<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23,1998
REGISTRATION NO. 333-64641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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> <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> <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 NOVEMBER 23, 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.
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 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 and such Holder is not engaged in and
does not intend to be engaged in a distribution of such 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 DEBT SERVICE
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. The Company anticipates that its 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 become due. 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
15
<PAGE>
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
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
16
<PAGE>
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 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,
17
<PAGE>
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.
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
18
<PAGE>
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 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
19
<PAGE>
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 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
20
<PAGE>
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.
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."
LABOR RELATIONS CONSIDERATIONS
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
21
<PAGE>
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 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
22
<PAGE>
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 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
23
<PAGE>
Credit Facility or other agreements relating to indebtedness, if accelerated,
and then to repurchase the Notes.
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>
(Footnotes on next page)
24
<PAGE>
(Footnotes from previous page)
- ------------------
(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.
(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
---------- -------------- -------------- ---------
ASSETS
<S> <C> <C> <C> <C>
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) Reflects historical results of operations and financial position of
ODDA as of and for the twelve months and three months ended
September 30, 1998. Accordingly, the results of operations of ODDA
for the three months ended September 30, 1998 are included in the
unaudited pro forma condensed statements of operations for the twelve
months and three months ended September 30, 1998.
(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 in excess of the assumed fair value of net
assets acquired 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. 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 used in the purchase of ODDA.
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 ($1.7 million) as
a result of lower customer demand. Lower volume sales of animal nutritional
supplements ($.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 ("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 $580,000, $585,000 and $920,000 in the
fiscal years ended June 30, 1996, 1997 and 1998, respectively, towards
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compliance with Y2K issues. The Company believes that its Manufacturing Systems
are currently in substantial Y2K compliance. A significant portion of the
Company's U.S. operations are Y2K compliant, with the remainder expected to be
in full compliance during the quarter ending March 31, 1999. The Company's
operations in France and the United Kingdom are presently in Y2K compliance,
while the Israeli and Norwegian operations are expected to be in full compliance
during calendar 1999. The Company expects that any required modifications will
be made on a timely basis. The Company estimates that future expenditures will
not exceed $150,000.
The Company's Y2K effort also provides for contacting and considering the
readiness of significant customers, suppliers and other third party providers,
as to whether they have effective plans to address the Y2K issues.
The Company is considering revising its existing business interruption
contingency plans to address internal and external issues specific to the Y2K
problem, to the extent practicable. Such revisions are expected to be completed
by mid 1999. These plans, which are intended to enable the Company to continue
to operate on January 1, 2000 and beyond, include performing certain processes
manually, repairing or obtaining replacement systems; changing suppliers; and
reducing or suspending operations. These plans are intended to mitigate both
internal risks as well as potential risks in the supply chain of the Company's
suppliers and customers. The Company believes, however, that due to the
widespread nature of potential Y2K issues, the contingency planning process is
an ongoing one which will require further modifications as the Company obtains
additional information regarding the Company's internal systems and equipment
during the 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 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. 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.
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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.
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
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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 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
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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 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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<PAGE>
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
47
<PAGE>
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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<PAGE>
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.
49
<PAGE>
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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<PAGE>
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.
51
<PAGE>
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.
55
<PAGE>
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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<PAGE>
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. 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.
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.
57
<PAGE>
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.
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.
58
<PAGE>
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, 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
59
<PAGE>
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 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
60
<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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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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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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
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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
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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."
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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.
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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
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<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 FEDERAL, 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.
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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
------------ -------------- ------------- ------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
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
------------ -------------- ------------- ------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
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
------------- --------
ASSETS
<S> <C> <C>
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>
PREFERRED COMMON STOCK 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
------------ ------------- -------------------- ------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
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-51
<PAGE>
ODDA
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(AMOUNTS IN NOK 1,000S)
<TABLE>
<CAPTION>
ASSETS
(AMOUNT IN
NOK 1,000s)
-----------
<S> <C>
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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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............................. 45
Business....................................... 52
Conditions in Israel........................... 76
Management..................................... 79
Principal Stockholders......................... 84
Description of Capital Stock................... 84
Certain Relationships and Related
Transactions................................. 85
Description of Certain Indebtedness............ 87
Description of the Notes....................... 90
Book Entry; Delivery and Form.................. 119
Exchange Offer; Registration Rights............ 120
Certain United States Federal Income Tax
Considerations............................... 122
Plan of Distribution........................... 123
Legal Matters.................................. 124
Experts........................................ 124
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
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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
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<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
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<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.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------------
<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***
5.4 -- Opinion of Schmiedeskamp, Robertson, New & Mitchell regarding the legality of securities being
registered***
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C> <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> <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.
