- ------
(AMOUNTS IN NOK 1,000S)
<S> <C> <C> <C> <C>
Direct materials.......................................... 51,203 8,675 1,848 61,726
Direct labor.............................................. 6,653 12,533 19,186
Freight................................................... 528 528
Provision for obsolescence................................ (3,581) (3,581)
------- ------ ------ ------
Balance................................................... 47,622 15,328 14,909 77,859
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
NOTE NO. 4--PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
LAND AND MACHINERY
IMPROVEMENTS BUILDINGS AND OTHER TOTAL
------------ --------- --------- -------
(AMOUNTS IN NOK 1,000S)
<S> <C> <C> <C> <C>
Historical cost:
As at September 30, 1997......................... 526 24,049 421,108 445,683
Additions........................................ 927 40,987 41,914
Sales and retirements............................ (3) (149) (152)
------ ------- ------- -------
As at September 30, 1998......................... 523 24,827 462,095 487,445
------ ------- ------- -------
Accumulated depreciation on historical cost:
As at September 30, 1997......................... 6 16,984 316,774 333,764
Sales and retirements............................ (150) (150)
Depreciation..................................... 557 23,187 23,744
------ ------- ------- -------
As at September 30, 1998......................... 6 17,391 339,961 357,358
------ ------- ------- -------
Revaluations:
As at September 30, 1997......................... 14,975 8,615 23,590
Sales and retirements............................ (142) (142)
Depreciation..................................... (1,161) (1,161)
------ ------- -------
As at September 30, 1998......................... 14,975 7,312 22,287
------ ------- ------- -------
NET BOOK VALUE
As at September 30, 1998......................... 15,492 14,748 122,134 152,374
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
F-56
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 4--PROPERTY, PLANT & EQUIPMENT--(CONTINUED)
Investment in and sale of property, plant and equipment for the fiscal year
ended September 30, 1998 was as follows:
<TABLE>
<CAPTION>
TOTAL
-----------
(AMOUNTS IN
NOK 1,000S)
<S> <C>
Investments:
Land and improvements..................................... --
Buildings................................................. 927
Machinery and other....................................... 40,987
Sales:
Land and improvements..................................... --
Buildings................................................. 2,314
Machinery and other....................................... --
</TABLE>
NOTE NO. 5--INCOME TAXES
<TABLE>
<CAPTION>
AS OF AS OF
DEFERRED TAXES IN NORWAY: 09/30/98 09/30/97 CHANGE
- ------------------------------------------------------------------------ -------- -------- ------
(AMOUNTS IN NOK 1,000'S)
<S> <C> <C> <C>
Change in positive timing differences:
Pensions.............................................................. 4,591 1,571 (3,020)
Fixed assets.......................................................... 42,423 56,593 14,170
Gain on sale of fixed assets.......................................... 2,316 2,316
Inventories........................................................... 645 (645)
-------- ------ ------
Total positive timing differences..................................... 47,659 60,480 12,821
-------- ------ ------
Change in negative timing differences:
Accounts receivable................................................... (677) (754) (77)
Inventories........................................................... (1,527) (1,527)
-------- ------ ------
Total negative timing differences..................................... (677) (2,281) (1,604)
-------- ------ ------
Loss carryforward....................................................... (13,809)
-------- ------
Net positive timing differences......................................... 33,173 58,199
-------- ------
-------- ------
Deferred tax benefit at statutory rate of 28%........................... 9,288 16,296 7,008
-------- ------ ------
-------- ------ ------
Current taxes in the UK:
Taxable income in the UK for the fiscal year ended September 30,
1998............................................................... 10,773
------
------
Current tax expense at statutory rate of 30%.......................... 3,232
------
------
Income tax benefit, net for the fiscal year ended September 30, 1998.... 3,776
------
------
</TABLE>
NOTE NO. 6--NOTE RECEIVABLES
Note receivable from an affiliate as of September 30, 1998 represents a
long-term loan of NOK 5,156,100 to AS Tyssefaldene in order to finance the
construction of the Tysso II power station at Tyssefaldene. NOK 575,000 is due
for repayment within one year from September 30, 1998
Other note receivables primarily include long-term loans to employees for
NOK 5,077,413 as of September 30, 1998.
F-57
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 7--INVESTMENTS
<TABLE>
<CAPTION>
HISTORICAL
NOK PAR TOTAL SHARE COST
NUMBER OF VALUE PER CAPITAL BASIS
AS OF SEPTEMBER 30, 1998: SHARES HELD SHARE (NOK 1,000S) (NOK 1,000S)
- ---------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Investment in affiliated company:
AS Tyssefaldene............................. 10,652 100 5,250 1,065
Other investments:
Vilhelm Ravn AS............................. 80 1,000 300 80
ODDA Recycling.............................. 168 1,000 1,810 168
Total other investments....................... 248
</TABLE>
NOTE NO. 8--PENSIONS
The basic components of pension expense for the fiscal year ended
September 30, 1998 were as follows:
<TABLE>
<CAPTION>
PLANS WITH
ACCUMULATED PLANS WITH
BENEFIT ASSETS IN
OBLIGATIONS EXCESS OF
IN EXCESS ACCUMULATED
OF BENEFIT
ASSETS OBLIGATIONS TOTAL
----------- ----------- ------
(AMOUNTS IN NOK 1,000'S)
<S> <C> <C> <C>
Service cost................................................... 603 1,597 2,200
Interest cost on projected benefit obligations................. 524 4,732 5,256
----- ------- ------
Gross pension costs............................................ 1,127 6,329 7,456
Expected return on plan assets................................. -- (6,818) (6,818)
Net amortization and deferrals................................. (412) 12 (400)
----- ------- ------
Net pension cost............................................... 715 (477) 238
----- ------- ------
----- ------- ------
</TABLE>
Net pension assets as of September 30, 1998 was derived as follows;
<TABLE>
<CAPTION>
PLANS WITH
ACCUMULATED PLANS WITH
BENEFIT ASSETS IN
OBLIGATIONS EXCESS OF
IN EXCESS ACCUMULATED
OF BENEFIT
ASSETS OBLIGATIONS TOTAL
----------- ----------- ------
(AMOUNTS IN NOK 1,000'S)
<S> <C> <C> <C>
Present value of accumulated benefit obligations............... 13,906 71,639 85,545
Value of plan assets........................................... 0 90,136 90,136
------- ------- ------
Calculated pension assets (obligations)........................ (13,906) 18,497 4,591
------- ------- ------
------- ------- ------
</TABLE>
The assumptions underlying the calculations for the basic components of
pension expense for the fiscal year ended September 30, 1998 were as follows:
<TABLE>
<S> <C>
Discount rate............................................... 7.00%
Expected salary increases................................... 3.30%
Expected pension increases.................................. 2.50%
Adjustment to the social security base...................... 2.50%
Expected rate of return on plan assets...................... 8.00%
</TABLE>
F-58
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 9--NET INVESTMENT
The following summarizes the activity, which has been reflected in the net
investment account as of and for the fiscal year ended September 30, 1998:
<TABLE>
<CAPTION>
(AMOUNTS IN
NOK 1,000S)
-----------
<S> <C>
Balance, beginning of year.................................. 126,701
Implementation effect of Norwegian standard on pensions..... (1,598)
Net loss.................................................... (10,956)
Non-cash contribution from parent........................... 3,232
Non-cash distribution to parent............................. (15,762)
Translation adjustment...................................... 221
-------
Balance, end of year........................................ 101,838
-------
-------
</TABLE>
NOTE NO. 10--MORTGAGES
With respect to collateral for a portion of the Company's bank overdraft
and debt in the amount of NOK 132,607,221 a portion of the following assets have
been mortgaged as of September 30, 1998:
<TABLE>
<CAPTION>
ASSET NET BOOK VALUE
- --------------------------------------------------------- --------------
(AMOUNTS IN
NOK 1,000S)
<S> <C>
Accounts receivable, net................................. 46,375
Investment in affiliated company......................... 1,065
Inventories.............................................. 67,494
Note receivable from an affiliated company............... 5,156
--------
Total mortgaged assets................................... 120,090
--------
--------
</TABLE>
NOTE NO. 11--GUARANTEES
The Company has guaranteed the following potential liabilities as of
September 30, 1998:
<TABLE>
<CAPTION>
(AMOUNTS IN
NOK 1,000S)
-----------
<S> <C>
Taxes withheld.............................................. 7,000
-----
-----
</TABLE>
NOTE NO. 12--DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
NORWAY AND UNITED STATES (UNAUDITED)
The financial statements are prepared in accordance with the generally
accepted accounting principles in Norway, which differ in certain respects from
generally accepted accounting principles in the United States.
The following is a summary of the significant adjustments under U.S. GAAP
that would affect the Company's net loss and shareholder's equity as of and for
the fiscal year ended September 30, 1998
F-59
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 12--DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
NORWAY AND UNITED STATES (UNAUDITED)--(CONTINUED)
together with a discussion of the principal differences between Norwegian GAAP
("N.GAAP") and U.S. GAAP that are significant to the Company's financial
statements.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
SEPTEMBER 30,
1998
-------------
(NOK 1,000S)
<S> <C>
Reconciliation of net loss
Net loss reported under N.GAAP.......................................................... (10,956)
U.S. GAAP adjustments:
a) Revaluation of fixed assets....................................................... 1,303
b) Forward currency contracts........................................................ 1,896
c) Investment in affiliated company.................................................. 677
d) Pensions.......................................................................... (1,616)
e) Deferred taxes on U.S. GAAP adjustments........................................... (633)
-------
Net loss under U.S. GAAP................................................................ (9,329)
-------
-------
<CAPTION>
AS OF
SEPTEMBER 30,
1998
-------
(NOK 1,000S)
<S> <C>
Reconciliation shareholder's equity
Shareholder's equity reported under N. GAAP............................................. 101,838
U.S. GAAP adjustments:
a) Revaluation of fixed assets....................................................... (22,287)
b) Forward currency contracts........................................................ 1,896
c) Investment in affiliated company.................................................. 7,691
d) Pensions.......................................................................... (4,926)
e) Deferred taxes on U.S. GAAP adjustments........................................... 4,935
-------
Shareholder's equity under U.S. GAAP.................................................... 89,147
-------
-------
</TABLE>
A) REVALUATION OF FIXED ASSETS
Under Norwegian GAAP, certain fixed assets were revalued upward in previous
years based on their appraised fair market values. Such revaluations have been
depreciated on a straight-line basis over the estimated useful lives of the
underlying fixed assets.
Under U.S. GAAP, write-ups of fixed assets are not permitted, except in
certain business combinations.
B) FORWARD CURRENCY CONTRACTS
Under Norwegian GAAP, forward currency contracts entered for purposes of
hedging anticipated transactions do not qualify as hedges of firm commitments.
From the date such contracts are entered, unrealized losses are recognized in
the statement of operations while unrealized gains are generally not recognized.
Upon final settlement of the contracts and the underlying anticipated
transactions, realized gains are recorded in the statement of operations.
Under U.S. GAAP, unrealized gains and losses on forward currency contracts
that do not qualify as hedges are recorded from the date such contracts are
entered.
F-60
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE NO. 12--DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
NORWAY AND UNITED STATES (UNAUDITED)--(CONTINUED)
C) INVESTMENT IN AFFILIATED COMPANY
Under Norwegian GAAP, investments in affiliated companies, in which the
Company owns 20 to 50% of the voting rights and exercises significant influence,
may be recorded at cost.
Under U.S. GAAP, such investments are recorded in accordance with the
equity method of accounting.
D) PENSIONS
The Company has implemented the Norwegian accounting standard for pensions
as of October 1, 1997. The implementation effect, net of deferred tax, of NOK
1.598 million was charged directly to shareholder's equity.
In accordance with U.S. GAAP, the Company would have implemented Statement
of Financial Accounting Standards No. 87 (SFAS87) as of October 1, 1989. The
Norwegian standard is very similar to the requirements under SFAS 87. However,
the implementation effect under SFAS 87 must be amortized on a straight-line
basis over the greater of 15 years or average remaining service period of
employees under each plan. The amortization of this transition obligation is
included as part of net periodic pension cost under U.S. GAAP. In addition, it
is necessary under U.S. GAAP to consider separately the assumptions underlying
the calculations for the basic components of pension expense. The SFAS 87 rules
require that the assumptions be reviewed and updated annually to the extent
market conditions change. With respect to the Norwegian standard in practice
such assumptions are not reviewed and updated annually unless changes in market
conditions appear to be other than temporary. As a result, the discount rate
applied in the actuarial calculations of pension expense for the fiscal year
ended September 30, 1998 under Norwegian and U.S. GAAP were 7% and 6%,
respectively.
E) DEFERRED TAXES ON U.S. GAAP ADJUSTMENTS
Deferred taxes are calculated on the U.S. GAAP adjustments described above,
where appropriate.
F-61
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY GUARANTOR OR THE INITIAL PURCHASER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................... iv
Disclosure Regarding Forward-Looking
Statements................................... iv
Summary........................................ 1
Risk Factors................................... 14
Use of Proceeds................................ 24
Capitalization................................. 26
Unaudited Pro Forma Condensed Consolidated
Financial Information........................ 27
Selected Consolidated Financial Data........... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 35
Net Sales...................................... 35
The Exchange Offer............................. 46
Business....................................... 53
Conditions in Israel........................... 77
Management..................................... 80
Principal Stockholders......................... 85
Description of Capital Stock................... 85
Certain Relationships and Related
Transactions................................. 86
Description of Certain Indebtedness............ 88
Description of the Notes....................... 91
Book Entry; Delivery and Form.................. 120
Exchange Offer; Registration Rights............ 121
Certain United States Federal Income Tax
Considerations............................... 123
Plan of Distribution........................... 124
Legal Matters.................................. 125
Experts........................................ 125
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 1998, (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$100,000,000
[LOGO]
PHILIPP BROTHERS
CHEMICALS, INC.
9 7/8% SENIOR SUBORDINATED NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summaries are subject to the complete text of the statutes
and organizational documents of the Registrants described below and are
qualified in their entirety by reference thereto.
I. Koffolk, Inc., MRT Management Corp., Phibro-Tech, Inc. and Prince
Agriproducts, Inc., each a Delaware corporation
A. Section 145 of the Delaware General Corporation Law ("DGCL") provides
generally and in pertinent part that a Delaware corporation may indemnify its
directors and officers who are or were party or are threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, by reason of the fact that they are or
were a director, officer, employee or agent of the corporation, or are or were
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with such action, suit or proceeding if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Section 145 further provides that a Delaware corporation may indemnify its
directors and officers who were or are a party or are threatened to be a made
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
they are or were a director, officer, employee or agent of the corporation, or
are or were serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by them in connection with the defense or settlement of such
action or suit if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director 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 (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) or
(iv) for any transaction from which the director derived an improper personal
benefit.
B. Article Six of the Certificate of Incorporation of Koffolk, Inc.
provides that the corporation shall have the power to indemnify and advance
expenses to any person to the full extent permitted from time to time by the
DGCL.
Article VIII of the By-Laws of Koffolk, Inc. provides that, to the fullest
extent permitted by the laws of the State of Delaware, a director of the
corporation shall not be liable to the corporation or the stockholders for
monetary damages for breach of fiduciary duty as director. Article VIII further
provides that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a
II-1
<PAGE>
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the laws of the State of Delaware, as the same exists or may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment), against
all expense, liability and loss reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided, however
that, if the laws of the State of Delaware require, the payment of such expenses
incurred by a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the corporation.
Article VIII further provides that the corporation may maintain insurance,
at its expense, to protect itself and any director or officer of the corporation
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the laws of the State of Delaware.
C. Article IV of the By-Laws of MRT Management Corp. provides that, to the
fullest extent permitted by the DGCL as the same exists or may be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as director.
Article IV further provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the DGCL, as the same exists or may be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however that the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the Board of Directors of the corporation. Such right to
indemnification shall be a contract right and shall include the right to be paid
by the corporation the expense incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the DGCL requires,
the payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified by the corporation.
Article IV further provides that the corporation may maintain insurance, at
its expense, to protect itself and any director or officer of the corporation
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
II-2
<PAGE>
D. Article Nine of the Certificate of Incorporation of Phibro-Tech, Inc.
provides that the corporation shall indemnify, to the full extent permitted by
Section 145 of the DGCL, as amended from time to time, all persons whom it may
indemnify pursuant thereto.
Article V of the By-Laws of Phibro-Tech, Inc. provides that the
corporation, to the full extent permitted by the laws of the State of Delaware,
shall indemnify any person who, was or is made a party to or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(including any appeal thereof), whether civil, criminal, administrative or
investigative in nature (other than an action by or in the right of the
corporation), by reason of the fact that such person is or was a director or
officer of the corporation, or it at a time when he was a director or officer of
the corporation, is or was serving at the request of, or to represent the
interests of, the corporation as a director, officer, partner, fiduciary,
employee or agent (a "Subsidiary Officer") of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise (and "Affiliated
Entity"), against expenses (including attorneys' fees and disbursements), costs,
judgment, fines, penalties and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; provided, however,
that the corporation shall not be obligated to indemnify against any amount paid
in settlement unless the corporation has consented to such settlement, which
consent shall not be unreasonably withheld. The termination or any action suit
or proceeding by judgment, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his or her conduct was unlawful.
Article V further provides that the corporation, to the full extent
permitted by the laws of the State of Delaware, shall indemnify any person who
was or is made a party to or is threatened to be made a party to any threatened,
pending or completed action or suit (including any appeal thereof) brought in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the corporation, or, if
at a time when he was a director or officer to the corporation, is or was
serving at the request or, or to represent the interests of, the corporation as
a Subsidiary Officer of an Affiliated Entity against expenses (including
attorneys' fees and disbursements) and costs actually and reasonably incurred by
such person in connection with such action or suit if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to the corporation unless, and except to the extent that, the
Court of Chancery of the State of Delaware or the court in which such judgment
was rendered shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses and costs as the
Court of Chancery of the State of Delaware or such other court shall deem
proper.
Any indemnification described in the preceding paragraph shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification is proper under the circumstances because such person has
met the applicable standard as set forth above. Such determination shall be made
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding in respect of
which indemnification is sought or by majority vote of the members of a
committee of the Board of Directors composed of at least three members each of
whom is not a party to such action, suit or proceeding, or (b) if such quorum is
not obtainable and/or such a committee is not established or obtainable, or,
even if obtainable, if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders.
Expenses and costs incurred by an officer or director in defending any such
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit
II-3
<PAGE>
or proceeding upon receipt or an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation.
In addition, the corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of, or to represent the
interests of, the corporation as a Subsidiary Officer of any Affiliated Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of Article V or applicable law.
E. Article IX of the Certificate of Incorporation of Prince Agriproducts,
Inc. provides that the corporation shall indemnify each director and officer
thereof against all costs and expenses reasonably incurred by or imposed upon
him in connection with or arising out of any action, suit or proceeding in which
he may be involved or to which he may be made a party by reason of his being or
having been a director of officer of the corporation, except in relation to
matters as to which he shall be finally adjudged in any such action, suit or
proceeding to be liable for negligence or misconduct in the performance of his
duty as such director or officer. In the case of settlement of any such action,
suit or proceeding, such director or officer shall be indemnified by the
corporation against the cost and expense of such settlement, including any
amount paid to the corporation or to such other corporation, reasonably incurred
by him, after and only after (a) the corporation shall have been advised by
independent counsel that such director or officer is not liable for negligence
or misconduct in the performance of his duty as such director or officer in
relation to the matters covered by such action, suit or proceeding, and that
such cost and expense does not substantially exceed the expense which might
reasonably be incurred by such director or officer in conducting such action,
suit or proceeding to a final conclusion, or (b) the holders of a majority of
the shares of the capital stock of the corporation issued and outstanding in the
hands of disinterested persons and entitled to vote shall by vote at any annual
meeting of the stockholders, or at any special meeting called for the purpose,
approve such settlement and the indemnification of such director or officer.
"Disinterested persons" as used therein shall mean any (w) person other than a
director or officer who, at the time, is or may, as such director or officer, be
entitled to indemnification pursuant to the foregoing provisions, (x) any
corporation or organization of which any such person owns of record or
beneficially five per cent (5%) or more of the voting stock, (y) any firm or
association of which any such person is a member, and (z) any spouse, child,
parent, brother or sister or any such stockholder.
II. Mineral Resource Technologies, L.L.C., a Delaware limited liability
company
A. Section 18-108 of the Delaware Limited Liability Company Act ("DLLCA")
provides that subject to the standards and restrictions, if any, as are set
forth in its limited liability company agreement, a limited liability company
may, and shall have the power to, indemnify and hold harmless any member,
manager or other person from and against any and all claims and demands
whatsoever.
B. Article 2 of the Limited Liability Company Agreement of Mineral Resource
Technologies, L.L.C. provides that the members thereof and each other person who
is admitted as a member of the company and a party thereto, and acquires a
membership interest in the company, with the rights, obligations, preferences
and limitations specified therein, shall not have any liability for any
obligations or liabilities of the company whatsoever except if and then only to
the extent expressly provided by the DLLCA. No managing member, nor any
affiliate of any managing member, shall have any personal liability to the
company or any of the members for damages for any breach of duty as a manager of
the company or as a managing member or as an authorized agent, as the case may
be, and/or when acting with the consent of the managing member(s); provided that
the foregoing shall not eliminate or limit the liability of any managing member
if a judgment or other final adjudication adverse thereto establishes that acts
or omissions thereto were in bad faith or involved intentional misconduct or a
knowing violation or law or that such person personally gained in fact a
financial profit or other advantage to which such person was not legally
entitled thereof.
II-4
<PAGE>
III. Philipp Brothers Chemicals, Inc. and Phibro Chemicals, Inc., each a New
York corporation.
A. Under Sections 721 through 725 of the New York Business Corporation Law
(the "NYBCL"), a corporation has broad powers to indemnify its directors,
officers and other employees. These sections (i) provide that the statutory
indemnification and advancement of expenses provisions of the NYBCL are not
exclusive, provided that no indemnification may be made to or on behalf of any
director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his or her acts were committed in bad faith
or were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally entitled,
(ii) establish procedures for indemnification and advancement of expenses that
may be contained in the certificate of incorporation or by-laws, or, when
authorized by either of the foregoing, set forth in a resolution of the
shareholders or directors or an agreement providing for indemnification and
advancement of expenses, (iii) apply a single standard for statutory
indemnification for third-party and derivative suits by providing that
indemnification for third-party and derivative suits by providing that
indemnification is available if the director or officer acted in good faith, for
a purpose which he or she reasonably believed to be in the best interests of the
corporation, and in criminal actions, had no reasonable cause to believe that
his or her conduct was unlawful and (iv) permit the advancement of litigation
expenses upon receipt of an undertaking to repay such advance if the director or
officer is ultimately determined not to be entitled to indemnification or to the
extent the expenses advanced exceed the indemnification to which the director or
officer is entitled. Section 726 of the NYBCL permits the purchase of insurance
to indemnify a corporation or its officers and directors to the extent
permitted.
B. Article Sixth of the Certificate of Incorporation of Philipp Brothers
Chemicals, Inc. provides that each and every person who may become a director of
the corporation shall be relieved from any liability that might exist through
contracting or dealing with the corporation for the benefit of himself or any
firm, association or corporation in which he is or may be in any manner
interested, provided that the interest in any such contract or transaction of
any such director shall be fully disclosed. Article Sixth further provides that
the corporation shall indemnify each director and officer against expenses
reasonably incurred by him in connection with any action, suit, or proceeding to
which he may be made a party by reason of his being or having been a director or
officer of the corporation, to the fullest extent permitted by the NYBCL.
Article Eighth of the Certificate of Incorporation of Philipp Brothers
Chemicals, Inc. provides that, to the fullest extent permitted by the NYBCL, the
personal liability of directors of the corporation to the corporation or its
shareholders for damages for any breach of duty in such capacity is eliminated.
C. Article VI of the By-Laws of Phibro Chemicals, Inc. provides that, to
the fullest extent permitted by the laws of the State of New York, a director of
the corporation shall not be liable to the corporation or the shareholders for
monetary damages for breach of fiduciary duty as director. Article VI further
provides that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the laws of the State of New
York, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however
II-5
<PAGE>
that the corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the Board of Directors of the corporation. Such right to
indemnification shall be a contract right and shall include the right to be paid
by the corporation the expense incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the laws of the
State of New York require, the payment of such expenses incurred by a director
or officer in advance of the final disposition of a proceeding shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified by
the corporation.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
laws of the State of New York.
IV. C. P. Chemicals, Inc. and Phibrochem, Inc, each a New Jersey corporation
Section 14A:3-5 of the New Jersey Business Corporation Act ("NJBCA")
provides that a New Jersey business corporation shall have the power to
indemnify its directors, officers, employees and agents against expenses and
liabilities in connection with any proceeding involving such persons by reason
of his serving or having served in such capacities or for each such person's
acts taken in his capacity as a director, officer, employee or agent of the
corporation if such actions were taken in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal proceeding, if he had no
reasonable cause to believe his conduct was unlawful, provided that any such
proceeding is not by or in the right of the corporation. Section 14A:3-5 further
provides that a New Jersey corporation shall have the power to indemnify its
directors, officer, employees and agents against expenses incurred in connection
with any proceeding by or in the right of the corporation to procure a judgment
in its favor which involves such person by reason of his serving or having
served in such capacities, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. However, in such proceeding no indemnification shall be provided in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Superior Court or the court in which such proceeding was brought shall determine
upon application that despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses as the Superior Court or such other court shall deem
proper.
Section 14A:2-7(3) of the NJBCA enables a corporation in its certificate of
incorporation to limit the liability of directors and officers of the
corporation to the corporation or its shareholders. Specifically, the
certificate of incorporation may provide that directors and officers of the
corporation will not be personally liable for money damages for breach of a duty
as a director or an officer, except for liability (i) for any breach of the
director's or officer's duty of loyalty to the corporation or its shareholders,
(ii) for acts or omissions not in good faith or which involve a knowing
violation of law, (iii) as to directors only, under Section 14A:6-12(1) of the
NJBCA, which relates to unlawful declarations of dividends or other
distributions of assets to shareholders or the unlawful purchase of shares of
the corporation, or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
B. Article VII of the By-Laws of C.P. Chemicals, Inc. provides that the
corporation shall indemnify its officers, directors, employees and agents to the
extent permitted by the General Corporation Law of New Jersey.
Article VII of the By-Laws of Phibrochem, Inc. provides that, to the
fullest extent permitted by the NJBCA as the same exists or may be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as director.
Article VII further provides that each person who was or is made a party or is
threatened to be made a party to or
II-6
<PAGE>
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the NJBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however that the corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board of Directors of the corporation. Such right to indemnification shall
be a contract right and shall include the right to be paid by the corporation
the expense incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the NJBCA requires, the payment of such
expenses incurred by a director or officer in advance of the final disposition
of a proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the corporation.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
NJBCA.
V. The Prince Manufacturing Company, a Pennsylvania corporation
Section 1741 of the Pennsylvania Business Corporation Law ("PBCL") provides
that, unless otherwise restricted in its bylaws, a business corporation shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a representative of the corporation, or is or was serving at the request of
another domestic or foreign corporation for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to, the best interests of the corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 1743 of the PBCL provides that the corporation is required to
indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions. Section 1746 of the PBCL grants a
corporation broad authority to indemnify its directors and officers for
liabilities and expenses incurred in such capacity, except in circumstances
where the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
Section 1747 of the PBCL permits a corporation to purchase and maintain
insurance on behalf of any
II-7
<PAGE>
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a representative of another
corporation or other enterprise, against any liability asserted against such
person and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify the person against such liability under Chapter 17, Subchapter D of
the PBCL.
VI. The Prince Manufacturing Company, an Illinois corporation
Section 8.75 of the Illinois Business Corporation Act of 1983 provides that
an Illinois corporation may indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation or,
with respect to any criminal action or proceeding, that the person had
reasonable cause to believe that his or her conduct was unlawful. Section 8.75
further provides that a corporation may indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact hat such person is or was a
director, officer employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement or such action or suit,
if such person acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed, to the best interests of the corporation, provided
that no indemnification shall be made with respect to any claim, issue, or
matter as to which such person has been adjudged to have been liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication or liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court shall deem proper.
VII. Western Magnesium Corp.
Section 317 of the California General Corporation Law provides generally
and in pertinent part that a California corporation may indemnify its directors
and officers against expenses, judgments, fines and settlements actually and
reasonably incurred in connection with any threatened, pending or completed
civil, criminal, administrative or investigative action, other than an action by
or in the right of the corporation, if, in connection with the matters in issue,
they acted in good faith and in a manner the person reasonably believed to be in
the best interests of the corporation and, in the case of a criminal proceeding,
had no reasonable cause to believe the conduct of the person was unlawful.
Section 317 further provides that, in connection with the defense or settlement
of any action by or in the right of the corporation, a California corporation
may indemnify its directors and officers against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the action if the person acted in good faith, in a manner the person believed
to be in the best interest of the corporation and its shareholders. Section 317
further provides that a California corporation may grant its directors and
officer additional rights of indemnification through Articles of Incorporation
and By-Laws provisions, and otherwise.
II-8
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of Philipp Brothers Chemicals, Inc.*
3.2 -- By-laws of Philipp Brothers Chemicals, Inc.*
3.3 -- Certificate of Incorporation of Phibro-Tech, Inc.*
3.4 -- By-Laws of Phibro-Tech, Inc.*
3.5 -- Certificate of Incorporation of C.P. Chemicals, Inc.*
3.6 -- By-Laws of C.P. Chemicals, Inc.*
3.7 -- Certificate of Incorporation of Prince Agriproducts, Inc.*
3.8 -- By-Laws of Prince Agriproducts, Inc.*
3.9 -- Certificate of Incorporation of The Prince Manufacturing Company, an Illinois corporation*
3.10 -- By-Laws of The Prince Manufacturing Company, an Illinois corporation*
3.11 -- Certificate of Incorporation of The Prince Manufacturing Company, a Pennsylvania corporation*
3.12 -- By-Laws of The Prince Manufacturing Company, a Pennsylvania corporation*
3.13 -- Certificate of Formation of Mineral Resource Technologies, L.L.C.*
3.14 -- Limited Liability Company Agreement of Mineral Resource Technologies, L.L.C., dated as of
November 21, 1995, as amended as of June 1, 1998*
3.15 -- Certificate of Incorporation of MRT Management Corp.*
3.16 -- By-Laws of MRT Management Corp.*
3.17 -- Certificate of Incorporation of Koffolk, Inc.*
3.18 -- By-Laws of Koffolk, Inc.*
3.19 -- Certificate of Incorporation of Phibrochem, Inc.*
3.20 -- By-Laws of Phibrochem, Inc.*
3.21 -- Certificate of Incorporation of Phibro Chemicals, Inc.*
3.22 -- By-Laws of Phibro Chemicals, Inc.*
3.23 -- Certificate of Incorporation of Western Magnesium Corp.*
3.24 -- By-Laws of Western Magnesium Corp.*
4.1 -- Indenture, dated as of June 11, 1998, among the Company, the Guarantors named therein and The
Chase Manhattan Bank, as trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008 of
the Company, and exhibits thereto, including Form of 9 7/8% Senior Subordinated Note due 2008 of
the Company*
Certain instruments which define the rights of holders of long-term debt of the Company and its
consolidated subsidiaries have not been filed as Exhibits to this Registration Statement since
the total amount of securities authorized under any such instrument does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis, as of June 30, 1998.
For a description of such indebtedness, see Note 6 of Notes to Consolidated Financial Statements.
The Company hereby agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon its request.
5.1 -- Opinion of Golenbock, Eiseman, Assor & Bell regarding the legality of securities being
registered**
5.2 -- Opinion of Blanc Williams, Johnston & Kronstadt L.L.C. regarding the legality of securities being
registered**
5.3 -- Opinion of Martin H. Philip, Esq. regarding the legality of securities being registered**
5.4 -- Opinion of Schmiedeskamp, Robertson, New & Mitchell regarding the legality of securities being
registered**
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
10.1 -- Registration Rights Agreement, dated June 11, 1998, among Philipp Brothers Chemicals, Inc., the
Guarantors named therein and Schroder & Co. Inc.*
10.2 -- Revolving Credit, Acquisition Term Loan and Security Agreement, dated August 19, 1998, among
Philipp Brothers Chemicals, Inc., as Borrower, the Guarantors named therein, PNC Bank, N.A. as
Agent and Lender, and the other institutions from time to time party thereto as Lenders*
10.3 -- Manufacturing Agreement, dated May 15, 1994, by and between Merck & Co., Inc., Koffolk, Ltd., and
Philipp Brothers Chemicals, Inc.+**
10.4 -- Distribution Agreement, dated March 1, 1996, between Elanco Quimica Ltda. and Planalquimica
Industrial Ltda.+**
10.5 -- Asset Purchase and Trademark Assignment Agreement, dated August 5, 1996, between Koffolk, Inc.
and Merck & Co., Inc.; assigned by Merck & Co., Inc. to Merial Limited.**
10.6 -- Distributorship Agreement, dated August 5, 1996, by and between Merck & Co., Inc. and Koffolk,
Inc.; assigned by Merck & Co., Inc. to Merial Limited.+**
10.7 -- License Agreement, dated May 30, 1996, by and between Michigan Technological University and
Mineral Resource Technologies, L.L.C.+**
10.8 -- Lease, dated July 25, 1986, between Philipp Brothers Chemicals, Inc. and 400 Kelby Associates, as
amended December 1, 1986 and December 30, 1994*
10.9 -- Lease, dated June 30, 1995, between First Dice Road Co. and Phibro-Tech, Inc., as amended May
1998*
10.10 -- Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel Land Administration*
10.11 -- Master Lease Agreement, dated February 27, 1998, between General Electric Capital Corp., Philipp
Brothers Chemicals, Inc. and Phibro-Tech, Inc.*
10.12 -- Stockholders Agreement, dated December 29, 1987, by and between Philipp Brothers Chemicals, Inc.,
Charles H. Bendheim, Jack C. Bendheim and Marvin S. Sussman*
10.13 -- Employment Agreement, dated December 29, 1987, by and between Philipp Brothers Chemicals, Inc.
and Marvin S. Sussman*
10.14 -- Stockholders Agreement, dated February 21, 1995, between I. David Paley, Nathan Z. Bistricer,
James O. Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998*
10.15 -- Severance Agreement, dated as of February 21, 1995, between I. David Paley and Phibro-Tech, Inc.*
10.16 -- Form of Severance Agreement, each dated as of February 21, 1995, between Philipp Brothers
Chemicals, Inc. and each of Nathan Z. Bistricer and James O. Herlands*
10.17 -- Agreement of Limited Partnership of First Dice Road Company, dated June 1, 1985, by and among
Western Magnesium Corp., Jack Bendheim, Marvin S. Sussman and James O. Herlands, as amended
November 1985*
10.18 -- Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan Trust, dated
January 1, 1994, by and between Philipp Brothers Chemicals, Inc. on its own behalf and on behalf
of C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee thereunder; Philipp Brothers
Chemicals, Inc. Retirement Income and Deferred Compensation Plan Trust, dated March 18, 1994*
10.19 -- Form of Executive Income Deferred Compensation Agreement, each dated March ]1, 1990, by and
between Philipp Brothers Chemicals, Inc. and each of Jack Bendheim, James Herlands and Marvin
Sussman*
10.20 -- Form of Executive Income Split Dollar Agreement, each dated March 1, 1990, by and between Philipp
Brothers Chemicals, Inc. and each of Jack Bendheim, James Herlands and Marvin Sussman*
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
10.21 -- Agreement for the Sale and Purchase of the Shares of ODDA Smelteverk A/S and of the Business and
Certain Assets of BOC Carbide Industries, a division of BOC Ltd., dated June 26, 1998, between
The BOC Group plc and Philipp Brothers Chemicals, Inc.**
10.22 -- Supply Agreement, dated as of September 28, 1998, between BOC Limited and Phillip Brothers
Chemicals, Inc.+**
10.23 -- Administrative Consent Order, dated March 11, 1991, issued by the State of New Jersey Department
of Environmental Protection, Division of Hazardous Waste Management, to C.P. Chemicals, Inc.*
10.24 -- Purchase Agreement, dated as of June 1, 1998, between Jack C. Bendheim and the Company*
10.25 -- Agreement, dated as of June 1, 1998, by and among Jack C. Bendheim, Phibro-Tech, Inc., MRT
Management Corp. and Mineral Resource Technologies, L.L.C.*
10.26 -- Licensing Agreement, dated January 28, 1980, between Gunness Wharf Limited and BOC Limited+**
10.27 -- Agreement, dated January 28, 1980, between BOC Limited and Gunness Wharf Limited+**
12.1 -- Statement regarding computation of ratios.*
21.1 -- Subsidiaries of Philipp Brothers Chemicals, Inc.*
21.2 -- Subsidiaries of C.P. Chemicals, Inc.*
21.3 -- Subsidiaries of Phibro-Tech, Inc.*
23.1 -- Consent of PricewaterhouseCoopers LLP, certified public accountants**
23.2 -- Consent of Edward Isaacs & Co. LLP, certified public accountants**
23.3 -- Consent of Dov Kahana & Co., certified public accountants**
23.4 -- Consent of Cabinet Associes, certified public accountants**
23.5 -- Consent of Wilson Wright & Co., chartered accountants and registered auditors**
23.6 -- Consent of Wilson Wright & Co., chartered accountants and registered auditors**
23.7 -- Consent of PricewaterhouseCoopers DA, certified public accountants**
23.8 -- Consent of Golenbock, Eiseman, Assor & Bell (to be included as part of Exhibit 5.1 to this
Registration Statement)**
23.9 -- Consent of Blanc, Williams, Johnston & Kronstadt L.L.C. (to be included as part of Exhibit 5.2 to
this Registration Statement)**
23.10 -- Consent of Martin H. Philip, Esq. (to be included as part of Exhibit 5.3 to this Registration
Statement)**
23.11 -- Consent of Schmiedeskamp, Robertson, New & Mitchell (to be included as part of Exhibit 5.4 to
this Registration Statement)**
24.1 -- Power of Attorney (set forth on signature pages of this Registration Statement as filed on
September 29, 1998)
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan Bank on
Form T-1*
27.1 -- Financial Data Schedule*
99.1 -- Form of Letter of Transmittal*
99.2 -- Form of Notice of Guaranteed Delivery*
99.3 -- Form of Letter to Clients*
99.4 -- Form of Letter to Brokers, Dealers, Trust Companies and Other Nominees*
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
+ A request for confidential treatment has been made for portions of such
document. Confidential portions have been omitted and filed separately with
the SEC as required by Rule 406(b).
II-11
<PAGE>
(b) Financial Statement Schedules
All supplemental schedules are omitted because of the absence of conditions
under which they are required or because the information is shown in the
financial statements or notes thereto or in other supplemental schedules.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment of 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 thereto) 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 and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% 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.
(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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have 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 Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the 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 Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned Registrants hereby undertake 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 to and
included in the registration statement when it became effective.
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
PHILIPP BROTHERS CHEMICALS, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ MARVIN S. SUSSMAN* Director December 11, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ JAMES O. HERLANDS* Director December 11, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Vice President and Chief Financial December 11, 1998
- ------------------------------------------ Officer (Principal Financial Officer and
Nathan Z. Bistricer Principal Accounting Officer)
</TABLE>
- ------------------
* Executed pursuant to a power of attorney
contained in the Registration Statement
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
C.P. CHEMICALS, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director and Chief Executive Officer December 11, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ I. DAVID PALEY* Director and President December 11, 1998
- ------------------------------------------
I. David Paley
/s/ JAMES O. HERLANDS* Director December 11, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Vice President and Chief Financial December 11, 1998
- ------------------------------------------ Officer (Principal Financial Officer and
Nathan Z. Bistricer Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE, NEW
JERSEY, ON DECEMBER 11, 1998.
KOFFOLK, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
- ------------------------------------------ Treasurer (Principal Executive Officer,
Jack C. Bendheim Principal Financial Officer and Principal
Accounting Officer)
</TABLE>
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
MINERAL RESOURCE TECHNOLOGIES, L.L.C.
By: MRT Management Corp.,
Managing Member
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -----------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and Chief Executive December 11, 1998
Jack C. Bendheim Officer, Managing Member (Principal
Executive Officer, Managing Member)
/s/ I. DAVID PALEY* Director and Vice President, Managing Member December 11, 1998
I. David Paley
/s/ NATHAN Z. BISTRICER* Director, Vice President and Chief Financial December 11, 1998
Nathan Z. Bistricer Officer, Managing Member (Principal
Financial Officer and Principal Accounting
Officer)
/s/ HUGH P. SHANNONHOUSE* Director, Managing Member December 11, 1998
Hugh P. Shannonhouse
</TABLE>
- ------------------
*Executed pursuant to a power of
attorney contained in the Registration
Statement
II-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
MRT MANAGEMENT CORP.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ I. DAVID PALEY* Director and Vice President December 11, 1998
- ------------------------------------------
I. David Paley
/s/ HUGH P. SHANNONHOUSE* Director December 11, 1998
- ------------------------------------------
Hugh P. Shannonhouse
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
PHIBROCHEM, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director December 11, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
PHIBRO CHEMICALS, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director December 11, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
PHIBRO-TECH, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director and December 11, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ I. DAVID PALEY* Director, President and December 11, 1998
- ------------------------------------------ Chief Operating Officer
I. David Paley
/s/ NATHAN Z. BISTRICER* Director, Senior Vice President December 11, 1998
- ------------------------------------------ and Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
PRINCE AGRIPRODUCTS, INC.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director and Chief Executive December 11, 1998
- ------------------------------------------ Officer (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President December 11, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
THE PRINCE MANUFACTURING COMPANY
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director and Chief Executive Officer December 11, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President December 11, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
THE PRINCE MANUFACTURING COMPANY
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director and Chief Executive Officer December 11, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President December 11, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
- ------------------------------------------ Chief Financial Officer
Nathan Z. Bistricer (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of attorney
contained in the Registration Statement
II-23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LEE,
NEW JERSEY, ON DECEMBER 11, 1998.
WESTERN MAGNESIUM CORP.
By: /s/ JACK C. BENDHEIM
----------------------------------
Jack C. Bendheim,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
/s/ JACK C. BENDHEIM Director, President and December 11, 1998
Jack C. Bendheim Chief Executive Officer
(Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director December 11, 1998
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and December 11, 1998
Nathan Z. Bistricer Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
- ------------------
*Executed pursuant to a power of
attorney contained in the Registration
Statement
II-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of Philipp Brothers Chemicals, Inc.*
3.2 -- By-laws of Philipp Brothers Chemicals, Inc.*
3.3 -- Certificate of Incorporation of Phibro-Tech, Inc.*
3.4 -- By-Laws of Phibro-Tech, Inc.*
3.5 -- Certificate of Incorporation of C.P. Chemicals, Inc.*
3.6 -- By-Laws of C.P. Chemicals, Inc.*
3.7 -- Certificate of Incorporation of Prince Agriproducts, Inc.*
3.8 -- By-Laws of Prince Agriproducts, Inc.*
3.9 -- Certificate of Incorporation of The Prince Manufacturing Company, an Illinois
corporation*
3.10 -- By-Laws of The Prince Manufacturing Company, an Illinois corporation*
3.11 -- Certificate of Incorporation of The Prince Manufacturing Company, a Pennsylvania
corporation*
3.12 -- By-Laws of The Prince Manufacturing Company, a Pennsylvania corporation*
3.13 -- Certificate of Formation of Mineral Resource Technologies, L.L.C.*
3.14 -- Limited Liability Company Agreement of Mineral Resource Technologies, L.L.C., dated
as of November 21, 1995, as amended as of June 1, 1998*
3.15 -- Certificate of Incorporation of MRT Management Corp.*
3.16 -- By-Laws of MRT Management Corp.*
3.17 -- Certificate of Incorporation of Koffolk, Inc.*
3.18 -- By-Laws of Koffolk, Inc.*
3.19 -- Certificate of Incorporation of Phibrochem, Inc.*
3.20 -- By-Laws of Phibrochem, Inc.*
3.21 -- Certificate of Incorporation of Phibro Chemicals, Inc.*
3.22 -- By-Laws of Phibro Chemicals, Inc.*
3.23 -- Certificate of Incorporation of Western Magnesium Corp.*
3.24 -- By-Laws of Western Magnesium Corp.*
4.1 -- Indenture, dated as of June 11, 1998, among the Company, the Guarantors named therein
and The Chase Manhattan Bank, as trustee, relating to the 9 7/8% Senior Subordinated
Notes due 2008 of the Company, and exhibits thereto, including Form of 9 7/8% Senior
Subordinated Note due 2008 of the Company*
Certain instruments which define the rights of holders of long-term debt of the
Company and its consolidated subsidiaries have not been filed as Exhibits to this
Registration Statement since the total amount of securities authorized under any such
instrument does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis, as of June 30, 1998. For a description of such
indebtedness, see Note 6 of Notes to Consolidated Financial Statements. The Company
hereby agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon its request.
5.1 -- Opinion of Golenbock, Eiseman, Assor & Bell regarding the legality of securities
being registered**
5.2 -- Opinion of Blanc Williams, Johnston & Kronstadt L.L.C. regarding the legality of
securities being registered**
5.3 -- Opinion of Martin H. Philip, Esq. regarding the legality of securities being
registered**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
5.4 -- Opinion of Schmiedeskamp, Robertson, New & Mitchell regarding the legality of
securities being registered**
10.1 -- Registration Rights Agreement, dated June 11, 1998, among Philipp Brothers Chemicals,
Inc., the Guarantors named therein and Schroder & Co. Inc.*
10.2 -- Revolving Credit, Acquisition Term Loan and Security Agreement, dated August 19,
1998, among Philipp Brothers Chemicals, Inc., as Borrower, the Guarantors named
therein, PNC Bank, N.A. as Agent and Lender, and the other institutions from time to
time party thereto as Lenders*
10.3 -- Manufacturing Agreement, dated May 15, 1994, by and between Merck & Co., Inc.,
Koffolk, Ltd., and Philipp Brothers Chemicals, Inc.+**
10.4 -- Distribution Agreement, dated March 1, 1996, between Elanco Quimica Ltda. and
Planalquimica Industrial Ltda.+**
10.5 -- Asset Purchase and Trademark Assignment Agreement, dated August 5, 1996, between
Koffolk, Inc. and Merck & Co., Inc.; assigned by Merck & Co., Inc. to Merial
Limited.**
10.6 -- Distributorship Agreement, dated August 5, 1996, by and between Merck & Co., Inc. and
Koffolk, Inc.; assigned by Merck & Co., Inc. to Merial Limited.+**
10.7 -- License Agreement, dated May 30, 1996, by and between Michigan Technological
University and Mineral Resource Technologies, L.L.C.+**
10.8 -- Lease, dated July 25, 1986, between Philipp Brothers Chemicals, Inc. and 400 Kelby
Associates, as amended December 1, 1986 and December 30, 1994*
10.9 -- Lease, dated June 30, 1995, between First Dice Road Co. and Phibro-Tech, Inc., as
amended May 1998*
10.10 -- Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel Land
Administration*
10.11 -- Master Lease Agreement, dated February 27, 1998, between General Electric Capital
Corp., Philipp Brothers Chemicals, Inc. and Phibro-Tech, Inc.*
10.12 -- Stockholders Agreement, dated December 29, 1987, by and between Philipp Brothers
Chemicals, Inc., Charles H. Bendheim, Jack C. Bendheim and Marvin S. Sussman*
10.13 -- Employment Agreement, dated December 29, 1987, by and between Philipp Brothers
Chemicals, Inc. and Marvin S. Sussman*
10.14 -- Stockholders Agreement, dated February 21, 1995, between I. David Paley, Nathan Z.