*** To be filed by amendment.
+ 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ MARVIN S. SUSSMAN* Director November 16, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ JAMES O. HERLANDS* Director November 16, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Vice President and Chief Financial November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ I. DAVID PALEY* Director and President November 16, 1998
- ------------------------------------------
I. David Paley
/s/ JAMES O. HERLANDS* Director November 16, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Vice President and Chief Financial November 16, 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 NOVEMBER 16, 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 November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Officer, Managing Member (Principal
Jack C. Bendheim Executive Officer, Managing Member)
/s/ I. DAVID PALEY* Director and Vice President, Managing November 16, 1998
- ------------------------------------------ Member
I. David Paley
/s/ NATHAN Z. BISTRICER* Director, Vice President and Chief November 16, 1998
- ------------------------------------------ Financial Officer, Managing Member
Nathan Z. Bistricer (Principal Financial Officer and Principal
Accounting Officer)
/s/ HUGH P. SHANNONHOUSE* Director, Managing Member November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ I. DAVID PALEY* Director and Vice President November 16, 1998
- ------------------------------------------
I. David Paley
/s/ HUGH P. SHANNONHOUSE* Director November 16, 1998
- ------------------------------------------
Hugh P. Shannonhouse
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director November 16, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director November 16, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ I. DAVID PALEY* Director, President and November 16, 1998
- ------------------------------------------ Chief Operating Officer
I. David Paley
/s/ NATHAN Z. BISTRICER* Director, Senior Vice President November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Officer (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President November 16, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President November 16, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ (Principal Executive Officer)
Jack C. Bendheim
/s/ MARVIN S. SUSSMAN* Director and President November 16, 1998
- ------------------------------------------
Marvin S. Sussman
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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 NOVEMBER 16, 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 November 16, 1998
- ------------------------------------------ Chief Executive Officer
Jack C. Bendheim (Principal Executive Officer)
/s/ JAMES O. HERLANDS* Director November 16, 1998
- ------------------------------------------
James O. Herlands
/s/ NATHAN Z. BISTRICER* Director, Vice President and November 16, 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-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <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> <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> <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> <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.
*** To be filed by amendment.
+ 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>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PHIBRO-TECH, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
PHIBRO-TECH, INC., a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: FOURTH of the Corporation's Certificate of Incorporation is
hereby amended to read in its entirety as set forth below:
FOURTH: 1. Classes of Stock. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is five thousand
seven hundred and sixty (5,760), (a) divided into two classes of common stock,
consisting of (i) four thousand (4,000) shares of Class A Common Stock, par
value of one cent ($0.01) per share and (ii) seven hundred and sixty (760)
shares of Class B Common Stock, par value of one cent ($0.01) per share
(together, the "Common Stock") and (b) one thousand (1,000) shares of
Preferred Stock having a par value of one cent ($0.01) per share (the
"Preferred Stock").
2. Series of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby expressly
vested with the authority to designate by resolution or resolutions the
powers, preferences and relative, participating, optional or other rights, if
any, and the qualifications, limitation or restrictions thereof, including,
without limitation, the voting powers, if any, the dividend rate, conversion
rights, redemption price or liquidation preference, or any series of Preferred
Stock, and to fix the number of shares constituting any such series and to
increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding).
3. Identical Rights. Except as otherwise set forth in this article
F0URTH, all shares of Common Stock shall be identical and shall entitle the
holders thereof to the same powers, preferences and rights, and the same
qualifications, limitations and restrictions thereof.
4. Dividends. No dividends shall be declared or paid on Class B
Common Stock prior to June 30, 2004, other than stock dividends payable in
shares of Class B Common Stock to the extent necessary to preserve the
proportionate investments of certain management executives of the Corporation
and Philipp Brothers Chemicals, Inc. ("PBC") to whom the shares of Class B
Common Stock are to be sold pursuant to certain Subscription Agreements dated
as of December 30, 1994, provided however, that at no time shall the number of
shares of Class B Common Stock issued and outstanding exceed 16% of the
aggregate number of issued and outstanding shares of the class or classes of
stock of the Corporation entitled to elect a majority of the Board of
Directors of the Corporation.
5. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, no dividends, distributions or other payments
shall be made to holders of the Class B Common Stock until all claims of the
holders of the 11.00% Senior Notes due June 29, 2004 originally issued by PBC
on September 2, 1994 (the "PBC Notes"), on and with respect to the PBC Notes,
shall have been satisfied in full.
<PAGE>
6. Subdivision and Combination. If the Corporation shall in any
manner subdivide (by stock split, stock dividend or otherwise) or combine (by
reverse stock split or otherwise) the outstanding shares of one class of
Common Stock, the outstanding shares of the other class of Common Stock shall
be proportionately subdivided and combined.
7. Conversion. Each share of Class B Common Stock shall automatically
convert into one share of Class A Common Stock upon the earlier of (a) June
30, 2004 and (b) 91 days following the prepayment in full of the PBC Notes.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Class A Common Stock, solely for the
purposes of issuance upon the conversion of the Class B Common Stock as
provided above, such number of shares of Class A Common Stock as are then
issuable upon the conversion of all outstanding shares of Class B Common
Stock. All shares of Class A Common Stock which are issuable upon conversion
shall, when issued, be duly and validly issued, fully paid and nonassessable
and free from liens and charges. The Corporation shall take all such action as
may be reasonably necessary to assure that all such shares of Class A Common
Stock may be so issued without violation of any law or any regulation, rule or
other requirement of any governmental authority applicable to the Corporation.
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: On the date this Certificate of Amendment becomes effective,
each of the four thousand shares of the Corporation's common stock par value
of one cent ($0.01) per share, authorized to be issued immediately prior to
the effectiveness of this Certificate of Amendment, whether or not issued and
outstanding, shall, without further action on the part of the Corporation or
the respective holders thereof, be reclassified and changed into one share of
Class A Common Stock, par value of one cent ($0.01) per share of the
Corporation.
IN WITNESS WHEREOF, the Undersigned has caused this
Certificate to be duly execute in its corporate name this 30th day of
December, 1994.
PHIBRO-TECH, INC.
By: /s/ I. David Paley
------------------
I. David Paley
President
ATTEST:
By: /s/ Joseph M. Katzenstein
-------------------------
Joseph M. Katzenstein
Secretary
<PAGE>
STATE OF DELAWARE SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/29/1993
933635312 -- 2238836
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ENTECH RECOVERY, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
ENTECH RECOVERY, INC., a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: FIRST of the Corporation's Certificate of Incorporation is
hereby amended to read in its entirety as set forth below:
FIRST: The name of the corporation is PHIBRO-TECH, INC. (hereinafter
the "Corporation").
SECOND: FOURTH of the Corporation's certificate of Incorporation is
hereby amended to read in its entirety as set forth below:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is five thousand (5,000), of which
four thousand (4,000) shares shall be Common Stock having a par value of one
cent ($.0l) per share (the Common Stock" [sic]) and one thousand (1,000) shall
be Preferred Stock having a par value of one cent ($.01) per share (the
Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby expressly rested [sic] with authority
to designate, by resolution or resolutions the powers, preferences and
relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price, or liquidation preference, or any series of Preferred Stock,
and to fix the number of shares constituting any such series and to increase
or decrease the number of shares of any such series (but not below the number
of shares thereof then outstanding). The number of authorized shares of any
class or classes of stock may be increased or decreased (but not above the
number of shares thereof then authorized or below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock at the Corporation entitled to vote.
THIRD: The foregoing amendments were duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
duly executed in its corporate name this 17th day of December, 1993.