Bistricer, James O. Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998*
10.15 -- Severance Agreement, dated as of February 21, 1995, between I. David Paley and
Phibro-Tech, Inc.*
10.16 -- Form of Severance Agreement, each dated as of February 21, 1995, between Philipp
Brothers Chemicals, Inc. and each of Nathan Z. Bistricer and James O. Herlands*
10.17 -- Agreement of Limited Partnership of First Dice Road Company, dated June 1, 1985, by
and among Western Magnesium Corp., Jack Bendheim, Marvin S. Sussman and James O.
Herlands, as amended November 1985*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.18 -- Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan
Trust, dated January 1, 1994, by and between Philipp Brothers Chemicals, Inc. on its
own behalf and on behalf of C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee
thereunder; Philipp Brothers Chemicals, Inc. Retirement Income and Deferred
Compensation Plan Trust, dated March 18, 1994*
10.19 -- Form of Executive Income Deferred Compensation Agreement, each dated March ]1, 1990,
by and between Philipp Brothers Chemicals, Inc. and each of Jack Bendheim, James
Herlands and Marvin Sussman*
10.20 -- Form of Executive Income Split Dollar Agreement, each dated March 1, 1990, by and
between Philipp Brothers Chemicals, Inc. and each of Jack Bendheim, James Herlands
and Marvin Sussman*
10.21 -- Agreement for the Sale and Purchase of the Shares of ODDA Smelteverk A/S and of the
Business and Certain Assets of BOC Carbide Industries, a division of BOC Ltd., dated
June 26, 1998, between The BOC Group plc and Philipp Brothers Chemicals, Inc.**
10.22 -- Supply Agreement, dated as of September 28, 1998, between BOC Limited and Phillip
Brothers Chemicals, Inc.+**
10.23 -- Administrative Consent Order, dated March 11, 1991, issued by the State of New Jersey
Department of Environmental Protection, Division of Hazardous Waste Management, to
C.P. Chemicals, Inc.*
10.24 -- Purchase Agreement, dated as of June 1, 1998, between Jack C. Bendheim and the
Company*
10.25 -- Agreement, dated as of June 1, 1998, by and among Jack C. Bendheim, Phibro-Tech,
Inc., MRT Management Corp. and Mineral Resource Technologies, L.L.C.*
10.26 -- Licensing Agreement, dated January 28, 1980, between Gunness Wharf Limited and BOC
Limited+**
10.27 -- Agreement, dated January 28, 1980, between BOC Limited and Gunness Wharf Limited+**
12.1 -- Statement regarding computation of ratios.*
21.1 -- Subsidiaries of Philipp Brothers Chemicals, Inc.*
21.2 -- Subsidiaries of C.P. Chemicals, Inc.*
21.3 -- Subsidiaries of Phibro-Tech, Inc.*
23.1 -- Consent of PricewaterhouseCoopers LLP, certified public accountants**
23.2 -- Consent of Edward Isaacs & Co. LLP, certified public accountants**
23.3 -- Consent of Dov Kahana & Co., certified public accountants**
23.4 -- Consent of Cabinet Associes, certified public accountants**
23.5 -- Consent of Wilson Wright & Co., chartered accountants and registered auditors**
23.6 -- Consent of Wilson Wright & Co., chartered accountants and registered auditors**
23.7 -- Consent of PricewaterhouseCoopers DA, certified public accountants**
23.8 -- Consent of Golenbock, Eiseman, Assor & Bell (to be included as part of Exhibit 5.1 to
this Registration Statement)**
23.9 -- Consent of Blanc, Williams, Johnston & Kronstadt L.L.C. (to be included as part of
Exhibit 5.2 to this Registration Statement)**
23.10 -- Consent of Martin H. Philip, Esq. (to be included as part of Exhibit 5.3 to this
Registration Statement)**
23.11 -- Consent of Schmiedeskamp, Robertson, New & Mitchell (to be included as part of
Exhibit 5.4 to this Registration Statement)**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
24.1 -- Power of Attorney (set forth on signature pages of this Registration Statement as
filed on September 29, 1998)
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan
Bank on Form T-1*
27.1 -- Financial Data Schedule*
99.1 -- Form of Letter of Transmittal*
99.2 -- Form of Notice of Guaranteed Delivery*
99.3 -- Form of Letter to Clients*
99.4 -- Form of Letter to Brokers, Dealers, Trust Companies and Other Nominees*
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
+ A request for confidential treatment has been made for portions of such
document. Confidential portions have been omitted and filed separately with
the SEC as required by Rule 406(b).
<PAGE>
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022-7302
December 14, 1998
Philipp Brothers Chemicals, Inc.
One Parker Plaza
Fort Lee, N.J. 07024
Re: Philipp Brothers Chemicals, Inc. Registration Statement on Form S-4
-------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Philipp Brothers Chemicals, Inc.,
a New York corporation (the "Company"), and the Designated Guarantors (as
hereinafter defined), in connection with the public offering of $100,000,000
aggregate principal amount of 9 7/8% Senior Subordinated Notes due 2008 (the
"New Notes") of the Company, which will be guaranteed, on a senior subordinated
basis pursuant to the guarantees (the "Guarantees" and, together with the New
Notes, the "New Securities") by Phibro-Tech, Inc., a Delaware corporation,
Prince Agriproducts, Inc., a Delaware corporation, MRT Management Corp., a
Delaware corporation, Mineral Resource Technologies, L.L.C. ("MRT"), a Delaware
limited liability company, Koffolk, Inc., a Delaware corporation, C.P.
Chemicals, Inc., a New Jersey corporation, Phibrochem, Inc., a New Jersey
corporation, Phibro Chemicals, Inc., a New York corporation, The Prince
Manufacturing Company, an Illinois corporation, The Prince Manufacturing
Company, a Pennsylvania corporation, and Western Magnesium Corp., a California
corporation (collectively, the "Guarantors"). Such eight Guarantors incorporated
or formed under the laws of the States of New York, Delaware or New Jersey are
collectively referred to as the "Designated Guarantors." The New Securities are
to be issued pursuant to an exchange offer (the "Exchange Offer") in exchange
for a like principal amount of the issued and outstanding 9 7/8% Senior
Subordinated Notes due 2008 of the Company (the "Old Securities") under an
Indenture dated as of June 11, 1998 (the "Indenture"), by and among the Company,
the Guarantors and The Chase Manhattan Bank, as trustee (the "Trustee"), as
contemplated by the Registration Rights Agreement dated
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 2
June 11, 1998 (the "Registration Rights Agreement"), by and among the Company,
the Guarantors and Schroder & Co. Inc.
This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act"), in connection with the filing of the Registration
Statement (as hereinafter defined) and for no other purpose.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-4 (File No. 333-64641) as filed with the
Securities and Exchange Commission (the "Commission") on September 29, 1998
under the Act, Amendment No.1 thereto as filed with the Commission on
November 23, 1998 and Amendment No. 2 thereto as filed with the Commission
on December 14, 1998 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) an executed copy
of the Registration Rights Agreement; (iii) an executed copy of the Indenture;
(iv) the Certificate of Incorporation of the Company, the Certificate of
Formation of MRT, and the Certificate of Incorporation of each of the other
Designated Guarantors, each as amended to date; (v) the By-Laws of the Company,
the Limited Liability Company Agreement of MRT, and the By-Laws of each of the
other Designated Guarantors, each as amended to date; (vi) Certificates issued
by the Secretary of State of the States of New York, Delaware and New Jersey,
certifying the existence of the Company and each of the Designated Guarantors
and its respective authority to transact business in its state of incorporation
or formation; (vii) certain resolutions adopted by the Board of Directors and
shareholders of the Company, relating to the Exchange Offer, the issuance of the
New Notes and the New Securities, the Indenture and related matters, certified
by the Secretary of the Company as true and complete; (viii) certain resolutions
adopted by the Board of Directors and shareholders (or, in the case of MRT, the
Managing Member) of each of the Designated Guarantors relating to, among other
things, the issuance of the Guarantees by the Designated Guarantors, certified
by the Secretary of each of the applicable Designated Guarantors as true and
complete; (ix) the Form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and (ix) the form of the New Notes (including the form
of Guarantees). We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and the
Designated Guarantors and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company, the Designated
Guarantors and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 3
In rendering these opinions we have assumed (i) the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies or by electronic means and the authenticity of the originals
of such latter documents; (ii) that all parties other than the Company and the
Designated Guarantors have the power, corporate or otherwise, to enter into and
perform all obligations under all documents we have examined in connection with
these opinions (the "Examined Documents"); (iii) that all the Examined Documents
have been duly authorized by all requisite action, corporate or other, and
executed and delivered by, and each of them constitutes the legally valid and
binding obligation of, such other parties, as applicable, enforceable against
such other parties in accordance with their respective terms; and (iv) that the
resolutions of the Board of Directors and shareholders (and, in the case of MRT,
the Managing Member) of the Company and the Designated Guarantors in connection
with the Purchase Agreement dated June 5, 1998 between the Company and Schroder
& Co. Inc. and the sale of the Old Securities have not been rescinded and
revoked. We have also assumed (i) that the execution, delivery and performance
of the Guarantees and the Indenture by each of the Guarantors incorporated under
the laws of Pennsylvania, Illinois or California will not violate any provisions
of the laws of such state, (ii) the validity, binding effect and enforceability
of the Indenture and the Guarantees of the Guarantors incorporated under the
laws of Pennsylvania, Illinois or California under the laws of such states, and
(iii) that the laws of such jurisdictions would not affect any of the
conclusions stated herein. As to any fact material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company, the Guarantors and others. In addition, we have assumed that there will
be no changes in applicable law between the date of this opinion and the date of
issuance and delivery of the New Securities.
Members of our firm are admitted to the bar in the State of
New York and we express no opinion with regard to any matter which may be
governed by any law other than the federal law of the United States of America,
the laws of the State of New York and, to the extent necessary to render this
opinion, the Delaware General Corporation Law and the New Jersey Business
Corporation Act.
Based upon and subject to the foregoing and the limitations,
assumptions, qualifications and exceptions set forth herein, we are of the
opinion that the New Securities have been duly authorized by the Company and the
Designated Guarantors, and when (i) the
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 4
Registration Statement becomes effective under the Act and the Indenture has
been qualified under the Trust Indenture Act of 1939, as amended, and (ii) the
New Securities have been duly executed and authenticated in accordance with the
terms of the Indenture and have been delivered upon consummation of the Exchange
Offer against receipt of Old Securities surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, the New Securities will
constitute valid and binding obligations of the Company and each of the
Designated Guarantors, enforceable against the Company and each of the
Designated Guarantors in accordance with their terms.
The opinion set forth above is qualified as follows:
A. The validity and enforceability of obligations, and the
availability of rights and remedies, under the Indenture and under the
Guarantees, are subject to and may be limited or affected by (i) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally (including, without limitation,
Section 548 of the United States Bankruptcy Code, state fraudulent transfer laws
and other similar laws relating to fraud on creditors), (ii) general principles
of equity including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether such validity
or enforceability of obligations or availability of rights and remedies is
considered in a proceeding in equity or at law, and (iii) laws and legal
principles imposing duties to act in good faith or in a commercially reasonable
manner.
B. The validity and enforceability of obligations, and the
availability of rights and remedies, under the Indenture and the Guarantees, may
be further limited by other laws and judicial decisions with respect to or
affecting remedial or procedural provisions contained in such documents, but in
our judgment and subject to the other qualifications set forth in this letter,
such other laws and judicial decisions do not render the Indenture invalid as a
whole or substantially interfere with realization of the principal benefits
intended to be provided thereby.
C. The validity and enforceability of obligations, and the
availability of rights and remedies, under the Indenture, including the
Guarantees under the Indenture, may be further limited by other laws and
judicial decisions with respect to the enforceability of any waiver granted
under Section 6.04 of the Indenture.
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 5
D. In rendering the opinion expressed in this letter, we
express no opinion with respect to any provisions in the Indenture insofar as
such provisions purport (i) to establish evidentiary standards or conclusive
presumptions as to factual matters, (ii) to appoint any person or entity as
attorney-in-fact for the Company or a Designated Guarantor, (iii) to require
amendments, modifications or waivers of any provisions of the Indenture to be in
writing, or (iv) to provide that any person or entity (A) may have rights to
release, exculpation, indemnity or contribution, (B) may have rights to the
payment or reimbursement of attorneys' fees except to the extent that a court
determines that such fees are reasonable, (C) may have rights to forfeiture or
the payment of any sum as liquidated damages, penalties, late charges or
prepayment premiums, (D) may have rights to any increase in any rate of interest
upon delinquency in payment or the occurrence of a default, (E) may pursue
inconsistent or cumulative remedies or (F) waives any right, remedy or defense.
E. We also express no opinion as to any securities laws of any
jurisdiction or the rules and regulations of the National Association of
Securities Dealers, Inc.
F. We call to your attention that:
(i) any provision in an agreement requiring a
party to pay another party's attorneys' fees and costs in any action to enforce
the provisions of such agreement may be construed to entitle the prevailing
party in any such action, whether or not such party is the party specified in
such agreement, to be awarded its reasonable attorneys' fees, costs and
necessary disbursements; and
(ii) courts may consider extrinsic evidence
(both oral and written) of circumstances of the Indenture to ascertain the
intent of the parties in using the language set forth in the Indenture,
regardless of whether or not the language set forth in the Indenture is plain
and unambiguous on its face and regardless of any statement by the parties in
the Indenture that the Indenture constitutes an integrated expression of the
agreement of the parties, and such courts may incorporate additional or
supplementary terms into the Indenture.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 6
that we are included in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Golenbock, Eiseman, Assor & Bell
------------------------------------
<PAGE>
BLANC WILLAMS JOHNSTON & KRONSTADT
1900 Avenue of the Stars
Suite 1700
Los Angeles, California 90067
December 14, 1998
Philipp Brothers Chemicals, Inc.
One Parker Plaza
Fort Lee, NJ 07024
Re: Philipp Brothers Chemicals, Inc. Registration Statement on Form S-4
-------------------------------------------------------------------
Dear Sirs:
We have acted as special counsel to Western Magnesium Corp., a
California corporation (the "Subsidiary"), in connection with the public
offering of $100,000,000 aggregate principal amount of 97/8% Senior Subordinated
Notes due 2008 (the "New Notes") of Philipp Brothers Chemicals, Inc., a New York
corporation (the "Company"), which will be guaranteed, on a senior subordinated
basis pursuant to the guarantees (the "Guarantees" and, together with the New
Notes, the "New Securities") by the Subsidiary, Phibro-Tech, Inc., a Delaware
corporation, Prince Agriproducts, Inc., a Delaware corporation, MRT Management
Corp., a Delaware corporation, Mineral Resource Technologies, L.L.C., a limited
liability company formed under the laws of Delaware, Koffolk, Inc., a Delaware
corporation, C.P. Chemicals, Inc., a New Jersey corporation, Phibrochem, Inc., a
New Jersey corporation, The Price Manufacturing Company, an Illinois
corporation, The Primce Manufacturing Company, a Pennsylvania corporation and
Phibro Chemicals, Inc., a New York corporation (collectively, the "Guarantors").
The New Securities are to be issued pursuant to an exchange offer (the "Exchange
Offer") in exchange for a like principal amount of the issued and outstanding
97/8% Senior Subordinated Notes due 2008 of the Company (the "Old Securities")
under an Indenture dated as of June 11, 1998 (the "Indenture"), by and among the
Company, the Guarantors and The Chase Manhattan Bank, as trustee (the
"Trustee"), as contemplated by the Registration Rights Agreement dated June 11,
1998 (the "Registration Rights Agreement"), by and among the Company, the
Guarantors and Schroder & Co. Inc.
This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the following
documents:
(i) The Registration Statement on Form S-4 (File No.333-64641) as filed
by the Company with the Securities and Exchange Commission (the "Commission") on
September 29,
<PAGE>
1998, Amendment No. 1 as filed on November 23, 1998, and Amendment No. 2 thereto
as filed with the Commission on December 14, 1998 (as amended, the "Registration
Statement");
(ii) an executed copy of the Registration Rights Agreement;
(iii) an executed copy of the Indenture;
(iv) the Articles of Incorporation of the Subsidiary, certified as true
and correct by the Secretary of State of the State of California on December __,
1998;
(v) the Bylaws of the Subsidiary, certified as true and complete by an
officer of such corporation;
(vi) Certificate dated _______, 1998 issued by the Secretary of State
of the State of California certifying the existence of the Subsidiary and its
respective authority to transact business in corporate form in the State of
California;
(vii) copies of resolutions of the Board of Directors of the Subsidiary
authorizing and approving, among other things, the issuance of the New
Securities and the Exchange Offer, certified by the Secretary of Subsidiary as
true and complete;
(viii) the Form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and (ix) the form of the New Notes and the Guarantees.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, certificates and
records as we have deemed necessary or appropriate as a basis for the opinions
set forth herein.
In rendering these opinions we have assumed, with your permission and
without having made any independent investigation of the facts: (i) the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents; (ii) that
all parties other than the Subsidiary have the power, corporate or otherwise, to
enter into and perform all obligations under all documents we have examined in
connection with these opinions (the "Examined Documents"); (iii) that all the
Examined Documents have been duly authorized, executed and delivered by, and
each of them constitutes the legally valid and binding obligation of, such other
parties, as applicable, enforceable against such other parties in accordance
with their respective terms; (iv) that the resolutions of the Board of Directors
of the Subsidiary in connection with the Purchase Agreement dated June 5, 1998
between the Company and Schroder & Co., Inc. and the sale of the Old Securities
have not been rescinded and revoked; and (v) that all material factual matters,
including, without limitation, representations and warranties, contained in the
Examined Documents are true and correct as set forth therein.
We note that the Indenture is by its terms governed by the laws of the
State of New York. We are not admitted to practice in the State of New York, and
accordingly express no opinion as
2
<PAGE>
to the laws of such State. We express no opinion as to the validity of such
choice of law. Our opinion should be understood to the effect to be given to
such documents under the internal laws of the State of California if a court
were to apply such law notwithstanding the parties' choice of other law.
Members of our firm are admitted to the bar in the State of California
and we express no opinion with regard to any matter which may be governed by any
law other than the federal law of the United States of America and the laws of
the State of California.
Based upon and subject to the limitations, assumptions, qualifications
and exceptions set forth herein, we are of the opinion that when (i) the
Registration Statement becomes effective under the Act and the Indenture has
been qualified under the Trust Indenture Act of 1939, as amended, and (ii) the
New Securities have been duly executed and authenticated in accordance with the
terms of the Indenture and have been delivered upon consummation of the Exchange
Offer against receipt of Old Securities surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, the Guarantee of the Subsidiary
will constitute a valid and binding obligation of the Subsidiary, enforceable
against the Subsidiary in accordance with its terms.
The opinion set forth above is qualified as follows:
A. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture, including the Guarantees under the
Indenture, are subject to and may be limited or affected by (i) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally (including, without limitation,
Section 548 of the United States Bankruptcy Code, state fraudulent transfer laws
and other similar laws relating to fraud on creditors ("Fraudulent Conveyance
Laws")), (ii) general principles of equity including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive relief, regardless
of whether such validity or enforceability of obligations or availability of
rights and remedies is considered in a proceeding in equity or at law and (iii)
laws imposing duties to act in good faith or in a commercially reasonable
manner.
B. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture and under the Guarantees, may be
further limited by other laws and judicial decisions with respect to or
affecting remedial or procedural provisions contained in such documents, but in
our judgment and subject to the other qualifications set forth in this letter,
such other laws and judicial decisions do not render the Indenture invalid as a
whole or substantially interfere with realization of the principal benefits
intended to be provided thereby.
C. The validity and enforceability of obligations, and availability of
rights and remedies, under the Indenture and the Guarantees, may be further
limited by other laws and judicial decisions with respect to the enforceability
of any waiver granted under Section 6.04 of the Indenture.
3
<PAGE>
D. In rendering the opinion expressed in this letter, we express no
opinion with respect to: (i) any provisions in the Indenture pertaining to
jurisdiction or venue, or (ii) any other provisions in the Indenture insofar as
such provisions purport (A) to establish evidentiary standards or conclusive
presumptions as to factual matters, (B) to appoint any person or entity as
attorney-in-fact for the Subsidiary, (C) to require amendments, modifications or
waivers of any provisions of the Indenture to be in writing, or (D) to provide
that any person or entity (1) may have rights to release, exculpation, indemnity
or contribution, (2) may have rights to the payment or reimbursement of
attorneys' fees except to the extent that a court determines that such fees are
reasonable, (3) may have rights to forfeiture or the payment of any sum as
liquidated damages, penalties, late charges or prepayment premiums, (4) may have
rights to any increase in any rate of interest upon delinquency in payment or
the occurrence of a default, (5) may pursue inconsistent or cumulative remedies
or (6) waives any right, remedy or defense.
E. We also express no opinion as to any securities laws of any
jurisdiction or the rules and regulations of the National Association of
Securities Dealers, Inc.
F. We call to your attention that:
(i) under the laws of the State of California, any provision in an
agreement requiring a party to pay another party's attorneys' fees and costs in
any action to enforce the provisions of such agreement will be construed to
entitled the prevailing party in any such action, whether or not such party is
the party specified in such agreement, to be awarded its reasonable attorneys'
fees, costs and necessary disbursements; and
(ii) the courts of the State of California will consider extrinsic
evidence (both oral and written) of circumstances of the Indenture to ascertain
the intent of the parties in using the language set forth in the Indenture,
regardless of whether or not the language set forth in the Indenture is plain
and unambiguous on its face and regardless of any statement by the parties in
the Indenture that the Indenture constitutes an integrated expression of the
agreement of the parties, and such courts may incorporate additional or
supplementary terms into the Indenture.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
4
Very truly yours,
/s/ Blanc Williams Johnston & Kronstadt
<PAGE>
MARTIN H. PHILIP
Attorney at Law
252 Delaware Avenue
P.O. Box 94
Palmerton, PA 18071
December 14, 1998
Philipp Brothers Chemicals, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Re: Philipp Brothers Chemicals, Inc. Registration Statement on Form S-4
-------------------------------------------------------------------
Dear Sirs:
We have acted as special counsel to The Price Manufacturing Company, a
Pennsylvania corporation (the "Subsidiary"), in connection with the public
offering of $100,000,000 aggregate principal amount of 9 7/8% Senior
Subordinated Notes due 2008 (the "New Notes") of Philipp Brothers Chemicals,
Inc., a New York corporation (the "Company"), which will be guaranteed, on a
senior subordinated basis pursuant to the guarantees (the "Guarantees" and,
together with the New Notes, the "New Securities") by the Subsidiary,
Phibro-Tech, Inc., a Delaware corporation, Prince Argiproducts, Inc., a Delaware
corporation, MRT Management Corp., a Delaware corporation, Mineral Resource
Technologies, L.L.C. ("MRT") , a Delaware limited liability company, Koffolk,
Inc., a Delaware corporation, C.P. Chemicals, Inc., a New Jersey corporation,
Phibrochem, Inc., a New Jersey corporation, Phibro Chemicals, Inc., a New York
corporation, The Prince Manufacturing Company, an Illinois corporation, The
Prince Manufacturing Company, a Pennsylvania corporation, and Western Magnesium
Corp., a California corporation (collectively, the "Guarantors"). Such eight
Guarantors incorporated or formed under the laws of the States of New York,
Delaware or New Jersey are collectively referred to as the "Designated
Guarantors". The New Securities are to be issued pursuant to an exchange offer
(the "Exchange Offer" in exchange for a like principal amount of the issued and
outstanding 9 7/8% Senior Subordinated Notes due 2008 of the Company (the "Old
Securities") under an Indenture dated as of June 11, 1998 (the "Indenture"), by
and among the Company, the Guarantors and The Chase Manhattan Bank, as trustee
(the "Trustee"), as contemplated by the Registration Rights Agreement dated June
11, 1998 (the "Registration Rights Agreement"), by and among the Company, the
Guarantors and Schroder & Co., Inc.
This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act") in
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 2
connection with the filing of the Registration Statement (hereinafter defined)
and for no other purpose.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the following
documents:
(1) The Registration Statement on Form S-4 (File No. 333-64641) as
filed with the Securities and Exchange Commission (the
"Commission") on September 29, 1998 under the Act,
Amendment No. 1 thereto as filed with the Commission
on November 23, 1998 and Amendment No. 2 thereto as
filed with the Commission on December 14, 1998. (Such
registration statement as so amended being hereinafter
referred as the Registration Statement).
(2) an executed copy of the Registration Rights Agreement;
(3) an executed copy of the Indenture;
(4) the Articles of Incorporation of the Subsidiary, certified as
true and correct by the Secretary of State of the Commonwealth
of Pennsylvania on May 20, 1998;
(5) the Bylaws of the Subsidiary, certified as true and complete
by an officer of such corporation;
(6) Certificate dated May 20, 1998 issued by the Secretary of
State of the Commonwealth of Pennsylvania certifying the
existence of the Subsidiary and its respective authority to
transact business in corporate form in the Commonwealth of
Pennsylvania;
(7) copies of resolutions of the Board of directors and
Shareholders of the Subsidiary authorizing and approving,
among other things, the issuance of the New Notes and the New
Securities and the Exchange Offer, certified by the Secretary
of Subsidiary as true and complete;
(8) Resolutions adopted by the Board of Directors and Shareholders
of the Subsidiary relating to, among other things, the
issuance of Guarantees by the Subsidiary, certified by the
Secretary of the Subsidiary as true and complete;
(9) the form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 3
(9) the form of the New Notes (including the form of Guarantees).
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, certificates and
records as we have deemed necessary or appropriate as a basis for the opinions
set forth herein.
In rendering these opinions we have assumed, with your permission and
without having made any independent investigation of the facts: (i) the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted tous as certified, conformed or
photostatic copies or by electronic means and the authenticity of the originals
of such latter documents; (ii) that all parties other than the Subsidiary have
the power, corporate or otherwise, to enter into and perform all obligations
under all documents we have examined in connection with these opinions (the
"Examined Documents"), (iii) that all the Examined Documents have been duly
authorized by all requisite action, corporate or other, and executed and
delivered by, and each of them constitutes the legally valid and binding
obligations of, such other parties, as applicable, enforceable against such
other parties in accordance with their respective terms; and (iv) that the
resolutions of the Board of Directors and Shareholders (and in the case of MRT,
the Managing Member) of the Subsidiary in connection with the Purchase Agreement
dated June 5, 1998 between the Company and Schroder & Co. Inc. and the sale of
the Old Securities have not been rescinded and revoked. As to any fact material
to the opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company, the Guarantors and others. In addition, we
have assumed that there will be no changes in applicable law between the date of
this opinion and the date of issuance and delivery of the New Securities.
We note that the Indenture is by its terms governed by the laws of the
State of New York. We are not admitted to practice in the State of New York, and
accordingly express no opinion as to the laws of such State. We express no
opinion as to the validity of such choice of law. Our opinion should be
understood to the effect to be given to such documents under the internal laws
of the Commonwealth of Pennsylvania, if a court were to apply such law
notwithstanding the parties' choice of other law.
Members of our firm are admitted to the bar in the Commonwealth of
Pennsylvania and we express no opinion with regard to any matter which may be
governed by any law other than the federal laws of the Untied States of America
and the laws of the Commonwealth of Pennsylvania.
Based upon and subject to the foregoing and the limitations,
assumptions, qualifications and exceptions set forth herein, we are of the
opinion that when (i) the Registration Statement
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 4
becomes effective under the Act and the Indenture has been qualified under the
Trust Indenture Act of 1939, as amended, and (ii) the New Securities have been
duly executed and authenticated in accordance with the terms of the Indenture
and have been delivered upon consummation of the Exchange Offer against receipt
of Old Securities surrendered in exchange therefor in accordance with the terms
of the Exchange Offer, the Guarantee of the Subsidiary will constitute a valid
and binding obligations of the Subsidiary, enforceable against the Subsidiary in
accordance with its terms.
The opinion set forth above is qualified as follows:
A. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture and under the Guarantees are subject
to and may be limited or affected by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting creditors'
rights, generally (including, without limitation, Section 548 of the United
States Bankruptcy Code, state fraudulent transfer laws and other similar laws,
relating to fraud of creditors, (ii) general principles of equity including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether such validity or enforceability of obligations or
availability of rights and remedies is considered in a proceeding in equity or
at law, and (iii) laws and legal principles imposing duties to act in good faith
or in a commercially reasonable manner.
B. The validity and enforceability of obligations, and the availability
or rights and remedies, under the Indenture and the Guarantees may be further
limited by other laws and judicial decisions with respect to or affecting
remedial or procedural provisions contained in such documents, but in our
judgment and subject to the other qualifications set forth in this letter, such
other laws and judicial decisions do not render the Indenture invalid as a whole
or substantially interfere with realization of the principal benefits intended
to be provided thereby.
C. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture, including the Guarantees under the
Indenture, may be further limited to other laws and judicial decisions with
respect to the enforceability of any waiver granted under Section 6.04 of the
Indenture.
D. In rendering the opinion expressed in this letter, we express no
opinion with respect to any provisions in the Indenture insofar as such
provisions purport
(i) to establish evidentiary standards or conclusive
presumptions as to factual matters,
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 5
(ii) to appoint any person or entity as attorney-in-fact for
the Subsidiary
(iii) to require amendments, modifications or waivers of any
provisions of the Indenture to be in writing, or
(iv) to provide that any person or entity (A) may have rights
to release, exculpations, indemnity or contribution, (B) may have rights to the
payment or reimbursement of attorneys' fees except to the extent that a court
determines that such fees are reasonable, (C) may have rights to forfeiture or
the payment of any sum as liquidated, penalties, late charges or repayment
premiums, (D) may have rights to any increase in any rate of interest upon
delinquency in payment or the occurrence of a default, (E) may pursue
inconsistent or cumulative remedies or (F) waives any right, remedy or defense.
E. We also express no opinion as to any securities laws of any
jurisdiction or the rules and regulations of the National Association of
Securities Dealers, Inc.
F. We call to your attention that:
(i) Under the laws of the Commonwealth of Pennsylvania, any
provision in an agreement requiring a party to pay another party's attorneys'
fees and costs in any action to enforce the provisions of such agreement will be
construed to entitle the prevailing party to any such action, whether or not
such party is the party specified in such agreement, to be awarded reasonable
attorneys' fees, costs and necessary disbursements; and
(ii) The courts of the Commonwealth of Pennsylvania will
consider extrinsic evidence (both oral and written) of circumstances of the
Indenture to ascertain the intent of the parties in using the language set forth
in the Indenture, regardless of whether or not the language set forth in the
Indenture is plain and unambiguous on its face and regardless of any statement
by the parties in the Indenture that the Indenture constitutes an integrated
expression of the agreement of the parties, and such courts may incorporate
additional or supplementary terms into the Indenture.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Martin H. Philip
<PAGE>
SCHMIEDESKAMP, ROBERTSON, NEU & MITCHELL
525 Jersey
Quincy, Illinois 62306
December 14, 1998
Philipp Brothers Chemicals, Inc.
One Parker Plaza
Fort Lee, NJ 07024
Re: Philipp Brothers Chemicals, Inc. Registration Statement on Form S-4
Dear Sirs:
We have acted as special counsel to The Prince Manufacturing
Company, an Illinois corporation (the "Subsidiary"), in connection with the
public offering of $100,000,000 aggregate principal amount of 9 7/8% Senior
Subordinated Notes due 2008 (the "New Notes") of Philipp Brothers Chemicals,
Inc., a New York corporation (the "Company"), which will be guaranteed, on a
senior subordinated basis pursuant to the guarantees (the "Guarantees" and,
together with the New Notes, the "New Securities") by the Subsidiary,
Phibro-Tech, Inc., a Delaware corporation, Prince Agri Products, Inc., a
Delaware corporation, MRT Management Corp., a Delaware corporation, Mineral
Resource Technologies, L.L.C., a limited liability company formed under the laws
of Delaware, Koffolk, Inc., a Delaware corporation, C.P. Chemicals, Inc., a New
Jersey corporation, Phibrochem, Inc., a New Jersey corporation, the Prince
Manufacturing Company, a Pennsylvania corporation, Phibro Chemicals, Inc., a New
York corporation and Western Magnesium Corp., a California corporation
(collectively, the "Guarantors"). The New Securities are to be issued pursuant
to an exchange offer (the "Exchange Offer") in exchange for a like principal
amount of the issued and outstanding 9 7/8% Senior Subordinated Notes due 2008
of the Company (the "Old Securities") under an Indenture dated as of June 11,
1998 (the "Indenture"), by and among the Company, the Guarantors and The Chase
Manhattan Bank, as trustee (the "Trustee"), as contemplated by the Registration
Rights Agreement dated June 11, 1998 (the "Registration Rights Agreement"), by
and among the Company, the Guarantors and Schroder & Co. Inc.
This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 2
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the following
documents:
(i) The Registration Statement on Form S-4 (File No. 333-64641) as
filed by the Company with the Securities and Exchange Commission (the
"Commission") on September 29, 1998, Amendment No.1 thereto as filed with the
Commission on November 23, 1998 and Amendment No. 2 thereto as filed with the
Commission on December 14, 1998 (collectively, the "Registration Statement");
(ii) an executed copy of the Registration Rights Agreement;
(iii) an executed copy of the Indenture;
(iv) the Articles of Incorporation of the Subsidiary certified as true
and correct by the Secretary of State of the State of Illinois on May 18, 1998;
(v) the Bylaws of the Subsidiary, certified as true and complete by an
officer of the Subsidiary;
(vi) copies of resolutions of the Board of Directors of the Subsidiary
authorizing and approving, among other things, the execution and delivery of the
Indenture and the Guarantees, certified by the Secretary of the Subsidiary as
true and complete;
(vii) the Form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and
(viii) the form of the New Notes and the Guarantees.
Items (i) - (viii) above are hereinafter referred to as the Examined
Documents. Capitalized words and phrases having a defined meaning in the
Examined Documents shall have the same meanings when used herein unless
otherwise defined.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, certificates and
records as we have deemed necessary or appropriate as a basis for the opinions
set forth herein.
In rendering these opinions we have assumed, with your permission and
without having made any independent investigation of the facts: (i) the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all Examined Documents submitted to us as originals, the
conformity to original documents of all Examined Documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents; (ii) that all parties other than the Subsidiary have the
power, corporate or otherwise, to enter into and perform all obligations under
all Examined Documents we have reviewed in connection with
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 3
these opinions; (iii) that all the Examined Documents have been duly authorized,
executed and delivered by, and each of them constitutes the legally valid and
binding obligation of, such other parties, as applicable, enforceable against
such other parties in accordance with their respective terms; (iv) that the
resolutions of the Board of Directors of the Subsidiary in connection with the
Purchase Agreement dated June 5, 1998 between the Company and Schroder & Co.
Inc. and the sale of the Old Securities have not been rescinded and revoked; and
(v) that all material factual matters, including, without limitation,
representations and warranties, contained in the Examined Documents are true and
correct as set forth therein.
We note that the Indenture is by its terms governed by the laws of the
State of New York. We are not admitted to practice in the State of New York, and
accordingly express no opinion as to the laws of the State of New York. We
express no opinion as to the validity of such choice of law. Our opinion should
be understood to the effect to be given to such documents under the internal
laws of the State of Illinois, if a court were to apply such law notwithstanding
the parties' choice of other law.
Members of our firm are admitted to the bar in the State of Illinois
and we express no opinion with regard to any matter which may be governed by any
law other than the federal law of the United States of America and the laws of
the State of Illinois.
Based upon and subject to the limitations, assumptions, qualifications
and exceptions set forth herein, we are of the opinion that when (i) the
Registration Statement becomes effective under the Act and the Indenture has
been qualified under the Trust Indenture Act of 1939, as amended, and (ii) the
New Securities have been duly executed and authenticated in accordance with the
terms of the Indenture and have been delivered upon consummation of the Exchange
Offer against receipt of Old Securities surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, the Guarantee of the Subsidiary
will constitute a valid and binding obligation of the Subsidiary, enforceable
against such Subsidiary in accordance with its terms.
The opinion set forth above is qualified further as follows:
A. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture and under the Guarantees are subject
to and may be limited or affected by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting creditors'
rights generally (including, without limitation, Section 548
of the United States Bankruptcy Code, state fraudulent transfer laws and other
similar laws relating to fraud on creditors ("Fraudulent Conveyance Laws")),
(ii) general principles of equity including, without limitation, concepts of
materially, reasonableness, good faith and fair dealing
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 4
and the possible unavailability of specific performance or injunctive relief,
regardless of whether such validity or enforceability of obligations or
availability of rights and remedies is considered in a proceeding in equity or
at law and (iii) laws and legal principles imposing duties to act in good faith
or in a commercially reasonable manner.
B. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture and the Guarantees may be further
limited by other laws and judicial decisions with respect to or affecting
remedial or procedural provisions contained in such documents. However, in our
judgment and subject to the other qualifications set forth in this letter, such
other laws and judicial decisions do not render the Indenture invalid as a whole
or substantially interfere with realization of the principal benefits intended
to be provided thereby.
C. The validity and enforceability of obligations, and the availability
of rights and remedies, under the Indenture, including the Guarantees under the
Indenture, may be further limited by other laws and judicial decisions with
respect to the enforceability of any waiver granted under Section 6.04 of the
Indenture.
D. In rendering the opinion expressed in this letter, we express no
opinion with respect to: (i) any provisions in the Indenture pertaining to
jurisdiction or venue, or (ii) any other provisions in the Indenture insofar as
such provisions purport (A) to establish evidentiary standards or conclusive
presumptions as to factual matters, (B) to appoint any person or entity as
attorney in fact for one of the Subsidiaries, (C) to require amendments,
modifications or waivers of any provisions of the Indenture to be in writing, or
(D) to provide that any person or entity (1) may have rights to release,
exculpation, indemnity or contribution, (2) may have rights to the payment or
reimbursement of attorneys' fees except to the extent that a court determines
that such fees are reasonable, (3) may have rights to forfeiture or the payment
of any sum as liquidated damages, penalties, late charges or prepayment
premiums, (4) may have rights to any increase in any rate of interest upon
delinquency in payment or the occurrence of a default, (5) may pursue
inconsistent or cumulative remedies or (6) waives any right, remedy or defense.
E. We also express no opinion as to any securities laws of any
jurisdiction or the rules and regulations of the National Association of
Securities Dealers, Inc.
F. We call to your attention also that under the laws of the State of
Illinois, any provision in an agreement requiring a party to pay another party's
attorneys' fees and costs in any action to enforce the provisions of such
agreement will be construed to entitle the prevailing party in any such action,
whether or not such party is the party specified in such agreement, to be
<PAGE>
Philipp Brothers Chemicals, Inc.
December 14, 1998
Page 5
awarded its reasonable attorneys' fees, costs and necessary disbursement as
determined by the court.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Yours truly,
/s/ Schmiedeskamp, Robertson, Neu & Mitchell
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
MANUFACTURING AGREEMENT
This Manufacturing Agreement (hereinafter the "Agreement"), made
and effective as of the 15th day of May, 1994, by and between Merck & Co., Inc.,
a corporation incorporated under the laws of the State of New Jersey, U.S.A.,
having its office at One Merck Drive, Whitehouse Station, New Jersey 08889,
U.S.A. (hereinafter referred to as "MERCK") and Koffolk, Ltd. and Philipp
Brothers Chemicals, Inc., companies organized and existing under the laws of
Israel and New York, respectively and having offices at P. 0. Box 1098, 61010
Tel Aviv, Israel and One Parker Plaza, Fort Lee, New Jersey 07024, U.S.A.,
respectively (hereinafter collectively referred to as "KOFFOLK').
WITNESSETH:
WHEREAS, KOFFOLK has experience MANUFACTURING quantities of
Amprolium; and
WHEREAS, MERCK desires to engage the facilities and services of
KOFFOLK to MANUFACTURE, as defined below, for MERCK; and
WHEREAS, KOFFOLK is willing to undertake MANUFACTURE of the
PRODUCT, as defined below, for MERCK in accordance with the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and of
the mutual covenants of the parties hereinafter set forth, the parties hereto
agree as follows:
The following terms are used in this Agreement and shall have the
meanings set forth in this Section:
1.1 The term "PRODUCT" shall mean Amprolium, which is to be MANUFACTURED in
strict accordance with current GOOD MANUFACTURING PRACTICES and the
KNOW-HOW, defined below, which is to meet the specifications set forth
in Schedule A and which is to be packaged as set forth in Schedule B.
Schedule A may be modified from time to time by MERCK in consultation
with KOFFOLK
1.2 The term "MANUFACTURE/MANUFACTURING/MANUFACTURED" except as may
otherwise be agreed in writing by the parties hereto, shall mean all
operations in the production, packaging, quality control testing and
storage of the PRODUCT and storage of all raw materials and packaging
components for PRODUCT.
1.3 The term "KNOW-HOW' shall mean information and data which MERCK has
determined to be necessary to MANUFACTURE the PRODUCT, whenever
disclosed to KOFFOLK, including but not limited to the information
contained in the designated binders referred to as "Technical Know-How
Package" listed in Schedule C, which may be modified by MERCK at any
time. "KNOW-HOW' is covered within the definition of "INFORMATION" in
Section 3.1 below and is subject to the terms of that Section.
1.4 The term "AGENCY" shall mean any applicable Israeli government
regulatory authority involved in granting approvals for the
MANUFACTURING of the PRODUCT in Israel.
1.5 The term "CALENDAR QUARTER" shall mean the period of each three
consecutive calendar months ending on March 31, June 30, September 30 or
December 31, as the case may be.
<PAGE>
1.6 The term "CALENDAR YEAR" shall mean the period from January 1 through
December 31 in a given year.
1.7 The term "AFFILIATE" shall mean (i) any corporation, company or other
business entity, fifty percent (50%) or more of the voting stock of
which is owned directly or indirectly by MERCK or KOFFOLK, (ii) any
corporation, company or business entity, which owns, directly or
indirectly, fifty percent (50%) or more of the voting stock of MERCK or
KOFFOLK or (iii) any corporation, company or other business entity under
the direct or indirect control of a corporation, company or business
entity described in (i) or (ii).
1.8 The term "FACILITY" shall mean KOFFOLK's facility located at Plant 04,
Ramat Chovav, Israel, and all KOFFOLK facilities at that location used
for the MANUFACTURING and storage of PRODUCT, raw materials and
packaging components.
1.9 "IMMEDIATE/IMMEDIATELY" shall mean within forty-eight (48) hours.
1.10 "PROMPT/PROMPTLY' shall mean within thirty (30) days.
1.11 The term "current GOOD MANUFACTURING PRACTICES" shall mean all laws and
regulations which have jurisdiction over the MANUFACTURE of the PRODUCT
at the time of MANUFACTURE, including but not limited to the Good
Manufacturing Practices as specified in the United States Code of
Federal Regulations, the EEC Good Manufacturing Guidelines and any other
applicable laws, guidelines and/or regulations.
1.12 The term "INTERMEDIATES" shall mean isolated chemical compounds in the
MANUFACTURE of the PRODUCT as stated in the KNOW-HOW.
2. APPOINTMENTS
2.1 (a) MERCK hereby appoints KOFFOLK to act for and on behalf of MERCK
to MANUFACTURE the PRODUCT at KOFFOLK's FACILITY subject to the
conditions and terms set forth herein, and KOFFOLK accepts such
appointment to MANUFACTURE the PRODUCT and to do such other acts
as are herein authorized. All PRODUCT MANUFACTURED in accordance
with this Agreement shall be the exclusive property of MERCK and
shall be supplied to MERCK or any person or entity that MERCK
shall designate in writing.
(b) During the term of this Agreement: (i) KOFFOLK shall not use the
KNOW-HOW or any other information, data or material provided by
MERCK hereunder or in connection with this Agreement, either in
whole or part, for any purpose other than to MANUFACTURE PRODUCT
for MERCK hereunder and (ii) KOFFOLK shall not sell or otherwise
provide PRODUCT or any material made using any KNOW-HOW to anyone
except MERCK, provided that KOFFOLK may sell INTERMEDIATES to a
third party who shall agree to refrain from using such
INTERMEDIATES to produce any product containing Amprolium and
from providing such INTERMEDIATES to anyone else for such use.
(c) Upon termination or natural expiration of this Agreement, and
continuing for the duration of KOFFOLK's obligations of
confidentiality and non-use set forth in Section 3 below and in
the Confidentiality Agreement referred to in Section 3.1(h)
below, KOFFOLK shall cease using the KNOW-HOW for any purpose,
unless otherwise agreed to in writing by MERCK.
2.2 The appointment of KOFFOLK to MANUFACTURE is exclusive for the PRODUCT.
However, MERCK
2
<PAGE>
shall be able to (i) manufacture PRODUCT itself up to January 1, 1996,
and (ii) make other arrangements for the manufacture of PRODUCT if at
any time KOFFOLK is unable to fill orders placed by MERCK under Section
7 below for three (3) consecutive months. Also, this Agreement has no
effect on MERCK's right to sell its inventory of Amprolium.
2.3 (a) The parties agree to comply with all laws and regulations of any
regulatory authority necessary for MANUFACTURING of PRODUCT.
KOFFOLK shall be responsible for obtaining all the necessary
permits and licenses for the MANUFACTURE of PRODUCT. KOFFOLK
agrees to prepare and file Type I and Type II Drug Master Files
with the U. S. Food and Drug Administration to allow for the sale
of PRODUCT in the U.S. MERCK will provide reasonable assistance
to KOFFOLK in the preparation of the Type I and II Drug Master
Files. KOFFOLK shall also undertake any actions to keep those
Drug Master Files updated. KOFFOLK will fully cooperate with
MERCK in connection with any filings that MERCK makes with
regulatory authorities outside of the United States relating to
the PRODUCT. KOFFOLK agrees to comply with all applicable
regulations in order to allow for sale of PRODUCT in any market
in which it may be sold.
(b) During the term of this Agreement KOFFOLK agrees to permit MERCK
to reference those Drug Master Files in connection with MERCK's
filing of any supplement with the FDA, or as otherwise needed by
MERCK.
(c) During the term of this Agreement and thereafter KOFFOLK shall
not permit anyone other than MERCK to reference or otherwise use
the Type II Drug Master Files referred to in Section 2.3(a) above
without the prior written consent of MERCK
2.4 The obligations of MERCK hereunder may be fulfilled either by MERCK or
an AFFILIATE.
3. CONFIDENTIALITY
3.1 KOFFOLK agrees that any and all KNOW-HOW or other information or data,
whether written, graphic or oral which may be provided by MERCK to
KOFFOLK (including any analysis, materials, product or conclusions drawn
or derived therefrom) or which may be derived from or related to any
visits by KOFFOLK personnel to MERCK or may be otherwise known to
KOFFOLK through its visits or contact with MERCK (hereinafter
individually and collectively referred to as"INFORMATION") shall be
disclosed by MERCK and used by KOFFOLK subject to the following terms
and conditions:
(a) KOFFOLK shall keep all INFORMATION in confidence and will not,
without MERCK's prior written consent, disclose said INFORMATION
to any person or entity, except those of KOFFOLK's officers and
employees who directly require said INFORMATION for fulfillment
of the purpose of this Agreement. Each officer or employee to
whom INFORMATION is to be disclosed shall be advised by KOFFOLK
of, and be bound by the terms of this Agreement. KOFFOLK shall
take all reasonable precautions to prevent INFORMATION from being
disclosed to any unauthorized person or entity.
(b) KOFFOLK shall not use, either directly or indirectly, any
INFORMATION for any purpose other than to MANUFACTURE PRODUCT for
MERCK hereunder without MERCK's prior written consent.
(c) KOFFOLK's obligations of confidentiality set forth herein shall
not apply to any INFORMATION which is:
(i) possessed by KOFFOLK prior to receipt from MERCK, other
than through prior disclosure by MERCK, as evidenced by
KOFFOLK's written records;
3
<PAGE>
(ii) published or available to the general public other than
through a breach of this Agreement or other obligation of
confidentiality by KOFFOLK; or
(iii) obtained by KOFFOLK from a third party with a valid
right to disclose such INFORMATION, provided that
said third party is not under a confidentiality
obligation to MERCK or the disclosing party if other
than MERCK.