Entech Recovery, Inc.
By: /s/ I. David Paley
------------------
I. David Paley
President
<PAGE>
ATTEST:
By: /s/ Nathan Bistricer
--------------------
Nathan Bistricer
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ENTECH RECOVERY, INC.
The undersigned, a natural person for the purpose of organizing a
corporation for the conduct of the business and promotion of the purposes
hereinafter stated, under the provisions of and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code, identified and referred to as the General Corporation Law of
Delaware), hereby certifies that:
FIRST: The name of the corporation is:
Entech Recovery, Inc.
SECOND: The address of the corporation's registered office in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the registered agent of the corporation at such
address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is three thousand (3,000), of which
two thousand 2, 000) shares shall be Common Stock having a par value of one
cent ($.0l) per share (the "Common Stock") and one thousand (1,000) shall be
Preferred Stock having a par value of one cent ($.01) per share (the
"Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby expressly vested with authority to
designate by resolution or resolutions the powers, preferences and relative
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, including, without limitation the voting
powers, if any, the dividend rate, conversion rights, redemption price, or
liquidation preference, or any series of Preferred Stock, constituting any
such series and to increase or decrease the number of shares of any such
series (but not below the number of shares thereof then outstanding). The
number of authorized shares of any class or classes of stock may be increased
or decreased (but not above the number of shares thereof then authorized or
below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the stock of the corporation entitled to vote.
FIFTH: The name and mailing address of the sole incorporator is:
MAILING ADDRESS
Jill A.G. Rosenbluth
c/o Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholders thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of
<PAGE>
the stockholders or class of stockholders of this corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this corporation, as the case may be, and also on this
corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred
by Section 109 (a) of the General Corporation Law of Delaware, the board of
directors is expressly authorized to adopt, amend to repeal the by-laws of the
corporation.
NINTH: The corporation shall indemnify, to the full extent permitted
by Section 145 of the General Corporation Law of Delaware, as amended form
[sic] time to time, all persons whom it may indemnify pursuant thereto.
TENTH: No Director shall be personally liable to the corporation or
any such holder for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director shall be
liable under Section 174 of Title 8 of the General Corporation Law of Delaware
or any amendment thereto or successor provision thereto or shall be liable by
reason that, in addition to any and all other requirements for such liability,
he (i) shall have breached his duty of loyalty to the corporation or its
stockholders, (ii) shall not have acted in good faith or in failing to act,
shall not have acted in good faith, (iii) shall have acted in a manner
involving intentional misconduct or knowing violation of law or in failing to
act, shall have acted in a manner involving intentional misconduct or a
knowing violation of law or (iv) shall have derived an improper personal
benefit. Neither the amendment nor repeal of this Article TENTH nor the
adoption of any provision of the Certificate of Incorporation inconsistent
with this Article TENTH, shall eliminate or reduce the effect of this Article
TENTH in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article TENTH, would accrue or arise, prior to such
amendment repeal or adoption of an inconsistent provision. This Article TENTH
shall neither eliminate nor limit the liability of a director for any act or
omission occurring prior to the adoption of this Article TENTH.
ELEVENTH: Election of directors need not be by written ballot.
TWELFTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereinafter prescribed by statute, and all rights conferred by
the stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation this 9th day of August 1990.
/s/ Jill A. G. Rosenbluth
- -------------------------
Jill A. G. Rosenbluth
Sole Incorporator
<PAGE>
Agreement of Lease
Made and signed on the 24th day of the Month of December in the year 1981
on the day of
the Month of in the year
Between
Israel Land Administration, administering the lands of the State of Israel
(hereafter: "the Lessor") on the one part;
and
Koffolk (1949) Ltd C[ompany] n[umber] 510057607 (hereafter: "the Lessee") on
the other part.
Whereas the Lessor is the owner of the property described in more
detail in the "List" that follows the paragraphs of the present Agreement
(hereafter: "the Lot"),
And whereas according to the Development Agreement between the parties
to this Agreement on 10.11.78 (hereafter: "the Development Agreement"), the
Lot was given to the Lessee as licensee only, in order that it erect on it an
enterprise for aromatic compounds with machine area of 2500 sq.m. + 4500 sq.m.
of sheds for the purpose of as per above
And the Lessor undertook to lease to the Lessee the Lot including all
buildings and fixed immovables, current and future (hereafter: "the
Immovables"), if the Lessee will erect the structures on the Lot and fulfill
the other terms of a Development Agreement;
And whereas the Lessee has erected the structures in accordance with
the provisions of the Development Agreement, as stated, and fulfilled its
other provisions and requested the Lessor to lease the Lot to it, together
with the Immovables (hereafter: "the Leased [property])",
Therefore, this Lease Agreement is made and signed with the following
conditions:
<PAGE>
1. Preamble
The preamble to this Agreement forms an integral part
thereof.
2. The object of the Lease
The Lessor hereby undertakes to lease to the Lessee and the
Lessee undertakes to lease from the Lessor the Leased
[property].
It has been agreed between the Parties that until the
registration of the right of Lease of the Leased [property]
with the Land Registry Office, the Lessor has surrendered to
the Lessee the right of use in the Leased [property] and all
the provisions of this Agreement with regard to the Lease
and its conditions shall apply, with relevant amendments, as
the case may be, to the above mentioned right of use and
rent shall be paid at the rates mentioned below.
3. The term of the Lease
The term of the Lease is an absolute period of 49 (forty
nine) years starting from the 9th day of the month of July
in the year 1978 and ending on the 9th day of the month of
July in the year 2027
/s/
------------------------------
2/..
KOFFOLK (1949) Ltd.
4. The purpose of the Lease
The Leased [property] is leased to the Lessee for the Term
of lease for the purpose of [the construction of] an
enterprise for [the manufacture of] aromatic compounds only
and the Lessee is prohibited from using the Leased
[property] or part thereof for another purpose, without
obtaining an explicit prior, written permission from the
Lessor to that effect.
-2-
<PAGE>
5. Possession and waiver of alternatives
The Lessee hereby acknowledges that it received the Leased
[property] into its possession on July 9 1978 in an 'as is'
state and inasmuch as occupiers are found on the Leased
[property], the Lessor is not obliged to evict them and/or
pay for their eviction. The Lessee declares that it waives
all legal alternatives including hindsight and [the result
of] defects.
6. Rent and mode of payment
The Lessee undertakes to pay the Lessor, according
to the value of the Lot on the day of its surrender
by the Lessor to the Lessee, which is fixed at Isr.
Pound _____________ per sq. m. and in total Shekel
147,412.00 for the whole Lot (hereunder "the basic
value of the Lot").
(*) A. 1. One-off rent at 80% of the basic value of
the Lot amounting to Shekel 117,930.00
The amounts remitted to by the Lessee to
the Lessor according to the Development
Agreement shall be credited to the above
mentioned rent account.
2. Annual rent at 5% of the difference
between the basic value of the Lot and the
one-off rent (hereafter: "the balance of
the basic value of the Lot") which
constitutes ______ % of the Basic Value of
the Lot amounting to Shekel 1,474
(hereafter: "the basic rent").
B. Annual rent at _________________ % of the basic
value of the Lot, being Isr. Pound
_______________ (hereafter: "the basic rent").
C. At the end of the first seven years of the lease on
________ and thereafter at the end of each period
of seven years of the duration of the lease, the
basic rent shall be increased, after the addition
of the Linkage Differentials mentioned in
sub-paragraph (D), by 35% and the Lessee undertakes
to pay to the Lessor the annual rent as increased
according
-3-
<PAGE>
to the above-stated, but the Lessee shall have the
right to request at that time a new assessment by the
Government Valuer and, should it transpire that the
value of the land, according to the valuation, is
smaller than the original value with the addition of
the above mentioned increases, the rent would be
fixed on the basis of the valuation.
D. The rent includes principal and interest. If
the latter should be due according to
paragraph 8 of the Agreement, it would be
linked to the Consumer Price Index as fixed
and published from time to time by the
Government of Israel Central Bureau of
Statistics or another authoritative institute
that might replace it. The calculation of the
Consumer Price Index is the Consumer Price
Index for the day of the start of the lease,
viz., June 1978 being _______________ points
(hereafter: 'Basic Cost [of living]'). For the
purpose of the payment of Linkage
Differentials, the relevant index shall be the
one published in the month prior to the month
in which payment would be due and the day of
payment of the principal or interest, or both,
whichever is higher.