Any combination of features or disclosures shall not be deemed to
fall within the foregoing exclusions merely because individual
features are published or available to the general public or in
the rightful possession of KOFFOLK unless the combination itself
and principle of operation are published or available to the
general public or in the rightful possession of KOFFOLK.
(d) All INFORMATION, without limitation, shall remain the personal
and proprietary property of MERCK. KOFFOLK shall not acquire any
license or other intellectual property interest in any
INFORMATION disclosed to it by MERCK. Further, disclosure of
INFORMATION shall not result in any obligation to grant KOFFOLK
any right in and to said INFORMATION.
(e) Any and all discoveries and/or inventions by KOFFOLK, whether or
not patentable, resulting from KOFFOLK's use of INFORMATION shall
be the sole and exclusive property of MERCK. Within thirty (30)
calendar days of any discovery or invention, KOFFOLK shall notify
MERCK, in writing, of the event and shall assist MERCK in
protecting MERCK's proprietary rights to said discovery or
invention.
(f) Upon request by MERCK, KOFFOLK shall immediately return to MERCK
all INFORMATION, all notes which may have been made regarding the
INFORMATION, and all copies thereof, except that KOFFOLK may
retain one copy of each item of INFORMATION provided that said
copy shall be retained and used solely for compliance purposes
and shall be held in KOFFOLK's confidential legal files.
(g) In the event that KOFFOLK is required by judicial or
administrative process to disclose any or all of the INFORMATION,
KOFFOLK shall promptly notify MERCK and allow MERCK a reasonable
time to oppose such process before disclosing any INFORMATION.
(h) The obligations of confidentiality and non-use created herein
shall be binding upon KOFFOLK, its successors and assigns with
respect to each successive disclosure of INFORMATION and, with
respect to each disclosure, shall continue for fifteen (15) years
from the date of said disclosure. The obligations of
confidentiality and non-use under the Confidentiality Agreement
between the parties last dated September 6, 1993 shall also
continue for fifteen (15) years from the date of any disclosure
under that Confidentiality Agreement.
4. FACILITY
4.1 KOFFOLK hereby undertakes to MANUFACTURE PRODUCT at its FACILITY and
store raw materials and packaging components at that FACILITY. The
Facility shall meet current GOOD MANUFACTURING PRACTICES. KOFFOLK shall
not change the location at which it MANUFACTURES PRODUCT without the
prior written approval of MERCK. KOFFOLK may change the location at
which it stores raw materials and packaging components provided that any
such storage location meets current GOOD MANUFACTURING PRACTICES.
5. EQUIPMENT
5.1 KOFFOLK agrees, at its cost, to operate the FACILITY and all equipment
and machinery used, directly or
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indirectly, to MANUFACTURE PRODUCT in accordance with current GOOD
MANUFACTURING PRACTICES and in accordance with applicable regulatory
agency requirements, and to maintain said FACILITY, equipment and
machinery in an acceptable state of repair and operating efficiency so
as to meet specifications as set forth in Schedule A and the KNOW-HOW
and all regulatory requirements. KOFFOLK will be responsible for
validating the equipment and all processes and procedures involving
production, cleaning, packaging and any other appropriate steps
performed at the FACILITY. Such validation by KOFFOLK must meet the
validation criteria set forth in the KNOW-HOW and all applicable
regulatory requirements and receive all required regulatory approvals.
5.2 During the term of this Agreement, the FACILITY shall be dedicated
solely to MANUFACTURING PRODUCT. However, if under Section 7.1 below
MERCK places binding orders in any CALENDAR YEAR for less than [
] of PRODUCT, KOFFOLK shall have the option to use the FACILITY to
manufacture another product provided (i) KOFFOLK may not manufacture any
other product without providing written notice to MERCK in advance in
order to permit MERCK to consider any potential question of
cross-contamination; (ii) if MERCK identifies a potential problem of
cross-contamination, the parties will meet to attempt to resolve the
problem and (iii) KOFFOLK shall not manufacture any product in the
FACILITY which MERCK considers to present cross-contamination problems.
KOFFOLK will supply MERCK PROMPTLY with a copy of all governmental
and/or regulatory submissions associated with the FACILITY. KOFFOLK will
IMMEDIATELY notify MERCK in the event that it becomes aware of any risks
of contamination associated with MANUFACTURING PRODUCT at the FACILITY.
6. SUPPLY OF MATERIALS
6.1 KOFFOLK shall purchase all necessary raw materials and packaging
components in adequate quantities which are required for MANUFACTURING
and shipping the PRODUCT and shall perform all quality control testing
on those raw materials and packaging components as set forth in the
KNOW-HOW. All such packaging components and raw materials shall meet the
requirements set forth in Schedule B and the KNOW-HOW, respectively.
MERCK reserves the right to approve all raw materials and packaging
components and shall not unreasonably withhold such approval. For the
purpose of approval by MERCK, KOFFOLK will also inform MERCK in writing
prior to any changes to sources of supply. KOFFOLK warrants that all
packaging components and raw materials supplied hereunder shall meet the
requirements of Schedule B and the KNOW-HOW, respectively, and of the
applicable regulatory agencies relative to such components and
materials.
7 FORECASTING, PLACING AND SCHEDULING OF ORDERS
7.1 In order that KOFFOLK may forecast production planning needs, MERCK
shall submit to KOFFOLK within one hundred and twenty (120) days of each
CALENDAR QUARTER a non-binding estimate of its marketing requirements of
PRODUCT for that CALENDAR QUARTER. MERCK shall, at least sixty (60) days
before the beginning of each month, place a binding order with KOFFOLK
for the quantity of PRODUCT required by MERCK for that month and which
KOFFOLK shall have ready for delivery under Section 12 below for that
month. MERCK's current non-binding estimate of its yearly requirements
of PRODUCT is between [ ]. As soon as possible after
execution of the Agreement, MERCK will provide KOFFOLK with a
non-binding estimate of its marketing requirements of PRODUCT for the
following four (4) months and shall also provide its binding order of
PRODUCT required by MERCK for the following two (2) months. Unless
otherwise agreed to by the parties, MERCK shall place its orders in
full container loads. MERCK will make its best effort to place its
orders for a CALENDAR YEAR in approximately equal quarterly amounts.
Notwithstanding the foregoing, KOFFOLK shall make every effort to
comply with changes that MERCK wishes to make to a binding order, but
shall not be held liable for its inability to do so.
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8. QUALITY
8.1 The rights conferred by this Agreement are conditioned upon KOFFOLK
undertaking the MANUFACTURE of PRODUCT strictly in accordance with the
KNOW-HOW, current GOOD MANUFACTURING PRACTICES and all applicable
regulatory requirements. KOFFOLK recognizes the serious nature of this
Agreement and warrants that it will fully comply with the undertaking
set forth in the preceding sentence.
8.2 KOFFOLK may not change the process by which PRODUCT is MANUFACTURED
without prior written consent of MERCK.
8.3 KOFFOLK hereby agrees that MERCK or an AFFILIATE shall have the right to
have reasonable access to the FACILITY during normal business hours in
order to ascertain compliance by KOFFOLK with the terms of this
Agreement, including but not limited to, inspection of MANUFACTURE of
PRODUCT, storage facilities for PRODUCT, raw materials and packaging
components, all equipment and machinery and all records relating to such
MANUFACTURE, storage, equipment and machinery. Observations and
conclusions of any MERCK audit will be discussed with and then issued to
KOFFOLK, and corrective action shall be agreed upon by MERCK and KOFFOLK
within twenty (20) days after MERCK delivers its audit report to
KOFFOLK. Such corrective action will be implemented by KOFFOLK within
forty-five (45) days of MERCK and KOFFOLK having agreed to the
corrective action, unless otherwise agreed by the parties.
8.4 KOFFOLK hereby agrees to advise MERCK IMMEDIATELY of any proposed or
unannounced visit or inspection of the FACILITY or relating to the
PRODUCT or its MANUFACTURE by any regulatory authority and will permit
MERCK to be present. If MERCK is not present during such a visit or
inspection KOFFOLK shall IMMEDIATELY prepare and provide MERCK with a
full report, in English, of the visit or inspection. KOFFOLK shall also
IMMEDIATELY provide MERCK with copies of any letters, reports or other
documents issued by any regulatory authority relative to such
inspection. KOFFOLK shall prepare a response to any inspection report
from a regulatory authority and shall submit it to MERCK for review and
concurrence prior to submission to the regulatory authority. KOFFOLK
shall also advise MERCK of any regulatory issues regarding any other
product made, handled or stored at any other plant at KOFFOLK's Ramat
Chovav operation which would affect MANUFACTURE of the PRODUCT.
8.5 KOFFOLK shall provide MERCK, at the cost and expense of KOFFOLK, samples
in reasonable quantities and with relevant documentation from each
production lot of PRODUCT. KOFFOLK and MERCK shall concurrently perform,
at their respective quality control laboratories, such quality control
tests as are indicated in the KNOW-HOW. KOFFOLK shall make the results
of its quality control tests available to MERCK as directed. MERCK shall
initiate all required quality control tests within fourteen (14) days of
receipt of samples and MERCK shall advise KOFFOLK of the results without
undue delay. Until such time as MERCK is satisfied that KOFFOLK's
quality control laboratories are routinely achieving accurate test
results within tolerance limits specified in MERCK's control procedures
for the PRODUCT, no production lot of PRODUCT shall be released for
delivery unless specific approval has been given in writing by MERCK.
KOFFOLK is responsible for obtaining and retaining [ ] the amount of
PRODUCT in [ ] required for quality control release testing as
indicated in the KNOW-HOW. KOFFOLK will perform annual stability testing
at its cost in accordance with the specifications contained in the
KNOW-HOW. When MERCK is satisfied that KOFFOLK routinely is reporting
accurate test results within the approved tolerance limits, MERCK may
inform KOFFOLK in writing that thereafter, until further notice, the
PRODUCT may be released for delivery if KOFFOLK's tests, performed in
accordance with procedures supplied by MERCK, show the PRODUCT to meet
MERCK's acceptable quality standards. However, even after waiving such
prior quality control approval, MERCK shall have the right
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to request representative samples of PRODUCT and KOFFOLK shall satisfy
such requests. Any such waiver may be revoked at any time and shall not
constitute a waiver of or affect in any way KOFFOLK obligations
hereunder. KOFFOLK shall at all times ensure that PRODUCT is in
conformity with the standards of quality currently applied by MERCK, and
that the labels affixed to the PRODUCTS are those duly approved by MERCK
and the relevant government authorities, where necessary, and shall bear
the appropriate identification as may from time to time be determined by
MERCK.
8.6 MERCK will specify all required labeling as agreed by the relevant
government authorities, as necessary on the PRODUCT and all components
and containers. KOFFOLK will comply with all specified labeling and use
only labeling which has been approved in writing by MERCK in advance.
8.7 Should any production lot fail to meet the specifications set forth in
Schedule A, such lot shall not be released. The loss resulting from such
deficiency and the cost to dispose of or return the lot shall be borne
by the party who is at fault, which shall be determined by MERCK's
technical staff. If KOFFOLK does not agree with MERCK's determination of
fault, the parties shall meet to attempt to resolve their differences.
If the parties are unable to resolve their differences as to fault, then
either party may refer the matter for final decision to a specialized
firm of international reputation acceptable to both parties hereto. The
decision of such firm shall be binding on both parties hereto. If MERCK
is found to be at fault, it shall pay KOFFOLK the fee which it would
have otherwise paid for the MANUFACTURE of the lot. If KOFFOLK is found
to be at fault, it shall bear all costs for the lot. The party at fault
shall pay the cost for the above-referenced specialized firm.
8.8 No PRODUCT or material made hereunder shall be re-worked unless such
rework is permitted under the U.S. NADA for the PRODUCT.
8.9 KOFFOLK shall provide MERCK with quality control release certificates
related to the PRODUCT for each batch. At MERCK's request, KOFFOLK shall
provide MERCK with other MANUFACTURING records.
9. RECALL
9.1 In the event MERCK or an AFFILIATE shall be required or shall
voluntarily decide to recall any PRODUCT MANUFACTURED by KOFFOLK
pursuant to this Agreement, then KOFFOLK shall fully cooperate with
MERCK or its AFFILIATE in connection with the recall. If such recall is
initiated because of a defect in the PRODUCT resulting from KOFFOLK's
negligence in the MANUFACTURE or delivery of the PRODUCT, KOFFOLK will
credit MERCK for the price it invoiced MERCK for all PRODUCT returned
and, in addition, KOFFOLK will reimburse MERCK for all reasonable recall
expenses in connection therewith.
9.2 KOFFOLK agrees to abide by all decisions of MERCK or an AFFILIATE to
recall a PRODUCT and both parties shall fully cooperate with each other
in the event of any recall of PRODUCT MANUFACTURED under this Agreement.
10. COMPLAINTS
10.1 KOFFOLK and MERCK shall notify each other IMMEDIATELY if either receives
any notice of a serious adverse reaction pertaining to the PRODUCT.
KOFFOLK shall report monthly to MERCK all information concerning a
complaint of any kind relating to the PRODUCT MANUFACTURED hereunder,
its components or packaging, including but not limited to any PRODUCT
quality complaint, or any side effect, injury, toxicity or sensitivity
reaction.
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10.2 MERCK and KOFFOLK will maintain complaint files regarding components for
packaging, including but not limited to any PRODUCT quality complaints.
MERCK and KOFFOLK will notify each other IMMEDIATELY of any health
hazards with respect to the PRODUCT which have impacted or may impact
the employees involved in the production process.
11. PURCHASES AND COMPENSATION
11.1 From the date of this Agreement through January 31, 1995, the price that
MERCK shall pay for each kilogram of PRODUCT MANUFACTURED by KOFFOLK for
MERCK hereunder shall be [ ] one of the following
ports as designated per shipment by MERCK: [ ]
From February 1, 1995 through December 31, 1995, the price that MERCK
shall pay for each [ ] of PRODUCT MANUFACTURED BY KOFFOLK
for MERCK hereunder shall be U.S. [ ]. The period
from the date of this Agreement through December 31, 1995 shall be
referred to herein as the "INITIAL PERIOD". During said INITIAL PERIOD
MERCK shall purchase up to a maximum of [ ] metric tons of PRODUCT.
11.2 (a) Upon termination of the INITIAL PERIOD, and for the remainder of
the term of this Agreement, the price that MERCK shall pay for
each [ ] of PRODUCT MANUFACTURED by KOFFOLK for MERCK
hereunder shall be [ ] That price may be
adjusted only as set forth below except as otherwise agreed by
the parties in writing. Of the U.S. [ ] amount,
[ ] is attributed to the actual cost of the raw
material listed on Schedule D ("RAW MATERIAL COST ELEMENT") and
U.S. [ ] is attributed to items other than raw
materials ("NON-RAW MATERIAL COST ELEMENT").
(b) If as of December 31, 1995, the cumulative actual cost of all the
raw materials listed on Schedule D has increased by more than
[ ] over the cumulative actual cost of all such
materials as of [ ] listed on Schedule D, then within
[ ] following [ ] KOFFOLK shall have
the right to request MERCK to meet and discuss such increase. The
actual cost of a [ ] of any raw material under this
Agreement shall be determined by mulitplying the per [ ]
purchase price of that raw material by the corresponding Factor
for that raw material listed on Schedule D. For example, if the
price at which raw material "X" is purchased is U.S. $1.00 per
[ ] and the Factor for raw material "X" is .2, then the
actual cost of raw material "X" is U.S. $0.20 per [ ]
(c) Commencing with the 4th CALENDAR QUARTER of 1996 and every
subsequent 4th CALENDAR QUARTER during the term of the Agreement,
the parties shall jointly review any changes in the actual cost
of the raw material slisted on Schedule D during that CALENDAR
YEAR. The parties review shall include, but not be limited to, a
review of KOFFOLK's documentation as to raw material costs and
contracts for raw materials.
(d) If under paragraph 11.2(c) above, the parties jointly determine
that a change in the cumulative actual cost of all the raw
materials has occurred, they wil then jointly determine what
increase or decrease, if any, needs to be made to the RAW
MATERIAL COST ELEMENT to account for that change. Any such
increase or decrease shall be effective on January 1 of the
following CALENDAR YEAR.
(e) Except as provided below, commencing January 1, 1997, and any
subsequent January 1 during the term of this Agreement, the
NON-RAW MATERIAL COST ELEMENT will be increased or decreased in
accordance with the lesser of: (i) an increase or decrease in the
cumulative actual
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cost of the energy and labor elements of the NON-RAW MATERIAL
COST ELEMENT in the prior year, to be determined as set forth in
paragraph 11.2(f) below; or (ii) [ ] of the percentage
increase or decrease in the Producer Price Index for Chemicals
and Allied Products in the prior year, as published by U.S.
Bureau of Labor Statistics. As the calculation of such increase
or decrease will likely not be made until after January 1, once
the calculation is made, it shall be retroactive to January 1.
Between the termination of the INITIAL PERIOD and December 21,
1996, MERCK will order a minimum of [ ] of PRODUCT.
None of those [ ] shall be subject to any increase
under this paragraph 11.2(e) even if they are delivered after
December 31, 1996.
(f) During the first CALENDAR QUARTER of 1997 and any subsequent
first CALENDAR QUARTER during the term of this Agreement, the
parties shall jointly review any changes in the cumulative actual
cost of the energy and labor elements of the NON-RAW MATERIAL
COST ELEMENT in the prior year. The parties review shall include,
but not be limited to, a review of KOFFOLK's documentation as to
energy and labor costs. If the parties jointly determine that a
change in the cumulative actual cost of energy and labor has
occurred, they will then jointly determine what the increase or
decrease, if any, should be.
11.3 KOFFOLK shall submit an invoice covering each kilogram of PRODUCT
MANUFACTURED by KOFFOLK for MERCK hereunder on the date that the PRODUCT
is delivered under Section 12.3 below, and such invoice shall be
accompanied by appropriate documentation evidencing performance of the
invoiced activity. MERCK will pay such invoices with appropriate
documentation within forty-five (45) days of MERCK's receipt of the
PRODUCT.
11.4 KOFFOLK agrees that it shall keep accurate records in sufficient detail
to enable the amounts due to KOFFOLK hereunder to be determined and,
upon MERCK's request shall permit an independent chartered accountant,
selected and paid for by MERCK, except one to whom KOFFOLK has
reasonable objection, to have access during ordinary business hours to
such of KOFFOLK's records as may be necessary to determine the
correctness of any payment made or to be made under this Agreement. This
right of audit shall apply to [ ] as described in Sections
11.1 and 11.2 above. Said accountant shall not disclose to MERCK any
information other than information relating to the accuracy of reports
and payments made under this Agreement, and in no event are the
quantities and prices to individual customers or the names of those
customers to be disclosed to MERCK. In the event of a determination by
the independent chartered accountant that there has been an inaccurate
calculation or payment, an appropriate adjustment shall be made to the
next payment by MERCK. In the event that the adjustment requires payment
from KOFFOLK to MERCK, subsequent payments by MERCK shall be reduced
until no further payments are due from KOFFOLK.
11.5 Commencing January 1, 1996, if during any CALENDAR YEAR of this
Agreement MERCK orders less than [ ] of PRODUCT, MERCK
agrees to meet with KOFFOLK to address the shortfall.
11.6 If through no fault of KOFFOLK withdrawal of PRODUCT is required by
regulatory bodies in United States, France and the United Kingdom prior
to January 1, 1996, MERCK and KOFFOLK will agree to negotiate in good
faith, compensation for KOFFOLK's efforts.
11.7 If KOFFOLK is unable to obtain any license, permit or certificate which
is necessary for it to perform its obligations hereunder or if MERCK is
unable to supplement its registration for the PRODUCT in the United
States, France or the United Kingdom in order to allow KOFFOLK to be
MANUFACTURER of PRODUCT, the parties shall meet to determine in good
faith whether the Agreement should be terminated and what, if any,
compensation should be due to either party.
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12. STORAGE AND DELIVERY OF PRODUCT
12.1 KOFFOLK shall, in accordance with the KNOW-HOW, maintain adequate
storage accommodations for all the raw materials, packaging components
and PRODUCT.
12.2 PRODUCT which has received quality control release shall be stored by
KOFFOLK in a separate segregated area.
12.3 KOFFOLK shall deliver the PRODUCT to the port and under the terms
identified by MERCK.
12.4 Claims that any shipment of PRODUCT does not meet the specifications
contained in Schedule A or the indicated quantity shall be made by MERCK
to KOFFOLK in writing within sixty (60) days following receipt thereof.
Upon the receipt of a claim from MERCK, KOFFOLK shall assay its retained
sample of PRODUCT. If KOFFOLK agrees with MERCK's claim and the defect
is the fault of KOFFOLK, KOFFOLK shall replace the PRODUCT. If the
parties are unable to resolve their differences, then either party may
refer the matter for final analysis to a specialized firm of
international reputation acceptable to both parties. The analysis of
such firm shall be binding on both parties hereto. The party at fault
shall pay the cost for such specialized firm and any costs associated
with the disposal of PRODUCT.
13. RECORDS
13.1 All records relating to MANUFACTURING of any PRODUCT shall be retained
by KOFFOLK for a period of not less than seven (7) years from the date
of MANUFACTURE of each lot of PRODUCT to which said records pertain.
KOFFOLK shall provide MERCK with copies of the appropriate documents for
each production lot, as requested by MERCK.
14. TERM
14.1 The term of this Agreement shall begin on the date first written above
and shall continue for a period of ten years from this date, unless
terminated sooner as provided for below. At least six (6) months prior
to the termination date of this Agreement, the parties shall decide
whether the Agreement will be extended, and if so, on what terms.
15. TERMINATION
15 1 MERCK shall have the right to terminate this Agreement in whole or in
part, in the event KOFFOLK fails to fill orders placed by MERCK under
Section 7 above for three (3) consecutive months.
15.2 Either party shall have the right to terminate this Agreement if the
other party files a petition in bankruptcy, or enters into an agreement
with its creditors, or applies for or consents to the appointment of a
receiver or trustee, or makes an assignment for the benefit of
creditors, or suffers or permits the entry of an order adjudicating it
to be bankrupt or insolvent.
15.3 If either party materially breaches any of the provisions of this
Agreement, and such breach is not cured within ninety (90) days after
the giving of written notice by the other party specifying such breach,
the other party shall have the right to terminate this Agreement without
penalty upon a further sixty (60) days' written notice.
15.4 INFORMATION exchanged between MERCK and KOFFOLK for the MANUFACTURE of
the PRODUCT shall be PROMPTLY returned to the disclosing party upon
termination or natural expiration of the AGREEMENT or, at any time, upon
request by the disclosing party.
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15.5 In the event of the sale of the controlling interest of the business of
KOFFOLK, other than through a public offering of stock for which a
registration is filed with the applicable regulatory authority, or the
assignment or delegation by either party of its rights or obligations
hereunder in violation of Section 20 below, KOFFOLK, in the event of
such sale, or either party, in the event of such assignment, shall be
required to provide IMMEDIATE notice to the other party and said other
party shall have the right to terminate this Agreement within forty-five
(45) days of receipt of such notice. Any notice of termination must be
in writing and shall give rise to immediate termination of the
Agreement. Furthermore, no penalty shall be due either party if the
other party terminates pursuant to this Paragraph.
15.6 KOFFOLK shall not be entitled in connection with the termination or
natural expiration of this Agreement, in accordance with its terms, to
claim any indemnity, reimbursement or compensation for alleged losses
of clientele, good will, loss of profits on anticipated sales or the
like, and MERCK shall have no liability for losses or damages which
might result from said termination or natural expiration of the
Agreement. KOFFOLK acknowledges that it had decided and will decide on
all investment expenditures and commitments in full awareness of the
possibility of losses or damages resulting from termination or natural
expiration of the Agreement and is willing to bear the risk thereof.
15.7 Upon termination of this Agreement, the provisions of Sections 2.1(c),
2.3(c), 3, 9, 10, 11.4, 12.4, 13, 15.4, 15.6, 15.7, 18, 21, 22, 23-27,
29 and 30 shall survive. The definitions in Section 1 above needed for
the above surviving provisions shall also survive.
16. AMENDMENTS
16.1 No modifications, changes, alterations, or additions to this Agreement
shall be effective unless in writing, properly executed by authorized
representatives of both parties, and identified as an Amendment to this
Agreement.
17. FORCE MAJEURE
17.1 Unless expressly provided for within this Agreement, neither party shall
be responsible for any failure to comply with the terms of this
Agreement where such failure is due to force majeure, which shall
include, without limitation, fire, flood, explosion, strike, labor
disputes, labor shortages, picketing, lockout, transportation embargo,
or failures or delays in transportation, strikes or labor disputes
affecting supplies, or acts of God, civil riot or insurrection, war,
acts of the Government or any agency thereof judicial action or other
reason of a like nature not the fault of the party delayed in performing
work or doing acts required under the terms of this Agreement.
Specifically excluded from this definition are those acts of Government
(of the U.S. or Israel) or any agency thereof or judicial action which
could have been avoided by compliance with such laws or regulations,
publicly available and reasonably expected to be known by KOFFOLK or
MERCK
17.2 Paragraph 17.1 shall not be available, however, to any party who fails
to use reasonable diligence to remedy, remove or mitigate such cause and
the effects thereof in an adequate manner and with all reasonable
dispatch. The requirement that any force majeure hereunder and the
effects thereof be remedied, removed or mitigated with all reasonable
dispatch shall not require the settlement of strikes or labor
controversies by acceding to the demands of the opposing party or
parties.
17.3 The party affected by any such force majeure shall promptly notify the
other, explaining the nature, details and expected duration thereof Such
party shall also advise the other from time to time as to when the other
can expect the affected party to resume performance in whole or in part
of its obligations hereunder, as well as notify the other at the
expiration of any such force majeure. If a party anticipates that force
majeure may occur, including but not limited to a strike, that party
shall also promptly notify the other explaining
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the nature, details and expected duration thereof Should any force
majeure excusing performance hereunder result in a delay in performance
or nonperformance in whole or in part which extends for a period
exceeding ninety (90) days, either party may terminate this Agreement
after such ninety (90) days on fifteen (15) days prior written notice.
18. INDEMNITY
18.1 KOFFOLK shall indemnify and hold MERCK and its AFFILIATES harmless from
and against any and all claims, losses, liabilities and expenses
(including but not limited to reasonable lawyers' fees and other
litigation costs) arising out of or resulting from KOFFOLK's (i)
negligence or failure to follow the KNOW-HOW, including but not limited
to the specifications contained therein, in the MANUFACTURE of PRODUCT;
(ii) use of raw materials and packaging components, storage and disposal
of PRODUCT, raw materials or packaging components in the MANUFACTURE of
PRODUCT; or (iii) sale or provision of INTERMEDIATES to third parties
under Section 2.1(b) above. MERCK shall indemnify and hold KOFFOLK and
its AFFILIATES harmless from and against any and all claims, losses,
liabilities and expenses (including but not limited to reasonable
lawyers' fees and other litigation costs) arising out of or resulting
from MERCK's negligence hereunder.
18.2 Each party agrees to give the other prompt written notice of any claims
made, for which the other might be liable under the foregoing
indemnification, together with the opportunity to defend, negotiate, and
settle such claims. The party seeking indemnification under this
Agreement shall provide the other party with all information in its
possession, authority, and assistance to enable the indemnifying party
to carry on the defense of such suit.
18.3 Neither party shall be responsible or bound by any settlement made
without its prior written consent.
19. COOPERATION
19.1 Each party agrees to execute such further papers, agreements, documents,
instruments and the like as may be necessary to effect the purpose of
this Agreement and to carry out its provisions.
19.2 At MERCK's written request, KOFFOLK shall cooperate with MERCK and
provide such information as may be necessary to secure a duty suspension
for the PRODUCT or any formulation derived from or a precursor to the
PRODUCT in any jurisdiction where duty suspensions are allowed by law,
regulation or authorized procedures. Any cost reductions derived from
the award of any such duty suspension shall inure solely to MERCK.
20. ASSIGNMENT/DELEGATION
20.1 This Agreement shall not be assignable by KOFFOLK, other than to an
AFFILIATE, nor shall the obligations of KOFFOLK be delegatable without
the prior written consent of MERCK, which consent shall not be
unreasonably withheld. Any such attempted assignment or delegation by
KOFFOLK without such prior written consent shall be void. If approved in
writing by an authorized representative of MERCK, then once assigned or
delegated, all of the provisions of this Agreement and all rights and
obligations of the parties hereunder shall be binding upon and inure to
the benefit of and be enforceable by and against the successors and
assigns of KOFFOLK. In addition, in the event KOFFOLK seeks and obtains
MERCK's consent to assign or delegate its rights or obligations to
another party, the obligations of the assignee or transferee must be
guaranteed in writing by KOFFOLK. At the sole discretion of MERCK, this
guarantee of obligations may include the posting of a performance bond
or establishment of an escrow account to guarantee performance.
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20.2 MERCK retains the right to assign its rights or delegate its obligations
under this Agreement to a third party without the consent of KOFFOLK. In
the event of such an assignment or delegation, all of the provisions of
this Agreement and all rights and obligations of the parties hereunder
shall be binding upon and inure to the benefit of and be enforceable by
and against the successors and assigns of MERCK
21. RELATIONSHIP CREATED
21.1 The relationship between KOFFOLK and MERCK is that of an independent
contractor and a customer, respectively, and under no circumstances
shall either party, its agents or employees be deemed agents or
representatives of the other party. Neither party shall have the right
to enter into any contracts or commitments in the name of or on behalf
of the other party in any respect whatsoever. In addition, neither party
shall hold itself out to anyone, or otherwise represent, that it has any
such authority vis-a-vis the other party.
21.2 Nothing herein shall be construed as granting any license or right under
any patent, trademark or KNOW- HOW or other right of either party, by
implication or otherwise, to the other.
22. INSURANCE
22.1 During the term of this Agreement KOFFOLK will maintain
general/comprehensive liability including products liability insurance
in an amount not less than one million dollars per occurrence and five
million dollars in the aggregate. Such policy shall name Merck & Co.,
Inc. as an "Additional Insured". KOFFOLK shall provide Certificates of
Insurance evidencing said insurance, which will be placed with insurers
acceptable to MERCK, and KOFFOLK shall provide written notice to MERCK
at least thirty (30) days prior to cancellation, non-renewal or material
change in such insurance.
23. JURISDICTION
23.1 This Agreement shall be governed by, interpreted and construed, and all
claims and disputes, whether in tort, contract or otherwise be resolved
in accordance with the substantive laws of the State of New York, United
States of America, without reference to any rules of conflict of laws or
renvoi. In the event of any controversy or claim arising our of or
relating to this Agreement, performance hereunder, termination hereof,
or relationship created hereby, each party irrevocably submits to the
exclusive jurisdiction of the courts of the Supreme Court of the State
of New York and the U.S. District Court for the Southern District of New
York for the purposes of any suit, action or other proceeding arising
out of this Agreement or transactions contemplated hereby. Each party
irrevocably and unconditionally waives any objection to the laying of
venue in the courts of New York as stated above and that any such action
was brought in an inconvenient forum. Notwithstanding the foregoing, in
the event of a threatened disclosure in violation of this Agreement,
MERCK shall have the right to seek injunctive relief from any competent
court in the jurisdiction where the disclosure is threatened to prevent
such disclosure pending resolution of the merits of the dispute.
24. HEADINGS
24.1 The headings used in this Agreement are intended for convenience only
and shall not be considered part of the written understanding between
the parties and shall not affect the construction of the Agreement.
25. ENTIRE AGREEMENT
25.1 This Agreement and the attached Schedules constitute the entire
Agreement between the parties relating to the subject matter hereof and
all prior proposals, discussions, and writings by and between the
parties and
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relating to the MANUFACTURING of the PRODUCT are superseded, except that
the Confidentiality Agreement between the parties last dated September
6,1993 and the Letter Agreement between MERCK and Philipp Brothers
Chemicals, Inc. last dated February 7,1994 shall continue in effect for
all information communicated by MERCK under those Agreements. As set
forth in Section 3.1(h) above, the term of confidentiality and non-use
in the Confidentiality Agreement has been changed to fifteen (15) years
from disclosure.
25.2 All work performed by KOFFOLK for MERCK shall be subject to the
provisions of this AGREEMENT and attached Schedules and shall not be
subject to the terms and conditions contained in any purchase order of
MERCK or confirmation of KOFFOLK except insofar as any such purchase
order or confirmation provides the identity of PRODUCT, delivery date
and place of delivery and labeling or packaging changes.
26. WAIVER
26.1 Failure by MERCK or KOFFOLK at any time to enforce any of the terms or
conditions of this Agreement shall not affect or impair such terms or
conditions in any way, or the right of MERCK or KOFFOLK at any time to
avail itself of such remedies as it may have for any breach of such
terms or conditions under the provisions of this Agreement, in equity or
at law.
27. SEVERABILITY
27.1 If any term or provision of this Agreement shall be held invalid or
unenforceable, the remaining terms hereof shall not be affected but
shall be valid and enforced to the fullest extent permitted by law. The
parties hereto shall use best efforts to substitute a valid, legal and
enforceable provision which, in so far as practical, implements the
purpose hereof.
28. WASTE
28.1 KOFFOLK shall assume responsibility for disposing of all waste and
rejected raw material, components, or PRODUCT generated during the
performance of this Agreement in accordance with all applicable
governmental laws, rules and regulations.
29. ENVIRONMENTAL
29.1 KOFFOLK will comply with all applicable governmental laws, rules and
regulations as well as any other applicable laws, rules and regulations,
including but not limited to those relating to the protection of human
health and the environment.
29.2 KOFFOLK agrees to indemnify, defend, and hold harmless MERCK, its
employees, agents, heirs and assigns from and against any and all
damage, claim, liability, or loss, including reasonable attorneys' and
other fees, arising out of or in any way connected to (1) any condition
in, on, or near the FACILITY; or (2) any condition caused by KOFFOLK,
its employees or agents or arising out of or in any way connected to any
act or omission whatsoever of KOFFOLK, and/or with KOFFOLK's operations,
employees or agents. KOFFOLK's duty of indemnification shall include,
but not be limited to, damage, liability, or loss pursuant to any
applicable government's environmental laws; or pursuant to claims for
injury to person or damage to property including natural resources and
further including claims for environmental investigation and/or
remediation of property at or around the FACILITY or any off-site
location where material from the FACILITY may have been transported or
otherwise came to be located. This provision will not be construed, nor
interpreted as an assumption of acknowledgment by KOFFOLK of any
obligation to any person or entity other than MERCK. KOFFOLK has the
option of selecting the attorneys for the defense of claims under this
provision. MERCK may elect to have its own attorneys as additional
14
<PAGE>
counsel, in which case MERCK shall be responsible for the fees of said
attorneys. KOFFOLK shall have a continuing obligation to fully cooperate
with MERCK in the defense of any such claim. If MERCK's negligence is
the sole cause of the referred damage, claim, liability or loss, KOFFOLK
shall not be required to indemnify MERCK.
30. NOTICE
30.1 All notices and demands required or permitted to be provided under the
terms of this Agreement shall be in writing and in English unless
otherwise expressly provided in this Agreement and shall be conclusively
presumed for all purposes of this Agreement to be given or made at the
time the same is received by one of the parties via certified mail,
return receipt requested with sufficient first-class postage, prepaid,
addressed as follows:
If to KOFFOLK:
Koffolk, Ltd.
P.0. Box 1098
61010 Tel Aviv, Israel
Telephone: (011) 972-3-921-9961
Panafax: (011) 972-3-923-0341
Attention: Avraham Raz
Philipp Brothers Chemicals, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024 U.S.A.
Telephone: (201) 944-6020
Panafax: (201) 944-5937
Attention: Jack C. Bendheim
If to MERCK:
Merck & Co., Inc.
One Merck Drive
Whitehouse Station, New Jersey 08889 U.S.A.
Telephone: (908) 423-3068
Panafax: (908) 735-1106
Attention: Vice President, Business Affairs, Merck Manufacturing
Division
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their representatives duly authorized as of the
day and year first above written.
MERCK & CO.
By: /s/
Title: V.P.
KOFFOLK, LTD.
By: /s/
Title: G.M.
PHILIPP BROTHERS CHEMICALS, INC.
By: /s/_Jack_C._Bendheim
Title: President
15
<PAGE>
Schedule A
Specifications
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
Schedule B
Packaging
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
Schedule C
Technical Know-How Package
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
Schedule D
Raw Material Costs
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([ ]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
LAWYERS AND MERCHANTS TRANSLATION BUREAU INC.
Legal, Financial, Scientific, Technical and Patent Translations
11 Broadway New York, NY 10004
Certificate of Accuracy
Translation from Portuguese into English
State of New York
SS:
County of New York
On this day personally appeared before me A. S. Drane who, after
being duly sworn, deposes and states:
That he is a translator of the Portuguese and English languages by profession
and as such connected with the LAWYERS & MERCHANTS' TRANSLATION BUREAU;
That he has carefully made the attached translation from the
original document written in the Portuguese language; and
That the attached translation is a true and correct English
version of such original, to the best of his knowledge and belief.
SUBSCRIBED AND SWORN TO BEFORE ME THIS SEP 14 1998
/S/ A.S. DRANE
- --------------
/S/ SUSAN TAPLEY
- ----------------
Notary Public
<PAGE>
CONTRACT OF DISTRIBUTION AND OTHER AGREEMENTS
By this private instrument made between PLANALQUIMICA INDUSTRIAL LTDA.,
with registered office in Braganca Paulista - SP, at Rua 23 No. 555 - Distrito
Industrial 4, registered in the CGC/MF [tax roll] under No. 00.641.670/0001-97,
represented herein by RAUL CUNHA FREIRE, hereinafter referred to as the
MANUFACTURER, of the one part, and ELANCO QUIMICA LTDA., with registered office
in this capital, at Av. Morumbi No. 8,264, registered in the CGC/MF under No.
43.940.618/0001-44, and subsidiary in Cosmopolis-SP, where it is established at
Rodovia Gal. Milton Tavares de Souza Km 135, represented herein by MARIO FRANCA
CAMARGO, hereinafter referred to as the DISTRIBUTOR, of the other part, having
regard to the fact that:
a) the MANUFACTURER manufactures the product for veterinary use "Nicarmix Premix
25%" - hereinafter referred to as the "PRODUCT" - used to combat coccidiosis,
and wishes to expand its business as regards the promotion and sale of the
PRODUCT in Brazil, Uruguay and Paraguay;
b) the DISTRIBUTOR sells various veterinary products in the anti-coccidian line
and, as a result of this, is knowledgeable about
<PAGE>
potential markets for the promotion and sale of the PRODUCT, and has the
necessary client technical support services, as required by the MANUFACTURER;
the following is established and agreed:
CLAUSE I - OBJECT
- -----------------
I.1. The MANUFACTURER grants to the distributor, who accepts, with
effect from 03.01.96, exclusivity in the promotion and sale of the PRODUCT,
throughout the territory of Brazil, Paraguay and Uruguay.
I.1.1. The technical characteristics defining the PRODUCT are detailed
in Annex I hereof.
I.2. Independently of the activities to be performed by the DISTRIBUTOR
hereunder, during the term of this agreement it may continue to devote itself to
any other activities of a commercial or industrial nature, whether present or
future.
I.3. For the purposes of the sale referred to in point I.1.,
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<PAGE>
the MANUFACTURER shall sell and deliver to the DISTRIBUTOR, at the address of
the subsidiary shown in the preamble hereof, the quantities of the PRODUCT
manufactured by it as requested by the DISTRIBUTOR, under the terms of the
agreement which both parties shall from time to time sign, as established in
clause III hereinafter.
I.3.1. The PRODUCT shall be delivered to the DISTRIBUTOR fully finished
and packaged, ready for sale.
I.4. Within the limits of this contract, the DISTRIBUTOR may organize
and plan freely its commercial policy in such a way as to develop harmoniously
the interests of the contracting parties.
CLAUSE II - EXCLUSIVITY AND PREFERENCE
II.1. The rights of promotion and sale of the PRODUCT are granted by
the MANUFACTURER to the DISTRIBUTOR exclusively, for all of the territories
indicated in clause I, while observing the clauses and conditions of this
contract.
II.2. By virtue of that exclusivity, the MANUFACTURER is under an
obligation to supply the PRODUCT, destined for sale in the
3
<PAGE>
territories mentioned, exclusively to the DISTRIBUTOR.
II.3. Only those sales which the MANUFACTURER shall make, directly, to
[ ] and destined solely for the manufacture of the products [ ], shall be
expressly excluded from that exclusivity, and [ ] shall not purchase the product
in the same formulation as Nicarmix.
II.4. The MANUFACTURER shall give preference to supplying the PRODUCT
to the DISTRIBUTOR and, this being the case, is prohibited from supplying it to
other potential buyers until it has met the quantities ordered by the
DISTRIBUTOR.
CLAUSE III - ORDERS AND PERIODIC AGREEMENTS
III.1. Every 30 (thirty) days, the DISTRIBUTOR shall forward in writing
to the MANUFACTURER the orders of the PRODUCT and respective delivery schedule,
and such orders and schedule shall only be altered by written request up to 05
(five) days prior to the date set for delivery, provided that this be
technically possible.
4
<PAGE>
III.2. Periodically, every 03 (three) months, the parties shall meet to
fix, jointly and by mutual agreement, forecasts of quantities and other periodic
conditions which shall govern this contract.
III.2.1. When the parties are agreed as to the aspects mentioned they
shall enter into a written agreement which shall be incorporated into this
contract as Annex II - Periodic Conditions.
III.3. Unforeseeable market changes shall give rise to the joint
revision of the terms and conditions hereof.
CLAUSE IV - TERM AND RENEWAL
IV.1. This contract shall run for a period of 12 (twelve) months,
commencing on 03.01.96.
IV.2. The contract shall be automatically renewed, for an indefinite
period, unless the party interested in not renewing the agreement communicates
that intention in writing, at least 90 (ninety) days prior to the end of the
contractual period.
5
<PAGE>
CLAUSE V - STOCKS AND GUARANTEE OF UNINTERRUPTED SUPPLY
V. For the purposes of achieving the object of this contract, the
MANUFACTURER undertakes to keep in stock, ready for supply to the DISTRIBUTOR, a
minimum quantity of the product, so that the supply is continuous, even in the
event of a strike, breakdown of equipment and/or any other foreseeable
situation.
CLAUSE VI - INFORMATION AND CONFIDENTIALITY
VI.1. During the performance of this contract the DISTRIBUTOR shall
inform the MANUFACTURER of the list of clients acquiring the PRODUCT and the
respective quantities. Every three months the DISTRIBUTOR shall also advise the
average price of the product charged during that period.
VI.2. The MANUFACTURER further undertakes to supply the DISTRIBUTOR
with the technical information, respective manuals and other necessary
information in relation to the PRODUCT and the performance of the agreement.
VI.3. It is established as of now that any information passed
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<PAGE>
on by one party to the other as a result of this agreement shall be treated as
commercial and industrial secrets and shall, as such, be confidential
information, which shall not be disclosed to third parties without the prior
written consent of the party which provided the information. Such prohibition
shall remain even after this contract has expired, in which case the only
exception shall be the list of clients who acquired the PRODUCT.
CLAUSE VII - RESPONSIBILITY FOR THE PRODUCT
VII.1. In its capacity as a producer of veterinary products, the
MANUFACTURER is technically responsible for the PRODUCT, and is obliged to
comply with all applicable laws including, but not limited to, matters
concerning licenses required for the manufacture and sale of the PRODUCT, and
shall supply to the DISTRIBUTOR any supporting documents necessary for the
performance of this contract.
VII.2. The MANUFACTURER is responsible for repairing any damage caused
to consumers as a result of the quality of the PRODUCT, and shall also be liable
for such defects as it may contain, and undertakes to exempt the DISTRIBUTOR
from any
7
<PAGE>
liability as regards such aspects, with the sole exception of facts caused by
the DISTRIBUTOR itself.
VII.3. The MANUFACTURER shall display on the sales packaging sufficient
clear information on the PRODUCT, specifying the quantity, characteristics,
composition and quality, and on the risks which it presents, and any other
necessary information, bearing in mind the need to comply with the applicable
rules and regulations on the manufacture and sale of the PRODUCT.
CLAUSE VIII - DEFAULT AND RESCISSION
VIII.1. If either of the parties fails to fulfill any one of the terms
or conditions of this agreement, such that it prejudices the interests of the
other, the other party must notify the defaulting party in writing of the
default, with a view to settling the claim amicably.
VIII.2. If the default persists for more than 30 (thirty) days after
the notification is sent, the notifying party may consider this contract
automatically rescinded, independently of any other formality and without
prejudice to any applicable damages as a
8
<PAGE>
result of such default.
VIII.3. This contract shall be rescinded by operation of law in cases
of bankruptcy, composition with creditors or insolvency of either of the
parties, independently of notice or prior notification.
CLAUSE IX - LIABILITY EXCLUSION
Neither of the parties shall be liable towards the other for any
indirect or consequential loss or damage, even if such losses and damage result
from loss of profits, loss of production or loss of products.
CLAUSE X - TAXES
All taxes, duties and contributions of any kind existing now or in the
future in respect of this contract shall be paid by the party legally liable,
and on no account shall any inversion of obligations take place.
CLAUSE XI - GENERAL CONDITIONS
9
<PAGE>
XI.1. The promotions, events and marketing activities designed to
promote sales of the PRODUCT such as, inter alia, advertisements, leaflets,
congresses, etc., shall be carried out for the account and at the discretion of
the MANUFACTURER, and shall be assessed by the parties so as to establish in
advance the conditions for their execution.
XI.2. This contract does not generate any kind of company with its own
legal personality, and each party shall retain its own. This instrument does
not, therefore, imply any merger, integration, incorporation or succession of
one party by the other.
XI.3. This contract corresponds to the full agreement of the parties on
the contractual object, expressly revoking any previous documents and
understandings on the matter.
XI.4. Neither of the parties shall assign or in any way transfer the
rights and obligations arising out of this contract without the prior written
authorization of the other.
XI.5. Failure to exercise any right or power of the parties shall not
imply waiver or novation, and shall be regarded as mere
10
<PAGE>
liberality, which shall not prevent the party from exercising it at any moment.
XI.6. The parties are obligated for themselves and their successors and
elect the central jurisdiction of the District of Sao Paulo-SP, for questions
arising out of this contract, excluding any other, however privileged.
CLAUSE XII - ANNEXES
The documents listed below, initialed by the parties or by their
authorized representatives, form an integral part of this instrument as
"ANNEXES" and shall be fully valid, except insofar as they contradict the
provisions of this contract, in which case the contract shall prevail:
ANNEX I - TECHNICAL CHARACTERISTICS OF THE PRODUCT
ANNEX II - PERIODIC AGREEMENT
And being in full agreement, they sign this contract, with two
witnesses, in four copies of identical form and content.
Sao Paulo, March 1, 1996.
11
<PAGE>
/s/
PLANALQUIMICA INDUSTRIAL LTDA.
/s/
ELANCO QUIMICA LTDA.
WITNESSES:
/s/
ACS/JOR
/s/
12
<PAGE>
ANNEX I
TECHNICAL CHARACTERISTICS OF THE PRODUCT
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([ ]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
ANNEX II
1. PRICE AND DEADLINE
1.1 Up to [ ] of Nicarmix per annum, Elanco will pay [ ] per kg.
1.2 Over [ ] of Nicarmix per annum, Elanco will pay [ ] per kg.
1.3 Prices at sight
N.B.: Payments up to [ ] working days shall be considered at sight.
1.4 CIF Elanco in [ ].
2. ELANCO SELLING PRICE
2.1 The Elanco selling price ogjective shall be [ ].
2.2 Elanco will start to sell at [ ] and, depending on on market trends and the
activities of competitors, may increase to [ ].