E. The Lessee pays upon signing this Agreement the
annual rent for the period from the signing of the
Agreement to March 31, 1982 at Isr. Pound
_______________________________ (*) If the one-off
rent is not paid, sub-paragraphs 6(A)(1)(2) should
be omitted and paragraph 6(B) only observed.
/s/
----------------------------
3/..
KOFFOLK (1949) Ltd.
As from the later date, the Lessee undertakes to
pay the annual rent as stated in sub-paragraphs
A(2), B and C of this paragraph in advance, with
the addition of Linkage Differentials as stated in
sub-paragraph D. The said payment shall be made at
the Lessor's
-4-
<PAGE>
office or at another venue, if and as the
Lessor might indicate.
F. In case the Lessee is in arrears with respect to
any payment whatsoever, any payment on account of
debt will be regarded as payment for the following
according to this order of priorities: collection
expenditure, interest, Linkage Differentials,
principal.
7. New valuation
A. The Lessor shall be entitled to demand a rent
increase according to a new valuation of the Lot by
the Government Valuer and this without taking into
consideration the increase in the value of the Lot
as a result of development by the Lessee or at its
expense, in any of the under mentioned cases:
(1) When the Lessee requests the consent of
the Lessor to transfer its rights
according to this Agreement, in whole or
in part, or sub lease the Leased
[property] as stated in paragraph 18(A).
(2) When the Lessee makes alterations to
constructions erected as stated in
paragraph 10 of the Agreement.
(3) In case of change of designation of the
Lot according to compulsory town planning
or in case the possibility of
exploitation of the Lot has been
increased above the permitted [level of]
exploitation at the time of leasing and
the Lessor would agree to the request by
the Lessee to exploit the Lot in
accordance with its new designation or to
realize the possibilities of increased
exploitation.
B. In any case where the Lessor would demand an
increase of rent as stated above, it should inform
the Lessee accordingly by registered letter and the
Lessee would have the right to appeal against it
within 30 days from the receipt of notice from the
Lessor to whoever
-5-
<PAGE>
would be appointed for this purpose by the Israel
Land Council. The decision regarding the value, as
per the above, shall be final and binding on both the
Lessee and the Lessor.
C. In case of rent increase according to sub
paragraphs (A)3 above, the Lessee shall be
bound to pay the Lessor, within 30 days of the
day of notice, the difference in the basic
one-off rent, that is, the difference between
the one-off rent the Lessee had to pay on the
date of the Lessor's agreement without change
of designation or increase of the
possibilities of exploitation of the Lot, and
the rent according to the new valuation.
D. The annual rent, increased according to the
new valuation shall be paid by the Lessee to
the Lessor as stated in paragraph 6, sub-
paragraphs A(2) B, C, D, E, F, within 30 days
of the final notice by the Lessor to the
Lessee from the date of the consent by the
Lessor as stated in paragraph 6, sub-paragraph
H.
8. Interest
The Lessee undertakes to pay the Lessor interest at the
highest rate stipulated by law on the day of payment for any
amount in arrears owed by the Lessee according to this
Agreement including taxes and development expenses with the
Linkage Supplement as stated in paragraph 6, sub-paragraph
D, from its due date to the actual payment day and this
without prejudice to the rights of the Lessor according to
the terms of this Agreement and the law.
9. Renewal of lease
Not less than one year prior to the end of the Term of
Lease, the Lessee shall be entitled to request from the
Lessor, by registered letter, the renewal of the Lease for
an additional period of forty nine (49) years (hereunder:
'the renewed Lease period') under the terms of a Lease
Agreement as shall be obtaining at that time with respect to
the lease of
-6-
<PAGE>
land by the Lessor in the vicinity of the Lot and
for the purpose of the present Lease.
/s/
-------------------------------
4/..
KOFFOLK (1949) Ltd.