2.3 When the Elanco selling price reaches the price mix of [ ], Planquimica
will add to its price local taxes, known as PIS / COFINS, calculated today at
the rate of[ ] of the selling price.
2.4 The price mix must be calculated by Elanco every [ ] selling period.
2.5 If Elanco sells over the price mix of [ ] the incremental value must be
divided between Planalquimica and Elanco on the basis of [ ] for Planalquimica
and [ ] for Elanco.
<PAGE>
ASSET PURCHASE AND TRADEMARK ASSIGNMENT AGREEMENT
ASSET PURCHASE AND TRADEMARK ASSIGNMENT AGREEMENT entered
between KOFFOLK, Inc., a Delaware corporation ("Purchaser"), having an address
at One Parker Plaza, Fort Lee, New Jersey 07024, U.S. and MERCK & CO., INC., a
New Jersey corporation ("Seller"), having an address at One Merck Drive,
Whitehouse Station, New Jersey 08889 and having an Effective Date of August 5,
1996.
ARTICLE 1 -- DEFINITIONS
The following terms as used in this Agreement shall have the meanings
set forth below:
SECTION 1.1 "Acquired Assets" means the United States ("U.S.")
trademark NICARB(R), as set forth in Schedule A, and United States Food and
Drug Administration New Animal Drug Application for the Products, as set forth
in Schedule B, but specifically excluding all Excluded Assets.
SECTION 1.2 "Affiliate" means with respect to a party to this
Agreement (i) any corporation or business entity fifty (50%) percent or more of
the voting stock of which is owned directly or indirectly by a party; or (ii)
any corporation or business entity which directly or indirectly owns fifty
(50%) percent or more of the voting stock of a party; or (iii) any corporation
or business entity under the direct or indirect control of a corporation or
business entity as described in clause (i) or (ii).
SECTION 1.3 "Agreement" or "this Agreement" means this Asset Purchase
and Trademark Assignment Agreement, including all Schedules hereto.
SECTION 1.4 "Assumed Liabilities" means the liabilities to be assumed
by Purchaser pursuant hereto, namely all claims and complaints (including,
without limitation, all damages, losses, expenses and liabilities), relating to
any or all of the Acquired Assets, following the Effective Date including,
without limitation, (i) all liabilities arising out of the sale, purchase,
consumption or use of the Products following the Effective Date and (ii) all
liabilities arising out of any generation, treatment, storage, transportation,
disposal or release, of any hazardous material, substance, waste, or any toxic
or other material regulated by any federal, state, or local environmental
statute, rule or regulation following the Effective Date.
SECTION 1.5 "Excluded Assets" means all assets of Seller other than
the Acquired Assets, including without limitation, the animal drug Applications
for nicarbazin and trademark NICARB(R) as registered by Seller outside of the
U.S., and any other trademark, tradename, New Drug and/or New Animal Drug
Application, product registration, intellectual property, information, know-how
and other assets of Seller.
SECTION 1.6 "Excluded Liabilities" means the liabilities retained by
Seller pursuant hereto, namely all claims and complaints (including, without
limitation, all damages, losses, expenses and liabilities), relating to any or
all of the Acquired Assets, prior to the
<PAGE>
Effective Date including, without limitation, (i) all liabilities arising out
of the sale, purchase, consumption or use of the Products prior to the
Effective Date and (ii) all liabilities arising out of any generation,
treatment, storage, transportation, disposal or release, of any hazardous
material, substance, waste or any toxic or other material regulated by any
federal, state or local environmental statute, rule or regulation prior to the
Effective Date.
SECTION 1.7 "Execution Date" means the date as provided in Section
3.1.
SECTION 1.8 "Liens and Encumbrances" means, with respect to the
Acquired Assets, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, including, without limitation, the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
SECTION 1.9 "New Animal Drug Applications" and "NADAs" mean the
applications for the Product prepared in conformance with applicable U.S. Food
and Drug Administration ("FDA") regulations for filing with the FDA for
marketing authorization of the Products within the United States, as described
in Schedule B.
SECTION 1.10 "Person" means an individual, a corporation, a
partnership, an association, a trust, or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
SECTION 1.11 "Product" or "Products" means the nicarbazin based
products for treatment of coccidiosis in poultry marketed by Seller in the U.S.
under the trademark NICARB(R).
SECTION 1.12 "Trademark" or "Trademarks" means the trademark and
trademark registrations for the Products as set forth in Schedule A.
ARTICLE II -- PURCHASE AND SALE
SECTION 2.1 Purchase and Sale. On the terms and conditions set forth
in this Agreement, Seller agrees to sell, convey, assign and transfer to
Purchaser, and Purchaser agrees to purchase, on the Effective Date, the
Acquired Assets, subject only to Seller's retained right to use any information
within the Acquired Assets to the extent it relates to the Excluded Assets or
to any products hereinafter developed by Seller. The Purchaser shall not
acquire pursuant hereto any assets or rights of any kind or nature, real or
personal, tangible or intangible, other than the Acquired Assets and such
rights as may be set forth herein, and Seller shall retain all other assets,
including, with ut limitation, the Excluded Assets.
SECTION 2.2 Assumption of Liabilities. On the terms and subject to
the conditions of this Agreement, the Purchaser agrees to assume the Assumed
Liabilities. The parties understand and agree that Purchaser does not and
should not assume or become liable for any liabilities, obligations,
commitments or debts, contingent or otherwise, of Seller, including
2
<PAGE>
without limitation, any claims arising from the sale, purchase, consumption, or
use of Products sold by Seller prior to the Execution Date. However, nothing in
this Section 2.2 shall restrict, reduce or in any way affect the obligations of
Purchaser pursuant to Section 8.3 of this Agreement.
SECTION 2.3 Purchase Price.
(a) Purchaser shall pay to Seller, in consideration for
the Acquired Assets $4,000,000 (including interest imputed at eight and one-half
percent (8.5%) per annum and $100,000 for technical and support services
provided by Seller to Purchaser in connection with transfer of the NADAs
according to the following payment schedule:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
$300,000 $700,000 $1,000,000 $1,000,000 $1,000,000
(b) The 1996 Payment of $300,000 will be tendered by
Purchaser to Seller by August 2,1996, by Federal wire of funds to Chase
Manhattan Bank, ABA #021000021, Merck & Co., Inc. A/C #910-1-100733; Reference:
Sale of Nicarbazin NADA and Assignment of Trademark NICARB(R) to Koffolk by
Agreement dated August 5,1996. All remaining Payments as provided in subsection
(a) above shall be paid by Purchaser to Seller on or before March 31 of the
applicable year by federal wire funds according to the wire transfer fund
instructions above.
SECTION 2.4 Personal Guaranty. On the Execution Date, Purchaser will
deliver to Seller a Letter and Personal Guaranty, in the form attached hereto
as Schedule C from its owner, guaranteeing all of Purchaser's payments required
under this Agreement.
SECTION 2.5 Interest on Late Payments/Acceleration of Payments. In
the event that any payment by Purchaser under this Agreement is made thirty
(30) or more days later than when due, Purchaser shall pay interest to Seller,
on all such payments, in the amount of the prime rate reported in the Wall
Street Journal on the payment due date, plus one percentage point, such
interest to be accrued on a daily basis. Purchaser shall indemnify Seller for
all costs and expenses (including but not limited to attorney's fees) incurred
in attempt(s) to collect any payments due under this Agreement. In the event
Purchaser fails to make any payment required under this Agreement within sixty
(60) days of the date when due, Seller shall provide notice to Purchaser of its
default in payment, and shall permit Purchaser an additional sixty (60) days
from the date of such notice within which to make all payments then due to
Seller, together with any interest owed. If Purchaser fails within that period
to make the requisite payment(s), Seller shall be entitled to accelerate and
receive immediate payment by Purchaser of all Base Payments and all minimum
Royalties on Sales required under this Agreement during the term of this
Agreement, whether or not such payments are yet due.
SECTION 2.6 Breach; Notice. Except as provided in Section 2.5, in the
event that either party breaches its obligations under this Agreement, the
non-breaching party shall provide notice of the breach to the breaching party
and shall permit the breaching party sixty (60)
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days in which to cure the breach.
ARTICLE III -- EXECUTION
SECTION 3.1 The Execution.
(a) The Execution cf this Agreement shall take place on
July 17, 1996 ("Execution Date"). Purchaser and Seller shall on that date sign
two (2) originals, one (1) fully executed original to be provided to each party.
(b) On the Execution Date, Seller shall provide to
Purchaser an appropriately executed and authenticated Trademark Assignment to
the Purchaser, in the form of Schedule D hereto. Purchaser shall hold the
Trademark Assignment in escrow for filing with the U.S. Patents and Trademarks
Office on or after August 5,1996.
(c) Purchaser shall pay to Seller the 1996 Payment of
$300,000.00 by wire transfer in federal funds available to Seller on August 2,
1996, payable to such entities as designated in Section 2.3(b).
(d) Seller shall pay or cause to be paid any and all
transfer, stamp, sales or other similar taxes or duties payable in connection
with the sale or transfer of the Acquired Assets to Purchaser.
(e) Purchaser shall pay or cause to be paid any and all
costs and expenses relating to the transfer and assignment to Purchaser of the
Trademarks, including, without limitation, all costs and taxes with respect to
recordation of transfer. Recordation of transfer and assignment of the
Trademarks shall be the responsibility of Purchaser.
(f) At any time or from time to time after the closing,
Seller shall, at the request of Purchaser and Purchaser's expense, execute and
deliver any further instruments or documents and take such further action as
Buyer may reasonably request in order to accomplish consummation of the
transactions contemplated hereby.
ARTICLE IV -- SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants that:
SECTION 4.1 Corporate Existence and Authorization; Contravention.
(a) Seller is a corpolation duly organized, validly
existing and in good standing under the laws of the State of New Jersey.
(b) The execution, delivery and performance by Seller of
this Agreement is within Seller's corporate power, have been duly authorized by
all necessary corporate action and do not contravene or constitute a default
under any provision of the certificate of incorporation or by-laws of Seller or
any provision of applicable law or regulation or of any judgment, injunction,
order or decree binding upon Seller or to which any Acquired
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Asset is subject, or any indenture, bank loan, credit, or other agreement
binding upon Seller or to which the Acquired Assets are subject. This Agreement
is a legal, valid and binding agreement of Seller enforceable in accordance w
th its terms.
(c) Except for the requirement that both Purchaser and
Seller provide written notice, in the form attached hereto as Schedule E, of the
transfer of title to the NADA from Seller to Purchaser, the execution, delivery
and performance by Seller of this Agreement, and the consummation by Seller of
the transactions contemplated hereby, require no action by or in respect of, or
filing with, any gvernmental body, agency or official or any other consent of
any person, firm or other entity.
SECTION 4.2 Title to Acquired Assets.
(a) Seller has good title to all of the Acquired Assets,
free and clear of all Liens and Encumbrances.
(b) (i) To the best of Seller's knowledge, no product,
formula, formulation, Trademark, process, method, substance, or other material
(an "Item") which is part of the Acquired Assets infringes any rights owned or
held by any other person other than Seller, and (ii) to the best of Seller's
knowledge no Item currently being manufactured, distributed, sold or used by any
person infringes any rights of Seller to the Acquired Assets.
SECTION 4.3 Litigation.
(a) There are no private or governmental proceedings,
claims, actions, or investigations in the United States of America against
Seller relating to the Products pending or, to the knowledge of Seller,
threatened, which are likely (either individually or in the aggregate) to result
in an adverse decision imposing a judgment, fine or penalty.
(b) There are no judgments, decrees or orders of any
court or other governmental body in the United States of America binding upon
Seller relating to the Products.
SECTION 4.4 Compliance with Laws. (i) Seller is in compliance in all
material respects with all applicable U.S. federal, state or local laws,
regulations or orders or other requirements of any governmental, regulatory or
administrative agency or authority or court or other tribunal in the United
States of America relating to the Products (including, without limitation, the
U.S. Food, Drug & Cosmetic Act, as amended, the regulations thereunder, and the
transfer of the Acquired Assets pursuant to this Agreement is in compliance
therewith), and (ii) Seller is not now charged with, and to the best of the
knowledge of Seller is not now under investigation with respect to, any
violation of any applicable law, regulation, order or requirements in the
United States of America which relate to the Products. Seller has filed all
reports relating to the Products required to be filed with any governmental,
regulatory or administrative agency or authority in the United States of
America if failure to file such report would result in a fine or a penalty.
SECTION 4.5 Sufficiency of Transfer. The Acquired Assets and the
rights
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transferred under this Agreement include all assets used or held by Seller for
use primarily in connection with the Products as of the date hereof, except for
the Excluded Assets. Upon consummation of the transactions contemplated hereby,
Purchaser will have acquired good title in and to the Acquired Asset in each
case free and clear of all Liens and Encumbrances.
SECTION 4.6 Transfer Document. The assignments and transfer documents
to be delivered to Purchaser pursuant to Section 3.1 will be in appropriate
form and sufficient to convey, transfer and assign to Purchaser good title to
the Acquired Assets.
SECTION 4.7 NADA Review. Seller has provided Purchaser with the
opportunity to review the true, accurate and complete NADAs for the Products,
which include information concerning any side effects, injury, toxicity or
sensitivity reaction, or any unexpected incidents, whether or not serious or
unexpected, relating to the Products ("Adverse Experiences"), which Seller has
reported to the FDA during the three (3) years immediately preceding the
Execution Date. Any additional information regarding Adverse Experiences
received by Seller before the Effective Date but not yet reported to the FDA,
will be provided to Purchaser within fourteen (14) days after Effective Date.
For purposes of this Section 4.7, "serious" is deemed to have the meaning set
forth in Section 6.4 of this Agreement. Additionally, Seller has allowed
Purchaser to meet with officials of the Food and Drug Administration, Centers
for Veterinary Medicine to review the approval status of the NADAs for the
Products.
SECTION 4.8 Disclosure. No representation or warranty by Seller in
this Agreement contains any untrue statement of material facts.
ARTICLE V -- PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that:
SECTION 5.1 Corporate Existence and Authorization; Contravention.
Purchaser is a corporation duly organized and validly existing under the laws
of the State of Delaware. The execution, delivery and performaiice by Purchaser
of this Agreement are within Purchaser's power, have been duly authorized by
all necessary action and do not contravene or constitute a default under the
constitutive documents of Purchaser or of applicable law or regulation or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon Purchaser. This Agreement is a legal, valid and binding agreement of
Purchaser enforceable in accordance with its terms. To the best of Purchaser's
knowledge, except for the requirement that both Purchaser arid Seller provide
written notice, in the form attached hereto as Schedule E, of the transfer of
title to the NADA from Seller to Purchaser, the execution, delivery and
performance by Purchaser of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official, or any other
consent.
SECTION 5.2 Solvency. Purchaser is financially sound and fully
solvent and has no reason to anticipate any inability to perform, or material
difficulty performing, any of its obligations set forth in this Agreement.
SECTION 5.3 Disclosure. No representation or warranty by Purchaser in
this Agreement contains any untrue statement of material fact.
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ARTICLE VI -- SELLER'S COVENANTS
Seller agrees that:
SECTION 6.1 Filings. Seller will use its reasonable efforts in good
faith to file or cause to be filed with the FDA, by the Effective Date, the
notice (substantially in the form of Schedule E attached hereto), required to
be filed by it in connection with its sale of the NADA and to make promptly any
further filings pursuant thereto as may be necessary to consummate the
transactions contemplated hereby.
SECTION 6.2 No Encumbrances. Any Liens and Encumbrances with respect
to any of the Acquired Assets represented, created or secured by a mortgage,
deed of trust, security agreement or similar instrument shall be satisfied of
record on or prior to the Execution Date by Seller.
SECTION 6.3 Confidentiality. For a period often (10) years following
the Execution Date, Seller will, and will cause each of its Affiliates and
employees to, preserve the confidentiality of all confidential, proprietary and
trade secret information used or held for use primarily in connection with the
Acquired Assets, provided that (i) Seller may use and disclose any such
information which has been publicly disclosed (other than by Seller or any
Affiliate thereof in breach of its obligations under this Section) or as
otherwise permitted under this Agreement; or to the extent such information
related to Excluded Assets, provided that, if such information relates to both
Acquired Assets and Excluded Assets, Seller will maintain its confidentiality
only to the extent that maintenance of its confidentiality does not
unreasonably interfere with Seller's ability to use, market or sell any or all
of the Excluded Assets; and (ii) to the extent that Seller or any Affiliate
thereof may become legally compelled to disclose any of such information.
Seller or such Affiliate may (to the extent so compelled) disclose such
information if they shall have first used reasonable efforts in good faith, and
shall have afforded Purchaser the opportunity, to obtain an appropriate
protective order, or other satisfactory assurance of confidential treatment,
for the information required to be so disclosed.
SECTION 6.4 Adverse Reaction Reporting. Seller shall notify Purchaser
of any information concerning any side effect, injury, toxicity, sensitivity
reaction, or any incidents, whether or not serious or unexpected, relating to
the Products, of which Seller receives notice on or after the Execution Date,
including providing copies of all such adverse experience reports within two
(2) weeks of Seller's receipt of such reports. For purposes of this Section 6.4
and for purposes of Section 7.7, "serious" means an experience which is (1) one
resulting in severe disability or death of one or more animals, (2) one that is
life threatening to man, or (3) one involving a large number of animals; and
"unexpected" means a condition or development not listed in the then-current
FDA-approved labeling for the Product, and includes those experiences that show
a significant increase in incidence or severity over what appears on the
labeling of the Product or in NADA trials or that are a failure of the Product
to achieve claimed activity.
ARTICLE VII -- PURCHASER'S COVENANTS
Purchaser agrees that:
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SECTION 7.1 Confidentiality. For a period of ten (10) years following
the Execution Date, Purchaser will, and will cause each of its Affiliates and
employees to, preserve the confidentiality of all confidential, proprietary and
trade secret information and material included within the Acquired Assets, or
disclosed hereunder, which relates to any Excluded Assets, provided that (i)
Purchaser may use and disclose any such information which has been publicly
disclosed (other than by Purchaser or an" Affiliate thereof in breach of its
obligations under this Section) or as otherwise permitted under this Agreement;
or to the extent such information relates to the Acquired Assets, provided
that, if such information relates to both Acquired Assets and Excluded Assets,
Purchaser will maintain its confidentiality only to the extent that maintenance
of its confidentiality does not unreasonably interfere with Purchaser's ability
to use, market, or sell units of the Products in the ordinary course of
business; and (ii) to the extent that Purchaser or any Affiliate thereof may
become legally compelled to disclose any of such information, Purchaser or such
Affiliate may (to the extent so compelled) disclose such information if they
shall have first used reasonable efforts in good faith, and shall have afforded
Seller the opportunity to obtain an appropriate protective order, or other
satisfactory assurance of confidential treatment, for the information required
to be so disclosed.
SECTION 7.2 FDA Filings. Purchaser will use its reasonable efforts in
good faith to file or cause to be filed with the FDA, by August 5,1996, the
notice, documents and/or other materials required to be filed by it in
connection with its purchase of the Acquired Assets and to make promptly any
further filings and take any actions required of it as may be necessary to
consummate the transactions contemplated hereby.
SECTION 7.3 Post-Closing; Use of Names. Beginning on the Effective
Date Purchaser will mark clearly all units of the Products manufactured to
indicate Purchaser's ownership of the Products and will not use the words,
names or combined letters "Merck", "Merck & Co., Inc.", "Merck AgVet", "MSD
AGVTR", "MMD", "Merck Sharp & Dohme", or any variation thereof or other word,
name or letter combination substantially similar thereto, or any other trade
name or trademark of Seller in connection with the Products, or as part of the
name of the Purchaser or any Affiliate, after the Execution Date, except to the
extent necessary to comply with its obligations pursuant to the Toll
Manufacturing Agreement relating to the Products entered into between Purchaser
and Seller effective August 5,1996.
SECTION 7.4 Cooperation in Litigation. From and after the Effective
Date, Purchaser agrees that in the defense of any litigation, hearing,
regulatory proceeding or investigation or other similar matter relating to tho
Acquired Assets, Purchaser will make available to Seller during normal business
hours, but without unreasonably disrupting its business, all personnel and
records as to the Acquired Assets held by Purchaser and reasonably necessary to
permit the effective defense or investigation of such matters.
SECTION 7.5 Adverse Reaction Reporting. Effective on the Effective
Date, Purchaser shall be responsible for reporting adverse experiences with
respect to the Products in conformance with all applicable laws, rules and
regulations and shall send to Seller, throughout the term of this Agreement,
copies of all such adverse experience reports, with all serious and
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unexpected adverse experiences (and government forms) sent within two (2) weeks
of Purchaser's receipt, and all non-serious adverse experiences (and government
forms) sent to Seller on a quarterly basis addressed to Seller.
SECTION 7.6 Resale; Abandonment. Purchaser agrees not to resell or
abandon the NADA for the Products, or effect any substantial change in
ownership or control of Purchaser, on or before payments required under Section
2.3 are made. If Purchaser resells or abandons such NADA, or effects such a
substantial change of ownership or control after payment in full of the
payments required under Section 2.3, Purchaser agrees to provide advance
written notice of same to Seller. Notwithstanding the foregoing, Purchaser
shall be entitled to transfer the Acquired Assets or any interest in Purchaser
to an Affiliate of Purchaser without violating the provisions of this section,
provided that no such transfer shall operate to release Purchaser from any of
its obligations hereunder. In the event of Purchaser's breach of this Section
7.8, in addition to all other remedies available to Seller in law or equity,
Seller is entitled to accelerate and receive immediate payment by Purchaser of
all payments required under this Agreement during the term of this Agreement,
whether or not such payments are yet due.
SECTION 7.7 Territorial Limitation; Other Products. Purchaser agrees
to sell units of the Products only within the United States. Except for
submissions to be made by Purchaser in connection with CODEX/JECFA, Purchaser
further agrees that it will use the information and data contained within the
NADA(s) for the Product solely for maintaining the registration(s) for Product
in the United States arid will make no use whatsoever of the information and
data contained in the NADA(s) outside of the United States.
SECTION 7.8 Authorization for Manufacture of the Products. Purchaser
agrees that Seller shall continue to toll manufacture the Products after the
Effective Date pursuant to the terms of the Toll Manufacturing Agreement
entered between the parties effective August 5, 1996.
SECTION 7.9 Change in Corporate Status/Ownership or Control of
Purchaser. Except as provided for in Section 7.6, in the event of any
substantial change in the status, ownership or control of Purchaser, Seller is
entitled to accelerate and receive immediate payment by Purchaser of all
payments required under this Agreement during the term of this Agreement,
regardless of whether or not such payments are yet due.
ARTICLE VIII -- SURVIVAL; INDEMNIFICATION
SECTION 8.1 Survival: Remedy for Breach. All representations,
warranties and indemnities of the parties contained herein shall survive the
Execution Date forever. The covenants and agreements of Seller and Purchaser
hereunder that require by their terms performance or compliance on and after
the Execution Date shall continue in force thereafter in accordance with their
terms.
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SECTION 8.2 Indemnification by Seller. Seller shall indemnify
Purchaser against and defend Purchaser against any and all damage, loss,
liability and expense (including, without limitation, reasonable expense s of
investigation and attorneys' fees and expenses in connection with any action,
suit or proceeding brought against Purchaser and/or its Affiliate(s) and
penalties and the cost of remedial action under applicable laws and
regulations) incurred or suffered by Purchaser arising out of (i) any
misrepresentation or breach of covenant, agreement, representation or warranty
of Seller contained in this Agreement or (ii) any Excluded Liability, provided,
however, that Purchaser shall not be entitled to any indemnification under this
Section 8.2, except for claims under sections 4.2 and 4.5, unless and until the
amount of claims for which Purchaser is entitled to be indemnified exceeds in
the aggregate $100,000 (the "Deductible"), in which event Purchaser is entitled
to receive with respect to such claims the entire amount of the Deductible.
SECTION 8.3 Indemnification by Purchaser.
(a) Purchaser shall indemnify Seller against and agrees
to hold Seller harmless from any and all damage, loss, liability and expense
(including without limitation, reasonable expenses of investigation and
attorneys' fees and expenses in connection with any action, suit or proceeding
brought against Seller and/or its Affiliate(s)) and suffered by Seller and/or
its Affiliate(s) arising out of (i) any misrepresentation or breach of covenant,
agreement, representation or warranty of Purchaser contained in this Agreement,
or (ii) any Assumed Liability.
(b) If Seller or any Affiliate thereof has retained any
liability which would otherwise be an Assumed Liability as a result of the
failure to obtain the consent of a third party to transfer such liability to
Purchaser, Purchaser shall indemnify Seller against and agrees to hold Seller
harmless from any such liability incurred with respect to any period beginning
on or after the Execution Date, provided that Seller notifies Purchaser of the
existence of such failure to obtain consent in a notice expressly referring to
this Section 8.3 (b).
SECTION 8.4 Indemnification; Notice and Settlements. A party seeking
indemnification pursuant to Section 8.2 or 8.3 (an "indemnified party") shall
give prompt notice to the party from whom such indemnification is sought (the
"indemnifying party") of the assertion of any claim, or the commencement of any
action or proceeding, in respect of which indemnity may be sought hereunder.
The indemnifying party shall have the right to, and shall at the request of the
indemnified party, assume the defense, with counsel reasonably satisfactory to
the indemnified party, or any such suit, action or proceeding at its own
expense. An indemnifying party shall not be liable under Section 8.2 or 8.3 for
any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder, which consent
shall not be unreasonably withheld.
ARTICLE IX -- MISCELLANEOUS
SECTION 9.1 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and shall be given:
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if to Seller to:
Merck & Co., Inc.
P.O. Box 2000
Rahway, New Jersey 0706 3
Attention:
President
Merck AgVet Division
if to Purchaser to:
Koffolk, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Attention: President
or such other address as such party may hereafter specify by written notice to
the other party. Each such notice, request or other communication shall be
effective when received at the address specified in this Section 9.1
SECTION 9.2 Expenses. All legal and other costs and expenses incurred
in connection herewith and the transactions contemplated hereby shall (except
as otherwise provided herein) be paid by the party incurring such expenses.
SECTION 9.3 Bulk Sales Statutes. Purchaser hereby waives compliance
by Seller with any applicable bulk sales statutes in any jurisdiction in
connection with the transactions under this Agreement.
SECTION 9.4 Limitation on Sellers Representations and Warranties.
PURCHASER ACKNOWLEDGES THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT, SELLER HAS MADE NO REPRESENTATION OR WARRANTY
WHATSOEVER AND PURCHASER HAS NOT RELIED ON ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, PURCHASER ACKNOWLEDGES THAT, EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER IS ACQUIRING THE ACQUIRED ASSETS
WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES AS TO THE FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR CONDITION OF THE ACQUIRED ASSETS OR AS TO ANY OTHER
MATTER.
SECTION 9.5 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns; provided that this Agreement may not be assigned by
either party without the written consent of the other party hereto.
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SECTION 9.6 Entire Agreement; Amendment. This Agreement, including,
without limitation, the Schedules hereto, embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior agreements with respect thereto. This Agreement may be amended, and
any provisions hereof waived, but only in writing signed by both parties.
SECTION 9.7 Captions; Construction. Captions herein are inserted for
convenience of reference only and shall be ignored in the construction or
interpretation of this Agreement. Unless otherwise specified, the words
"herein", "hereof" and terms of like import shall be deemed to refer to the
Agreement as a whole and not merely to a single part thereof.
SECTION 9.8 Public Announcement. No press release, public
announcement, confirmation or other information regarding this Agreement or
related matters shall be made by either party without the prior written consent
of the other party (other than as necessary to perform the provisions of this
Agreement or to its employees or as may be required by law or by any applicable
rules of any stock exchange; provided that disclosure to employees shall not
result in a requirement of public disclosure under such applicable law or
rules).
SECTION 9.9 Returned Products. For purposes of this Section 9.9,
"Returned Products" means any Products sold by Seller before the Execution Date
and returned to Purchaser. Purchaser shall notify Seller of receipt of any
Returned Products and shall immediately remit all such Returned Products to
Seller at: Merck & Co., Inc., Branch Operations, 4545 Oleatha Ave. St. Louis,
Missouri 63115, at the sole expense of Seller. All credits and/or
reimbursements that may be due customers for Returned Products shall be the
sole responsibility of Seller.
SECTION 9.10 Governing Law; Jurisdiction. This Agreement shall be
governed by, interpreted and construed, and all claims and disputes, whether in
tort, contract or otherwise be resolved in accordance with the substantive laws
of the State of New York, United States of America without reference to any
rules of conflict or laws or renvoi. In the event of any controversy or claim
arising out of or relating to this Agreement, performance hereunder,
termination hereof, or relationship created hereby, each party irrevocably
submits to the exclusive jurisdiction of the courts of the Supreme Court of the
State of New York and the U.S. District Court for the Southern District of New
York for the purposes of any suit, action or other proceeding arising out of
this Agreement or transactions contemplated hereby. Each party irrevocably and
unconditionally waives any objection to the laying of venue in the courts of
New York as stated above and that any such action was brought in an
inconvenient forum. Notwithstanding the foregoing, in the event of a threatened
disclosure in violation of this Agreement, MERCK shall have the right to seek
injunctive relief from any competent court in the jurisdiction where the
disclosure is threatened to prevent such disclosure pending resolution of the
merits of the dispute.
SECTION 9.11 Cooperation. Each party agrees to execute such further
papers, agreements, documents, instruments and the like as may be reasonably
necessary or desirable to effect the purpose of this Agreement and to carry out
its provisions.
SECTION 9.11 Waiver. No waiver by any party in one or more
instances of any
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of the provisions of this Agreement or the breach thereof shall establish a
precedent for any other instance with respect to that or any other provision.
Furthermore, in case of waiver of a particular provision, all other provisions
of this Agreement will continue in full force and effect.
SECTION 9.13 Severance. If any provision of this Agreement is held to
be invalid or unenforceable, all other provisions shall nevertheless continue
in full force and effect.
IN WITNESS WHEREOF, this Agreement has been signed by authorized
representatives on behalf of each of the parties hereto as of the day and year
first above written.
MERCK & CO., INC. KOFFOLK, INC.
By: /s/ John M. Preston By: /s/ Jack C. Bendheim
----------------------------- --------------------------
Dr. John M. Preston Jack C. Bendheim
President President
Merck AgVet Division
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SCHEDULE A
TRADEMARKS
----------
TRADEMARK REG. NO./LOCATION REG. DATE
NICARB(R) 631617/United States July 31, 1956
July 31, 1976 (renewed)
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14
SCHEDULE B
U.S. NEW ANIMAL DRUG APPLICATION
NADA #
------
NICARB(R) 9-476 (Approved)
Nicarbazin-Bacitracin-Methylene-Disalicylate 98-378 (codified 1995)
Nicarbazin-Bacitracin-Methylene-Disalicylate
Roxarsone 100-853 (not codified)
Nicarbazin-Roxarsone-Lincomycin
Medicated Feed 107-997 (Approved 7/13/79)
Nicarbazin-Roxarsone 108-115 (Approved 7/13/79)
Nicarbazin-Lincomycin 108-116 (Approved 7/13/79)
15
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15
SCHEDULE C
Personal Guaranty
Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Gentlemen:
I understand that Koffolk, Inc., a wholly-owned subsidiary of Phillips
Brothers, is indebted to you by virtue of an Asset Purchase and Trademark
Transfer Agreement ("Agreement") entered into between Merck & Co., Inc. and
Koffolk and effective as of August 5, 1996. I further understand that it is
your desire to obtain a personal guarantee of the payments under this Agreement
by me. I also understand that as consideration for your executing this
Agreement, this personal guarantee of payment by me is required by you.
Therefore, I have determined that it is in my best interests as the owner of
Koffolk, Inc. to personally guarantee payment of the payment obligations of
Koffolk, Inc. to you under this Agreement.
I agree as follows:
1. I guarantee to you the payment by me of all payments required of
Koffolk, Inc., its successors and/or assigns under this Agreement, as
and when due, whether by maturity or acceleration. This guaranty
shall be unconditional, continuing and absolute.
2. I waive notice of acceptance of this guaranty by you. My liability
shall not be affected by any extension, modification or renewal of
any payment obligation or indebtedness incurred by Koffolk, Inc., nor
by any default in payment by Koffolk, Inc. You may without prejudice
to any claim against me, at any time or from time to time, in your
discretion and without notice to me extend or change the time of
payment or the manner, place or terms of payment of any obligation
hereby guaranteed. I hereby waive notice of default or of non-payment
and waive any action required, upon notice or without notice, by any
statute, against me. You will not be required to proceed first
against Koffolk, Inc., or another person, firm or corporation before
resorting to me as guarantor for payment.
3. This guaranty will continue until all payment obligations of
Koffolk, Inc., its successors and/or assigns under the Agreement have
been paid in full.
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4. I agree to pay all costs and expenses, including reasonable
attorneys fees, incurred by you in enforcing this obligation.
5. Any collateral or assets held, owned or available by or to me for all
of or any part of the payments due Merck by Koffolk, Inc. may be
sold, exchanged, surrendered, compromised or released to satisfy all
or my part of the payments due.
6. I warrant that this guaranty is not contrary to any statute or
regulation of any authority in any state or country in which the
undersigned does business, owns property or maintains bank and
investment accounts. I further represent that this guaranty is not in
conflict with any contractual obligation or restriction the
undersigned may have with any other creditors.
By: ____________________
Jack C. Bendheim
State of __________________
ss.
County of ________________
Subscribed and sworn to before
me this ____ day of _______ 1996
__________________________________
Notary Public
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SCHEDULE D
U.S. TRADEMARK ASSIGNMENT
WHEREAS, MERCK & CO., INC., a New Jersey corporation, having its
principal offices at One Merck Drive, Whitehouse Station, New Jersey
08889-0100, has adopted, used, is using and is the owner of the following
trademarks now registered in the United States Patent and Trademark Office:
TRADEMARK REGISTRATION NO. DATE OF REGISTRATION
- --------- ---------------- --------------------
NICARB(R) 631617 July 31, 1956
July 31, 1976 (renewed)
WHEREAS, Koffolk, Inc., a Delaware corporation having its principal
offices at One Parker Plaza, Fort Lee, New Jersey 07024, U.S.A., is desirous of
acquiring said registered trademarks,
NOW, THEREFORE, in consideration of the sum of One ($1.00) Dollar and
other good and valuable consideration, the receipt of which is hereby
acknowledged, MERCK & CO., INC., as of August 5,1996 hereby assigns to Koffolk,
Inc. all right, title and interest in the United States in and to said
trademarks together with the goodwill of the business symbolized by said
trademarks and registrations thereof.
Signed this 17th day of July, 1996
MERCK & CO., INC.
By: ___________________________
Dr. John M. Preston
President
Merck AgVet Division
State of
ss.
County of
Subscribed and sworn to before me this day of 1996.
______________________________
Notary Public
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SCHEDULE E
Food and Drug Administration
5600 Fishers Lane
Rockville, MD 20857
Dear _____________
Pursuant to 21 CFR 514.106, we are notifying you that as of August 5,1996,
Merck Research Laboratories is transferring ownership and all rights and
responsibilities for NADA # 9-476, 98- 378, 100-853, 107-997, 108-115 and
108-116 to Koffolk, Inc.
Please direct questions or need for additional information concerning the
transfer of these NADAs to Ms. Rosalind Dunn, Associate Director, Regulatory
Affairs, Coordination and Planning, Merck & Co., Inc. (Phone (908)594-4624/Fax
(908)594-4395).
Beginning today, August 5,1996, all communication to the sponsor should be
addressed to:
Koffolk, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Attn: Jack C. Bendheim
President
Sincerely yours,
Rosalind S. Dunn
Associate Director
Regulatory Affairs
Coordination & Planning
Certified No.
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CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
DISTRIBUTORSHIP AGREEMENT
THIS AGREEMENT, dated as of the 5th day of August, 1996, by and between
Merck & Co., Inc., a corporation duly organized and existing under the laws of
the state of New Jersey having an address at One Merck Drive, Whitehouse
Station, New Jersey 08889 and operating through its Merck AgVet Division,
(hereinafter referred to as "MERCK")
AND
Koffolk, Inc., a business entity duly organized and existing under the laws of
the state of Delaware having an address at One Parker Plaza, Fort Lee, New
Jersey 07024 (hereinafter referred to as "KOFFOLK").
WITNESSETH:
WHEREAS, MERCK is the inventor, developer and supplier of products used
for animal health purposes; and
WHEREAS, KOFFOLK desires to distribute, promote, advertise and sell
certain of such products for animal health purposes in the United States in
accordance with the Food and Drug Administration registration obtained by MERCK;
and
WHEREAS, KOFFOLK shall maintain the necessary sales force and
organization to properly service the territory;
NOW, THEREFORE, in consideration of the premises and of the performance
of the mutual covenants hereinafter set forth, the parties hereto agree as
follows:
1. DEFINITIONS
Each term defined below shall, for the purpose of this Agreement, have
the following meaning and shall include the singular and the plural:
(a) "Product" or "Products" shall mean the finished animal health
products containing amprolium as the active ingredient sold under the Trademark
in such sizes and presentation form as described in Schedule A, for the use in
the treatment of coccidiosis in poultry.
(b) "Territory" shall mean the United States of America, excluding its
territories and possessions.
(c) "Trademark(s)" shall mean the trademarks AMPROL, AMPROL Plus or
other appropriate trademarks designated by Merck AgVet, which are licensed to
KOFFOLK in the Territory by MERCK pursuant to the Trademark License Agreement of
even date.
(d) "Exclusive Distribution Period" shall mean that period of [ ] from
the Effective Date of the Agreement and any applicable renewal periods.
(e)"Affiliate" shall mean with respect to a party to this Agreement (i)
any corporation or business entity, fifty percent (50%) or more of the voting
stock of which is owned directly or indirectly by a party; (ii) any
<PAGE>
corporation or business entity which directly or indirectly owns fifty percent
(50%) or more of the voting stock of a party; or (iii) any corporation or
business entity under the direct or indirect control of a corporation or
business entity as described in clause (i) or (ii).
(f)"Promotional Literature" shall mean all Products-related or
disease-related material, or similar material with respect to competitive
Products, written, oral, graphic or other prepared for distribution to or use
with the veterinary or allied professions, sales representatives, the trade,
and/or consumers.
(g) "Calendar Year" shall mean that twelve (12) month period commencing
January 1st and ending December 31st of each year of the Agreement.
(h) "License Agreement" shall mean the Trademark License Agreement of
even date between MERCK and KOFFOLK.
(i) "Marketing Plan" shall mean that document prepared by KOFFOLK on an
annual basis and submitted to MERCK that contains sales forecasts and
promotional efforts of KOFFOLK for sale of the Product for the succeeding
Calendar Year.
(j) "Effective Date" shall mean August 5,1996.
(k) "Like Kind Exchange" shall mean an arrangement whereby MERCK
divests itself of Product via a non-cash exchange for a third party's product(s)
or rights to market and/or distribute a third party's product(s).
(l) "Promotional Efforts" shall mean the expense, not including
salaries and related overhead expenses, associated with the planning,
production, publication and distribution of Product support material, market
support trials, meetings, merchandising allowance funds, and market research
necessary to facilitate the marketing effort.
2. APPOINTMENT OF KOFFOLK
(a) Subject to continuing right to sell its inventory of Product in the
Territory through [ ], MERCK hereby appoints KOFFOLK as an exclusive
distributor in the Territory for the Products.
(b) KOFFOLK shall sell the Products for its own account. All orders by
KOFFOLK's customers shall be promptly filled by KOFFOLK and KOFFOLK shall assume
all credit risks.
3. PURCHASE OF PRODUCTS
(a) MERCK shall sell, and KOFFOLK shall purchase, the Products from
MERCK at the product supply price specified in Schedule B. Product supply prices
are [ ]. All orders shall be subject to acceptance by MERCK or such Affiliate
and all sales shall be subject to the then current Terms and Conditions of Sale.
To the extent there is any inconsistency in the Terms and Conditions of Sale and
this Agreement, this Agreement shall govern.
(b) KOFFOLK shall make payment to MERCK for the Product within ninety
(90) days of the date of the invoice, in the currency stated on the invoice.
(c) KOFFOLK shall provide MERCK with a rolling [ ] forecast of its
expected requirements of Products, updated on a monthly basis, divided into
quarterly quantities of Products by pack size as of the beginning of each
calendar quarter. Purchase orders shall be in writing and submitted by KOFFOLK
to MERCK by January 15 of each Calendar Year and shall specify by product the [
]
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for that Calendar Year. KOFFOLK shall specify quantities and delivery dates for
Product listed in the annualized purchase order at least three (3) months in
advance of the calendar quarter that KOFFOLK requires Product to be provided by
MERCK. Delivery shall be made as close to such requested dates as possible. The
terms of such purchase order shall be consistent with the provisions of this
Agreement and where inconsistent, this Agreement shall govern.
(d) MERCK shall use reasonable efforts to fill orders that are in
excess of the quantity forecasts provided by KOFFOLK, giving consideration to
the quantity of the Products available at the time, the requirements of other
customers and the capacity of the production facility.
(e) KOFFOLK shall inspect the Products and shall inform MERCK in
writing of any complaints regarding the quantity or quality of the same within
three (3) days of receipt of the Products by KOFFOLK. In the event that a
quality defect is not discoverable by reasonable inspection, such claim for the
quality defect shall be made in writing within three (3) days of discovery. No
quantity of the Products shall be returned to MERCK without MERCK's express
written permission, which permission shall not be unreasonably withheld. Once
permission has been given, Product will be returned to MERCK and, at MERCK's
option, either subsequently replaced within ninety (90) days at no charge to
KOFFOLK or a credit for the amount of defective Product will be provided to
KOFFOLK within thirty (30) days of its return.
4. CERTAIN SPECIFIC RESPONSIBILITIES OF KOFFOLK
(a) KOFFOLK shall prepare and submit to MERCK on an annual basis, a
written marketing plan for the Products which shall include sales forecasts and
promotional efforts for the year. The marketing plan for Calendar Year 1997
shall be provided by December 1,1996. Thereafter, the marketing plan for each
succeeding Calendar Year shall be provided by KOFFOLK to MERCK by September 1st
of the preceding Calendar Year.
(b) KOFFOLK shall actively promote and distribute and use its best
efforts to expand the sales of the Products in the Territory by all appropriate
means available through the maintenance of its sales organization.
(c) KOFFOLK shall purchase the guaranteed purchases for Calendar Years
1996 and 1997 of the Agreement which are designated in Schedule C (hereafter the
'Guaranteed Amount"). Thereafter, for Calendar Years 1998 through 2000, and any
subsequent renewal periods, such Guaranteed Amounts will be agreed to between
MERCK and KOFFOLK in each Calendar Year by July 31 of the preceding Calendar
Year. If KOFFOLK does not purchase the Guaranteed Amount in any Calendar Year,
KOFFOLK shall be required to eliminate the shortfall as follows:
[
]
[
]
3
<PAGE>
(d) If in any two (2) consecutive Calendar Years, KOFFOLK fails to meet
the Guaranteed Amounts, MERCK may terminate this Agreement upon sixty (60) days
notice to KOFFOLK.
(e) KOFFOLK shall keep MERCK informed on a quarterly basis, in writing,
of the Promotional Efforts it will be making in connection with the Products.
Thereafter, KOFFOLK's expenditure for Promotional Efforts for each subsequent
Calendar Year shall be contained in the Marketing Plan as developed by KOFFOLK.
MERCK reserves the right to request, and KOFFOLK shall provide, documentation to
substantiate the amount spent by KOFFOLK on Promotional Efforts in each Calendar
Year of the Agreement.
(f) KOFFOLK shall maintain sufficient stocks of the Products to satisfy
the demand for them in the Territory. Specifically, its inventory shall, at any
given time, not fall below the equivalent of the total estimated sales for each
Product in the upcoming two (2) months. The Products shall be handled and stored
in accordance with instructions provided by MERCK.
(g) KOFFOLK acknowledges that it is aware of the terms of MERCK's
Ethical Business Practices Policy, a copy of which is attached hereto as
Attachment I and made part of this Agreement. KOFFOLK agrees to comply fully
with the requirements of said Policy and agrees to indemnify and hold MERCK
harmless from and against any and all liabilities resulting from the violation
of said policy by KOFFOLK, or any third party that KOFFOLK has instructed to act
on its behalf.
(h) KOFFOLK agrees to develop at its own expense Promotional Literature
to be used in conjunction with the sale of the Products in the Territory. All
Promotional Literature must be consistent with the safety and efficacy data
supplied by MERCK and reviewed and approved by MERCK according to the following
provisions prior to its use:
(i) All Promotional Literature relating to the Products must be
submitted for approval to publish shall be addressed to:
Merck & Co., Inc.
Merck Ag Vet Division
Mr. Steve Vandeberg
Associate Director, Marketing Communications
U.S. Operations
P.O. Box 2000, WBF-224
Rahway, NJ 07065-0912
(ii) Within twenty (20) working days of receipt, MERCK will either
approve or reject the submission. No Promotional Literature may be printed,
published or put into use until a signed approval is received from MERCK by
KOFFOLK. Facsimile transmission will be deemed acceptable.
(iii) Approval of each promotional text is valid for one (1) year
unless new Product information or new regulations affecting the Products or text
become available. In the absence of any such changes, approved literature may be
printed, reprinted, used and distributed during this period.
(iv) An approved text may not be changed for publication without the
written authority of MERCK. This applies to all Promotional Literature covered
by this procedure. If even the most minor change of an approved literature piece
is required, the revised text must be submitted for MERCK's approval.
(v) KOFFOLK shall submit, within five (5) days of production, ten
(10) printed specimens of each approved literature piece for after-the-fact
review, accompanied by a confirmation from an authorized
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<PAGE>
representative of KOFFOLK that it is worded exactly as was approved by MERCK.
Specimens and confirmations should be addressed to:
Merck & Co., Inc.
Merck AgVet Division
Mr. Steve Vandeberg
Associate Director, Marketing Communications
U.S. Operations
P.O. Box 2000, WBF-224
Rahway, NJ 07065-0912
(vi) Pricing information or bulletins for KOFFOLK's internal use
only that contain no safety, efficacy or other Products-related claims are
excluded from review under this procedure.
(i) KOFFOLK shall provide MERCK with a quarterly report of (i) all
sales of Products by package size and (ii) and inventory status of the Products
which report shall be provided by the twentieth (20th) day of the month
immediately following the close of the quarterly period. Additionally, KOFFOLK
shall keep MERCK advised on a regular basis of general market, economic and
regulatory developments which may affect the promotion and sale of the Products
in the Territory.
(j) KOFFOLK shall not make any claim, either orally or in writing, with
respect to the safety or effectiveness of the Products that is inconsistent with
and/or goes beyond approved claims for the Products, nor shall KOFFOLK recommend
the combination of the Products with any other products, without MERCK's prior
written consent.
(k) KOFFOLK shall do nothing which will jeopardize the goodwill of
MERCK or any of its Affiliates or the reputation of the Products. The
appointment of KOFFOLK as a distributor hereunder shall not create a joint
venture, or principal-agency relationship, or franchise relationship and nothing
hereunder shall be deemed to authorize KOFFOLK to act for, represent, or bind
MERCK or any of its Affiliates, unless specific authority to act on MERCK's
behalf is granted to KOFFOLK in writing.
(l) Both parties agree to comply with all laws and regulations and
other requirements in the Territory governing the performance of their
activities under an agreement such as this.
(m) KOFFOLK shall be responsible for ensuring that its customers obtain
approval of form FDA 1900 with the FDA. In order to ensure that existing
customers of the Products have obtained such approvals, MERCK shall provide
KOFFOLK, within forty-five (45) days of the Effective Date, with copies of all
forms FDA 1900 (or Forms FDA 1800, if applicable) covering the Products which it
has in its possession.
(n) Except as required by law, neither party shall make any public
announcement in connection with the subject matter of this Agreement without the
prior approval of the other party.
5. PROMOTIONAL AND MARKETING EXPENSES
(a) KOFFOLK agrees to pay for all promotional, selling and marketing
costs of Products, including but not limited to customer feed assay costs,
advertising expenses, freight and distribution costs and carrying costs of
accounts receivable.
(b) MERCK agrees to provide customer feed assays to KOFFOLK in 1996 at
an initial price of [ ] and in future Calendar Years at the
prevailing price [ ].
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<PAGE>
6. CONFIDENTIALITY
(a) For the term of this Agreement plus five (5) years thereafter all
information which is received by KOFFOLK or MERCK from the other party during
the term of this Agreement shall be maintained in strict confidence by the
receiving party. All information whether generated by KOFFOLK or MERCK shall be
disclosed only to MERCK or KOFFOLK employees and consultants who have been
instructed to treat such information in strict confidence and on a "need to
know" basis. This information shall be protected from disclosure to third
parties with at least the same degree of care used by such employees when
dealing with their employer's confidential information. Further, such
information shall not be disclosed to any other person, firm, or agency,
governmental or private, or used for purposes other than set forth herein
without the prior written consent of the disclosing party.
(b) With respect to tangible materials provided by MERCK to KOFFOLK
under this Agreement, including samples of Products, KOFFOLK agrees to (i) not
provide such materials to third parties, (ii) not conduct demonstration trials
or protocols for the promotional use of the product except with the prior
written permission of MERCK, and (iii) return unused portions of such materials
to MERCK.
(c) In the event KOFFOLK desires to disclose to MERCK any information
considered confidential and proprietary to KOFFOLK ("KOFFOLK Confidential
Information") during the course of this Agreement, KOFFOLK shall first provide
MERCK with notice of KOFFOLK's intent to disclose KOFFOLK Confidential
Information, then for the term of this Agreement plus three (3) years
thereafter, MERCK shall keep KOFFOLK Confidential Information confidential by
not disclosing to any third party, and shall not use for any purpose other than
pursuant to this Agreement.
(d) The foregoing obligations shall not apply when and to the extent
such information:(I)is or becomes a part of the public domain without the breach
of this Agreement;(ii)is already known to the receiving party prior to its
disclosure or development hereunder(iii)can be shown to have been independently
developed by or on behalf of MERCK without reference or access to KOFFOLK
Confidential Information as evidenced by MERCK's written records; or(iv)is
disclosed to the receiving party by an independent third party not under an
obligation of confidence to the disclosing party with respect thereto.
(e) This Agreement shall not supersede any existing Confidentiality
Agreement between MERCK and KOFFOLK and/or its Affiliates with respect to any
information already or hereafter disclosed between the parties, and shall be
deemed additive to those confidentiality obligations that may have already been
assumed.
7. PRODUCT REGISTRATION
Registrations for the Products with the Food and Drug Administration
shall be maintained by MERCK. All fees and other expenses in connection with the
registration of the Products shall be for the account of MERCK. Product
registrations shall be in the name of MERCK or a designated Affiliate under the
separate Trademarks as owned by MERCK as set forth in Paragraph 8 and listed in
Schedule A. All product registrations so obtained shall be and remain the
property of MERCK or such Affiliate. Any registrations required pursuant to
state law to allow for distribution of the Products by KOFFOLK in each state in
the Territory, including distribution licenses, shall be applied for, maintained
by, be the property of, and for the account of KOFFOLK only.
8. PACKAGING AND LABELING
KOFFOLK will promote and market the Products under labeling and
package design approved by MERCK. All packages will bear the name and logo of
MERCK, and shall identify that the Products are manufactured by MERCK.
9. TRADEMARKS
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(a) [ ], KOFFOLK
shall have the exclusive right to use the Trademarks in the Territory pursuant
to the terms of this Agreement and the Trademark License Agreement of even date
annexed as Attachment 2.
(b) Except as provided by this Agreement and/or the Trademark License
Agreement, nothing in this Agreement shall be construed as granting to KOFFOLK
any right, title, interest, or license under or to any intellectual property of
MERCK relating to the Product.
10. REGULATORY MATTERS
(a) The Product covered by this Agreement is registered with the Center
for Veterinary Medicine of the Food and Drug Administration (FDA).
(b) (i) KOFFOLK agrees that it shall undertake in accordance with
applicable FDA regulations, and any other applicable laws or regulations, the
submitting of periodic drug experience reports to MERCK.
(ii) KOFFOLK further agrees to report to MERCK in writing all
adverse experience and adverse physical occurrence information of which it
becomes aware associated with the Products relating to hazards,
contraindications, side effects, injuries, toxicity, sensitivity reactions,
Product defects and mix-ups, whether or not the adverse experience or physical
occurrence is determined to be causally related to the Products. This reporting
obligation shall be in full compliance with the MERCK Policy and Procedure No.
4, "Reporting Adverse Experiences and Adverse Physical Occurrences for Animal
Health Products," a copy of which is attached as Attachment 3 and incorporated
herein by reference. KOFFOLK shall submit a copy of such report to MERCK within
five (5) working days after learning of the adverse experience or physical
occurrence using the required RA 1932 Form, a blank copy of which is attached as
Attachment 4.
(iii) When complete information is not available within the five-day
period, KOFFOLK shall submit any available information within the five-day
period, and also submit a supplement as soon as further details become
available. MERCK shall be authorized to submit such adverse experience or
physical occurrence information to government authorities as it considers
appropriate. KOFFOLK agrees to permit MERCK to audit KOFFOLK's files for adverse
drug experience or physical occurrence on a routine basis as determined
necessary by MERCK. If MERCK becomes aware of adverse experiences or physical
occurrences which in its opinion may require a change in label content, MERCK
shall provide KOFFOLK with all information relating to such adverse experiences
or physical occurrences.
(iv) KOFFOLK agrees to provide a signed statement identifying the
category of its operation (i.e., wholesaler, retailer) and stating that it will
distribute the Products only under labeling provided for in the new animal drug
application for Product and approved by MERCK; that any other labeling or
advertising for the drug will prescribe, recommend and/or suggest its use only
under the conditions stated in the labeling provided for in the application; and
that it is regularly and lawfully engaged in the distribution of Product.
(v) KOFFOLK will advise MERCK immediately concerning any FDA
inspections, notices, or enforcement action with respect to the Product.
11. FORCE MAJEURE
Neither of the parties hereto shall be liable or be in breach of any
provision hereof for any failure or delay on its part to perform any obligation
(other than the obligation to make payments when due) under any provision of
this Agreement because of force majeure, including, but not limited to, war,
riot, fire, explosion, flood, sabotage, accident or breakdown of machinery;
unavailability of fuel, labor, containers, or transportation facilities;
accidents of navigation or breakdown or damage of vessels, or other conveyances
for air, land or sea; other impediments or
7
<PAGE>
hindrances to transportation; strike or other labor disturbances; government
restraints or any other cause beyond the control of the party thus failing to
perform or whose performance is thus delayed.
12. TERM AND TERMINATION
(a) This Agreement shall have an Effective Date as defined herein, and
unless sooner terminated as provided herein, shall remain in full force and
effect for a period of five (5) years from the Effective Date subject to the
terms and conditions set forth herein. Thereafter the Agreement shall be renewed
for successive one (1) year periods upon mutual agreement of the parties
expressed in writing at least ninety (90) days prior to expiration of this
Agreement and each successive renewal term.
(b) Should either MERCK or KOFFOLK cease to do business or be
adjudicated as bankrupt or make an assignment for the benefit of creditors or
become involved in any insolvency proceeding or receivership proceeding, this
Agreement shall terminate immediately.
(c) This Agreement may also be terminated by MERCK on one hundred and
eighty (180) days prior written notice to KOFFOLK in the event that maintenance
of the Product registration or manufacture of the Product becomes infeasible as
reasonably determined by MERCK or MERCK divests Product via a Like Kind Exchange
arrangement with a third party.
(d) Either party may terminate the Agreement in case of material breach
by the other party, such termination to be effected by sixty (60) days prior
written notice which specifically identifies the breach and provides the
opportunity for the breach to be cured within that sixty (60) day period. By way
of example without limitation, failure by KOFFOLK to follow and comply with
Paragraph 4(h) (promotional material) and Paragraph 10 (regulatory matters)
shall be considered a material breach.
(e) MERCK may terminate this Agreement upon thirty (30) days written
notice upon a change in management or in the event that a majority of the stock,
assets or control of KOFFOLK is acquired by any other party(s) which MERCK
determines, in its sole judgment, is prejudicial to its interests. In the event
of such-change in management or control, notwithstanding the provisions of
Paragraph 13, MERCK shall have the right in its sole discretion to purchase back
any and all remaining inventory of Products at KOFFOLK's full purchase price.
(f) Upon termination of this Agreement in accordance with its terms,
KOFFOLK shall make no claim or request compensation of any kind because of such
termination. KOFFOLK agrees to waive any statutory amount which may be allowable
or imposed for such termination such as liquidated damages or other such
statutory payments, if any.
(g) Termination shall not extinguish obligations and liabilities of the
parties accrued prior to termination or non-renewal.
13. TRANSITION PERIOD
At the conclusion of the Exclusive Distribution Period, or in the event
of earlier termination under Paragraph 12 with the exception of Paragraph 12
(e), KOFFOLK shall have the right to sell any remaining MERCK product bearing
the Product label in its inventory for a period not to exceed three (3) months
from the conclusion of the Exclusive Distribution Period or the date of
termination. KOFFOLK shall notify MERCK in writing of its existing inventory of
Products at the beginning of that three (3) month period. KOFFOLK shall exercise
its best efforts to sell existing inventory of Products during this three (3)
month period. KOFFOLK further agrees to take all reasonable steps necessary to
minimize the amount of product inventory bearing the Product label remaining on
the first day immediately following conclusion of the Exclusive Distribution
Period. The parties' respective rights and obligations under the Agreement shall
remain in full force and effect during the Transition Period.
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14. RECALL
(a) In the event MERCK shall be required or shall voluntarily decide to
recall any Product distributed by KOFFOLK pursuant to this Agreement, then
KOFFOLK shall fully cooperate with MERCK in connection with the recall. If such
recall is initiated because of the negligence or failure of MERCK to comply with
the terms of this Agreement, then MERCK will credit KOFFOLK for the price it
invoiced KOFFOLK for all Product returned and, in addition, MERCK will reimburse
KOFFOLK for all reasonable recall expenses in connection therewith. If such
recall is initiated because of the negligence or failure of KOFFOLK to comply
with the terms of this Agreement, then KOFFOLK will reimburse MERCK for all
reasonable recall expenses in connection therewith.
(b) KOFFOLK agrees to abide by all decisions of MERCK to recall Product
and both parties shall fully cooperate with each other in the event of any
recall of Product under this Agreement.
15. JURISDICTION/CHOICE OF LAW
This Agreement shall be governed by, interpreted and construed, and all
claims and disputes, whether in tort, contract or otherwise be resolved in
accordance with the substantive laws of the State of New York, United States of
America, without reference to any rules of conflict of laws or renvois. In the
event of any controversy or claim arising out of or relating to this Agreement,
performance hereunder, termination hereof, or relationship created hereby, each
party irrevocably submits to the exclusive jurisdiction of the courts of the
Supreme Court of the State of New York and the U.S. District Court for the
Southern District of New York for the purposes of any suit, action or other
proceeding arising out of this Agreement or transactions contemplated hereby.
Each party irrevocably and unconditionally waives any objection to the laying of
venue in the courts of New York as stated above and that any such action was
brought in an inconvenient forum. Notwithstanding the foregoing, in the event of
a threatened disclosure in violation of this Agreement, MERCK shall have the
right to seek injunctive relief from any competent court in the jurisdiction
where the disclosure is threatened to prevent such disclosure pending resolution
of the merits of the dispute.
16. PRODUCT WARRANTIES AND INDEMNIFICATION
(a) MERCK warrants that the Products shall meet the ingredient
specifications contained on the label and conform to MERCK's specifications for
the Products when it leaves MERCK's control. MERCK makes no other warranties,
either express or implied, including warranties of merchantability or of fitness
for a particular use.
(b) MERCK shall defend and indemnify KOFFOLK against all expenses,
claims, demands, liabilities or money judgments, including recall, incurred by
KOFFOLK arising from the negligence or fault of MERCK or from MERCK's failure to
comply with the terms of this Agreement, except to the extent that said
expenses, claims, demands, liability or money judgments are caused by the
negligence or fault on the part of KOFFOLK or KOFFOLK's failure to comply with
the terms of this Agreement.
(c) KOFFOLK shall defend and indemnify MERCK against all expenses,
claims, demands, liabilities or money judgments, including recall, incurred by
MERCK arising from the negligence or fault of KOFFOLK or from KOFFOLK's failure
to comply with the terms of this Agreement, except to the extent that said
expenses, claims, demands, liability or money judgments are caused by the
negligence or fault on the part of MERCK or MERCK's failure to comply with the
terms of this Agreement.
17. ENTIRE AGREEMENT
This Agreement and Trademark License Agreement of even date comprises
the entire Agreement between the parties and merges all prior agreements between
them relative to the Products hereunder. This Agreement may not be amended
except in writing, signed by both parties referencing this Agreement.
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18. NOTICES
All notices hereunder required to be in writing shall be sufficient if
sent by certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to MERCK: Merck & Co., Inc.
P.O. Box 2000
Rahway, NJ 07065-0912
Attention: President
Merck AgVet Division
If to KOFFOLK: Koffolk, Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Attn: President
19. SEVERABILITY
In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions contained in this Agreement. If any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to time, duration, geographical scope, activity or subject,
it shall be construed by limiting and reducing it so as to be enforceable to the
extent compatible with applicable law.
20. TITLES
The titles to each paragraph of this Agreement are for reference only
and shall not be used to interpret said paragraph. All interpretations of the
meaning of each paragraph to this Agreement shall rely solely upon the wording
of the Agreement and shall not incorporate the paragraph titles for its
interpretation.
21. AMENDMENT
Except as otherwise expressly stated herein, this Agreement cannot be
amended or modified except by a written instrument which shall state that it is
an amendment or modification of this Agreement and which shall be signed and
dated by the parties hereto.
22. WAIVER
Failure by MERCK or KOFFOLK at any time to enforce any of the terms or
conditions of this Agreement shall not be deemed a continuing waiver as to such
terms or conditions, and shall not affect the right of MERCK or KOFFOLK to later
avail itself of such remedies as it may have for any subsequent breach of such
terms or conditions under the provisions of this Agreement in equity or at law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives as of the day and
year first above written.
KOFFOLK, INC.
By: /s/ J.C. Bendheim
-----------------
Name: J. C. Bendheim
Title: Pres.
10
<PAGE>
MERCK & CO, INC.
By: /s/ John M. Preston
-------------------
Name: John M. Preston
Title: President
11
<PAGE>
SCHEDULE A
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
[ ]
[ ]
[ ]
[ ]
<PAGE>
SCHEDULE B
MINIMUM SUPPLY PRICES
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([ ]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
[ ]
[ ]
[ ]
[ ]
<PAGE>
SCHEDULE C
GUARANTEED PURCHASES
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
<PAGE>
ATTACHMENT 1
ETHICAL BUSINESS PRACTICES
KOFFOLK agrees to comply with Merck & Co., Inc.'s Ethical Business Practices
policy which reflects the highest standard of corporate and individual behavior.
KOFFOLK shall adhere to business practices which are in accordance with the
letter and spirit of applicable laws and ethical principles. KOFFOLK agrees that
all transactions in connection with MERCK's business will be accurately
reflected in its books and records, and that no funds or other assets shall be
paid directly or indirectly to government officials or persons acting on their
behalf for the purpose of influencing government decisions or actions with
respect to MERCK's business. Violation of this policy on the part of KOFFOLK,
its employees, or representatives, shall result in the immediate termination of
this Agreement.
<PAGE>
ATTACHMENT 2
TRADEMARK LICENSE AGREEMENT
AGREEMENT, effective as of August 5, 1996 by and between MERCK & CO.,
INC., a corporation organized and existing under the laws of the State of New
Jersey, U.S.A., with an office at Whitehouse Station, New Jersey, U.S.A.
(hereinafter "Licensor"), and KOFFOLK, INC. (including its affiliates and
subsidiaries), a business entity duly organized and existing under the laws of
Delaware (hereinafter "Licensee").
WHEREAS, Licensor is the owner in the United States of America and its
territories (hereinafter the "Territory") of the right, title and interest in
and to the trademarks, AMPROL(R) (amprolium) and AMPROL(R) Plus and the
applications for registration and registrations thereof (hereinafter
"Trademarks'); and
WHEREAS, Licensee desires the right and license to use the Trademarks,
in the Territory on and in association with the sale of certain pharmaceutical
preparations containing amprolium as an active ingredient used in the treatment
of poulty (hereinafter "Products") pursuant to the Distributorship Agreement
dated August 5, 1996 between Merck AgVet, a division of Merck & Co., Inc. and
KOFFOLK, USA (hereinafter "Distributorship Agreement");
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties herein agree as
follows:
1. Licensor hereby grants to Licensee, for the term of the Distributorship
Agreement, and Licensee accepts, an exclusive, royalty-free,
non-sublicensable, non-assignable license to use the Trademarks in the
Territory solely in connection with the packaging, promotion, and sale
of the Products.
2. Licensee shall use the Trademarks only for the Products supplied by
Licensor. From time to time, upon request of Licensor, Licensee shall
submit samples of any of the Products to Licensor or its duly appointed
agent to insure compliance with Licensor's storage and handling
specifications. Licensor, or its duly appointed agent, shall have the
right to inspect the premises of Licensee, and Licensee shall permit
such inspection, at any reasonable time, to confirm that Licensee is
adhering to Licensor's standards and specifications used in the
repackaging, storage and sale of the Products, pursuant to the
Distributorship Agreement under which Licensee is licensed herein to
use the Trademarks. Licensee shall not sell or otherwise dispose of,
any of the Products under the Trademarks that fail to comply with the
standards and specifications of Licensor as determined by Licensor. Any
economic loss resulting from the failure of Product to conform to
Licensor's quality control standards and requirements, caused by an
action or failure to act by Licensee pursuant to the terms of the
Distributorship Agreement, shall be borne by Licensee.
3. Licensee shall use the Trademarks only in such form and manner as shall
be approved in writing from time to time by Licensor. Licensee
undertakes to comply with all laws pertaining to the Trademarks in
force at any time in the Territory including, but not limited to,
compliance with marking requirements. Use of the Trademarks by Licensee
on labels and packaging or on other printed material shall be presented
as AMPROL and AMPROL(R)Plus accompanied by an appropriate statement
that such trademarks are "Licensed Trademarks", or such other
appropriate legend as Licensor shall direct. The Trademarks shall
always be given distinctive typographical treatment when used by
Licensee. Copies of all labels, packaging and other printed material on
which the Trademarks is used shall be submitted to Licensor for
approval prior to use in accordance with the terms of the
Distributorship Agreement. Licensee shall not use the Trademarks in any
manner whatsoever which may jeopardize the significance,
distinctiveness or validity thereof.
<PAGE>
4. The Trademarks shall at all times remain the exclusive property of
Licensor and all use of the Trademarks hereunder shall inure to the
benefit of Licensor. Nothing in this Agreement shall be construed as
granting or transferring to Licensee any right, title or interest in
and to the Trademarks either by operation of law or otherwise except
the right to use the same during the term of this Agreement, as
provided in this Agreement and in the Distributorship Agreement.
5. Licensee agrees that it shall not use the Trademarks in combination
with any other trademark or trade name of its own or any third party or
as a component of its business name or to characterize its business in
any other way; and that it will use the Trademarks only on, or in
connection with, the Products, and will not use or permit use of the
Trademarks in connection with goods other than the Products; and that
the Trademarks and the goodwill associated therewith, are and shall
continue to be the exclusive property of Licensor.
6. Licensor agrees to maintain the trademark registrations for the
Trademarks. However, if the Trademarks are not in use in a particular
jurisdiction of the Territory, Licensor may allow the registration to
expire. Licensee agrees to cooperate with Licensor in providing
information, specimens, and documentation that may be useful or
required in order to effect trademark registrations, or for maintenance
and renewal of trademark registrations for the Trademarks.
7. Licensee shall, at all times, execute any documents reasonably required
by Licensor to record Licensee as a registered user or licensee of the
Trademarks. Licensee agrees to cooperate as requested by Licensor in
arranging for such recordings and/or entries, or in maintaining,
varying or canceling such recordings and/or entries in the event of
amendment to, or termination of, this Agreement for any reason.
8. In the event that Licensee learns of any infringement or threatened
infringement of the Trademarks, or any passing-off, Licensee shall
immediately notify Licensor or its authorized representative in writing
giving particulars thereof and Licensee shall provide necessary
information and assistance to Licensor or its authorized
representatives in the event that Licensor decides that proceedings
should be commenced or defended. The commencement, strategies,
termination and settlement of any action relating to the validity
and/or infringement of the Trademarks shall be decided. by Licensor.
Any such proceedings shall be at the expense of Licensor, and any
recoveries shall be to the benefit of Licensor. Nothing herein,
however, shall be deemed to require Licensor to enforce the Trademarks
against others.
9. Licensee shall promptly notify Licensor of any claims arising out of
the use of the Trademarks, and Licensor will provide for the defense
thereof with counsel of its own selection and will pay all costs and
expenses incurred in so defending against such claims, provided such
use of the Trademarks by Licensee was in accordance with the terms of
this Agreement and the Distributorship Agreement. Licensee shall also
have the right to participate in the defense of any such claim with
attorneys of its own selection, at its own expense, however, the extent
to which any such claim shall be prosecuted, defended or settled, will
be solely within the discretion of Licensor. Licensor hereby
indemnifies and shall hold harmless Licensee from and against the cost
and expenses of any claims, demands, causes of action, judgments,
damages or liabilities, arising out of the use by Licensee of the
Trademarks in accordance with the terms of this Agreement, provided
that written notice of such claim, demand or cause of action is
promptly given to Licensor and Licensee cooperates fully with Licensor
in the defense of such claim, demand or cause of action.
10. Licensee agrees to indemnify and hold Licensor harmless from and
against any and all claims and agrees to reimburse Licensor for any and
all losses, damages, costs, fees, expenses, liabilities and obligations
of any kind (including reasonable attorney's fees and other reasonable
legal costs and expenses) that Licensor may at any time suffer or
incur, or become subject to as a result of or arising from the
unauthorized use of the Trademarks by Licensee. Licensee shall have the
right to defend any such action or proceeding with
2
<PAGE>
attorneys of its own selection, and Licensor shall have the right to be
represented by attorneys of its selection.
11. This Agreement shall be effective as of the date first written above
and shall continue in force for as long as the Distributorship
Agreement remains in effect, and shall terminate upon termination of
the Distributorship Agreement.
12. This Agreement shall terminate immediately and automatically in the
event that Licensee makes any assignment for the benefit of creditors
or shall file for, or have filed against it, a petition for bankruptcy;
or if Licensee is dissolved or loses its charter by forfeit or
otherwise or if a trustee or receiver is appointed for Licensee or for
any of its property in any proceeding, or if any court takes
jurisdiction of the property of Licensee by foreclosure or otherwise.
13. In the event that Licensee defaults or breaches any of the provisions
of this Agreement, Licensor shall have the right to terminate this
Agreement upon thirty(30) days written notice to Licensee, provided,
however, that if Licensee, within the said thirty (30) day period,
cures the default or breach to the satisfaction of Licensor, the
Agreement shall continue in full force and effect.
14. Upon termination of this Agreement for whatever reason, Licensee shall
promptly discontinue any further use of the Trademarks, and shall not
use any trademark which, in the reasonable opinion of Licensor, is
confusingly similar to the Trademarks, except that after termination of
this Agreement, Licensee may for a period of twelve (12) months
immediately following termination, sell existing stocks of the Products
bearing the Trademarks without removing the Trademarks provided that
such Products comply with the standards and specifications of Licensor,
in force at the time of termination.
15. The failure of a party to require the performance of any term of this
Agreement or the waiver by a party of any breach of this Agreement
shall not prevent a subsequent enforcement of such term nor be deemed a
waiver of any subsequent breach.
16. Should Licensee be or become aware of any applicable laws or
regulations which are inconsistent with the provisions of this
Agreement, Licensee shall promptly notify Licensor of such
inconsistency.
17. The remedies provided for in this Agreement are not exclusive of other
remedies available to the parties.
18. This Agreement may be assigned by Licensor to an affiliate without
approval, otherwise it may be assigned by either party only with the
written approval of the other party.
19. This Agreement shall be binding upon and inure to the benefit of any
successors in interest of each party.
20. All notices provided for herein shall be deemed sufficient if in
writing and delivered or sent by pre-paid registered or certified mail,
facsimile, cablegram or telex to the party hereto at its address
specified in Paragraph 18 of the Distributorship Agreement or to such
other business address as may have been furnished in writing by the
intended recipient to the sender. The date of mailing, faxing, cabling
or telexing shall be deemed to be the date on which such notice or
request has been given.
21. This Agreement, and its construction, interpretation, performance and
breach shall be governed according to the laws of the State of New
Jersey.
22. This Agreement and the Distributorship Agreement constitute the entire
agreement and understanding between the parties and supersedes all
previous agreements between them concerning the matters covered
3
<PAGE>
herein, whether written, oral or implied. This Agreement may only be
changed or modified by written agreement signed by both parties.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
KOFFOLK, INC.
By: /s/ J.C. Bendheim
-----------------
Name: J. C. Bendheim
Title: Pres.
MERCK & CO, INC.
By: /s/ John M. Preston
-------------------
Name: John M. Preston
Title: President
5
<PAGE>
MERCK AGVET DIVISION POLICY AND PROCEDURE
REPORTING ADVERSE EXPERIENCES AND ADVERSE PHYSICAL OCCURRENCES FOR ANIMAL
HEALTH PRODUCTS
Date: 03/01/94
Supersedes: 10/30/92
I. Objective
To describe the procedure for reporting adverse experiences and adverse physical
occurrences for Merck animal health products, both marketed and investigational,
and to emphasize to all Merck & Co., Inc. personnel their specific
responsibilities in implementing this Procedure when required. This document
deals exclusively with animal health products. For agricultural chemical
products see Merck Ag Vet Division Policy and Procedure No. 5, and for human
pharmaceuticals see MRL Medical Affairs Procedures and Policies Manual,
Procedure No. 13.
II. Policy
This Procedure sets forth the manner in which Merck & Co., Inc. identifies,
collects and reports information about adverse experiences and adverse physical
occurrences related to animal health products so that the Company may comply
with applicable United States federal, state and local laws and regulations. The
reporting of information as required by this Procedure is in line with the
relevant legal requirements of the United States Food and Drug Administration
and other regulatory authorities. Failure to report adverse expenences and
adverse physical occurrences, as set forth below, may result in regulatory
action against the Company and may subject individual violators to disciplinary
action up to and including dismissal.
The reporting requirements set forth in this document are to be incorporated
with those required by other Merck procedures and other national or local
governmental authorities.
III. Definitions
A. Adverse Experience
An adverse experience is any unfavorable and unintended change in the structure,
function or chemistry of an animal or human being and includes any injury,
side-effect, toxicity or sensitivity reaciton that may be associated with the
use of a Merck animal health product, whether or not the experience is
considered to be causally related ot the Merck product. For a marketed product,
this would also include any failure of the marketed Merck product to exhibit its
expected pharmacological activity in the animal.
Reports of an adverse experience may originate from a variety of sources such
as: Merck or extramural research personnel, veterinarians, animal health
professionals, agricultural workers, pet and livestock owners, distributors,
sales personnel, marketing staffs, etc.
Three important classes of adverse experiences have special reporting
requirements. These are:
1) Serious Adverse Experience
A Serious adverse experience is (1) one resulting in severe funtional
debility or death of one or more animals, (2) one that is life-threatening to
man, or (3) one involving a large number of animals.
2) Unexpected Adverse Experience
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This includes any experience not described in the labeling of the
product or not reported in the New Animal Drug Application (NADA) trials prior
to Food and Drug Administration or international approval. It also includes
those experiences that show a significant increase in incidence or severity over
what appears on the labeling of marketed drugs or in NADA trials or that are a
failure of a marketed product to achieve the claimed activity.
This includes all experiences in species of animals or classes of
livestock not listed on the labeling; i.e., reactions in animals, including man,
following extra-label or accidental usage in a species for which the product is
not approved or marketed.
3) Human Reaction To Animal Drugs
Human reactions, including those resulting from exposure due to
handling, mixing, administering or for any other reason, are adverse experiences
and must be promptly reported.
4) Nonserious and Expected Adverse Experience
Any adverse experience not falling within the definitions of III A.l, 2
or 3 will be considered nonserious and expected.
B. Adverse Physical Occurrence
An adverse physical occurrence is any of the following developments
related to a Merck animal health product:
1) a mix-up of the product or its labeling with another article;
2) any bacteriological or significant physical change or
deterioration in the product; or
3) any failure of a distributed product to meet the
specifications established for it in the NADA (See IV A.1)
C. Product Defect Complaint
Physical and/or chemical problems associated with animal heath products
manufactured and/or marketed both in and outside the United States not falling
within the above definitions for adverse experiences" or "adverse physical
occurrences" are considered "product defect complaints." Product defect
complaints are covered under a separate procedure administered by MMD.
IV. Reporting Procedures
A. Adverse Experiences and Adverse Physical Occurrences Associated with
the Use of Marketed Products
Any employee or Merck who learns of a serious, unexpected or human
adverse experience or adverse physical occurrence (as defined in III A & B)
associated with a marketed product must report it to his/her immediate
supervisor, who will in turn ensure that the report is pased without delay to
the Merck AgVet Technical Services representative with responsibility for that
market, the Animal Health & Agriculture Research & Development (AHAD) Director
or the Merck AgVet Country Director, as appropriate. It is the responsibility of
those individuals who receive such information to act as follows:
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<PAGE>
1) in the case of human reactions to animal drugs in particular,
but also serious and unexpected adverse experiences in animals
and adverse physical occurrences (III.A.1 and 2 and III.B), to
advise Regulatory Affairs in Woodbridge (WBC-130) immediately
by the fastest route possible (e.g., telephone, telex,
facsimile, etc.) of any initial information available,
followed within five working days, with a written report, as
required in IV A.2 (See Addendum I).
The requirement for the expeditious reporting of human adverse
experiences to AHAD Regulatory Affairs is in addition to the
MRL Medical Affairs Procedures and Policies Manual, Procedure
No. 13 requirement that any human adverse experience
temporally associated with exposure to an AgVet product be-
reported to Worldwide Product Safety and Epidemiology (WPS&E)
within two working days. Worldwide Product Safety &
Epidemiology has the responsibility for submitting reports of
human adverse experiences associated with AgVet products to
the Food and Dnzg Adminstration's Center for Drug Evaluation
and Research.
2) to prepare and submit to Animal Health & Agricultural Research
& Development (AHAD) Regulatory Affairs, in Woodbridge, on
Form RA1932 within five working days a detailed written report
of any adverse experiences or adverse physical occurrences.
Where full details are not available when the RA1932 is filed,
a follow-up RA1932 (specifically identifying that it is a
follow-up) providing all details, must be filed within one
calendar month. Upon receipt of such reports, AHAD Regulatory
Affairs will advise Merck AgVet Technical Services, Merck
AgVet Legal Counsel and the Merck Ag Vet Quality Complaint
Manager and will provide them with a copy of the related
written report (Form RA1932). AHAD Regulatory Affairs will
ensure that WPS&E has also received an initial report on any
human adverse experience and will ensure that the Vice
President, AHAD and the Executive Directors of Regulatory
Affairs, ASR and Technical Services or their designated
representatives receive expeditious notification of human
adverse experience incidents associated with exposure to
animal health products. If the adverse experience or adverse
physical occurrence is from a study conducted under an INAD
exemption, a narrative summary should be used instead of Form
RA1932.
3) to record all nonserious and expected adverse experiences (Ill
A.4) when received on Form RA1932 and submit the forms once
each quarter to AHAD Regulatory Affairs in Woodbridge (WBC-1
30) (See Addendum I). These need not be reported by telephone,
telex or facsimile to Woodbridge; and
4) to, in addition, report adverse experiences and adverse
physical occurrences, as may be required, to local regulatory
authorities in compliance with local regulatory requirements.
B. Adverse Experiences Associated with Investigational Studies
Merck field investigators and outside investigators, such as
veterinarians, university collaborators, etc. must be instructed verbally and by
protocol to notify their Merck monitor immediately or any adverse experience or
adverse physical occurrence involving either marketed or non-marketed products.
The supervisor, superior or monitor will in turn ensure that the report
is passed without delay to the Animal Science Research AHAD Area Director.
Regulatory Affairs, AHAD, is responsible for reporting adverse
experiences and adverse physical occurrences to the Food and Drug
Administration.
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<PAGE>
V. Reporting By Non-Merck Entities
All distributorship agreements, license agreements, patent and know-how
licenses, etc. must include provisions for reporting of adverse experiences and
adverse physical occurrences in accordance with Company procedures.
Accordingly, all parties should be alerted during negotiations that
Merck considers that to be a vital aspect of any agreement.
Attachments:
Addendum I: Communicating Adverse Experiences/Adverse Physical Occurrences to
Regulatory Affairs in Woodbridge
Addendum II: Guidelines for Handling the Complainant and the Investigation
Reporting Form RA1932
Addendum III: Form RA 1932
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<PAGE>
ADDENDUM I
COMMUNICATING ADVERSE EXPERIENCES/ADVERSE PHYSICAL
OCCURRENCES
TO REGULATORY AFFAIRS IN WOODBRIDGE
I. All communications should be directed to:
Rosalind S. Dunn
Manager, Regulatory Coordination & Planning
Regulatory Affairs
Animal Science Research
Merck & Co., Inc.
P.O. Box 2000
RY32-209
Rahway, NJ 07065-0900
Telephone Number: (908) 594--4624
Panafax Number: (908) 594--4395
2. If a full report is not or will not be available within the five-day
reporting time due to delays in the investigation and/or reporting of the
necropsy, pathology, bacteriology results, etc., the responsible investigator
should relay as much information as is available; i.e., according to Form
RA1932, to Woodbridge as soon as possible. Upon receipt of this information in
Woodbridge, a preliminary Adverse Reaction/Adverse Physical Occurrences Report
will be prepared and sent to the FDA as required.
Note that a facsimile of the Form RA1932 can be transmitted to
Woodbridge by Rapifax and Panafax and is usually received within a twenty-four
hour period.
3. When the additional information concerning a specific adverse reaction
is received from the responsible field investigator, a follow-up request will be
prepared and sent to the FDA. This will complete the file.
4. All written correspondence should indicate clearly that the
investigator is actually reporting an adverse experience of adverse physical
occurrence.
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ADDENDUM II
GUIDELINES FOR HANDLING THE COMPLAINANT AND TEE INVESTIGATION
The following guidelines are provided for Merck personnel responsible
for dealing with persons who have made a complaint and for investigating the
complaint itself:
1. Admit no liability under any circumstances. Do not become involved in
conversations dealing with lawsuits or litigation or Merck liability with
respect to claims.
2. If dictated by the circumstances, apparent seriousness of the case, or
need to obtain detailed information, visit the complainant personally. Take the
distributor or salesperson with your where appropriate.
3. In dealing with the complainant, show that you take the complaint
seriously. With simple common sense and courtesy:
a. Listen; do not argue.
b. Ask questions openly and simply; record the details.
4. Observe the complainant, his or her operation, the people, animals,
crops and equipment etc. concerned; note for inclusion in your report any
details you think have a bearing on the facts and/or the validity of the
complaint.
5. Take photographs of the subject matter of the complaint, if
appropriate.
6. Obtain a number of samples appropriate for testing commensurate with
the nature of the complaint. In the case of product sizes not larger than one
liter/one kilo, approximately four to twelve specimens will normally be
adequate. For larger sizes, or when in doubt, consult with superiors.
7. When appropriate, attempt to retain and preserve for testing specimens
of the animals or crops concerned.
8. Advise the complainant that you must report the complaint to
head-quarters for further action and that you will contact him/her as soon as
possible. Make no promises! Do not propose any solution except under specific
instructions from headquarters.
9. No claims should be settled without prior headquarters and, where
appropriate, legal approval and execution of a proper release.
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ADDENDUM III
FORM RA 1932
ADVERSE REACTION, LACK OF EFFECTIVENESS, PRODUCT DEFECT REPORT
1. REPORT SOURCE AND ADDRESS (MFR. DISTR.)
2.
3. TYPE OF REPORT
INITIAL
FOLLOW UP TO REPORT OF (GIVE DATE)
4. NAME, ADDRESS AND PHONE NO. OF ATTENDING VETERINARIAN (IN CONFIDENCE)
5. NAME OR CASE IDENTIFICATION OF OWNER (IN CONFIDENCE)
6. TRADE NAME AND GENERIC NAME OF ACTIVE INGREDIENT(S) (INCLUDE DOSAGE
FORM AND STRENGTH - EX. TAB, 500 MG.)
7. NAME OF MANUFACTURER
8. LOT NUMBER
9. DOSAGE REGIMEN AND ROUTE (EX. 250 MG., Q, 12 H, P.O.)
10. DATES OF ADMINISTRATION
11. ILLNESS/REASON FOR USE OF THIS DRUG
12. DRUG WAS ADMINISTERED BY
VETERINARIAN, STAFF
OWNER, OTHER
13. NUMBER OF ANIMALS IN THIS INCIDENT
TREATED WITH DRUG
REACTED
DIED
14. REACTING ANIMALS
SPECIES
BREED
AGE
WEIGHT
SEX
FEMALE
MALE
PREGANT
NEUTERED
15. CONCOMITANT MEDICAL PROBLEMS
16. OVERALL STATE OF HEALTH AT TIME OF REACTION
GOOD
FAIR
POOR
CRITICAL
17. DID ANY NEW ILLNESS DEVELOP OR DID INITIAL DIAGNOSIS CHANGE AFTER
SUSPECT DRUG STARTED NO YES (EXPLAIN)
18. CONCOMITANT DRUGS ADMINISTERED
NAME OF DRUG
ROUTE
DOSAGE REGIMEN
DATE(S) OF ADMINISTRATION
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<PAGE>
19. DESCRIBE SUSPECTED ADVERSE REACTION: INCLUDE ALL SIGNS, RESULTS OF
PERTINENT LAB TESTS, NECROPSY RESULTS, POSSIBLE CONTRIBUTING FACTORS,
ETC. ALSO INCLUDE IN THIS ECTION PRODUCT INEFFECTIVENESS AND PRODUCT
DEFECTS SUCH AS CRACKED TABLETS, CLOUDY SOLUTION, ETC.
20. ATTENDING VETERINARIAN'S LEVEL OF SUSPICION THAT DRUG CAUSED REACTION
HIGH
MEDIUM
LOW
NO ATTENDING VET.
21. LENGTH OF TIME BETWEEN LAST ADMINISTRATION OF SUSPECT DRUG AND ONSET OF
REACTION
22. DATE OF ONSET (MO., DAY, YR.)
23. DURATION OF REACTION (HRS., DAYS, ETC.)
24. WAS THE ADVERSE REACTION TREATED?
NO
YES (DESCRIBE TREATMENT)
25. OUTCOME OF REACTION OT DATE
DIED
REMAINS UNDER TREATMENT
ALIVE WITH SEQUELAE
RECOVERED
UNKNOWN
26. WHEN REACTION APPEARED, TREATMENT WITH SUSPECT DRUG:
HAD ALREADY BEEN COMPLETED
DISCONTINUED DUE TO THE REACTION
DISCONTINUED, REPLACED WITH ANOTHER DRUG
DISCONTINUED, REINTRODUCED LATER
CONTINUED AT ALTERED DOSAGE
OTHER (EXPLAIN)
AND THE REACTION
CONTINUED
STOPPED
RECURRED
OTHER (EXPLAIN)
27. HAD ANIMAL(S) BEEN PREVIOUSLY EXPOSED TO THIS DRUG?
NO
YES
UNKNOWN
28. DID ANIMALS PREVIOUSLY REACT TO THIS DRUG:
NO
YES
UNKNOWN
29. HAD ANIMALS PREVIOUSLY REACTED TO OTHER DRUGS?
NO
YES (IF YES, GIVE DRUG(S) AND REACTION IF KNOWN)
UNKNOWN
30. HAS THE ATTENDING VETERINARIAN SEEN SIMILAR REACTIONS TO THIS DRUG IN
ANY OTHER ANIMALS?
NO
YES (IF YES, SUMMARIZE)
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31. NAME AND TITLE OF INDIVIDUAL RESPONSIBLE FOR ACCURACY OF REPORTED
INFORMATION (TYPE OR PRINT)
32. SIGNATURE OF INDIVIDUAL RESPONSIBLE FOR ACCURACY OF REPORTED
INFORMATION
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
LICENSE AGREEMENT
THIS AGREEMENT is effective this 30th day of May, 1996 and is by
and between MICHIGAN TECHNOLOGICAL UNIVERSITY, a body corporate organized and
existing under the laws of the State of Michigan located in Houghton, Michigan
(hereinafter referred to as MTU) and doing business as the INSTITUTE OF
MATERIALS PROCESSING one of its Research Institutes (hereinafter referred as
IMP) arid MINERAL RESOURCE TECHNOLOGIES, LLC a limited liability company
organized and existing under the laws of the State of Delaware and having a
place of business in Atlanta, Georgia (hereinafter referred to as MRT).
WHEREAS, MTU is the owner of the entire right, title and interest
in and to the LICENSED PATENTS (hereinafter defined) and further represents that
it has the right and power to grant licenses of the scope herein granted; and
WHEREAS, MTU has the facilities, personnel and expertise to
conduct research in the area of fly ash recovery and processing of recovered fly
ash and to cooperate in the commercial development of the results of that
research; and
WHEREAS, MRT has the facilities, personnel and expertise to
conduct research in the area of fly ash recovery and processing of recovered fly
ash including producing salable products, made from recovered fly ash; and
WHEREAS, MRT has the facilities, personnel and expertise to
construct and operate installations for the commercial exploitation of fly ash
recovery and processing of recovered fly ash including producing salable
products made from recovered, fly ash; and
WHEREAS, MRT wishes to secure and MTU is willing to grant to MRT
an exclusive license under the LICENSED PATENTS; and
WHEREAS, MRT and MTU wish to cooperate in future research in the
area of fly ash recovery and processing of recovered fly ash including producing
salable products, made from recovered fly ash; and
WHEREAS, MRT and MTU wish to cooperate in the construction and
operation of installations for the commercial exploration of fly ash recovery
and processing of recovered fly ash including producing salable products made
from recovered fly ash.
NOW, THEREFORE, MTU and MRT hereby agree and covenant as follows:
I. LICENSED PATENTS
1. For purposes of this Agreement, LICENSED PATENTS shall mean [
], including reissues, divisions, continuations or extensions
thereof and future patents as provided for hereinafter and applicable to the
manufacture, use and/or sale of research services, processing equipment and
products as contemplated by this Agreement.
II. GRANT
<PAGE>
1. (a) MTU hereby grants and MRT hereby accepts an exclusive
right and license under the LICENSED PATENTS to manufacture, use, and/or sell
processes, equipment and/or product, throughout the United States of America,
its territories and possession. As applications for letters patent are filed and
letters patent become effective in countries foreign to the United States under
paragraph V-1(d), the grant of this license shall, extend to those foreign
countries.
(b) MTU shall retain the right to do research coming within the
scope of the LICENSED PATENTS.
III. ROYALTIES AND PAYMENTS
1. Upon execution of this Agreement, [ ].
Thereafter and in order to maintain the exclusivity of the license granted
herein, MRT shall pay MTU either as earned royalties under paragraph III-4 or in
lieu thereof a minimum royalty payment per Agreement Year in the following
amounts:
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
For purposes of this Agreement, an "Agreement Year" shall be the twelve (12)
months beginning with the effective date of this Agreement and with each annual
anniversary date of the effective date. After the second Agreement Year, in the
event the earned royalties under paragraph III-4 do not equal the above minimum
amounts in a particular Agreement Year, MTU shall have the option of notifying
MRT that the license under this Agreement will be reduced to non-exclusive
license. If within the immediately following Agreement Year MRT makes a payment
to MTU in an amount equal to the difference between the minimum payment due for
the prior Agreement Year and the amount of earned royalties actually paid in
that prior Agreement Year ("shortfall payment') this Agreement shall continue as
an exclusive, if the shortfall payment is not made within that time period this
Agreement shall reduce to a non-exclusive in accordance with the notice.
2. The payments of paragraph III-1 due beginning with the second
Agreement Year shall be payable [ ].
3. One-half of the payments made by MRT under paragraph III-1 above in
first and second Agreement years, namely [ ] may be
credited by MRT against: royalties due MTU under paragraph III-4. Only [ ]
percent [ ] of the credit [ ]
may be credited against any royalty due in a given calendar quarter.
4. MRT shall pay MTU a royalty based on the Net Selling Price of
product on the following schedule:
Net Selling Price Royalty as percent of
Per Ton of product Net Selling Price
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([ ]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
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<PAGE>
For the first eighteen (18) months of the sale of product from a facility
operating pursuant to this Agreement, the [ ]
of Net Selling Price rate shall apply to all product having a Net Selling Price
of [ ] per ton or less.
5. If patents issue as provided for in Article V in which an employee
of MRT is named as sole inventor or joint inventor with an employee of MTU and
i. the claimed subject matter of such patent is used in production of
product as contemplated by this Agreement, and
ii. the claimed subject matter results in a value added to the product
and an increase in the Net Selling Price per ton of product (incremental
increase in Net Selling Price), then MRT shall be obligated to pay only [ ] of
the royalty rate in paragraph III-4 on the incremental increase in the Net
Selling Price.
6. In the event MRT sells process technology and/or equipment to an
entity which will in turn operate its own facility and/or manufacture and sell
product using the LICENSED PATENTS, MTU shall be compensated by one of either:
i. that entity agreeing to pay MTU a royalty [ ]
ii. MTU shall receive [ ]
7. For purposes of this Agreement, Net Selling Price shall mean the
invoice price of products less transportation.
8. If MRT makes a sale to an Associated Company on which a royalty
would be payable, the same royalty shall be paid as if the same quantity had
been sold to a third party. The Net Selling Price of the same Quantity of
product from the last arm's length sale to a third party shall be used in
computing the royalty.
9. Product shall be considered as sold when invoiced, or if not
invoiced, when delivered, shipped or mailed, whichever occurs first.
10. MRT is to deliver yearly to MTU four written reports, in duplicate,
pertaining to MRT's manufacture, use and/or sale of product or facilities under
this Agreement, and shall specifically set forth any freight deductions. Each
report shall relate to a calendar quarter and shall be delivered within the
months of July, October, January, and April. The first report shall be delivered
within thirty (30) days after the end of the calendar quarter current when this
Agreement becomes effective. Payments due under paragraphs III-4 or III-6-ii
shall accompany the reports under this paragraph III-10.
11. The reports provided for in paragraph III-11 shall contain all
necessary data commensurate to accounting in accordance with the true intent of
this Agreement; if in any quarter MRT has not made, used and/or sold any product
or sold any facilities for which royalties are payable, it shall so report.
12. MRT is to keep true and correct books of account of its production,
use and sale of product under this Agreement in sufficient detail to enable an
accountant to determine the correctness of the reports submitted by MRT, which
books of account shall be open at all reasonable business hours for inspection
by an independent certified public accountant (CPA) mutually acceptable to MRT
and MTU who shall have the right to examine said books. It is the intent of the
parties to this Agreement that the certified public accountant shall not
disclose to MTU any business details which may be found in the books of MRT
while making such inspection except as needed to verify the reports. MRT shall
have the right to refuse acceptance of the CPA if the CPA does not execute a
Confidentiality Agreement with MRT relating to the books of account which are to
be inspected. Acceptance of the CPA will not be unreasonably withheld by either
party. MTU shall be responsible for the expense of the inspection
3
<PAGE>
contemplated by this paragraph III-12; provided, however, if the inspection
shows the amounts paid as being at least ten percent (10%) less than that
actually owed then MRT shall be responsible for the cost of the inspection. MTU
may exercise this right of inspection once in each Agreement Year and once in
the two (2) years immediately following termination.