10. Regulations regarding building
Any erection of, or changes in, buildings or additions to
them, are subject to prior written permission from the
Lessor and the approval of building plans by the competent
Planning Institutions.
The Lessee shall submit all building plans for the approval
of the competent Planning Institutions, only after the plans
will have been approved by the Lessor.
The Lessee undertakes to demolish at its expense any
addition or change as stated above made by it without the
permission of the Lessor and/or competent Planning
Institutions within 15 days from the date of the posting of
notice by registered letter from the Lessor, this without
prejudice to the other rights of the Lessor, including its
right to cancel the Agreement because of its breach by the
Lessee.
11. Registration of the Lease
A. The Lessee undertakes to take all the necessary
steps to register the Right of Lease under this
Agreement in its name with the Land Registry
Office, according to the conditions of this
Agreement.
B. All the steps necessary for the registration
of the Right of Lease shall be made by the
Lessee and at its expense. The Lessee shall
prepare, inter alia, the files in the Land
Registry Office, and bear the expense of
preparing the files as well as the expense of
preparing the documents and the maps, all the
payments involved in stamping and
registration, without exception, including the
-7-
<PAGE>
registration and/or renewal of registration, of the
Lot, division, separation, the cost of surveying
and mapping the parcellation, as required.
C. If, in spite of the demand by the Lessor, the
Lessee would fail to register, the Lessor would be
entitled to execute all registration procedures
itself, at the Lessee's account and the Lessee
undertakes to pay the Lessor its expenses within 30
days, according to the account submitted to it.
12. Change to the boundaries of the Lot
A. The Lessee declares that it is aware that the area
of the Lot and its boundaries are not final and
subject to changes.
B. It has been explicitly agreed between the Parties
that in case, and as a result, of changes in town
planning, land adjustment and the like, the area of
the Lot could be enlarged or diminished and/or its
boundaries changed, the Lessee undertakes:
1. to agree to any changes in the boundaries
and/or area of the Lot as created as a
result of the above-mentioned actions;
2. to consider the Lot in its new boundaries
and/or new area to be the object of this
Agreement and to accept its occupation;
3. if, following a change in the boundaries
and/or area of the Lot, the Lot value
should change, to pay annual and/or one-
off rent for the Lot, as fixed by the
Administration. The basis for fixing the
rent shall be the valuation by the
Government Valuer who will value the Lot
in accordance with its new status on the
date of the basic valuation mentioned in
paragraph 6.
/s/
------------------------------
5/..
KOFFOLK (1949) Ltd.
-8-
<PAGE>
C. The Lessee undertakes to refrain from making any
claims whatsoever from the Administration regarding
anything arising from changes in the area and/or
boundaries of the Lot and the fixing of the one-off
and annual rent mentioned in sub-paragraph (B) (3).
13. Final fixing of area of the Lot
Should it transpire, following survey for the purpose of
registration, that the area of the Lot is smaller or larger
than the area according to which the basic value of the Lot
was fixed, the one-off and annual rents would be amended
according to the final area according to the valuation by
the Government Valuer on the date of the basic valuation and
each party undertakes to pay to the other the differences
resulting from the above-mentioned amendment.
14. Return of part of the Lot
A. In case the Lessee shall not use the whole
area of the Lot it leased from the Lessor by
the Agreement and/or a part of the area shall
not be required by it for the purpose of the
lease, the Lessor shall be entitled to cancel
the Agreement with respect to that part of the
Lot the Lessee did not use or that was found
to be superfluous to its needs (hereafter:
"the Requested Area") and repossess and occupy
it.
B. Should the Lessor decide to take the Requested Area
into its possession, it should give notice of its
intention to the Lessee by registered letter.
C. The Lessee shall have the right, within 20 days of
the date of posting of the letter mentioned in
sub-paragraph B above to appeal against the
decision of the Lessor before whoever is appointed
for this matter by the Israel Land Council.
D. The Lessee undertakes to appear, at the demand of
the Lessor, at the Land Registry Office and sign
all the documents needed for the
-9-
<PAGE>
cancellation of the Lease on the Requested Area and
all the documents, papers and maps needed for the
separation of the Requested Area from the rest of
the Lot, which shall remain in the possession of
the Lessee based on this Agreement.