IV. RESEARCH
1. [ ] of the earned royalties paid to MTU pursuant to paragraph
111-4, but not minimums paid pursuant to paragraph III-1, shall be distributed
to IMP. In the first Agreement Year that a royalty is paid, IMP will allocate
[ ] of that amount to fly ash research, and MRT and MTU shall
jointly direct that fly ash research. The [ ] allocated shall reduce by
[ ] in each successive Agreement Year, that
is in the second Agreement Year after royalty payments commence, the allocation
shall be [ ]. This reduction shall continue until the [ ]
Agreement Year after royalty payments begin the allocation reaches [ ]
percent [ ] the allocation shall then remain at [ ] percent
[ ] for the remainder of the Agreement.
2. Immediately after signing this Agreement and to the extent that MTU
is legally permitted to do so, MTU will make available and provide copies to MRT
of the results of research conducted under DOE contracts and in the area of fly
ash drying and beneficiation. Any printed material will be transmitted as copies
to MRT, any results not in printed form shall be delivered to MRT at IMP in
Houghton, Michigan. In addition and to the extent permissible under the
particular DOE contracts, MTU shall make available to MRT any results of
research conducted after the effective date of this Agreement with respect to
fly ash drying and beneficiation under DOE contracts in existence as of the
effective date of this Agreement.
3. (a) After signing this Agreement, MTU and MRT will jointly pursue a
DOE grant for future research in the area of [ ] specifically
for research within the scope of [ ] and for the [ ]
MTU and MRT shall share the grant as follows:
i. [ ] on the first [ ]
ii. [ ] to MTU and [ ] to MRT
in any amount over [ ]
(b) If the DOE grant is received and includes a cost sharing
requirement, MTU agrees to contribute [ ] of its portion of
the grant to the cost sharing and MRT shall be responsible for [ ]
of any cost sharing. For example, [ ]
(c) If the DOE grant is received, the principal investigators or other
responsible individuals of MTU and MRT shall confer at least once within each
calendar half-year to apprise the other of the progress and direction and of
their respective efforts under the grant. MRT and MTU will furnish each other
with copies of any reports which are generated relating to efforts under the
grant these report copies shall be furnished within ten (10) days of completion.
(d) If MRT, in its sole discretion decides to fund additional fly ash
research, [ ] of the amount of the actual funding may be
credited against future royalties under paragraph III-5 but not the fees of
paragraph III-1. If the research funding by MRT is at MTU's request, the amount
of the credit against future royalties shall be [ ].
For any given royalty payment quarter, the credit shall not exceed [ ]
percent [ ] of the royalty amount due for that quarter.
4
<PAGE>
V. FUTURE IMPROVEMENTS AND PAYMENT
1. (a) MTU and MRT shall each keep the other currently advised of all
future improvements or developments made jointly or solely by either of them
without joint inventorship of the other's personnel, or others on behalf of
either MTU or MRT, relating to the results of activities under the DOE grant or
research sponsored by MRT. If such improvements or developments involve or
include patentable subject matter. MTU and MRT will jointly decide whether to
pursue patent protection, in which case MTU will file for and attempt to obtain
letters patent thereon in the United States. Such letters patent shall be the
property of MTU and shall be included within this Agreement the same as a
LICENSED PATENT and shall be effective to extend the term of this Agreement.
(b) If either party concludes that a patent application should not be
filed in the United States, the other party may proceed at it's own expense and
any patent to issue will be owned by MTU and come under this Agreement as a
Licensed Patent. If the filing party is MRT, MRT shall be entitled to credit the
costs involved against future earned royalties.
(c) Subject to MRT's credit under subparagraph (b) above, the party
filing in the U.S. shall be responsible for the cost of filing and prosecuting
applications for letters patent in the United States, and for maintaining any
such issued letters patent in the United States.
(d) MTU and MRT shall decide in which countries foreign to the United
States to file patent applications based on any U.S. patent application, and any
patents issuing thereon shall come under this Agreement as a LICENSED PATENT and
shall be effective to extend the term of this Agreement with respect to the
particular country involved. The cost of filing and prosecuting any agreed upon
foreign patent applications shall be shared equally by MTU and MRT, for each
filing corresponding to a U.S. patent application MRT's share shall not exceed
Fifteen Thousand Dollars ($15,000.00).
(e) Costs and fees incurred in maintaining a foreign patent
application, an issued foreign letters patent, and, in the case of the European
Patent Office, the cost of individual country validation shall be shared equally
by MTU and MRT, fifty percent (50%) to each; provided, however, that either MTU
and MRT may decide not to participate in such cost the effect of which shall be:
(i) in the case of MRT, it shall relinquish license rights in any
patent property in which it elects not to participate, arid
(ii) in the case of MTU, it shall relinquish the right to receive
royalties attributable to activity under any patent property in which it elects
not to participate.
(f) Any costs incurred by MRT under this paragraph V-l(d) and (e) may
be credited against royalty payments due MTU from royalty payments attributable
to activity of MRT outside of the United States. As with other credits, this
credit shall not exceed [ ] percent [ ] of the
amount of royalties due from foreign activity in a particular calendar quarter.
].
(g) Suits to enjoin or recover for infringement of a LICENSED PATENT,
may be instituted and prosecuted jointly by the parties hereto and in such event
the cost and expense thereof and all sums recovered therein shall be shared
equally by them. MTU may elect, in its sole discretion, to take the lead role in
any such suit. If MTU does not elect to take the lead role MRT may do so. Either
party may, however, elect not to join or share in the expense or cost of any
such suit, or having once elected to join, may thereafter elect to withdraw and
in either such event the other party may proceed therewith at its own expense
and shall be entitled to all sums recovered therein or in settlement thereof;
provided, however, that if either party at any time elects not to share in such
Suit, such party agrees to be made a nominal party to the suit but only at the
expense of the other party.
5
<PAGE>
(h) If either MTU or MRT becomes aware of the apparent infringement of
a LICENSED PATENT, it shall promptly notify the other in writing and in
reasonable detail.
(i) In the event that any of the claims of a LICENSED PATENT shall be
held invalid or shall be awarded to a third party as a result of a decision or a
decree of a competent court that becomes final, no royalties shall be payable by
MRT after said date on apparatus covered only by such claim or claims. A
decision shall not be considered to be final as long as a party to a suit has
recourse to the United States Supreme Court. As of the effective date of the
decision or decree of the competent court, MRT may suspend all royalty payments
and minimum payments. If the decision or decree is reversed by an appellate
court, MRT shall pay MTU all suspended payments and resume royalty payments and
minimum commitments, suspended payments will be made in the interest calculated
at two (2) percentage points above prime.
(j) MTU does not warrant that the use of the rights granted MRT under
this Agreement will not infringe letters patent of a third party; provided,
however, that MTU does represent that it does not have any present knowledge of
letters patent that would be infringed.
2. MRT shall have the right of first refusal to include in this
Agreement any letters patent obtained by MTU and relating to ash derived
products and technology provided, however, that the letters patent are not the
result of externally funded research and MTU is free to do so. In the exercise
of this right. MTU shall promptly advise MRT of the filing of an application for
letters patent and MRT shall have sixty (60) days in which to affirmatively
exercise this right of first refusal, in which case any letters patent issuing
from the application shall come under this Agreement as a LICENSED PATENT and
shall be effective to extend the term of this Agreement. If MRT declines to
exercise this option within the sixty (60) day period or does not respond within
the sixty (60) day period, MTU shall be free to pursue said patent application
without any further obligation to MRT.
VI. TERM AND TERMINATION
1. (a) MRT may terminate this Agreement without cause between
twenty-four (24) and thirty-six (36) months from the effective date of the
Agreement. Termination under this paragraph VI-1 can only be exercised by MRT
giving MTU six (6) months prior written notice.
(b) The respective rights and obligations of MTU and MRT under the DOE
grant shall survive termination under paragraph VI-1(a) with respect to sharing
results of activities under the DOE grant and MTU ownership of any improvements,
patentable or unpatentable, resulting therefrom; provided, however, MRT shall
relinquish any license rights in those patents.
2. (a) Either MTU or MRT may terminate this Agreement in the event of
breach or default thereof by the other, without waiver of any other remedy, by
service on the other of notice of termination effective not less than 60 days
after service specifying the particulars of the others breach or default. If
within 60 days following notice the breach or default is remedied, the license
shall continue in full force and effect, otherwise it shall terminate in
accordance with the notice.
(b) In the event of termination under paragraph VI-2(a) due to MRT's
breach, MRT shall relinquish its license rights under this Agreement.
(c) In the event of termination under paragraph VI-2(a) due to MTU's
breach, MRT's license rights shall be converted to a royalty free, non-exclusive
license effective as of the date of termination.
3. In the event enactment of any federal law renders impossible
performance by MRT under this Agreement, MRT may terminate this Agreement for
the United States by written notice of an intent to terminate and such
termination shall be effective as of receipt of that notice by MTU.
6
<PAGE>
4. Subject to paragraph III-3, the term of this Agreement shall be for
the last to expire of the LICENSED PATENTS; provided, however, MRT shall be
obligated to pay royalties only with respect to such of the LICENSED PATENTS as
have not expired.
5. Termination of this Agreement shall be without prejudice to MTU's
right to recover any royalty sums due at the time of such termination, or to any
cause of action or claim accrued or to accrue on account of any such breach or
default arid the license granted hereunder shall cease at the time of such
termination.
6. Waiver by MTU or MRT of any particular breach or default by the
other shall be considered as applicable only to such particular case and shall
not be construed as a waiver of any provision of this Agreement or of any
subsequent breach, violation or default.
VII. MISCELLANEOUS
1. In case MRT files a petition in bankruptcy, or in case a petition in
bankruptcy is filed against MRT, and such petition is not dismissed within 90
days thereafter, or if MRT is adjudged bankrupt or shall make a general
assignment of the benefit of its creditors or any assignment in the nature of
such a general assignment, or in case a receiver is appointed for its business,
this Agreement may be terminated at MTU's option.
2. MRT shall have the right to use MTU's name and that of its Institute
of Minerals Processing and any applicable MTU trademarks; provided, however,
such use shall be subject to written approval by MTU prior to any such usage.
MTU shall have the right to approve the form and content of any material using
such names or trademarks. MRT may also use the name of individual MTU employees;
provided, however, the prior written consent of the individual is obtained by
MRT.
3. Notices under this Agreement shall be in writing and shall be
sufficient' if sent by registered mail. Notices and reports under this Agreement
shall be addressed as follows:
For MRT:
Mr. Hugh P. Shannonhouse
Mineral Resource Technologies, LLC
120 Interstate North Parkway East
Suite 440
Atlanta, GA 30339
Copy to:
Jody H. Armstrong, Esq.
Killworth, Gottman, Hagan & Schaeff
One Dayton Centre
One South Main Street, Suite 500
Dayton, Ohio 45402-2023
For MTU:
Dr. Jian-Yang Hwang
Institute of Minerals Processing
Michigan Technological University
1400 Townsend Drive
Houghton, MI 49931
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<PAGE>
copies to:
Ms. Sandra Gayk
Intellectual Property Office
Michigan Technological University
1400 Townsend Drive
Houghton, MI 49931
Joseph A. Gemignani
Michael, Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, WI 53202
4. If calculation of royalties due involves foreign currencies, the Net
Selling Price and royalty due shall be converted to U.S. Dollars at the time the
royalties are paid.
5. This Agreement may not be assigned by either party without the prior
written consent of the other party except MRT may assign this Agreement as a
part of sale of at least that portion of its business to which this Agreement
relates by giving MTU ninety (90) days notice thereof.
6. This Agreement constitutes the complete agreement between the
parties and no modifications shall be binding upon the party against whom
enforcement of such modification is sought unless it is made in writing
referring to this Agreement and is signed on behalf of such party by one of its
officers.
7. This Agreement shall be interpreted in accordance with the laws of
the State of Michigan and shall be binding on each of the legal representatives
of the parties hereto.
8. If any of the terms and conditions of this Agreement are invalid, in
whole or in part, such invalidity shall not affect the remaining terms and
conditions hereof, and this Agreement shall be construed as though such terms
and conditions held to have been invalid and never been included herein. In such
cases, this Agreement shall be supplemented by a provision which, as far is
legally possible, comes nearest to the mutual intent of the parties as reflected
in the text of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed on behalf of the
parties by their duly authorized representative as of the day and year first
written above.
MINERAL RESOURCE TECHNOLOGIES, INC.
By: /s/ Hugh P. Shannonhouse
------------------------
Hugh P. Shannonhouse
President
Witness:
/s/
- ---
MICHIGAN TECHNOLOGICAL UNIVERSITY
By: /s/ Frederick J. Dobney
-----------------------
Frederick J. Dobney
Executive Vice President
Witness:
8
<PAGE>
/s/
- ---
9
<PAGE>
DATED 26 JUNE 1998
THE BOC GROUP plc
THE BOC GROUP
PHILIPP BROTHERS CHEMICALS INC
AGREEMENT
FOR THE SALE AND PURCHASE
OF THE SHARES OF
ODDA SMELTEVERK A/S
AND
OF THE BUSINESS
AND CERTAIN ASSETS
OF BOC CARBIDE INDUSTRIES,
A DIVISION OF BOC LIMITED
BOC Group Legal Department
Chertsey Road
Windlesham
Surrey GU2O 6HJ
Tel. 01276477222
Fax: 01276 471333
<PAGE>
TABLE OF CONTENTS
Clause Page
- ------ ----
1. INTERPRETATION 3
2. SALE OF SHARES AND ASSETS 5
3. CONSIDERATION 6
4. CONDITIONS AM) COMPLETION 6
5. ACTIONS PENDING COMPLETION 8
6. CHANGE OF NAME 11
7. PROVISIONS RELATING TO THE BUSINESS 11
8. NON-COMPETE UNDERTAKINGS 13
9. WARRANTIES 14
10. TAX INDEMNITY 15
11. ENVIRONMENTAL INDEMNITY 15
12. LIMITS OF BOC LIABILITY 19
13. OTHER PROVISIONS 20
Schedule
- --------
1. DETAILS OF THE COMPANY
2. DETAILS OF TYSSEFALDENE A/S
3. THE WARRANTIES
4. BOC CARBIDE INDUSTRIES
5. INSURANCE POLICIES
Documents in the agreed form
1. BOC Carbide Supply Agreement
<PAGE>
THIS AGREEMENT is made the 26th day of June 1998 BETWEEN
1) THE BOC GROUP plc, a limited company incorporated in England (registered
no. 22096) whose registered office is at Chertsey Road, Windlesham, Surrey
GU2O 6HJ, England ("BOC"); and
2) PHILIPP BROTHERS CHEMICALS INC, a company incorporated under the laws of
the State of New York, USA whose principal office is at One Parker Place, Fort
Lee, NJ 07024, USA ("Philipps").
IT IS AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement:
"Agreement" means this agreement and any schedules and attachments hereto, and
any amendments agreed in writing between the parties;
"Audited Accounts" means the audited balance sheet of the Company made up as
at the Balance Sheet Date and the audited profit and loss account of the
Company for the year ended on the Balance Sheet Date;
"Balance Sheet Date" means 30 September 1997;
"BOG Carbide Supply Agreement" means an agreement substantially in the agreed
form to be executed on Completion for the supply of carbide products by
Philipps (or its Connected Company) to BOC Limited and BOC Gases Ireland
Limited after Completion;
"Book Debts" means the debts owed to BOC Limited in respect of the Business as
at the Effective Date;
"Business" means the business of supplying calcium carbide products and
dicyandiamide and related products carried on as a division of BOC Limited
under the name "BOC Carbide Industries";
"Business Accounts" means the unaudited pro forma profit and loss account and
balance sheet of the Business as at and for the year ended on the Balance
Sheet Date;
"Business Day" means a day on which banks are open for business in both London
and New York;
"Company" means Odda Smelteverk A/S, details of which are given in Schedule 1;
<PAGE>
"Completion" means completion of the sale and purchase of the Sale Shares, the
Business and the Sale Assets;
"Completion Date" means the date of Completion;
"Connected Company" means in relation to BOC or Philipps as the case may be, a
company which is a subsidiary or holding company thereof or a subsidiary of
such holding company;
"Contracts" means the contracts with BOC Limited in respect of the Business as
listed in part 1 of Schedule 4 and "Contract" means any one of them;
"Disclosure Letter" means the letter dated the date hereof written by or on
behalf of BOC to Philipps disclosing information constituting exceptions to
the Warranties and details of other matters referred to in this Agreement;
"Effective Date" means the Completion Date or such other date as the parties
may agree;
"Encumbrance" means any claim, charge, mortgage, security, lien, option,
equity, power of sale, hypothecation or other third party right;
"Employees" means the employees of BOC Limited engaged in the Business as
listed in part 2 of Schedule 4;
"Fixed Assets" means all plant, machinery, tools, equipment and other chattels
at the Site used or owned by BOC Limited for the purposes of the Business as
listed in Section 113 of the Disclosure Letter, but not including the Stocks;
"Goodwill" means the goodwill of BOC Limited in relation to the Business
together with the exclusive right for Philipps to represent itself as carrying
on the Business in succession to BOC Limited;
"License" means the license granted to BOC Carbide Industries by Gunness Wharf
Limited in relation to the Site pursuant to a licensing agreement dated 28
January 1980 (as amended);
"Losses" means all losses, liabilities, costs, charges, claims and damages;
"NOK" means Norwegian Krone;
"Properties" means the real property owned, leased or occupied by the Company
as referred to in paragraph 6. 1 of the Disclosure Letter;
"Retained Assets" means the Book Debts and all the property, assets, rights
and receivables (less payables) of the Business other than the Sale Assets;
"Sale Assets" means the assets of the Business to be purchased by Philipps
pursuant to clause 2.2, namely the Fixed Assets, the benefit of the Contracts,
the Goodwill and the Stocks;
"Sale Shares" means the entire issued share capital of the Company, details of
which are set out in Schedule 1;
"Site" means the site occupied by the Business under the Licence at Gunness
Wharf, Aithorpe;
"Stocks" means all stocks of calcium carbide, dicyandianilde, flame coal,
packaging and other raw materials of the Business;
"Taxation" means all forms of taxation (whether direct or indirect), levies,
imposts, duties, or other similar assessments of or imposed by the government
of Norway or any taxing authority thereof or therein, on or in respect
of the Company including penal duties and taxes, interest charges and other
extraordinary assessments;
<PAGE>
"Tax Indemnity" means the indemnity in respect of certain Taxation matters
referred to in clause 10;
"Transfer Regulations" means the Transfer of Undertakings (Protection of
Employment) Regulations, 1981, as amended;
"VAT" means United Kingdom Value Added Tax;
"Warranties" means the warranties of BOC set out in this Agreement, including
those in Schedule 3;
"Warranty Claim" means any claim made by Philipps for breach of any of the
Warranties.
1.2 The headings to clauses and schedules, and the index of contents are for
convenience only and shall not affect the interpretation of this Agreement.
1.3 Documents expressed to be "in the agreed form" mean documents in a form
approved by, and signed for the purposes of identification by or on behalf of
BOC and Philipps.
2. SALE OF SHARES AND ASSETS
2. 1 Subject to the terms and conditions of this Agreement BOC shall sell the
Sale Shares (or procure the sale of the Sale Shares by BOC Holdings) and
Philipps, relying on the Warranties, shall purchase the Sale Shares, free from
all Encumbrances and together with all rights now and hereafter attaching to
them.
2.2 Subject to the terms and conditions of this Agreement BOC shall procure
the sale by BOC Limited with full title guarantee of the Business as a going
concern and of the Sale Assets (but excluding the Retained Assets), and
Philipps, relying on the Warranties, shall purchase the Business as a going
concern and the Sale Assets (but excluding the Retained Assets) free from all
Encumbrances and together with all rights now and hereafter attaching to them.
3. CONSIDERATION
3.1 The total consideration for the Sale Shares shall be the sum of
(pound)8,500,000 (eight million five hundred thousand pounds sterling).
3.2 The total consideration for the purchase of the Business and the Sale
Assets shall be the sum of (pound)3,000,000 (three million pounds sterling),
comprising:
3.2.1 (pound)70,000 in respect of the Fixed Assets;
3.2.2 in respect of the Stocks, the amount agreed under clause 7.1;
3.2.3 in respect of the Goodwill and the benefit of the Contracts,
the amount calculated by subtracting from (pound)3,000,000 the aggregate of
the amounts referred to in clauses 3.2.1 and 3.2.2.
3.3 The aggregate consideration referred to in clauses 3.1 and 3.2, namely
(pound)11,500,000 (eleven million five hundred thousand pounds sterling),
shall be paid by Philipps to BOC in cash at Completion by bank transfer in
same day funds, subject to clause 4.5.3, to the following account:
Account Name: The BOC Group plc
Bank: Midland Bank plc
Branch: 22 Victoria Street, London, SWIH ONJ
Sort Code: 40.07.13
Account Number: 50951730.
<PAGE>
4. CONDITIONS AND COMPLETION
4.1 The obligations of the parties to proceed to Completion shall be
conditional upon satisfaction of the following conditions:
4.1.1 receipt of approval ("concession") to the purchase of the Sale
Shares from the Norwegian Ministry of Oil and Energy under the Industrial
Concessions and Licenses Act, 1917 of Norway (such approval being given
unconditionally or with such conditions as may be acceptable to Philipps,
acting reasonably); and
4.1.2 receipt of approval to the purchase of the Sale Shares from the
Norwegian Ministry of Trade and Industry under the Business Acquisitions Act
1994 of Norway (such approval being given unconditionally or with such
conditions as may be acceptable to Philipps, acting reasonably), or the expiry
of any waiting period (and any extension thereof) under such Act, whichever
shall occur sooner.
4.2 Each party undertakes to the other to use its best endeavors to procure
satisfaction of the conditions referred to in clause 4.1 as soon as reasonably
practicable following execution of this Agreement, provided that Philipps
shall be entitled at any time by written notice to BOC to waive in whole or
part any or all of such conditions. Without prejudice to the generality of the
foregoing, Philipps shall promptly after the date hereof submit to the
Ministries referred to in clause 4.1 duly completed applications for approval
under the Acts referred to therein, and will promptly supply to the Ministries
all such information as they may lawfully request in respect of such
applications. BOC shall assist, and shall cause the Company to assist, by
procuring such information relating to the Company as Philipps may reasonably
require.
4.3 Subject to satisfaction of such conditions, or waiver thereof by
Philipps, Completion shall take place at the office of Messrs Vogt & Co, Oslo,
on the date which is 3 business days after satisfaction or waiver of all such
conditions, or on such other date as the parties may agree.
4.4 On Completion BOC shall:
4.4.1 deliver or procure delivery of, or make available, the
following to Philipps:
a) share certificates for all the Sale Shares endorsed to
effect the sale of the Sale Shares to Philipps;
b) share certificates in the name of the Company in respect
of its holding of shares in Tyssefaldene A/S and the other companies listed at
the end of Schedule 1;
c) the certificate of incorporation (if any), cheque books
and material records of the Company;
d) all the financial and accounting books and records of the
Company and all documents of title relating to the Properties;
e) the written resignations of each of Barry Beecroft, Peter
Turner (if he has by then been appointed a director under clause 5.5.5) and
Richard Overend from his office as director of the Company;
f) (if required by Philipps) assignments of the benefit of
the Contracts duly executed by BOC Limited;
g) (at the principal place of business of the Business) such
of the Sale Assets as are capable of being transferred by delivery;
h) a certified true copy of a resolution of a duly
authorized committee of the board of
<PAGE>
directors of BOC authorizing BOC to enter into this Agreement and to fulfil its
obligations hereunder;
i) if required by Philipps, a certified true copy of a
resolution of the board of directors of Tyssefaldene A/S approving the
purchase by Philipps of the Sale Shares.
4.4.2 procure the passing of a resolution of the board of directors
of the Company resolving to approve and register the transfer of the Sale
Shares referred to in clause 4.4.1(a) and appointing such persons as Philipps
may nominate (not more than three) as additional directors of the Company and
accepting the resignations referred to in clause 4.4.1(e); and
4.4.3 procure that BOC Limited and BOC Gases Ireland Limited shall
enter into the BOC Carbide Supply Agreement.
4.5 On Completion Philipps shall:
4.5.1 enter into (or procure that a Connected Company of Philipps
enters into) the BOC Carbide Supply Agreement and deliver a duly executed
counterpart thereof to BOC;
4.5.2 deliver to BOC a certified true copy of a resolution of the
board of directors of Philipps authorizing Philipps to enter into this
Agreement and to fulfil its obligations hereunder; and
4.5.3 pay to BOC in accordance with clause 3.3 the aggregate
consideration referred to in clauses 3.1 and 3.2.
4.6 If any of the conditions set out in clause 4.1 have not been fulfilled (or
waived) on or before 31 December 1998, this Agreement shall (unless the
parties agree otherwise) automatically terminate and neither party shall have
any claim hereunder of any nature whatsoever against the other party (save in
respect of their accrued rights and/or liabilities arising from any prior
breach of this Agreement).
4.7 If any of the provisions of clauses 4.4 or 4.5, being material, are not
fully complied with by BOC or Philipps as the case may be, by or on the
Completion Date, Philipps, in the case of non-compliance by BOC, or BOC, in
the case of non compliance by Philipps, shall be entitled (in addition to and
without prejudice to all other rights or remedies available to it including
the right to claim damages) by written notice to BOC or, as the case may be,
Philipps served on such date:
4.7.1 to elect to terminate this Agreement; or
4.7.2 to effect Completion so far as practicable having regard to the
defaults which have occurred; or
4.7.3 to fix a new date for Completion (not being more than 20
Business Days after the agreed date for Completion) in which case the
foregoing provisions of clauses 4.4 and 4.5 shall apply to Completion as so
deferred but provided such deferral may occur only once.
5. ACTIONS PENDING COMPLETION
5.1 From the date hereof until Completion, on reasonable notice and during
normal business hours, Philipps and its accountants and agents shall be
allowed access to all the premises, books of account and other records of the
Company and (subject to the terms of the License) shall be allowed access to
the Site and to the books of account and other records of the Business, and
BOC shall supply any information reasonably required by Philipps relating to
the Company and the Business.
5.2 BOC undertakes to Philipps that, pending Completion, both the Business and
the business of the Company will continue to be carried on in the ordinary
course so as to maintain the business of the Company and the Business as a
going concern pending Completion.
<PAGE>
5.3 Pending Completion all insurance policies normally kept in force in
relation to the Company and the Business will be maintained.
5.4 Pending Completion, such representatives and advisers as Philipps may
reasonably request may be designated to work with BOC (or BOC Limited in the
case of the Business) with regard to the management and operations of the
Company and the Business respectively. BOC (or BOC Limited) will consult with
such representatives and advisers with respect to any action which may
materially affect the Company or the Business as the case may be. BOC (or BOC
Limited) will furnish to such representatives and advisers such information as
they may reasonably request for this purpose.
5.5 Without prejudice to the generality of the foregoing provisions of this
clause 5, BOC shall collaborate fully with Philipps in relation to the running
of the Business and the Company between the date hereof and Completion and
during that period shall procure that in relation to the Business and/or the
Company, as the case may be, BOC shall not without the prior consent of
Philipps, such consent not to be unreasonably withheld or delayed:
5.5.1 (other than pursuant to any agreement or approval existing at
the date hereof, details of which are disclosed in the Disclosure Letter)
incur or enter into any agreement or commitment involving any capital
expenditure exceeding NOK500,000;
5.5.2 incur or enter into or materially amend any material contract
or commitment which is not capable of being terminated without compensation at
any time with three months' notice or less or which is not in the ordinary
course of business (Philipps hereby consents to execution of a carbide supply
agreement between the Company and NCI, substantially in the form of the draft
attached to the Disclosure Letter);
5.5.3 incur or enter into or amend any Encumbrance relating to any of
the Properties or their management or the rents payable therefor other than
Encumbrances which would not have a material adverse effect on the value of
any of such Properties;
5.5.4 incur any additional borrowings not disclosed in the Disclosure
Letter or incur any other material indebtedness otherwise than in the ordinary
course of business;
5.5.5 make any amendment to the terms and conditions of employment
(including, without limitation, remuneration, pension entitlements and other
benefits) of any director, provide or agree to provide any gratuitous payment
or benefit to any such person or any of his dependants, or dismiss any
director or (except for Peter Turner as a replacement for Charles Lambert)
engage or appoint any additional director;
5.5.6 discontinue or amend any of the Company pension schemes listed
in the Disclosure Letter;
5.5.7 acquire or agree to acquire or dispose of or agree to dispose
of any material asset or material stocks or enter into or amend any material
contract or arrangement other than in the ordinary course of business;
5.5.8 acquire or agree to acquire any share, shares or other interest
in any company, partnership or other venture;
5.5.9 delay making payment to any trade creditors generally beyond
the date on which payment of the relevant trade debt should be paid in
accordance with the credit period authorized by the relevant creditors (or (if
different) the period extended by the relevant creditors in which to make
payment);
5.5.10 amend any insurance contract (other than any BOC group policy
to reflect that it is to be terminated at Completion) or fail to notify any
insurance claim in accordance with the provisions of the relevant policy or
settle any such claim below the amount claimed;
5.5.11 create, allot or issue any share or loan capital of the
Company;
5.5.12 declare, make or pay any dividend or other distribution to
shareholders of the Company.
<PAGE>
5.6 BOC and Philipps shall use their respective best endeavors to obtain, on
or prior to Completion, the consent of any party to any Contract whose consent
is required in order for the assignment of such Contract to Philipps to become
effective. Philipps shall supply to BOC such information and references
regarding the financial position of Pbilipps as may reasonably be requested by
BOC or any relevant third party in connection therewith.
5.7 If in respect of the Licence agreement dated 4 March 1992 between BOC
Limited and SKW AG (the "SKW License"), the necessary consent to the
assignment of the SKW Licence has not been obtained from SKW AG on or before
Completion, despite each party using its best endeavors to obtain the same,
Philipps may by written notice to BOC on or before the Completion Date elect
that the Business and the Sale Assets be excluded from this Agreement,
whereupon BOC shall be released from its obligations to sell and Philipps
shall be released from its obligations to purchase the Business and the Sale
Assets, and neither party shall have any liability to the other under this
Agreement in respect of any such obligations (save for prior breaches of
clause 5.6). For the avoidance of doubt, nothing in this clause shall affect
the obligation of the parties to proceed to Completion of the sale and
purchase of the Sale Shares, in respect of which Philipps shall pay to BOC at
Completion the consideration referred to in clause 3.1.
5.8 If Philipps elects pursuant to clause 5.7 not to purchase the Business and
the Sale Assets:
5.8.1 BOC shall retain the Business and the Sale Assets;
5.8.2 BOC shall be immediately released from such of the undertakings
in clause 5 and clause 8 as would otherwise restrict or inhibit BOC (or any of
its subsidiaries or subsidiary undertakings) from carrying on the Business
before or after Completion;
5.8.3 BOC shall be immediately released from any past, current or
future liability in respect of any of the Warranties and any indemnity
contained herein in so far as such liability relates to the Business or the
Site or the Sale Assets (or any of them);
5.8.4 all other provisions of this Agreement (except clause 5.7 and
this clause 5.8) insofar only as they relate to the sale and purchase of the
Business or the Sale Assets shall immediately cease to be of any effect;
5.8.5 at the request of either party, the distributor arrangements
referred to in Schedule 4 will be formalized;
5.8.6 BOC will continue to run the Business for at least two years
from the Completion Date substantially in the same manner in which it is
currently carried on, with the intention of preserving the Business as a going
concern at least up to such date. If, at any time in the period of two years
commencing on the Completion Date, BOC offers for sale, or enters into any
negotiations or discussions concerning the sale of, all or a substantial part
of the Sale Assets and the Business, Philipps shall have the right to elect to
purchase the same in priority to any third party on terms no more
disadvantageous to Philipps than any which may have been agreed between BOC
and any third party. For the avoidance of doubt BOC shall not be required to
(and shall not be liable for any failure to) continue to run the Business
under this clause if BOC notifies Philipps in its absolute discretion at any
time that BOC no longer wishes to carry on the Business and subsequently
ceases to do so, provided that on receiving such notification Philipps may
elect to purchase the Business and the Sale Assets on terms to be agreed
between the parties at that time.
6. CHANGE OF NAME
6.1 Notwithstanding any other provision of this Agreement, no interest in or
right to use the name "BOC", or the zeta device shown on the cover sheet of
this Agreement, is being sold or transferred to Philipps hereunder.
6.2 Philipps undertakes:
6.2.1 as soon as practicable after Completion to change the name of
the Business so as to exclude the name "BOC",
<PAGE>
6.2.2 not to use the name or letters "BOC" at any time after
Completion as part of the name of the Business or the Company or in connection
therewith; and
6.2.3 not to hold out any continuing association between BOC or any
member of the BOC group of companies and the Business or the Company after
Completion
Provided that, with respect to clauses 6.2.2 and 6.2.3, the Company and the
Business shall be entitled to use any existing stocks of packaging materials
for a period of up to six months from Completion.
7. PROVISIONS RELATING TO THE BUSINESS
7.1 BOC and Philipps shall jointly procure that on or as soon as practicable
after the Completion Date:
7.1.1 the value of the Stocks as at the Completion Date is determined
on the same basis as used in preparation of the Business Accounts; and
7.1.2 the Book Debts are identified, agreed and itemized.
7.2 BOC (or BOC Limited), shall collect and retain the Book Debts for its own
account. Philipps shall account to BOC for any money received by Philipps from
any debtor in discharge of any of the Book Debts.
7.3 Notwithstanding Completion, BOC shall procure that BOC Limited be
responsible for all debts and other payments payable by and claims outstanding
against BOC Limited in respect of the Business at Completion, including claims
by third parties in respect of any service supplied by BOC Limited in respect
of the Business or any act or omission thereof in respect of the Business
prior to Completion; and BOC shall indemnity Philipps in respect of all Losses
which Philipps may incur as a result of any such indebtedness or claim or as a
result of anything happening, done or omitted to be done by BOC Limited in
respect of the Business prior to Completion.
7.4 Philipps shall perform and discharge after Completion the obligations and
liabilities of BOC Limited outstanding under each of the Contracts (so far as
it is lawfully able to do so and subject to it receiving the benefit of any
such Contract, whether by means of assignment or otherwise) as at Completion,
except for any obligations or liabilities attributable to a breach of any of
the Contracts on the part of BOC Limited and Philipps shall indemnity BOC
against all Losses incurred by BOC Limited by reason of or in connection with
the non-performance or the negligent performance after Completion by Philipps
of the Contracts or any of them.
7.5 All rents, rates, gas, water, electricity, telephone and other charges and
outgoing relating to or payable in respect of the Business, and all salaries,
wages and other emoluments, including holiday pay, tax, PAYE and national
insurance payments and contributions to retirement benefit schemes, if any,
relating to the Employees or any former employee of the Business, shall be
borne and paid by HOC up to Completion and by Philipps thereafter.
7.6 BOC and Philipps acknowledge that the provisions of the Transfer
Regulations shall apply to this Agreement and to the transfer of the Business
as regards the Employees and that on Completion the contracts of employment of
each of the Employees will be transferred to the employment of Philipps by
operation of law. Philipps shall indemnity BOC Limited against all Losses in
relation to the contracts of employment of those Employees arising on or after
Completion in respect of matters, events and liabilities arising on or after
Completion. BOC shall indemnity Philipps against all Losses in relation to the
contracts of employment of those Employees arising prior to Completion where
such Employees are or will be transferred to Philipps with effect from
Completion in accordance with the Transfer Regulations.
7.7 With respect to VAT the parties intend that the Business shall be sold as
a going concern for VAT purposes and, accordingly, the parties agree:
7.7.1 that they shall use all reasonable endeavors to procure that
the sale of the Business is deemed to be a transfer of a business as a going
concern with effect from Completion and that the provisions of Article 5 of
the Value Added Tax (Special Provisions) Order 1995 ("Article 5") shall apply
thereto, and to this end the parties shall promptly agree the form of a letter
to be sent by BOC to H M Customs & Excise seeking confirmation that the sale
<PAGE>
is to be so treated and Philipps (or any Connected Company of Philipps to
which Philipps assigns all or part of the benefits of this Agreement under
clause 13.1) undertakes to procure that it is duly registered as a taxable
person (as defined in section 3 of the Value Added Tax Act 1994) within 14
days hereof;
7.7.2 that if the sale of the Business is treated as a supply of
goods or services under Article 5 the consideration referred to in clause 3.2
shall where applicable be deemed to be exclusive of any value added tax, and
that Philipps shall pay all value added tax due thereon within 14 days of
presentation to Philipps by BOC Limited of a VAT invoice therefor;
7.7.3 that BOC shall procure BOC Limited to apply to HM Customs and
Excise for permission for BOC Limited to continue holding all the records of
the Business for value added tax purposes which are currently required by
Section 49 of the VAT Act 1994 to be preserved by BOC Limited and BOC
undertakes to procure that BOC Limited preserve these records in such a manner
and for such periods as may be required by law and to give Philipps as from
Completion access to such records;
7.7.4 that if BOC or BOC Limited delivers any such VAT records to
Philipps, Philipps shall for such periods as may be required by law from the
Completion Date preserve such records and, upon reasonable notice during
normal business hours, make them available to BOC or its agents.
8. NON-COMPETE UNDERTAKINGS
8.1 BOC undertakes to Philipps that, without Philipps' written consent, it
will not, and none of its subsidiaries or subsidiary undertakings will:
8.1.1 for a period of 3 years from Completion, either solely or
jointly with any other person, firm or company, directly or indirectly engage,
carry on or be interested in the production or supply of calcium carbide
within a radius of 1,000 miles from either the Site or any of the Properties;
or
8.1.2 for a period of 3 years from Completion, either solely or
jointly with any other person, firm or company, directly or indirectly engage,
carry on or be interested in the production or supply of dicyandiamide; or
8.1.3 in competition with the business of the Company or the Business
as carried on at the date hereof canvass or solicit the custom of any person,
firm or company who has within two years prior to Completion been a regular
customer of the business of the Company or the Business.
8.2 BOC acknowledges that the duration, extent and application of the
restrictions contained in clause 8.1 are no greater than is reasonable and
necessary for the protection of the interests of Philipps as purchaser
hereunder; but that if any such restriction is adjudged by any court or
authority of competent jurisdiction to be void or unenforceable but would be
valid if part of the wording thereof were to be deleted and/or the period or
radius thereof reduced, that restriction shall apply within the jurisdiction
of that court or competent authority with such modifications as are necessary
to make it valid and enforceable.
9. WARRANTIES
9.1 BOC warrants and represents to and undertakes to and for the benefit of
Philipps in the terms of the Warranties set out in Schedule 3, with the
intention that Philipps should enter into this Agreement in reliance on
them, and acknowledges that Philipps has entered into this Agreement in
reliance on them. Save as expressly otherwise provided, the Warranties shall
be separate and independent.
9.2 The Warranties are given subject to any matter adequately disclosed in or
attached to the Disclosure Letter.
9.3 Philipps acknowledges and agrees that in entering into this Agreement,
Philipps does not rely on, and shall have no remedy in respect of, any
statements, warranties or representations (whether negligently or innocently
made) of any person, whether a party hereto or not, except where expressly set
out in this Agreement and except for the Warranties. The only remedy available
to Philipps for breach of the Warranties shall be for breach of contract under
the terms of this Agreement. Nothing in this sub-clause 9.3 shall, however,
operate to limit or exclude any
<PAGE>
liability for fraud or fraudulent misrepresentation.
9.4 The Warranties shall remain in fill force and effect notwithstanding
Completion.
9.5 BOC farther warrants to Philipps that:
9.5.1 subject to clause 9.2, and subject to any further disclosures
made by or on behalf of BOC in a supplement to the Disclosure Letter at any
time prior to Completion, the Warranties will be true and not misleading at
Completion as if they had been given again at Completion; and
9.5.2 if after the signing of this Agreement and before Completion,
any event shall occur or matter arise which results or may result in any of
the Warranties being untrue or inaccurate at Completion, BOC shall as soon as
practicable upon becoming aware thereof notify Philipps in writing thereof
prior to Completion.
9.6 Philipps warrants to and for the benefit of BOC, with the intention that
BOC should enter into this Agreement in reliance thereon (and Philipps
acknowledges that BOC has entered into this Agreement in reliance thereon),
that
9.6.1 Philipps is a corporation duly incorporated and validly
existing under the laws of the state of New York;
9.6.2 Philipps has on the date hereof and will have at Completion
sufficient immediately available funds to pay the aggregate consideration due
to BOC in accordance with clause 4.5.3 and to effect the transactions
contemplated hereunder; and
9.6.3 Philipps has the legal right and full power and authority to
enter into this Agreement and any other documents to be executed by Philipps
pursuant to this Agreement and to fulfil its obligations hereunder and
thereunder.
10. TAX INDEMNITY
10.1 Subject to clause 10.2, BOC hereby covenants with Philipps in respect of
the Company (but not the Business) to indemnify Philipps against any liability
to Taxation of the Company (including, for the avoidance of doubt, any
liability to Taxation arising as a consequence of the Company's dispute with
the Norwegian tax authorities as disclosed in paragraph 4.1/4.2 of the
Disclosure Letter) arising in respect of, by reference to or in consequence
of:
10.1.1 any income, profits or gains of the Company earned, accrued or
received on or before Completion; and
10.1.2 any transaction, act, event or omission of whatever nature
effected or deemed to have been effected which occurs on or before Completion.
10.2 The indemnity contained in clause 10.1 shall not cover any liability to
Taxation to the extent that:
10.2.1 provision or reserve in respect thereof has been made in the
Audited Accounts; or
10.2.2 the liability to Taxation arises in respect of or by reference
to any income, profits or gains earned in respect of the period, or any event
occurring, between the Balance Sheet Date and Completion and which arises in
the ordinary course of business of the Company; or
10.2.3 the liability to Taxation would not have arisen but for a
voluntary transaction, action or omission carried out or effected by the
Company on or at any time after Completion (unless carried out in the ordinary
course of business or pursuant to a legally binding commitment created before
Completion); or
10.2.4 a claim has not been made against BOC on or before the seventh
anniversary of the Completion
<PAGE>
Date.
11. ENVIRONMENTAL INDEMNITY
11.1 For the purposes of this clause and the Warranties contained in paragraph
9 of Schedule 3 the following words and expressions have the following
meanings:
11.1.1 "Environment" means ecological systems including living
organisms and the following media (alone or in combination): air (including
the air within buildings and the air within other natural or man-made
structures whether above or below ground); water (including water under or
within land or in drains or sewers and coastal and inland waters); and land
(including land under water); and in the case of man includes his property;
11.1.2 "Environmental Authority" means any legal person (including
any government department or government agency) having regulatory authority
under Environmental Laws and/or any court of law or tribunal which has
jurisdiction to determine any matter arising under Environmental Laws and/or
relating to the Environment;
11.1.3 "Environmental Laws" means the following to the extent the
same have force of law in the applicable jurisdiction at Completion:
(a) any international, national or local statutes or other laws or
legislation;
(b) all rules, regulations, orders, ordinances, notices, guidelines,
directives, codes of practice, circulars, guidance notes, Permits, decrees,
demands, injunctions, judgments or plans made or issued under (a) above;
(c) the common law, equity or any civil code; and
(d) judgments, decisions, notices, orders, directions, consent
agreements, instructions or awards by, with or of any Environmental Authority
which relate to pollution or protection of the Environment or which otherwise
compensate damage to the Environment or which relate to public health and
safety matters (but not including laws relating primarily to workers' health
and safety matters or hygiene), including without limitation laws relating to
emissions, discharges or threatened releases of Hazardous Substances into the
Environment or to the production, processing, distribution, management, use,
treatment, storage, burial, disposal, transport or handling of any Hazardous
Substances;
11.1.4 "Environmental Liability" means any liability of Philipps (or
any Connected Company) or the Company under Environmental Laws (including,
without limitation, liability under Environmental Laws to undertake Remedial
Action);
11.1.5 "Environmental Loss" means any loss, damages, liabilities,
costs and expenses (including fines, penalties, the reasonable cost of
Remedial Action and reasonable legal and other professional fees) suffered or
reasonably incurred by Philipps (or any Connected Company) or the Company in
respect of(i) any Environmental Liability, or (ii) (subject to the proviso in
clause 11.7) any reasonable action taken by Philipps (or any Connected
Company) or the Company to prevent, eliminate, reduce, limit or mitigate any
Environmental Liability;
11.1.6 "Hazardous Substances" means
(i) wastes, pollutants or contaminants; and
(ii) other substances that are regulated as hazardous, toxic,
radioactive, noxious, flammable, corrosive or caustic under applicable
Environmental Laws, in each case whether in the form of solids, liquids, gases
or ions;
11.1.7 "Permits" means any permits, permissions, licenses, consents
or authorizations (and any conditions or requirements thereof) required on or
before Completion by the Company or the Business under Environmental Laws;
<PAGE>
11.1.8 "Remedial Action" means any steps reasonably necessary for
investigating, limiting, removing, remedying, cleaning up, abating,
containing, preventing, monitoring, or ameliorating damage to the Environment.
11.2 Subject to the following provisions of this clause 11, BOC agrees and
covenants with Philipps to pay to Philipps the amount of any Environmental
Loss suffered or incurred by Philipps (or any Connected Company) or the
Company to the extent such Environmental Loss arises out of or relates to:
11.2.1 any discharge, spillage, leak, escape or release of any
Hazardous Substance while such Hazardous Substance was in the ownership or
possession or under the control of BOC or the Company (whether at the Site or
the Properties or any former site or property or elsewhere) into the
Environment (including, for the avoidance of doubt, the Environment at the
Site or any of the Properties) before Completion; and/or
11.2.2 the presence of(or any direct consequence of the presence of)
any Hazardous Substance in or under the land at any of the Properties, being a
Hazardous Substance that is (i) present in or under such land at Completion or
(ii) derives from a Hazardous Substance that is so present (but not to the
extent that any derivative Hazardous Substance is created by or attributable
to or exacerbated by a Hazardous Substance which is not present at
Completion);
11.2.3 any material failure on the part of the Company or the
Business on or before Completion to hold and/or to comply with any Permit.
11.3 The limitations in clause 12.3 shall apply to claims under clause 11.2
and, furthermore, BOC shall not be liable in relation to any claim under
Clause 11.2:
11.3.1 unless notice of such claim is given in writing by Philipps to
BOC setting out such details as are available of the specific matter in
respect of which the claim is made within 7 years of Completion;
11.3.2 if and to the extent that a deduction or provision therefor
has been made in respect of the claim in the Audited Accounts; and
11.3.3 to the extent that the Environmental Loss which is the subject
of the claim is covered by a policy of insurance in force on Completion and
payment is made under such policy by the insurer and received by Philipps or
the Company.
11.4 In the event that any claim under clause 11 arises out of or relates to
any pre-Completion acts or omissions of BOC or the Company which are continued
by Philipps (or any Connected Company) or the Company after Completion in the
knowledge or expectation that they may give rise to an Environmental Loss,
(including for the avoidance of doubt the Company's discharge of filter cake
to the fiord), BOC's liability under this clause 11 shall be limited to such
proportion of any resulting Environmental Loss as is equivalent to the
proportion which the acts or omissions before Completion causing such
Environmental Loss bears to all the acts and omissions occurring before and
after Completion causing such Environmental Loss.
11.5 Subject to clauses 11.4 above and 11.6 below, BOC shall not be liable
for that proportion of any claim under clause 11.2 which is caused or
exacerbated by an act or omission of Philipps (or any Connected Company) or
the Company after Completion except where:
11.5.1 such act or omission was done or omitted in the ordinary
course of business of the Company or the Business and with insufficient
knowledge of the surrounding circumstances to enable a reasonable person in
the position of Philipps (or any Connected Company) or the Company to
appreciate that such act or omission was reasonably likely to give rise to a
claim under clause 11.2; or
11.5.2 such act is to enter into an agreement with the relevant
Environmental Authority or any other party to undertake Remedial Action in
connection with a particular issue (thereby incurring Environmental Loss)
either (i) on the understanding that such Environmental Authority or other
person shall take no further action or shall require less onerous Remedial
Action or (ii) in circumstances where it is reasonable to expect that such
Remedial Action will reduce the amount of any loss, damages or liabilities
which might otherwise be incurred;
<PAGE>
provided that BOC consents to any such agreement (such consent not to
be unreasonably withheld or delayed) or that the quantum of BOC's liability
under clause 11.2 is not actually increased as a result of such agreement when
compared to BOC's liability in the absence of such agreement.
11.6 Subject to clause 11.4 and notwithstanding clause 11.5 above, if Philipps
or the Company is required to take Remedial Action under Environmental Law in
respect of any matter falling outside clause 11.2 and at the same time or as a
result thereof it is required by an Environmental Authority to take Remedial
Action in respect of any matter which falls within clause 11.2, Philipps shall
be liable for that part of any Environmental Loss which falls outside clause
11.2, and BOC shall be liable for such portion of the Environmental Loss which
falls within clause 11.2.
11.7 Philipps agrees in respect of matters which come to its knowledge that it
shall (and shall procure that the Company shall) use its reasonable endeavors
to mitigate any Environmental Loss which may arise under Clause 11.2 and BOC
agrees that it shall indemnify Philipps against any costs, charges or expenses
that Philipps or the Company may incur in the performance of their obligations
under this sub-Clause, provided that the amount of such costs, charges or
expenses shall not exceed the amount for which BOC would otherwise be liable
under Clause 11.2.
11.8 To the extent that any claim in respect of Environmental Loss under this
Clause 11 relates to Remedial Action, BOC shall (unless otherwise agreed by
the parties) only be liable for Remedial Action which is required by an
Environmental Authority, and where such Environmental Authority grants
Philipps (or any Connected Company) or the Company discretion as to the method
or level of Remedial Action, BOC shall only be liable for the least expensive
method or minimum level of Remedial Action which is acceptable to the
Environmental Authority. Philipps shall consult with BOC concerning any
Remedial Action, including the method or level thereof
11.9 If Philipps becomes aware of any claim relevant for the purposes of this
clause 11, Philipps shall within 21 days thereof procure that notice of that
claim is given to BOC in writing.
11.10 Where BOC has or may have a claim or a defense against a third party in
relation to a matter which has given or may give rise to a claim under clause
11.2, Philipps shall afford BOC all such assistance as may be reasonably
necessary in relation to such claim or defense, including access to and copies
of any documents or other information in the possession of Philipps (or any
Connected Company or the Company) (other than documents or information which
are legally privileged) subject to Philipps being indemnified to its
reasonable satisfaction against all reasonable costs, expenses and liabilities
incurred as a result of so doing.
11.11 Where Philipps (or any Connected Company) or the Company has or may have
a claim against a third party in relation to a matter which has given or may
give rise to a claim under this clause, Philipps or the Company shall procure
that all reasonable endeavor are used to recover any amounts due from any such
third party. If BOC pays an amount in discharge of any claim under clause 11
and Philipps (or any Connected Company) or the Company subsequently recovers
from a third party a sum in respect of the subject matter of the claim,
Philipps shall pay to BOC an amount equal to (i) the sum recovered from the
third party less any reasonable costs and expenses incurred in relation to
such recovery and any tax payable or (ii) if the sum recovered (less
reasonable costs and expenses) is more than the amount paid by BOC, the amount
previously paid by BOC in respect of such claim.
11.12 If a claim under clause 11 is a result of or in connection with any
claim by or liability to a third party then the Company or Philipps shall be
entitled to avoid, dispute, deny, defend, resist, appeal, compromise or
contest such claim or liability (including, without limitation, making
counterclaims or other claims against third parties in its own name) and to
have the conduct of any related proceedings, negotiation or appeals provided
always that it shall make no admission of liability in respect of, and shall
not compromise, dispose of or settle, any claim without first consulting BOC.
If any such claim is compromised, disposed of or settled or liability is
admitted by Philipps or the Company against the wishes of BOC and Philipps
then seeks to claim under this clause 11 in respect thereof, the burden of
proof shall be on Philipps to establish that the terms on which the claim or
liability was compromised, settled or admitted were reasonable in all the
circumstances.
12. LIMITS OF BOC LIABILITY
<PAGE>
12.1 The liability of BOC in relation to the Warranties shall cease 24 months
from Completion save as regards any Warranty Claim of which notice in writing
has been given to BOC prior to that date, containing to the extent possible
such details as are available of the event or circumstance giving rise to the
breach, the basis upon which Philipps is making a claim against BOC and the
total amount of liability which results (or Philipps' estimate thereof).
12.2 BOC shall not be liable for any individual Warranty Claim unless it
exceeds (pound)25,000 or for any one or more Warranty Claims unless BOC's
aggregate liability exceeds (pound)300,000 (in which case all Warranty Claims,
including those previously notified, shall accrue against and be recoverable
from BOC and Philipps shall be entitled to the whole amount thereof and not
merely the excess).
12.3 The total aggregate liability of BOC under the Warranties, the Tax
Indemnity and any other indemnity given by BOC hereunder (including the
indemnity in clause 11) shall not in any event exceed (pound)9,000,000 (nine
million pounds sterling) in respect of claims relating to the Company or its
business or any of its assets (including the Properties) and (pound)2,500,000
(two million five hundred thousand pounds sterling) in respect of claims
relating to the Business and the Sale Assets and accordingly shall not exceed
in aggregate the total consideration of (pound)11,500,000 (eleven million five
hundred thousand pounds sterling) payable in respect of the Sale Shares, the
Business and the Sale Assets in accordance with clause 3.
12.4 If any payment is made by BOC to Philipps pursuant to a claim made by
Philipps for any breach of this Agreement (including, without limitation, any
Warranty Claim or any indemnity contained in this Agreement), the payment
shall so far as possible be made by way of reduction of the consideration paid
for the Sale Shares (if it relates to the Company) or the Goodwill (if it
relates to the Business) and such consideration shall accordingly be deemed to
have been reduced by the amount of such payment.
12.5 BOC shall be entitled to set off its liability to Philipps for any
Warranty Claim, or any other claim made hereunder (whether such claim is for
breach of warranty, breach of contract, under any indemnity or otherwise),
against any liability of Philipps to BOC in respect of any breach or failure
by Philipps under this Agreement or under any of the Contracts to which
Philipps is a party as anticipated in clause 7.4.
12.6 None of the limitations contained in this clause 12 shall apply to any
claim or Warranty Claim to the extent that such claim arises or is increased
or is delayed as a result of fraud or willful misconduct by BOC or any of its
officers or employees.
13. OTHER PROVISIONS
13.1 If, prior to Completion, any event occurs (not being an event affecting
generally companies carrying on business in Norway or the United Kingdom or an
event affecting generally companies carrying on business of a kind similar to
the Business or the business of the Company), which materially and adversely
affects the financial position of the Company or the Business, Philipps shall
be entitled (without prejudice to all other rights and
remedies available to it) by notice in writing prior to the Completion Date to
terminate this Agreement, but failure to exercise this right shall not
constitute a waiver of any other rights of Philipps arising out of any breach
of Warranty or otherwise.
13.2 Either Philipps or BOC may, with the prior written consent of the other
(such consent not to be unreasonably withheld), assign to a Connected Company
all its rights and benefits under this Agreement, provided that the original
contracting party shall unconditionally guarantee and remain liable for the
timely performance by the Connected Company of any obligations assumed by any
such Connected Company. under this Agreement. For the purposes of this clause
13.2 BOC agrees that, following Completion, Philipps may assign to its
wholly-owned subsidiary Ferro Metal & Chemical Corporation, a company
incorporated in England and Wales, all rights and benefits of Philipps under
this Agreement relating to the Business and the Sale Assets and may assign to
a wholly-owned subsidiary to be incorporated in Norway, all rights and
benefits of Philipps under this Agreement relating to the Company. Except as
referred to in this clause 13.2, no assignment shall be permitted without the
prior written consent of the other party.
13.3 No variations to this Agreement shall be effective unless made in writing
and signed by or on behalf of the
<PAGE>
parties hereto.
13.4 If Completion falls on or after the fifteenth day of the month, Philipps
agrees to procure that the unaudited monthly management accounts of the
Company and of the Business for that month are prepared in a manner consistent
with the preparation of the respective management accounts for the previous
twelve months and that a copy is provided to BOC within ten days after the end
of the relevant month or as soon as possible thereafter.
13.5 Philipps acknowledges that, with effect from Completion, the insurance
policies listed in schedule 5 shall cease to apply to the Company, the
Business and the Sale Assets (except as referred to below), and that Philipps
shall be responsible for insuring the Company (including its business and
assets and the Properties), the Business and the Sale Assets with effect from
Completion. In addition, Philipps undertakes that, with effect from
Completion, it will not make, and will procure that neither the Company nor
the Business will make, any claim under the insurance policy listed in part 2
of schedule 5. Notwithstanding the foregoing, the Company shall be entitled to
make claims after Completion under the policy listed in part 3 of schedule 5
being claims arising wholly out of acts, omissions or events occurring prior
to Completion, and BOC shall provide such assistance (not involving material
expenditure) as the Company may reasonably request in respect thereof (the
policy listed in part 3 of schedule 5 being the "Vesta-Liability II" policy
described in the overview of insurances (revised at 25 June 1998) attached to
the Disclosure Letter, as enhanced by the policies referred to in the footnote
to such overview).
13.6 This Agreement (together with any documents referred to herein)
constitutes the whole agreement and understanding between the parties hereto,
and supersedes any previous agreement or understanding between them or their
respective agents, and all prior representations and expressions of opinion by
either party or its agent to the other party or its agent, relating to the
subject matter hereof. Nothing in this sub-clause 13.6 shall, however, operate
to limit or exclude any liability for fraud or fraudulent misrepresentation.
13.7 BOC agrees and covenants with Philipps to indemnify Philipps in respect
of any Losses arising out of or in connection with the Company's limestone
quarrying activities prior to Completion in the municipality of Osteroy at the
Properties listed on the final page of the list of Properties (revised at 25
June 1998) attached to the Disclosure Letter. The limitations in clause 12.3
shall apply to any claims under this clause 13.7 and BOC shall not be liable
in relation to any claim under this clause unless notice of such claim is
given to BOC within 7 years of Completion.
13.8 At any time after the date hereof BOC shall, and shall use its best
endeavors to ensure that any necessary third party shall, at the request of
Philipps execute such documents and do such acts and things as Philipps may
reasonably require for the purpose of vesting the Sale Shares, the Business
and the Sale Assets in Philipps or its nominees and giving to Philipps the
full benefit of the provisions of this Agreement.
13.9 If any provision of this Agreement shall be held to be illegal or
unenforceable in whole or in part such provision shall be deemed not to form
part of this Agreement and the enforceability of the remainder of this
Agreement shall not be affected.
13.10 All costs and expenses incurred by or on behalf of the parties hereto,
including fees of professional advisers, in connection with the preparation,
negotiation or execution of this Agreement shall be borne by and remain the
responsibility of the party incurring the same. In particular, Philipps shall
pay any VAT and stamp duty due in the United Kingdom on the sale of the Sale
Assets.
13.11 No announcement shall be made in respect of the subject matter of this
Agreement, and each party will keep confidential the terms of this Agreement,
except with the prior consent of both parties to this Agreement, or except as
required by law or The London Stock Exchange.
13.12 Any notice required to be given or served hereunder shall be in writing
in the English language and shall be served by sending the same by prepaid
first class post or fax or by delivering the same by hand to the addresses of
the parties given at the beginning of this Agreement, or such other address as
may be notified. Any notice sent by post shall be deemed to have been served
two Business Days from the time of posting in the case of inland mail in the
United Kingdom or four Business Days from the time of posting in the case of
international mail and any notice sent by fax shall be deemed to have been
served upon despatch at the time then prevailing in the location of the
addressee and in proving the service of the same it will be sufficient to
prove, in the case of a letter, that such letter
<PAGE>
was properly stamped, addressed and placed in the post and, in the
case of a fax, that it was duly despatched to a current fax number of the
addressee.
13.13 This Agreement and, unless otherwise stated, the documents to be entered
into pursuant to it shall be governed by, and construed in all respects in
accordance with, English law. Each of the parties agrees for the benefit of
the other that the courts of England are to have exclusive jurisdiction to
settle any dispute arising in connection with this Agreement and irrevocably
waives any objection on the grounds of forum non conveniens to the
jurisdiction of the courts of England.
13.14 Philipps shall at all times maintain an agent for service of process in
England. The first such agent shall be Ferro Metal and Chemical Corporation of
179 Kings Road, Reading RGl 4EX. Philipps undertakes not to revoke the
authority of such agent and forthwith to appoint another agent with an address
in England and to notify BOC thereof should the agent cease to act or to be
able to act as agent for service of process.
13.15 This Agreement may be executed in any number of counterparts each of
which shall be deemed an original, but all the counterparts shall together
constitute one and the same instrument.
IN WITNESS whereof this Agreement has been duly executed on the first date
written on page 3.
Signed by /s/
For and on behalf of THE BOC GROUP plc
Signed by /s/ Jack Bendheim
-----------------
For and on behalf of PHILIPP BROTHERS CHEMICALS INC
<PAGE>
SCHEDULE 1
DETAILS OF THE COMPANY
Name Odda Smelteverk A/S
Registration No. 914896819, Norway
Registered Office Roldalsveg 35/37
5750 Odda, Norway
Date of Incorporation 1924
Share Capital 35m NOK
Issues Shares 35,000 shares of 1,000 NOK each
Registered holder of the Sale Shares BOC Holdings - 35,000 shares
Members of the Board Barry Beecroft (Chairman)
Robert Hermansen (Managing Director)
Richard Overend
Tollef Rullestad
Sven Solberg
Geir Sekse
Baard Svenning
Company Secretary Per Oeyvind Saaevartveit
Auditors Coopers & Lybrand
Accounting Reference Date 30 September
Shareholdings in other companies 10,652 shares (20.29%) in
Aktiesekskabet Tyssefaldene
80 shares (26.6%) in Vilhelm Ravn A/S
168 shares (9.28%) in Odda Recycling
<PAGE>
SCHEDULE 2
DETAILS OF TYSSEFALDENE A/S
Name Aktieselskabet Tyssefaldene
Registration No.
Registered Office Tyssedal, Norway
Date of Incorporation 28.9.1924
Share Capital 5,250,000 NOK
Issued Shares 52,500 shares of 100 NOK each
Shareholders Odda Smelteverk A/S - 10,652 (20.29%)
Norzink A/S - 20,938 (3 9.88%)
DNN Industrier A/S - 20,910 (3 9.83%)
Members of the Board L Egeland (DNN) (Chairman)
R Sandsta (Managing Director)
J J Soiheim (DND)
E Guldbrandsen (NZ)
J G Thuestad (NZ)
R Hermansen (OS)
P O Saevartveit (OS)
A Brettvik (Employee Rep)
K Skar (Employee Rep)
Company Secretary Karstein Brumnes
Auditors Coopers & Lybrand (Oslo)
Accounting Reference Date 31 December
<PAGE>
SCHEDULE 3
THE WARRANTIES
1. CORPORATE MATTERS
1.1 The information relating to the Company and Tyssefaldene A/S
contained in Schedules 1 and 2 is true and complete.
1.2 There are no agreements or arrangements in force which grant to
any person the right (whether exercisable now or in the future and whether
contingent or not) to call for the issue, allotment, conversion or transfer of
any share or loan capital of the Company or Tyssefaldene A/S.
1.3 BOC and the Company are companies duly incorporated and validly
existing under the laws of their respective places of incorporation.
1.4 BOC has the legal right and full power and authority to enter
into and fulfil its obligations under this Agreement, and any other documents
to be executed by BOC pursuant to this Agreement.
1.5 The Sale Shares constitute the whole of the issued and allotted
share capital of the Company.
1.6 The Sale Shares are fully paid and are beneficially owned by BOC
free from any Encumbrance and (other than under this Agreement) there is no
agreement or arrangement to give or create any such Encumbrance.
1.7 The Company is the beneficial owner of 10,652 shares in
Tyssefaldene A/S, comprising 20.29% of the issued and allotted share capital
of Tyssefaldene A/S. All such shares are fully paid.
1.8 Since the Balance Sheet Date the Company has not paid or declared
any dividend.
1.9 The documents attached to the Disclosure Letter are true,
complete and accurate copies of the originals thereof (where such originals
exist) and so far as BOC is aware all material information relating to the
Company or the Business contained in those documents (but not including any
statements of opinion or belief and not including any forecast or budget) was,
at the time such documents were drawn up, accurate in all material respects
and is not at the date hereof misleading in any material respect; and so far
as BOC is aware, having made all reasonable enquiries, the statements of fact
contained in section (B) "Specific Disclosures" of the Disclosure Letter (but
not including any statements of opinion or belief and not including any
forecast or budget) are accurate in all material respects and not misleading.
2. ACCOUNTING MATTERS
2.1 The Audited Accounts were prepared based on the historical cost accounting
convention including the revaluation of certain land and buildings and, except
as stated therein, the bases and policies of accounting adopted in preparing
the Audited Accounts are the same as those adopted in preparing the audited
accounts of the Company in respect of the three last preceding accounting
periods.
2.2 The Audited Accounts:
2.2.1 give a true and fair view of the assets, liabilities and state of
affairs of the Company at the Balance Sheet Date and of the results thereof
for the financial period ended on that date;
2.2.2 comply with the requirements of any applicable Norwegian statutes and
with all statements of standard accounting practice and generally accepted
accounting principles of Norway then in force;
2.2.3 make full provision for or disclose all liabilities, whether actual,
contingent or disputed, of the Company at
<PAGE>
the Balance Sheet Date.
2.3 The unaudited monthly management accounts of the Company and of the
Business for each month in the period from the Balance Sheet Date until 31 May
1998 were prepared in a manner consistent with the preparation of their
respective management accounts for the previous 12 months.
2.4 The copies of the Audited Accounts delivered to Philipps are complete and
accurate in all respects. The books of account of the Company and the Business
and their other material records are up-to-date and have been maintained in
accordance with all applicable laws and contain complete and accurate records
of all matters required to be dealt with in such books.
3. FINANCIAL MATTERS
3.1 The Company has not, since the Balance Sheet Date, repaid, or become
liable to repay, any indebtedness in advance of its stated maturity.
3.2 None of the debts receivable or due to the Company which are included in
the Audited Accounts or which have subsequently arisen has been outstanding
for more than six months from its due date for payment or has been released on
terms that the debtor has paid less than the full value of his debt.
3.3 None of the banking or loan facilities available to the Company is
dependent on the guarantee of, or any security provided by BOC or any
affiliate of BOC.
3.4 Since the Balance Sheet Date:
3.4.1 there has been no material adverse change in the financial
position or turnover of the Business or the Company;
3.4.2 the business of the Company and the Business have each been
carried on in the ordinary course so as to maintain the same as a going
concern;
3.4.3 the business of the Company and the Business have not been
materially and adversely affected by the loss of any important customer or
source of supply and there has been no unusual increase or decrease in the
level of the Stocks of the Business;
3.4.4 the Company has not entered into any transaction or assumed or
incurred any material liabilities (including contingent liabilities) or made
any payment not provided for in the Audited Accounts otherwise than in the
ordinary course of carrying on its business;
3.5 There are no debts owed by the Company to BOC or any Connected Company of
BOC, or vice versa, other than debts which have arisen in the ordinary course
of business.
3.6 Save as disclosed in the Audited Accounts or except in the ordinary course
of business, there is not outstanding any guarantee or indemnity given by the
Company.
4. TAXATION, VAT AND RELATED MATTERS
4.1 The Audited Accounts make full provision or reserve for all Taxation
(including deferred Taxation) which is liable to be assessed on the Company,
or for which it may be accountable, in respect of all events up to and
including the Balance Sheet Date.
4.2 All returns, computations and payments which should be, or should have
been, made by the Company for any Taxation purpose have been made within the
requisite periods and are up-to-date, correct and on a proper basis and none
of them is the subject of any dispute with the Taxation authorities.
4.3 The Company has no branch, agency, place of business or permanent
establishment outside Norway.
<PAGE>
4.4 All proper records have been kept and all proper returns and payments have
been made as required by law for the purposes of VAT in connection with the
Business.
4.5 None of the Sale Assets are the subject of any security in favor of HIM
Customs & Excise under paragraph 4 of Schedule 11 to Value Added Tax Act 1994
or Section 157 Customs & Excise Management Act 1979.
4.6 The Sale Assets do not include any items to which Part XV of the Value
Added Tax (General) Regulations 1995 applies and in respect of which the
period of adjustment will not have expired by Completion.
4.7 None of the Sale Assets are the subject of any charge, power of sale or
mortgage in favor of the Inland Revenue for the purposes of inheritance tax in
the United Kingdom, nor are there any circumstances which may give rise to the
same.
5. TRADING MATTERS
5.1 Except as disclosed in the Disclosure Letter, there is no material
contract between the Company and BOC or any Connected Company of BOC Each such
contract is on terms no less favorable to the Company than could be obtained
on an arm's length transaction with a person or legal entity that is not a
Connected Company of BOC.
5.2 Neither the acquisition of the Sale Shares (or the acquisition of the
Business or the Sale Assets) by Philipps nor compliance with the terms of this
Agreement will relieve any person of any obligation to the Company (or to BOC
Limited in respect of the Business) or enable any person to terminate any such
obligation or any right or benefit enjoyed by the Company (or by BOC Limited
in respect of the Business).
5.3 The Company is not (and BOC Limited is not in respect of the Business)
engaged in any litigation or arbitration proceedings, as plaintiff or
defendant, in respect of which the amount claimed is more than (pound)25,000
and BOC is not aware, after making reasonable enquiries, of any such
proceedings pending or being threatened by or against the Company or BOC
Limited.
5.4 There are no outstanding claims by or disputes with customers of the
Company or the Business in respect of goods supplied by the Company or the
Business, other than claims of less than (pound)25,000 arising in the normal
course of trade.
5.5 So far as BOC is aware, the Company has conducted its business and BOC
Limited has conducted the Business in all material respects in accordance with
all applicable laws and regulations in each jurisdiction in which the Company
and the Business conduct their operations.
5.6 All necessary licenses, consents, permits, concessions and authorizations
have been obtained by the Company to enable it to carry on its business, and
by BOC Limited to enable it to carry on the Business, in each case in the
places and in the manner in which such business is now carried on, and all
such licenses, consents, permits, concessions and authorizations are valid and
subsisting and are being complied with in all material respects.
5.7 So far as BOC is aware, after making reasonable enquiries, BOC Limited is
not materially in default under any of the Contracts and the Company is not
materially in default under any material contract to which it is a party.
5.8 So far as BOC is aware, after making reasonable enquiry's, no step has
been taken for the winding up, administration or receivership or other
analogous proceeding of the Company.
6. PROPERTY MATTERS
6.1 The Properties listed in the Disclosure Letter comprise all of the
premises and land owned, occupied or used by the Company in connection with
the business of the Company.
6.2 So far as BOC is aware, the Company has good title to all the Properties
owned by it and used in its business and so far as BOC is aware, except as
disclosed in the Disclosure Letter:
<PAGE>
(a) there exist no liens on the Properties for Taxation, assessments
(both general and special) or other governmental charges which are due and
payable;
(b) the current uses of the Properties are substantially in
accordance with all building codes and zoning ordinances and other laws,
regulations, rules, orders or determinations of national or local governmental
authority applicable thereto;
(c) there are no easements, rights-of-way, covenants, conditions,
restrictions, reservations, licenses, agreements or other similar matters
materially and adversely affecting the Properties;
(d) there are no encroachments, overlaps or boundary line disputes
materially and adversely affecting the Properties, and no cemeteries or burial
grounds thereon;
(e) there are no material licenses, easements or rights-of-way in
favor of third parties relating to roads or to electric power lines, telephone
lines, gas pipes, sanitary sewer pipes, storm sewer pipes or water pipes
located on, over or under any of the Properties, other than those granted in
the ordinary course of business;
(f) there is no other lien that materially detracts from, or
materially interferes with, the present use of the Properties, or otherwise
materially impairs the operations conducted thereon.
7. EMPLOYMENT MATTERS
7.1 Full particulars of the terms and conditions of employment of the
Employees and of all the Company's employees are set out in or attached to the
Disclosure Letter.
7.2 The Employee named in schedule 4 will be the only employee transferred to
Philipps by reason of Philipps acquiring the Business or in respect of whom
Philipps will inherit liabilities pursuant to the Transfer Regulations.
7.3 There is not in existence any written contract of employment with any
director or employee of the Company, which cannot be terminated by three
months' notice or less without giving rise to any claim for damages or
compensation.
7.4 Since the Balance Sheet Date:
7.4.1 no change has been made in the remuneration (including bonuses)
payable, other benefits provided, or terms and conditions of employment of any
Employee or any employee or director of the Company, which would increase
total staff costs of the Company by more than (pound)100,000 or of the
Business by more than (pound)10,000 or the remuneration of any one employee or
director of the Business or the Company by more than (pound)10,000; and
7.4.2 no employee engaged in the Business has left the employment of
BOC Limited and no employee has left the employment of the Company, or given
or been given notice of termination of such employment.
7.5 The Disclosure Letter lists all pension funds and similar arrangements
providing for pensions and other payments relating to the past employment of
any past or present employee of the Company to which the Company is under an
obligation to make contributions (the "Employee Benefit Plans"). With the
exception of the Employee Benefit Plans, the Company is under no legal or
moral liability or obligation, and is a party to no ex-gratia arrangement or
promise, to pay pensions, gratuities, superannuation allowances or the like to
or for any of its past or present officers or employees or their dependants.
The assets of each Employee Benefit Plan are at least equal to the liabilities
of each such plan as assessed by generally accepted actuarial principles.
7.6 There are no outstanding claims against the Company by any current or past
director, officer or employee of the Company or by the Company against any
current or past director, officer or employee of the Company.
7.7 No Employee and no employee of the Company is involved in any current
industrial dispute and, in relation to the Company, there are no circumstances
likely to give rise to any such dispute.
<PAGE>
8. ASSET MATTERS
8.1 The licence agreement dated 4 March 1992 between BOC Limited and SKW is in
full force and effect and no notice of termination has been given or received
by BOC Limited thereunder. With the exception of such licence, the Company is
not (and BOC Limited is not in respect of the Business) the beneficial owner,
registered proprietor, user or licensee of any intellectual property rights
except ordinary business software, nor are there any outstanding claims
against the Company (or BOC Limited in respect of the Business) for
infringement of any intellectual property used by it under such licence or
otherwise.
8.2 BOC Limited owns absolutely all the Sale Assets free from any Encumbrance.
The Company owns absolutely all material assets used in its business free from
any Encumbrance.
8.3 With the exception of the Retained Assets, the Sale Assets comprise all
assets now used in the Business which are necessary for the continuation of
the Business as now carried on.
8.4 Those of the Fixed Assets which are material to the Business, and the
material assets used in the business of the Company, are in satisfactory
working order and have been regularly and properly maintained.
9. ENVIRONMENTAL MATTERS
9.1 Each of the Company and the Business has all Permits required for the
operation of its business and all such Permits are valid and subsisting.
9.2 So far as BOC is aware the Company and the Business in carrying on their
respective businesses have each complied in all material respects and at all
material times within the period of six years immediately preceding the date
hereof with:
9.2.1 all the material terms of their Permits; and
9.2.2 applicable Environmental Laws.
9.3 So far as BOC is aware the execution and/or performance of this Agreement
and all other documents which are to be executed at Completion will not result
in any Permit being varied, modified, revoked, suspended, cancelled or not
renewed.
9.4 In the last six years neither BOC nor the Company has received in relation
to either the Company or the Business:
9.4.1 any written communication from any Environmental Authority in
respect of:
9.4.1.1 any material Environmental Liability (whether actual
or potential);
9.4.1.2 the closure of any pan of its operations;
9.4.1.3 the variation, modification, revocation, suspension
or cancellation of any Permit or an indication of a serious intention or
threat to do so; or
9.4.1.4 any Remedial Action; or
9.4.2 any material complaints in writing from employees,
subcontractors, neighbors or other third parties which relate to or are likely
to give rise to any Environmental Liability.
9.5 No material discharge, release, leaching, emission or escape into the
Environment of any Hazardous Substance has occurred or is occurring on or from
the Site or any of the Properties in breach of any Permit or Environmental
Law.
9.6 Neither BOC (in respect of the Business), nor the Company is or has been
within the period of six years
<PAGE>
immediately preceding the date hereof engaged in any material action,
litigation, arbitration, dispute resolution or proceedings relating to or
concerning any actual or potential Environment Liability and so far as BOC is
aware there are no such matters pending or threatened.
10. MILLENNIUM COMPLIANCE
10.1 So far as BOC is aware, after making reasonable enquiries, all hardware
and software used by the Company is or will be capable of dealing with the
problems generally associated with the arrival of the year 2000 and perceived
to afflict computer systems generally.
11. INSURANCE
11.1 Details of the insurances relating to the Business and the Company are
contained in the Disclosure Letter.
11.2 In respect of all such insurances:
11.2.1 all premiums have been duly paid to date;
11.2.2 all the policies are in full force and effect and no act or
omission by or on behalf of BOC has occurred which makes any of these policies
voidable;
11.2.3 at the date of the Agreement, no claim is outstanding and no
circumstances exist which are likely to give rise to any claim.
<PAGE>
SCHEDULE 4
- ----------
BOC CARBIDE INDUSTRIES
- ----------------------
Part 1 - Contracts
- ------------------
Carbide supply agreement with Stanton Plc, 28 April 1998
Carbide supply agreement with British Steel Plc, 4 March 1997 (as amended)
Licensing agreement with Gunness Wharf Ltd, 28 January 1980 (as amended)
Management agreement with Gunness Wharf Ltd, 28 January 1980
Patent license from SKW AG, 4 March 1992
BOC Limited carbide storage licenses dated respectively 12 January 1996, 12
January 1996 and 28 February 1996
Liquid nitrogen supply agreement with BOC Limited, 23 June 1998
Distributor arrangements with the Company as summarized in Section IG of the
Disclosure Letter
Part 2 - Employees
- ------------------
R Nicholson -resident engineer, Althorpe (part-time)
<PAGE>
SCHEDULE 5
- ----------
INSURANCE POLICIES
- ------------------
Part I
INSURER
Royal and Sun Alliance (on behalf of Royal and Sun Alliance Group, AIG, Zurich
International UK Ltd and others)
COVERAGE
Property damage and business interruption
Part 2
INSURER
Priestley Insurance Company Limited
COVERAGE
World-wide public/products liability insurance
Part 3
INSURER
Vesta (on behalf of Royal and Sun Alliance, AIG, Zurich International UK Ltd
and others)
COVERAGE
World-wide public/products liability insurance
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([])
INFORMATION. THE CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND
FILED SEPARATELY WITH THE COMMISSION.
DATED 01.10.1998
(1)Philipp Brother Chemicals Inc
(2)BOC Limited
AGREEMENT
FOR
SUPPLY OF
CALCIUM CARBIDE
<PAGE>
INDEX
-----
Clause Number Heading
- ------------- -------
1 Definitions
2 Supply of Products
3 Duration and Termination
4 Volumes
5 Price
6 Purchasing Procedures
7 Conditions of Sale
8 Force Majeure
9 General Provisions
Schedule
- --------
1 Specification
2 Conditions of Sale
93652.6
2
<PAGE>
THIS AGREEMENT is made the 1 day of October 1998.
BETWEEN
(1) Philipp Brothers Chemicals, Inc. with principal offices at 1 Parker
Plaza, Fort Lee, NJ07024 USA (PB)
(2) BOC Limited, a British company with principal offices at The Priestley
Centre, 10 Priestley Road, The Surrey Research Park, Guildford, Surrey
GU2 5XY (BOC)
IT IS AGREED as follows:
I. Definitions
-----------
1.1 In this Agreement:
"Products" means calcium carbide to the specification set out in
Schedule 1.
"Year" means any period commencing on 1 October and ending on the
following 30 September.
"Tonne" means a metric tonne, being 1000 kilograms, or 2205 pounds.
"Container" means a bulk package for supply of Products holding between
1.45 and 1.65 tormes.
2. Supply of Products
------------------
2.1 PB shall supply and BOC shall purchase Products in accordance with the
provisions of this Agreement.
2.2 Products shall, unless otherwise agreed in writing, be delivered to
BOC's acetylene works in the United Kingdom or, in the case of
deliveries to Ireland, on a CIF Dublin basis.
2.3 For each shipment a certificate of analysis containing the data shown
in Schedule I will be faxed to the BOC department which has ordered the
Products.
2.4 Delivery shall be in accordance with Incoterms 1990.
2.5 Products delivered shall conform to the BOC Calcium Carbide Purchase
Specification attached to this Agreement as schedule I, or the latest
version thereof.
2.6 Products shall be packed and labeled safely and in accordance with the
detail set out on schedule 1 of this agreement.
3
<PAGE>
2.7 Arrangements for the supply of Products to other BOC's Group companies
around the world shall be covered, if appropriate, by another separate
agreement.
3. Duration and Termination
------------------------
3.1 This Agreement shall be for an initial period commencing on 1 1998
and ending on 30 September 2003, and shall continue thereafter unless
and until terminated by either party giving to the other not less than
12 months' notice in writing expiring on, or after, 30 September 2003.
3.2 Notwithstanding the provisions of clause 3.1 BOC may terminate this
Agreement forthwith by notice in writing sent to PB upon the
bankruptcy, insolvency or liquidation of PB (except for a voluntary
liquidation to effect a reconstruction in such manner that the
resulting company effectively assumes the obligations imposed on PB
under this Agreement);
3.3 Notwithstanding the provisions of 3.1, either party may terminate this
Agreement forthwith by notice in writing sent to the other if:
3.3.1 the other party commits a material irremediable breach of any
term of this Agreement;
3.3.2 the other party remains in breach of any other term of this
Agreement 50 days after the aggrieved party has given notice
to remedy the same.
3.4 Upon termination of this Agreement from any cause:
3.4.1 all BOC's debts to PB shall become due and payable;
3.4.2 no rights already accrued shall be affected but neither party
shall be liable to the other for loss, damage or compensation
arising out of lawful termination;
3.4.3 BOC shall have the right to purchase up to [ ]
of a type used to Supply this Contract [ ]
4. Volumes
-------
4.1 PB shall supply BOC's total requirements of Products for consumption in
[ ]
4.2 BOC estimates that its demand for Products will be [ ]
in the year commencing 1 October 1998. This volume is solely an
estimate and shall in no way be considered legally binding on BOC but
is purely to assist PB in planning.
4
<PAGE>
5. Price
-----
5.1 For shipments made from the date of this Agreement until and including
30 September 1999 or beyond if no amendment is requested, the price
shall be:
1. For deliveries to [ ] per tonne
2. For deliveries to [ ] per tonne
The price invoiced shall be that ruling on the date of delivery and
will be subject to any charged tax and/or government duty or tax
applicable, unless agreed otherwise in writing.
5.2 On 1 October 1999 and each subsequent 1 October for the duration of the
Agreement the price of the Products is liable to amendment by the
lowest of the following:
a) [ ] increase in price
during the previous year;
b) [ ] costs for the six months
from 1 January of the current year versus the supply costs for
the six months from 1 January of the previous year. Using the
same accounting conventions and costing methods as used in the
previous year.
c) A maximum annual increase of [ ]
PB shall give BOC a minimum of two months written notice of their
intended variation in price.
5.3 [
]
5.4 PB shall at BOC's request provide an auditor's certificate confirming
the [ ]
6. Purchasing Procedures
---------------------
6.1 In order to assist with PB's production and delivery planning, BOC
shall during June in each year provide to PB an estimate of the volume
of Products that it will require under this Agreement in the next Year,
together with an indication of scheduled delivery times, and such other
information as may be requested that is relevant and non confidential
to BOC. This estimate and schedule shall in no way be considered
legally binding on BOC but is purely to assist PB in planning.
5
<PAGE>
6.2 BOC shall place purchase orders on PB for the volumes of Products it
requires from PB. BOC shall state its delivery requirements and PB
shall use best endeavors to meet such requirements.
6.3 PB shall maintain adequate stocks of Products at all times to supply
BOC's reasonable requirements. PB shall also inform BOC a minimum of 3
months before a planned shutdown and shall ensure, in consultation with
BOC, that enough Products are held in stock exclusively for BOC to meet
BOC's reasonable demand over the expected shutdown and restart period
plus an additional amount to cover a 20% overrun in down time.
7. Conditions of Sale
------------------
7.1 BOC's conditions of purchase shall apply to this Agreement unless
superseded by a clause within this Agreement or its attached schedules.
7.2 An invoice for the Products shall be issued by the end of the month of
delivery, and payment shall be issued by the end of the month following
the month of invoice.
7.3 Any recommendation or suggestion relating to the use of the goods made
by PB, either in technical literature or in response to specific
enquiry or otherwise, is given in good faith; it is for BOC to satisfy
itself of the suitability of the goods for its own particular purpose.
PB gives no warranty as to the fitness of the goods for any particular
purpose and any implied warranty or condition (statutory or otherwise)
is excluded except insofar as such exclusion is prevented by law.
7.4 PB's liability in contract or tort for any loss or damage (other than
for death or personal injury) arising directly or indirectly out of the
supply of or use of the goods or the packages in which the goods are
delivered shall be limited to (pound)1,000,000 per instance.
7.5 PB shall provide BOC with health and safety information and product
literature concerning the Products and their use. Should BOC require
any further information or advice in connection with safe use of the
goods in question, BOC shall immediately contact PB.
7.6 The property and risk in the goods shall remain in PB until, and shall
pass to BOC at, delivery. Delivery shall be in accordance with the
provisions of INCOTERMS 1990.
7.7 All claims for damage to the Products in transit must be submitted in
writing to PB within 30 days of delivery.
7.8 As soon as is reasonably practical, and in any event within 30 days of
receipt of the goods, BOC shall examine them for the purpose of
ascertaining whether they conform to the Agreement. If such goods do
not conform, BOC shall immediately give written notice
6
<PAGE>
thereof to PB with sufficient particulars.
7.9 PB warrants that clause 1.3 within the schedule 1 shall apply and,
where appropriate, credits will be issued for Products Supplied with
low yields.
8. Force Majeure
-------------
Neither party shall be liable to the other for any loss or damage which
may be suffered as a direct or indirect result of performance by that
party being prevented, hindered or delayed by reason of circumstances
or events beyond that party's reasonable control including, but not
limited to, act of God, war, riot, strike, lockout, trade dispute or
labor disturbance, flood, storm, or tempest.
If performance is so delayed or prevented for more than 90 days, either
party may terminate this Agreement with immediate effect. During this
period BOC may purchase its requirements for Products elsewhere.
9. General Provisions
------------------
9.1 Any notice hereunder shall be in the English language and shall be sent
to the latest advised contact and address responsible for managing the
Agreement. Currently they are:
John Needell George Moffett
BOC Gases Ferro Metal and Chemical Corp. Ltd.
The Priestley Centre 179 Kings Road
10 Priestly Road Reading
The Surrey Research Park RG1 4EX
Guildford Surrey
GU2 5XY
Fax: +44 (0) 1483 303921 +44 (0) 118 950 92316
Tel:. +44 (0) 1483 244285 +44 (0) 118 959 1961
9.2 No variation, modification or waiver of any of the terms of this
Agreement shall be valid unless made in writing and signed on behalf of
both parties.
9.3 Neither Party can assign this Agreement without prior written consent
of the other Party, such consent shall not be withheld unreasonably.
9.4 The creation, performance and discharge of this Agreement shall be
governed by the laws of England and its interpretation shall be subject
to the non-exclusive jurisdiction of the English Courts.
9.5 All details of this Agreement and the activities of both companies
associated with it shall
7
<PAGE>
remain confidential between the two parties until one year after the
termination of the Agreement
9.6 The safety contacts for this contract are
Dave Hook J C Borke
BOC Gases Odda Smelteverk AS
The Priestley Centre PO Box 68
10 Priestley Road 5751 Odda
The Surrey Research Park Norway
Guildford
GU2 5XY
Fax: +44 (0) 1483 505921 +
Tel: +44 (0) 1483 244161 +47 536 48691
Attachments to Agreement
SCHEDULE 1. CALCIUM CARBIDE PURCHASE SPECIFICATION
SCHEDULE 2. BOC LIMITED CONDITIONS OF PURCHASE
IN WITNESS whereof this Agreement has been duly executed after the
Schedules
Signed for and on behalf of Buyer Signed for and on behalf of Seller
/s/ John Needell /s/ Jack C. Bendheim
Name J. Needell Name J. C. Bendheim
----------------------------- ------------------------------
Position Supply Manager Position Pres.
------------------------- --------------------------
Date 4 Aug '98 Date Sept. 7, 1998
----------------------------- ------------------------------
8
<PAGE>
Iss/Rev: uk1
Date: 11/06/96
Page: 1 of 4
Document Title : CALCIUM CARBIDE PURCHASE SPECIFICATION
- --------------------------------------------------------------------------------
1.0 Product
1.1 General
Calcium Carbide purchased by BOC Gases, for the generation of [ ]
except as may be specified in the additional requirements set out below. The BOC
Group operates a number of different sizes and types of [ ]
in its subsidiary companies around the world. Where specific requirements are
necessary to suit these plants, these are detailed in Appendices to this
specification. Calcium carbide suppliers must pay careful attention to both the
body and appendices of this specification in order to fully meet BOC Gases'
requirements.
1.2 Size and Dust content
1.2.1 Graded Size
Graded sizes of calcium carbide shall be as set out in [ ]
The size range to be supplied shall be [ ]
1.2.2 Limits of oversize and undersize
Calcium carbide will only be accepted if all the following conditions are met:
o Needle like pieces must be no more than 1.5 times the upper limit of
the particle size
o No more than 5% may be oversize and no more than 15% may be undersize
o Of undersize product, at least 70% must be of the next finer size
o 100% of oversize product must be of the next coarser size
o Oversize pieces of 50/80 must pass through a test sieve of 90mm hole
size in accordance with DIN 4187
1.2.3 Dust
[
]
9
<PAGE>
Iss/Rev: uk1
Date: 11/06/96
Page: 2 of 4
Document Title : CALCIUM CARBIDE PURCHASE SPECIFICATION
- --------------------------------------------------------------------------------
1.3 Gas Yield
1.3.1 Gas yield
[
]
1.3.2 Shortfall from specified yield
[ ] Any such carbide will
be returned to the supplier, freight collect, and the supplier will issue a full
credit to BOC Gases for the carbide and any freight costs incurred.
1.4 Purity of Gas Generated
1.4.1 Phosphine
[
]
1.4.2 Hydrogen Sulphide
The level of hydrogen sulphide in the [ ] shall
not [ ]
1.4.3 Ammonia (and derivatives of ammonia)
The level of ammonia in the [ ] shall not
[ ]
1.5 Residual Products
may result in environmental or Calcium carbide supplied shall react with water
to form [ ] leaving residual sludge, which is essentially
[ ] Metallic inclusions and other foreign bodies cause serious
operational problems, may cause dangerous blockages of [ ]
10
<PAGE>
Iss/Rev: uk1
Date: 11/06/96
Page: 3 of 4
Document Title : CALCIUM CARBIDE PURCHASE SPECIFICATION
- --------------------------------------------------------------------------------
1.5.1 Metallic inclusions
Metallic inclusions in calcium carbide shall be less than [
]
1.5.2 Other residual products
Particles of brick, stones and other nonmetallic products must be less than [
]
1.6 Test Certificate
For each consignment, the manufacturer shall provide a Test Certificate showing
the average gas yield, phosphine, hydrogen sulphide, ammonia, arsenic, silicon
and metallic residual content, determined in their laboratory, plus size grading
and net weight. The specific packing date, batch number to which the certificate
refers must be clearly designated on the certificate.
1.7 Packaging
Calcium carbide will be packed in bulk containers or in sealed, unlined steel
drums. Steel drums shall have capacity of [ ] The drums will
be palletised with each pallet load not to exceed [ ]
The palletised drums will be strapped and the pallets stacked in a shipping
container in a stable and safe manner, so that the shipping container can be
unloaded by forklift truck at BOC Gases' sites, without manual handling of
individual drums. Pallets shall have either [ ]
drums on, as directed by BOC.
Packaging requirements are determined by individual countries legislation.
1.8 Marking and Labeling
Marking and labeling will generally be covered by individual countries
legislation. As a minimum, all drums must be identified with the following:
Trade name (if applicable) & Product description "Calcium carbide"
UN number "UN1402",
Name of Consignee, Name of Supplier, Country of Origin Emergency
contact details
The appropriate Hazard Diamond for flammable solids "Class 4.3"
Mesh Size
11
<PAGE>
Iss/Rev: uk1
Date: 11/06/96
Page: 4 of 4
Document Title : CALCIUM CARBIDE PURCHASE SPECIFICATION
- --------------------------------------------------------------------------------
Net Weight
Date of Filling & Batch Number
The (external) shipping container shall be marked on both sides and both ends by
a label or sign bearing the class label and the UN number, such sign to be not
less than 250 mm square.
1.9 Complaints
Any complaints about product quality or packaging will be referred to the
supplier within 30 days of receipt of the shipment at the consignee's plant.
Product which is subject to any complaint shall be quarantined until the issue
is resolved.
12
<PAGE>
BOC Limited conditions of purchase
1. Introduction and Definitions
1.1 Incorporation of These Conditions
The following Conditions of Purchase apply to and are deemed to be
incorporated in the Purchase Agreement ("Purchasing Agreement") or
Purchase Order ("Purchase Order") set out overleaf relating to the
supply of goods ("Goods") and / or services ("Services"). Purchasing
Agreements, contracts concluded by call-off Purchase Orders under,
Purchasing Agreements, and contracts concluded by the suppliers
acceptance of independent Purchase Orders are all covered by the
expression "Purchase Contract".
1.2 Exclusion of The Supplier's Conditions
These Conditions exclude any terms and conditions proffered by the
person, firm or company ("the Supplier") with whom the Purchasing
Agreement is made or to whom the Purchase Order is addressed, unless
the contrary is expressly and specifically agreed in writing by BOC.
They are in addition to and without prejudice to BOC's rights at common
law or by statute as purchasers.
1.3 BOC
"BOC" means the BOC Company as stated on the Purchase Order of Purchase
Agreement.
2 General
2.1 Purchase Orders
BOC will be responsible for payment for Goods or Services only if
ordered on an official BOC Purchase Order form.
2.2 Variations
Neither BOC nor the Supplier shall be bound by any variation to a
Purchase Contract, except as agreed in writing by both parties by means
of a Purchasing Agreement Amendment or Purchase Order Amendment (as
appropriate).
2.3 Acceptance
In the case of Purchase Orders calling off Goods or Services under a
Purchasing Agreement, the contract for the Goods or Services in
question shall be complete and binding as soon as the Purchase Order is
received by the Supplier (the Purchasing Agreement being deemed to
constitute a standing offer which is accepted by the Purchase Order).
The terms of the Purchasing Agreement shall apply and prevail over any
of these Conditions or any terms of a Purchase Order which are
inconsistent with the Purchasing Agreement.
2.4 Price
13
<PAGE>
2.4.1 Prices shall remain firm and fixed and shall not be subject to
any increase or escalation whatsoever for the duration of the
Purchase Contract (unless a variation to a Purchasing
Agreement is agreed by means of a BOC Purchasing Agreement
Amendment).
2.4.2 Unless otherwise stated in the Purchasing Agreement of
Purchase Order, and subject to 2.4.3 below, the price of Goods
shall be inclusive of the cost of carriage and packing and the
price of Goods or Services shall be inclusive of the cost of
carriage and packing and the price of Goods or Services shall
be inclusive of any duties, taxes (other than VAT), royalties,
tariffs or other impositions chargeable or liveable on Goods
or Services, and of any other sums whatsoever payable to any
person in respect of Goods or Services.
2.4.3 Where applicable VAT shall be paid by BOC at the rate ruling
at the time of supply.
2.5 Payment
Unless otherwise specified, payment instructions for the Goods or
Services shall normally be issued by the end of the month following the
month of invoice, which shall be rendered promptly after delivery and
acceptance of Goods or performance of Services.
2.6 Termination for breach or Bankruptcy
If the Supplier is in breach of any obligation under a Purchase
Contract or Commits any act of bankruptcy or, being a company, goes
into liquidation, has a receiver appointed or has an administration
order made, then, notwithstanding any previous waiver, BOC shall be
entitled to terminate the Purchase Contract immediately by written
notice, but without prejudice to any then existing rights of either
party, and to enter the Supplier's premises and remove any property of
BOC.
2.7 Assignment and Subletting
Purchase Contracts are made with the Supplier on the basis that the
Goods will be supplied and/or the Services performed by the Supplier
and no assignment or subletting may be made (except in minor respects)
without the specific written consent of BOC.
2.8 Materials Provided by BOC
The supplier shall be fully responsible for any loss or damage to any
free issue materials or to any BOC materials, equipment or other
property whist in the Suppliers possession for any purpose connected
with the Purchase Contract, and will promptly replace or repair as
required by BOC, at the Suppliers own cost, any equipment or other
property lost or damaged by the supplier.
14
<PAGE>
2.9 Confidentiality/Proprietary Rights
All plans, drawings, specifications, patterns or other technical
information, artwork or origination provided by BOC, relating to the
Goods or Services and all information provided by BOC or otherwise
acquired by the Supplier relating to BOC's business shall remain the
property of BOC, and (if in documentary form) forthwith upon completion
of the purchase Contract shall be returned to BOC in good condition. No
such plan, drawing, specification, pattern, information, artwork or
origination shall be shown nor its contents disclosed to any other
person, nor shall it be copied or used for any purpose other than for
the completion of the Purchase Contract.
2.10 Public Knowledge, etc.
The provisions of Clause 2.9 shall not apply to information already
known to the Supplier through sources owing no obligation of confidence
to BOC. Or which becomes public knowledge otherwise than through the
default of the Supplier.
2.11 Publicity
The Supplier shall make no reference to BOC in its advertising or
literature or correspondence (other than correspondence concerning the
Purchase Contract) without BOC's prior agreement in writing.
2.12 Indemnity and Insurance
2.12.1 The Supplier shall indemnify BOC against any liability, loss,
cost, expense, damage or injury in consequence of a defect in
design (other than a design made, furnished or specified by
BOC), materials or workmanship or any breach by the Supplier
of a Purchase Contract, save to the extent that such
liability, loss, cost, expense, damage or injury is due to the
negligence of BOC.
2.12.2 Unless otherwise stated in the Purchase Contract, the Supplier
shall be deemed to have arranged for, and the Supplier's price
shall be deemed to include the cost of, all necessary
insurances. In particular, insurance must be effected for:
(i) Public liability for not less than
(pound)1,000,000 for any one incident.
(ii) Product liability for not less than
(pound)1,000,000 for any one incident
subject to an aggregate of not less than
(pound)2,000,000 each year.
(iii) Employer's Liability Insurance Evidence of
these insurances shall be produced on
request.
2.13 Legal Construction
2.13.1 The Purchase Contract, acceptance, all correspondence,
specifications and other documents shall be in the English
Language.
15
<PAGE>
2.13.2 These conditions and the Purchase Contract shall be governed
by and construed in accordance with English Law.
2.13.3 Headings to Clauses are for guidance only and do not form part
of these Conditions.
2.13.4 References to Acts in these conditions are deemed to include
regulations thereunder and any amending legislation.
3. Supply of Goods
3.1 Expediting
BOC's staff or nominees shall be given access at all reasonable times
to the Suppliers works and premises, or those of its subcontractors, in
order to view and expedite work in progress.
3.2 Inspection and Training
The Supplier shall comply with the inspection and/or testing
requirements stated in the Purchase Contract. The Supplier is to advise
BOC at least seven days in advance when material will be ready for
inspection and/or testing. BOC's inspection shall not relieve the
Supplier from its guarantee or any obligation or responsibility to
furnish satisfactory material. BOC shall be entitled to waive
inspection at any point of manufacture, without prejudice to its right
to reject unsuitable material or equipment after arrival at
destination.
3.3 Delivery
3.3.1 The Goods, properly packed and secured, shall be delivered by
the Supplier at the time and at the place and in the manner
specified in the Purchase Contract.
3.3.2 The time stipulated for delivery or completion may not be
altered without the express written consent of BOC.
3.3.3 An Advice Note shall be sent by the Supplier to the BOC
address specified on the Purchase Contract on the same day as
the Goods are dispatched. The Advice Note shall reference the
BOC order number, quantities, item numbers, part numbers and
descriptions cross referenced to the Purchase Order and
clearly state the contents of the consignment.
3.3.4 A Delivery Note containing the same information as the Advice
shall accompany the Goods on delivery.
16
<PAGE>
3.4 Title and Risk
3.4.1 Title to all or any part of the Goods shall pass to BOC on the
earlier of:
- identification or allocation of such goods to the Purchase
Contract
- payment for such Goods
- delivery of such Goods
3.4.2 Risk in all or any part of the Goods shall be with Supplier
and shall only pass to BOC on delivery of such Goods.
3.5 Rejection
BOC shall be entitled, by notice in writing given within a reasonable
time after delivery, to reject Goods delivered which are not in
accordance with the Purchase Contract.
3.6 Storage
If, for any reason, BOC is unable to accept delivery of the Goods at
the time specified in the Purchase Contract, the Supplier shall, by
prior agreement with BOC, store the Goods and take all reasonable steps
to maintain them in a merchantable condition. BOC shall, subject to
written agreement, reimburse the Supplier for the reasonable costs of
such storage actually incurred.
3.7 Intellectual Property, Patents and Design Work
3.7.1 The Supplier warrants that the Goods to be supplied do not
infringe any intellectual property rights including patents,
designs (whether registered or not), copyright and trade
marks, and undertakes to indemnify BOC against all royalties
or licence fees (to the extent not specifically provided for)
and against all damages, losses or costs suffered by BOC in
respect of any breach of this warranty. The Supplier will give
BOC all such support and assistance as BOC reasonably requires
in defending any claim that the Goods infringe and
intellectual property right. If it should come to BOC's
knowledge that a claim may arise under this warranty. BOC
reserves the right to determine the Purchase Contract
forthwith on written notice and without further liability.
3.7.2 All intellectual property rights, including patents,
trademarks, designs and copyright, arising from work conducted
by the Supplier for the purpose of producing Goods
specifically for BOC shall belong to BOC, unless specifically
agreed otherwise by BOC in writing, and the supplier agrees at
BOC's expense to execute all documents and do all such other
things as may reasonably be required to assign such rights to
BOC. All copies of any designs and drawings and of any other
relevant documentation prepared by the Supplier or any third
party on its behalf for such purpose shall be provided to BOC
on request.
3.8 Statutory Requirements
17
<PAGE>
3.8.1 It is condition of the Purchase Contract that the Goods
supplied should conform in all relevant respects with the
requirements of the Health and Safety at Work, etc Act 1974
and comply with any other applicable Act, Regulation,
Directive or Code of Practice.
3.8.2 Information and advice regarding the transporting, storage,
operation or use of the Goods, together with notice of
potential hazards and safety precautions to be taken, shall be
provided to BOC in writing with the Goods, unless BOC and the
Supplier agree that they should be provided earlier.
3.9 Printed Supplies and Services
If the Purchase Contract is for the provision of printed supplier's
photographs and/or associated services (referred to in this Clause as
"the Work") then
(i) the Supplier agrees to assign to BOC copyright and property in
the Work prepared by it for BOC under this Purchase Contract
on completion thereof and undertakes to provide BOC, on
request and free of charge with all designs under takes to
provide BOC on request and free of charge with all designs.
drawings, illustrations, film negatives, positives. bromides,
proofs, photographs, special tools (including dies, cutters
and moulds) and any other material associated with the Work.
(ii) if the Supplier assigns or sublets any area of the Work to any
person who is not a party to the Purchase Contract, the
Supplier shall ensure that such person agrees to be bound by
this Condition as though a party to the Purchase Contract
failing to do so, including any claim made by such person
which it could not make if it were a party to the Purchase
Contract.
4. Supply of Services
4.1 Performance
Services shall be performed by competent trained staff to the
reasonable satisfaction of BOC.
4.2 Complaints
Without prejudice to any other rights of BOC, any complaint by BOC will
be investigated immediately by the Supplier and the Supplier will.,
upon BOC's written request, as soon as practicable at its own cost
remedy any defects in the Services, or perform the Services again, to
BOC's reasonable satisfaction.
18
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4.3 Statutory Requirements
The supplier shall observe the provisions of any statute, regulation or
statutory instrument applicable for the time being to the Services,
including the Health and Safety at Work, etc Act 1974.
4.4 Work on Site
If under the terms of the Purchase Contract the Supplier's employees
are required to work on BOC site the following Clauses 4.5 to 4.7 will
apply.
4.5 Responsibility
Materials used or to be used are at the Supplier's risk until
completion of the Purchase Contract and acceptance of the work.
4.6 Regulations
The Supplier must at all times abide by BOC's Rules and Regulations at
BOC sites, details of which will be made available by the Branch or
Depot Manager of the site concerned. Particular attention must be paid
to the site safety rules, "No Smoking" requirements and other warming
signs.
4.7 Site Clearance
The Supplier shall when required by BOC's site engineer or nominated
representative, carry away excavated and other unwanted material
arising from the execution of any works by the Supplier and shall from
time to time, as works progresses, remove all surplus materials,
debris, rubbish, temporary erections, etc and shall on completion leave
the site clear and tidy to BOC's satisfaction. These duties shall be
performed at the Supplier's cost.
5. Warranty
If within [ ] after putting into service
Zof the Goods (but not more than [ ] after
delivery) BOC gives written notice to the Supplier of any defect in the
Goods arising under proper use from faulty design, materials or
workmanship, the Supplier shall at its own cost (including labour,
dismantling, reassembling, transport and other incidental costs)
immediately, and without prejudice to any other right of BOC, repair or
replace the defective Goods. If any such defect or damage is not
remedied within, a reasonable time, BOC may proceed to do the work at
the Suppliers risk and expense, provided that the work to be undertaken
is carried out by competent personnel. Such repair or replacement shall
be covered by a further equivalent guarantee period.
19
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CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
THIS LICENSING AGREEMENT is made the 28th day of January one thousand nine
hundred and eighty between GUNNESS WHARF LIMITED having their registered office
at Gunness Wharf, Nr Scunthorpe, Humberside (hereinafter called "the Licensor"
which expression where the context so admits shall include all persons deriving
title under them) of the one part and BOC LIMITED having their registered office
at Hammersmith House, London W6 (hereinafter called "the Licensee" which
expression where the context so admits shall include all persons deriving title
under them) of the other part
WHEREAS,
1. The Licensee under an Agreement between the Parties dated 2 July one thousand
nine hundred and seventy three has been granted a licence by the Licensor to
occupy and use certain land and premises to carry on the manufacture and
distribution of Carbide Mixtures and
2. The Licensee wishes to expand its operations for the manufacture and
distribution of Carbide Mixtures and to take on licence from the Licensor
additional land and premises and the Licensor is willing to make such lands and
premises available to the Licensee
NOW THIS AGREEMENT WITNESSETH as follows
1. IN CONSIDERATION of the payments covenants conditions and agreements
hereinafter contained the Licensor hereby grants to the Licensee full right
licence and authority to occupy and use the undermentioned premises to enable
the Licensee to construct, operate, and maintain a facility for the manufacture
and distribution of Carbide Mixtures and such other activities as are set out in
the Managing Agents Agreement dated 28th January 1980 (hereinafter referred to
as "the Facilities") ALL THAT piece or parcel of land containing 8,000 square
metres or thereabouts situated within the Althorpe Wharf Site at Althorpe,
Humberside ('hereinafter referred to as "Althorpe") and delineated and marked
"A" on the plan annexed hereto which plan is hereinafter referred to as "the
Plan" and thereon coloured pink and hereinafter referred to as "the licensed
premises" TOGETHER WITH the right from time to time during the continuance of
the term hereby granted (a) to use such existing services in and about Althorpe
as may be reasonably required by the Licensee and to request the Licensor to
provide such additional or modified services in and about Althorpe as may be
reasonably required by the Licensee whether in accordance with any statute or
bye-law or otherwise in connection with the use of the licensed premises for the
purposes above mentioned and to connect the said services to any of the
Licensor's existing services which in the opinion of the Licensor are suitable
for the purpose (b) the right for the Licensee and all persons authorised by
them to pass and repass on foot and with or without vehicles over such routes
(hereinafter called the "Access roads") and on such conditions as are agreed by
the Licensor from time to time for the purpose of going to and from the licensed
premises and (c) the use on such terms and for such payments as shall be agreed
during the period of construction or reconstruction or any expansion or
modification of the
<PAGE>
Facilities or in the event of the termination of that part of the Managing
Agents Agreement dated 28th January 1980 between the Parties relating to the
supervision and carrying out of the grinding and mixing process of such office
and canteen accommodation telephones and toilets as are at the time existing at
Althorpe and can reasonably be made available by the Licensors to the Licensee
and all persons authorise by them TO HOLD -- the licensed premises unto the
Licensee until the expiry of 20 years from the Effective Date as defined in the
said Managing Agents Agreement SUBJECT ALWAYS to the right of the Licensee
exercisable at any time after 31 December 1981 to terminate this Licensing
Agreement by six months prior notice in writing expiring on any anniversary of
31 December 1981 YIELDING AND PAYING therefor the yearly payment of [
] or such greater or lesser payment as may be mutually agreed or
determined in accordance with the provisions of Clause 4 hereof by equal
quarterly payments in arrear on the last day of March the last day of June the
last day of September and the last day of December in every year commencing on
the last day of December 1979
2. The Licensee hereby covenants with the Licensor in manner following:
(1) to make the said payments at the times and in the manner above provided
without any deduction
(2) to pay and discharge all existing and future rates taxes duties and charges
payable in respect of the licensed premises
(3) to consult with the Licensor before erecting or placing upon the licensed
premises any buildings plant and equipment deemed necessary by the Licensee for
the purpose of manufacturing the said Carbide Mixtures the Licensor where
requested by the Licensee applying for and on behalf of the Licensee and
obtaining for and at the cost of the Licensee all necessary planning permissions
bye-law consents and other consents required to enable the licensed premises to
be used as a manufacturing and distribution facility as aforesaid
(4) (a) to provide details of all services required by the Licensee to
enable the licensed premises to be used as aforesaid and to
consult with the Licensor in order to determine the most
suitable manner in which such services can be installed or
provided
(b) to meet the cost of the provision by the Licensor of all
additional or modified services as provided for in Clause 1
(a) hereof
(5) Not during the said term hereby granted to erect or place on or in the
licensed premises any buildings or plant drains pipes cables or services except
in consultation with the Licensor and in accordance with descriptions previously
provided for the Licensor's information
(6) (a) to agree with the Licensor reasonable times for the execution
of all works under these presents in connection with the
preparation for and expansion or modification of the
Facilities which work to be undertaken by the Licensee with
all reasonable despatch
2
<PAGE>
and to arrange for the restoration and making good to the
reasonable satisfaction of the Licensors of all lands and
works of Licensors which may be interfered with in the
execution thereof all such matters to be at the cost of the
Licensee
(b) to comply with all existing and reasonable future rules and
regulations laid down by the Licensor and other responsible
officials and authorities from time to time in order to secure
proper and reasonable conduct of Althorpe which has multiple
occupancy
(7) From time to time and at all times during the continuance of the said term
and at their own risk and expense well and sufficiently to arrange for the
maintenance upholding and keeping of the licensed premises and all other
approved works in good order repair and condition to the reasonable satisfaction
of the Licensor at the cost of the Licensee
(8) To permit the Licensor and their servants or agents as often as is
reasonably necessary during the said term during normal working hours to enter
upon the licensed premises or any part thereof to examine the state of repair
and condition thereof and the Licensee will arrange for the repair and making
good of all defects and wants of reparation for which the Licensee is liable at
the cost of the Licensee
(9) To indemnify the Licensor and their servants or agents against any injury or
damage arising out of the use or otherwise of the licensed premises due to the
fault or negligence of the Licensee and during the continuance of the said term
to insure and keep insured the plant and buildings (except a warehouse of
approximately 8,400 square feet accommodation situated on the licensed premises
and which is the property of the Licensor) erected on the licensed premises and
all other approved works in connection therewith against the risk of loss or
damage by fire explosion aircraft riot and malicious damage in a sum equal to
the full value thereof for the time being and public liability to a limit of
indemnity to be agreed by the Licensor in some insurance office or offices of
repute and to pay all premiums necessary for effecting and maintaining such
insurances provided always that the conduct and control of all claims arising
under the indemnity granted in this clause shall be vested in the Licensee
(10) Not at any time during the said term hereby granted to use or occupy the
licensed premises or any part thereof for any purpose other than the manufacture
and distribution of Carbide Mixtures, the receipt and storage of raw materials
required for the manufacture of Carbide Mixtures and the repacking and the
despatch of calcium carbide or Carbide Mixtures or such other activities as are
carried out from time to time with the prior consent of the Licensor which
consent not to be unreasonably withheld.
(11) Not at any time during the said term hereby granted to sell assign or
transfer underlet make over or part with or share the possession or the
occupation of the licensed premises or any partthereof except to BOC
International Limited or its subsidiaries or associates without the written
consent of the Licensor which consent is not to be unreasonably withheld.
3
<PAGE>
(12) If as provided in Clause 1 hereof the Licensee shall terminate this
Licensing Agreement on 31 December 1982, or any anniversary thereof prior to the
expiry of [ ] from the Effective Date as defined in the
said Managing Agents Agreement the Licensee shall pay to the Licensor by way of
compensation a sum equivalent to [ ] the yearly payment
(or such other payment as may be mutually agreed or determined in accordance
with the provisions of Clause 4 hereof) which has been payable during the twelve
months immediately prior to the expiry of the notice of termination subject
always to the provision that if the Licensee shall terminate the Licensing
Agreement during the period commencing [ ] prior to the twentieth
anniversary of the Effective Date and terminating on the twentieth
anniversary of the Effective Date then the Licensee shall pay to the Licensor by
way of compensation a sum equivalent to the [ ] payment
that would have been paid between the termination date and the twentieth
anniversary of the Effective Date had this Licensing Agreement not been
terminated by the Licensee.
(13) At the expiration or sooner termination of the said term hereby granted
peaceably and quietly to yield up to the Licensor the licensed premises and
within nine months immediately following the date of termination unless
otherwise agreed with the Licensor in writing to remove at the cost of the
Licensee all plant and buildings and appliances and services existing thereon or
laid in connection therewith and to reinstate and make good the licensed
premises to the reasonable satisfaction of the Licensor, the Licensee during
such nine months or lesser period paying to the Licensor [
]
(14) Any persons visiting the licensed premises in connection with the business
of the Licensee shall conform to the rules set from time to time by the Licensor
and other responsible officials and authorities for proper conduct of the site
which has multiple occupation
3. The Licensor hereby covenants with the Licensee:
(1) That the Licensee making the said yearly and other payments hereby reserved
and performing and observing the covenants conditions or agreements herein
contained shall peaceably and quietly hold and enjoy the licensed premises
during the said term hereby granted without any interruption or disturbance from
or by the Licensor or any person or persons claiming under or in trust for them.
(2) To carry out at the reasonable cost and to the reasonable satisfaction of
the Licensee either themselves or by their sub-contractors all works required in
connection with the modification of or additions to the Althorpe services as
provided for in Clause 1 (a) hereof
(3) To provide without charge to the Licensee access roads from public roadways
to the Licensed premises that are suitable to enable the Licensee and all
persons authorised by them to construct, operate and maintain the facility for
manufacture and distribution of Carbide Mixtures and to conduct the business of
the facilities.
4
<PAGE>
4. The Parties shall meet [ ] prior to the [ ]
anniversary of the Effective Date to review the yearly payment of [ ]
and to agree what if any adjustment may be necessary to such payment having
particular regard to any change that may have occurred up to that time or
thereabouts in the appropriate index figure. Such appropriate index figure shall
be the [ ]
If such index be discontinued during the continuance of the Agreement then the
Index replacing it will be used and the figure of [ ] for June 1979 will
be adjusted to such figure as will give as near as reasonably possible the like
comparison on the basis of the information available as to the relationship
between the indices.
5. For the avoidance of doubt it is agreed by the Parties that all buildings
appliances plant or other constructions erected on the licensed premises (except
for a warehouse of approximately 8,400 square feet accommodation situated on the
licensed premises and which is the property of the Licensor) shall not become
annexed to the said licensed premises and shall be the property of the Licensee
or their contractors.
6. In the case of any dispute or difference arising between the Parties as to
the construction of this Licensing Agreement or the rights duties or obligations
of either party hereunder or any matter arising out of or concerning the same
every such dispute or matter of difference shall be referred to a single
arbitrator in case the Parties can agree upon one otherwise to some person
appointed by the President for the time being of the London Chamber of Commerce
and in either case in accordance with and subject to the provisions of the
Arbitration Act 1950 or any Statutory Modification or Reenactment thereof for
the time being in force.
7. Either Party shall be entitled to terminate this Agreement either in whole or
in part by notice in writing given by that Party to the other at any time if the
other Party shall have passed a Resolution providing for their liquidation
except for the purposes of reconstruction or amalgamation or if a receiver shall
be appointed of any of their assets or if circumstances shall have arisen which
shall entitle any person to appoint a receiver.
8. It is hereby agreed that a Licensing Agreement dated 2 July 1973 between the
Parties shall with effect from the 1st day of October 1979 cease to be of any
further force and effect except insofar as relating to liabilities incurred or
obligations outstanding by either Party at such date.
9. In entering into this Licensing Agreement, the Parties have agreed that,
subject to the provisions of Clause 1, the Agreement shall continue in full
force and effect until the expiry of from twenty years the Effective Date. If
the Licensee should wish to extend the Licence Agreementbeyond that date or
alternatively to enter into a new Licensing Agreement with the Licensor, the
Parties agree that they will in good faith endeavour to negotiate equitable
terms for such extension or new Agreement.
AS WITNESS WHEREOF
5
<PAGE>
The Parties have executed this Agreement the day and year first above written
Signed by /s/ Director
-----------------------------------
/s/ Secretary
-----------------------------------
For and on behalf of Gunness Wharf Limited
Signed by /s/
-----------------------------------
For and on behalf of BOC Limited
In the presence of /s/
--------------------------
6
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ADDENDUM
TO LICENSING AGREEMENT - CLAUSE 4
With effect from 1st February 1990 the yearly payment will be [ ]
The parties shall meet 12 months prior to the fifteenth anniversary of the
effective date, that being during January 1994 to review and agree terms for a
further five year period and at this time Licensee (B.O.C. Ltd.) shall have the
right to give one year's termination of contract if terms cannot mutually be
agreed subject to compensatory payments to the licenser, Gunness Wharf Limited
provided for in Clause 2 (paragraph 12).
B.O.C.
DATE: 1-9-89 DATE: 15-9-89
SIGNATURE: /s/ SIGNATURE: /s/
------------- ----------------
For and on behalf of:- For and on behalf of:-
GUNNESS WHARF LIMITED BOC LTD -
Carbide Industries
7
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL BRACKETED ([]) INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
Agreement made the 28th day of January one thousand nine hundred and eighty
between BOC LIMITED whose registered office is situated at Harmmersmith House,
London W6 and hereinafter called "Carbide Industries" of the one part and
GUNNESS WHARF LIMITED whose registered office is situated at Gunness Wharf, Nr
Scunthorpe, Humberside of the other part
WHEREAS:
(1) Under a Licensing Agreement dated 2 July 1973 Carbide
Industries have been granted by Gunness Wharf Limited the use
of certain lands at Althorpe Wharf, Althorpe, Humberside to
erect and operate a facility for the production and
distribution of Carbide Mixtures
(2) Carbide Industries now wish to expand the facility at
Althorpe Wharf aforesaid and under a Licensing Agreement
dated 28th January 1980 Carbide Industries have been granted
by Gunness Wharf Limited the use of certain lands at Althorpe
Wharf aforesaid for the erection and operation of the
extended facility for the production and distribution of
Carbide Mixtures
(3) Under an Agreement dated 2 July 1973 Gunness Wharf Limited
were appointed Managing Agents of the facility.
(4) Carbide Industries are desirous of appointing Managing Agents
to manage the said extended facility and have requested
Gunness Wharf Limited to accept such appointment
(5) Gunness Wharf Limited has agreed to accept such appointment
and is hereinafter in the Agreement referred to as the
"Managing Agents"
NOW THIS AGREEMENT WITNESSETH as follows
1. DEFINITIONS
In this Agreement except where the context otherwise requires the
following expressions shall mean:
Facilities
The mixing and grinding plant together with all ancillary plant
equipment and services which is situated at Althorpe Wharf on the
Effective Date including the containers used in connection therewith
for the distribution of CILTREAT
1
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Extended Facilities
The Facilities as defined above as modified developed expanded and
changed so as to enable Carbide Industries to supply increased
quantities of CILTREAT together with a warehouse built at Althorpe
Wharf and a laboratory and any other equipment which the Parties have
agreed shall be installed.
Plant
The Facilities and all or part of the Extended Facilities as the case
may be.
CILTREAT
The Carbide Mixtures as specified in Appendix I hereto or as may be
specified by Carbide Industries from time to time during the period of
this Agreement.
Althorpe Wharf
The lands licensed to Carbide Industries by the Managing Agents
situated at Althorpe, Humberside.
Gunness Wharf
The site where the calcium carbide and diamidkalk are discharged from
vessel.
Raw Materials
The calcium carbide diamidkalk and nitrogen and any other materials
agreed from time to time and required for the production of CILTREAT
BSC Works
The works of the British Steel Corporation situated at Scunthorpe,
Humberside and/or Lackenby, Teesside and/or Ravenscraig, Lanarkshire
or such other locations as are specified by Carbide Industries
Carbide Industries Representative
An employee or employees of Carbide Industries based at the Plant.
Effective Date
1 November 1979
Completion Date
The date when Carbide Industries shall certify to the Managing Agents
and the Managing Agents shall agree (such agreement not to be
unreasonably withheld) that the extended
Facilities are complete and capable of supplying [ ] of CILTREAT.
Store
8,400 sq. ft. of warehouse accommodation suitable for the storage of
calcium carbide and diamidkalk which is owned by the Managing Agents
and is situated at Althorpe Wharf and hired to Carbide Industries.
2
<PAGE>
Operating Instructions
Written instructions on operation of the Plant issued by the Carbide
Industries Representative or other nominated Carbide Industries
employee
Maintenance Procedures
Written procedures for Plant Maintenance issued by the Carbide
Industries Representative or other nominated Carbide Industries
employee
ton
A metric ton of 1,000 kilogrammes
week
A period of seven days commencing 00.01 hours Sunday
month
A calendar month
Programme Period
6 months commencing on any 1 October or 1 April
year
12 months commencing on any 1 October
2. STATUS OF MANAGING AGENTS
Except as otherwise expressly provided for in this Agreement the
relationship between Carbide Industries and the Managing Agents shall
be that of principal and agent. The Managing Agents accept the duty of
managing and operating the Plant and agree to afford to Carbide
Industries the full benefit of their ability, knowledge and
organisation.
3. DUTIES
Within the overall concept of their general managership of the Plant,
the Managing Agents shall inter alia be responsible for:
(i) The receipt and storage at the Plant and/or the Store of the
Raw Materials required for the production of CILTREAT. The
ordering and calling forward of Raw Materials shall normally
be carried out by the Carbide Industries Representative, but
when so requested by Carbide Industries the Managing Agents
shall order and call forward from the suppliers nominated by
Carbide Industries Raw Materials required for the production
of CILTREAT. No responsibility shall attach to the Managing
Agents as a result of any failure to obtain the Raw Materials
on time when properly requisitioned by them.
(ii) The receipt of the calcium carbide and diamidkalk at Gunness
Wharf or at such
3
<PAGE>
other site as may be arranged by the Managing Agents with the
prior authorisation of Carbide Industries, the clearing of
correctly prepared ships documents, the discharge of the said
materials from ship to the Plant or to Store as directed by
Carbide Industries and the transfer of the said materials
from Store to the Plant or within the Plant. The most
recently published Standard Trading Conditions currently the
1978 Edition as set out in Appendix III of the Institute of
Freight Forwarders Limited, and the General Conditions of
Contract of the National Association of Warehouse Keepers, as
amended and set out in Appendix III . thereto shall apply as
appropriate except insofar as in conflict with this Agreement
in which case the terms of this Agreement shall prevail.
(iii) The storage of the Raw Materials in the warehouse located at
the Plant and in the Store.
(iv) From the Effective Date until the Completion Date the
production of such quantities of CILTREAT as Carbide
Industries may require and as are agreed by the Parties to be
capable of achievement by the Plant having regard to the fact
that on occasions during this period, Carbide Industries will
require to interfere with normal production in the
Facilities. The Parties will use their best endeavours to
maintain a CILTREAT supply capability averaging at least [ ]
during this period. Carbide Industries shall advise the
Managing Agents in advance of the occasions and likely
duration of dislocation to normal production and the Managing
Agents shall use their best endeavours to meet the
requirements of the BSC Works
(v) With effect from the Completion Date the production of such
quantities of CILTREAT as Carbide Industries may require up
to a maximum rate of [
] or up to such greater production rate as may be
shown and agreed by the Managing Agents to be capable of
achievement from time to time under normal operating
conditions by the carrying out of the grinding and mixing
process in the Plant in accordance with the Operating
Instructions
(vi) The transfer of such quantities of CILTREAT so produced -
into containers provided at the cost of Carbide Industries
for delivery to the BSC Works (and elsewhere as agreed from
time to time) as are required in accordance with the
contractual arrangements between Carbide Industries and the
British Steel Corporation provided that such Contractual
arrangements be in accord with the terms and provisions of
the arrangement between Carbide Industries and the Managing
Agents
(vii) The weighing of and despatch by road transport of the loaded
containers to the BSC Works (or elsewhere as agreed from time
to time) and the return or the recovery of the empty
containers from the BSC Works to the Plant. The road
transport shall be selected or provided by the Managing
Agents at competitive
4
<PAGE>
rates to be agreed with Carbide Industries save that if
Carbide Industries in good faith consider such rates to be
uncompetitive or the service offered by a third party to be
superior then Carbide Industries shall be entitled to
nominate other road haulier(s) subject to the right of the
Managing Agents to require Carbide Industries not to use a
particular road haulier if the Managing Agents have valid and
bona fide reasons for not wishing to operate with that road
haulier, such reasons being unconnected with the preference
of Carbide Industries to use such alternative road haulier
instead of the Managing Agents and the Managing Agents shall
be responsible for calling forward such other transport to
meet Carbide Industries delivery requirements. Where the
Managing Agents are used as hauliers, the most recently
published Conditions of Carriage of the Road Haulage
Association Limited, currently the 1967 edition (Clause 3(4)
amended December 1971) as set out in Appendix I hereto shall
apply as appropriate except insofar as in conflict with this
Agreement, in which case the terms of this Agreement shall
prevail
(viii) The carrying out or provision by others of certain routine
scheduled maintenance of the Plant in accordance with
Maintenance Procedures issued in writing by Carbide
Industries
(ix) The carrying out or provision by others of certain incidental
non-routine or extraordinary maintenance and the repair of
the Plant in accordance with instructions issued by Carbide
Industries
(x) The provision of services and consumable supplies other than
power necessary for the operation of the Plant including oil
grease cleaning materials and first aid and protective
equipment
(xi) The packing or repacking of calcium carbide into drums or
other containers provided by Carbide Industries at Carbide
Industries cost and the labelling, weighing and despatch
thereof in accordance with the instructions issued by Carbide
Industries
(xii) The provision of an analytical service in a form to be agreed
in writing from time to time for the purpose of checking that
the CILTREAT produced in the Plant conforms to the
specification set out in the said Operating Instructions
(xiii) The provision of such management information including
accounting recording of Raw Materials production and finished
product stocks and maintenance reporting as may be agreed in
writing from time to time
(xiv) The consultation with the Carbide Industries representative
on matters affecting the management operation and maintenance
of the Plant
5
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4. REMUNERATION
With effect from the Effective Date Carbide Industries shall pay to
the Managing Agents in respect of their duties
(i) in managing operating and maintaining the Plant the
following Charges:
(a) an Operation Charge, being the actual costs
incurred by the Managing Agents in
providing labour to operate and maintain
the Plant, in providing protective clothing
and services for and provision of fork lift
trucks as set out in Appendix II
(b) a Management Charge being
A A Standing Charge being
(i) [ ] per month
during single shift operation
(ii) [ ] per month during
two shift operation
(iii) [ ] per month during
three shift operation
B A Tonnage Charge of [
]
(ii) in discharging the calcium carbide and diamidkalk
from vessel to road transport (as set out In Clause
3 (ii)) a Handling Charge being
Calcium Carbide in Drums [ ] per ton
Calcium Carbide in Containers [ ] per ton
Diamidkalk in Big Bags [ ] per ton
(iii) in transporting the calcium carbide and diamidkalk
from Gunness Wharf to the Plant or the Store and
the return of empty packages from the Plant or the
Store to Gunness Wharf and the loading onto vessels
a Transport Charge of [ ] per ton (comprised
of [ ] per ton as being the transport
charge on [ ]together with a [ ]
OPEC Fuel Surcharge)
(iv) in storing calcium carbide and diamidkalk in the
Store in accordance with the provisions of Clause 8
a Storage Charge to be mutually agreed by the
Parties.
5. METHOD OF PAYMENT
(i) In respect of the Labour Charge as provided for in
Clause 4 and Appendix II the Managing Agents will
invoice Carbide Industries with the best
6
<PAGE>
possible estimate of the amount of the Labour
Charge at the beginning of the month to which the
Charge refers and within 10 days of receipt of
invoice Carbide Industries will pay the Managing
Agents this amount. Within 7 days of the end of the
month to which the Labour Charge relates the
Managing Agents will send Carbide Industries a
statement showing the exact amount of the Labour
Charge in that month and will issue an appropriate
credit or debit which will be paid within 10 days.
(ii) In respect of the Charges as set out in Clause 4
(except for the Labour Charge), the Managing Agents
will invoice Carbide Industries in respect of these
Charges within ten days of the end of the month
concerned and Carbide Industries will pay the
Managing Agents by the end of the month immediately
following the month to which the Charge relates.
6. VARIATION OF REMUNERATION
The Charges as set out in Clause 4 of this Agreement may be varied in
accordance with the following provisions:
(i) The Operation Charge [
] and the Operation
Charge shall be calculated so as to enable the Managing
Agents exactly to recover [ ] from Carbide
Industries. The Managing Agents shall consult with and obtain
the approval of Carbide Industries prior to agreeing any
change in the number of employees and terms and conditions of
employment at the Plant subject to the provision that Carbide
Industries will not unreasonably withhold approval to any
change aforesaid requested by the Managing Agents so as to
enable the Plant to be operated in a businesslike and
efficient manner. In adopting this Procedure, the Parties
anticipate that labour costs at the Plant will vary
approximately in line with variations in labour costs
incurred by the Managing Agents at Gunness Wharf and with
other labour costs in the surrounding area.
(ii) With effect from 1 October 1980, the Management
charge as provided for in Clause 4(i)(b) shall be
varied in accordance with changes in the [
] The Management
Charge shall varied by multiplying it by the
[ ] for the July
immediately preceding the 1 October in question and
dividing it by the [ ] and
the amended Management Charge shall apply for the
year commencing on that date.
(iii) With effect from [ ] the Handling Charge
and the Transport Charge as provided for in Clause
4(ii) and 4(iii) shall be subject to
7
<PAGE>
variation to the extent that the [
] changes. The Managing Agents
shall provide Carbide Industries with a detailed
breakdown of any such cost changes and where
requested by Carbide Industries shall provide
Carbide Industries with such further information on
the nature and extent of cost changes that Carbide
Industries may require. The Parties shall meet at
least one week prior to each 1 February and shall
agree the Handling Charge and the Transport Charge
to apply for the twelve months commencing on the
next 1 February on the basis that the Handling
Charge and Transport Charge shall be varied by the
same percentage as the [ ] in providing these
services has varied. In adopting this procedure for
the variation of the Handling and Transport Charges,
the Parties agree that it is their intention that
the Agreement shall operate between them fairly, and
if in the course of performance unfairness to either
Party is disclosed or anticipated then the Parties
shall use their best endeavours to agree upon such
action as may be necessary and equitable to remove
the cause or causes of the same.
7. DURATION
(i) This Agreement shall come into effect from the
Effective Date and shall continue in force until
terminated:
(a) by Carbide Industries giving to the
Managing Agents not less than 12 months
written notice, such notice expiring on the
third anniversary of the Effective Date or
at any time thereafter.
(b) by the Managing Agents giving to Carbide
Industries not less than 12 months written
notice expiring not earlier than the
eleventh anniversary of the Appointed Date
as provided for in an agreement between
Carbide Industries - and British Steel
Corporation and such date to be advised by
Carbide Industries to the Managing Agents.
(ii) If a notice is given under sub-clause (i) (a) of
this Clause, Carbide Industries shall by the expiry
of such notice period pay to the Managing Agents a
sum equivalent to [
] subject always
to the provision that the Managing Agents shall use
their best endeavours to offer suitable alternative
employment to any such employee and shall endeavour
to persuade any such employee to accept such an
offer.
8
<PAGE>
8. STORAGE
The Managing Agents shall make available to Carbide Industries the
Store. In respect of the hiring of the Store Carbide Industries shall
be liable for payment of rates levied by the local authority in
addition to the Storage Charge provided for in Clause 4 (iv). The
Managing Agents shall be responsible for the maintenance and repair of
the Store and for the insurance against fire, explosion and other
usual perils as agreed by the Parties for full reinstatement value of
the building. Storage shall be in accordance with The General
Conditions of Contract of the National Association of Warehouse
Keepers and the Standard Trading Conditions of the Institute of
Freight Forwarders Limited as amended and set out in Appendix III
hereto which shall apply as appropriate except insofar as in conflict
with this Agreement in which case the terms of this Agreement shall
prevail.
9. CONFIDENTIALITY
The Managing Agents undertake to keep in confidence all information
relating to the plant and process for the manufacture of CILTREAT
disclosed to them by Carbide Industries and shall not disclose such
information in whole or in part to any third party without the prior
written consent of Carbide Industries.
10. PROPERTY, MAINTENANCE AND SAFEGUARD
(i) The Plant and all Raw Materials and work in progress and all
stores spares plans designs specifications accounts records
and other, documents associated with the construction and
operation of the Plant and all monies provided by Carbide
Industries and held by the Managing Agents in connection
therewith shall at all times remain the property of Carbide
Industries and shall be dealt with as they may direct. For
the avoidance of doubt this clause shall not apply to
payments due or made under Clause 4 hereof and Carbide
Industries shall indemnify the Managing Agents against all
actions or claims resulting from or related to the Managing
Agents complying with this Clause save such actions and
claims as result from the negligence or default of the
Managing Agents, provided always that the conduct and control
of all claims arising under this indemnity shall be vested in
Carbide Industries
(ii) Carbide Industries shall have the right at all times to enter
the Plant and to inspect the same and all Raw Materials and
work in progress thereat and subject to reasonable notice
being given to inspect all agency documents in relation
thereto
(iii) The Managing Agents shall in the performance of their
obligations as Managing Agents under this Agreement take all
reasonable steps to ensure the safety of the Plant and the
Raw Materials and work in progress therein and to prevent the
occurrence of any event whereby the operation of the Plant
might be interrupted
9
<PAGE>
or any property of Carbide Industries might be damaged or
destroyed provided always that where such steps shall
necessitate financial expenditure they shall consult with
Carbide Industries who shall meet all expenditure approved by
them.
11. ORDERS FOR CILTREAT
(i) From the Effective Date until the Completion Date while the
extended Facilities are being built and commissioned Carbide
Industries and the Managing Agents will work as closely as
possible with the British Steel Corporation in meeting their
requirements for CILTREAT.
(ii) Two weeks prior to any Programme Period the Managing Agents
will be given Carbide Industries' best possible estimate of
the production and sales requirements of CILTREAT for that
Programme Period. The Managing Agents shall be provided with
written details of the weekly production and sales
requirements of CILTREAT (by grades) not less than 57 hours
before the commencement of each week.
12. BREACH OF CONTRACT AND LIQUIDATION
(i) Carbide Industries and the Managing Agents shall be entitled
to terminate this Agreement by not less than three months
notice in writing given by the one to the other at any time
if (subject always to the right of the other party to refer
the matter to arbitration under Clause 14 hereof) after
hearing any representation that the other may make that the
other has committed any breach of or has failed to observe
and perform to a significant degree any of the provisions of
this Agreement and has failed to rectify such breach or
omission on reasonable written notice thereof
(ii) Either Party shall be entitled to terminate this Agreement
either in whole or in part by notice in writing given by that
Party to the other at any time if the other Party shall have
passed a Resolution providing for their liquidation except
for the purposes of reconstruction or amalgamation or if a
receiver shall be appointed of any of their assets or if
circumstances shall have arisen which shall entitle any
person to appoint a receiver
(iii) Upon the termination of this Agreement either in whole or in
part under either of the above provisions Carbide Industries
shall be entitled to employ any person firm or Company for
the purpose of carrying out duties required to be performed
under the terms of this Agreement.
13. FORCE MAJEURE
10
<PAGE>
If at any time during this Agreement either Party shall be prevented
by force majeure (which expression where used in this Agreement shall
include acts of God strikes lockouts labour disputes fire accident or
any other cause whatsoever whether or not of a like kind beyond that
Party's control) from carrying out the duties or performing the
services to be provided hereunder they shall not be liable to the
other Party for any loss thereby sustained but shall take all
reasonable steps expeditiously to ensure the resumption of the duties
and services with the minimum of delay. During any such force majeure
period Carbide Industries shall advise the Managing Agents as to which
services Carbide Industries require the Managing Agents to provide at
the Plant and Carbide Industries shall reimburse to the Managing
Agents the actual costs incurred by the Managing Agents in providing
services authorised by Carbide Industries. It is agreed that during
any force majeure period the Management Fee as provided for in Clause
4 shall continue to be paid.
14. ARBITRATION
In the case of any dispute or difference arising between the Parties
as to the construction of this Agreement or the rights duties or
obligations of either party hereunder or any matter arising out of or
concerning the same and assuming the Parties cannot come to a mutually
agreeable understanding within a thirty day period every such dispute
or matter of difference shall be referred to a single arbitrator in
the case the Parties can agree upon one otherwise to some person
appointed by the President for the time being of the London Chamber of
Commerce and in either case in accordance with and subject to the
provisions of the Arbitration Act 1950 c: any Statutory Modification
or Re-enactment thereof for the time being in force.
15. TERMINATION OF AGREEMENT DATED 2 JULY 1973
It is hereby agreed that an Agreement dated 2 July 1973 between the
Parties shall from the Effective Date cease to be of any further force
and effect except insofar as relating to liabilities incurred or
obligations outstanding by either Party at such date.
AS WITNESS WHEREOF
The Parties have executed this Agreement the day and year first above written
Signed by /s/
-----------------------------------------------
For and on behalf of BOC Limited
11
<PAGE>
In the presence of /s/
----------------------------------
Signed by /s/ Director
----------------------------------
/s/ Secretary
- -----------------------------------------------
For and on behalf of Gunness Wharf Limited
12
<PAGE>
APPENDIX I
1 Size Specification
All grades of CILTREAT shall conform to the following size
specification
[ ]
[ ]
[ ]
2 Carbide content
2.1 CILTREAT 60 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
2/2 CILTREAT 65 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
2.3 CILTREAT 70 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
2.4 CILTREAT 75 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
2.5 CILTREAT 80 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
2.6 CILTREAT 85 shall mean a mixture of Calcium Carbide and CILFIL
containing not less than [ ]
Calcium Carbide
The percentage of Calcium Carbide shall be calculated by [
]
13
<PAGE>
OPERATION CHARGE
The Operation Charge shall comprise a Labour Charge and a Plant Charge being
(1) Labour Charge
The Labour Charge shall be the [
]
[
]
[ ]
[ ]
[
]
[
]
The Parties shall agree the number of employees of the Managing Agents who
shall be employed at the Plant from time to time having regard to Carbide
Industries CILTREAT requirements. In the light of present knowledge the Parties
anticipate that the maximum number of employees who shall be required to
operate the Plant shall be as follows:
For single shift operation [ ] men
For two shift operation [ ] men
For three shift operation [ ] men
The Parties having due regard to CILTREAT requirements and safety
considerations will use their best endeavours to minimise the number of
personnel employed at the Plant at any time. For the avoidance of doubt, it is
agreed that the costs or any Management personnel employed by the Managing
Agents at the Plant or elsewhere shall be included in the Management Fee.
(2) Plant Charge
The Plant Charge shall be the [ ]
[
]
[
14
<PAGE>
]
[ ]
[ ]
15
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-64641) of our report dated September 11, 1998, which report is based, in
part, on the report of other auditors for fiscal 1997, on our audits of the
consolidated financial statements of Philipp Brothers Chemicals, Inc and
Subisidaries as of June 30, 1998 and 1997 and for the years then ended. We also
consent to the references to our firm under the caption "Experts."
PRICEWATERHOUSECOOPERS, LLP
Florham Park, New Jersey
November 20, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Philipp Brothers
Chemicals, Inc. on Form S-4 of our report dated September 6, 1996 relating to
the financial statements of Philipp Brothers Chemicals, Inc. and Subsidiaries
for the year ended June 30, 1996, and to all reference to our firm included in
or made a part of the Registration Statement of Philipp Brothers Chemicals, Inc.
EDWARD ISAACS & COMPANY LLP
New York, New York
December 10, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-64641) of our report dated May 13, 1998 on our audits of the
consolidated financial statements of Koffolk (1949) Ltd.
DOV KAHANA & CO.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
December 10, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-64641) of our report dated August 24th, 1998 on our audits of the
consolidated financial statements of L.C. Holding Company.
CONSTANTIN ASSOCIES
Paris, France
December 10th, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated 28th August 1998 on our audit of the consolidated financial
statements of Ferro Metal and Chemical Corporation Limited for the year ended
30th June 1996.
WILSON WRIGHT & CO.,
Chartered Accountants
and Registered Auditors,
71 Kingsway,
London WC2B 6 ST.
Date: 10th December 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated 29th September 1998 on our audit of the consolidated financial
statements of Wychem Limited for the year ended 30th June 1996.
WILSON WRIGHT & CO.,
Chartered Accountants
and Registered Auditors,
71 Kingsway,
London WC2B 6 ST.
Date: 10th December 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Philipp
Brothers, Inc. on Form S-4
(File No. 333-64641) of our report dated November 18, 1998 on our audit of the
combined financial statements of ODDA as of and for the fiscal year ended
September 30, 1998. We also consent to the reference to our firm under the
caption "Experts".
PRICEWATERHOUSECOOPERS DA
Bergen, Norway
December 10, 1998