E. All expenses connected with the separation of the
Requested Area and its transfer to the possession
of the Lessor shall be borne by the Parties in the
ratio between the size of the Requested Area and
the area remaining in the possession of the Lessee.
F. The one-off rent paid to the Lessee because of the
return of the Requested Area to the Lessor as well
as the new annual rent for the Lot remaining in
possession of the Lessee shall be fixed by the
Government Valuer.
15. The use of the leased assets and the Lessee's
responsibility
A. The Lessee undertakes to maintain the Leased
[property] in good and normal condition like a
landlord who cares for his own property and make,
at its expense, all the repairs needed to maintain
it as stated.
B. The Lessee undertakes to execute all works and
install all the fixtures in the Lot as
demanded by the competent Planning Authorities
and fulfill at its own expense any duty, by
the Lessor, under any law in force now or in
the future, regarding the Leased [property],
without the right to demand the return of the
expenses from the Lessor.
C. The Lessee undertakes to observe, throughout
the term of the Lease, all laws, including
every act, order, provision and demand by the
competent Planning Authorities, regarding
building on the Lot, the execution of other
works and the maintenance and use of the
Leased [property] and it undertakes full
responsibility for any outcome of non-
observance of any law, including every act,
order, provision or demand as stated.
-10-
<PAGE>
/s/
-------------------------------
6/..
KOFFOLK (1949) Ltd.
D. The Lessee alone shall be responsible to the
Lessor, as well as to any third party, for any
transgression or damage caused to the person
or property of any person (including the
Lessee) as well as for any fine or
compensation imposed or paid because/as a
result of, the acts of development and
building on the Leased [property], its
management or the use thereof, and from all
the other activities and/or neglect in the
Leased [property] and the Lessor shall bear no
responsibility in connection with that.
E. Should the Lessor be required to pay to any
person whatsoever compensation for damage the
responsibility for which rests, according to
the provisions of this paragraph, with the
Lessee, the Lessee hereby undertakes to
compensate the Lessor for any amount it would
be required to pay with the addition of legal
costs and advocate's fee, should a lawsuit be
lodged against the Lessor for such payment.
16. Development and tax payments
A. The Lessee undertakes to bear all development
charges and expenses of any type whatsoever,
whether in force now or in the future,
incumbent upon the Leased [property] such as
the cost of connecting electricity, water and
sewage rates, water supply arrangements,
installing sewage, drainage, road and pavement
building, health installations and activities
and the like.
B. All taxes, municipal taxes, loans and compulsory
payments of all sorts, both municipal and
government, payable by the owners and/or occupiers
and incumbent on the Leased [property] shall be the
responsibility of the Lessee as from the date of
receiving possession as stated in paragraph 5.
-11-
<PAGE>
C. The Lessee undertakes to return to the Lessor any
payment made by the Lessor with respect to the Lot
or the Leased [property] and incumbent on the
Lessee according to this Agreement and or by law,
within 14 days of posting the demand.
17. Insuring the Leased [property]
A. The Lessee undertakes to insure, at its own
expense, the Leased [property] against fire with
insurance companies for an amount equal to the full
value of the Leased [property] and continue the
insurance throughout the Term of the Lease.
B. In case the Leased [property] is damaged or
destroyed, the Lessee undertakes to rebuild
the damaged or destroyed assets and use for
that purpose all the monies it shall receive
from the insurance companies. Should the
Lessee fail to execute this undertaking within
3 years from the year in which the assets were
damaged or destroyed as stated, the Lessor
would be entitled to cancel the Agreement and
demand from the Lessee the insurance monies
paid by the insurance company to the Lessee or
that it is due to pay to it.
18. Transfer and mortgage of the agreement rights and
consent fees
A. Should the Lessor wish to transfer its rights
under this Agreement, in whole or partly, in
any manner whatsoever, or to lease the Leased
[property] in a sub-lease or let it or grant
possession or use of it in whole or partly, it
should obtain the written agreement of the
Lessor to such a step. The Lessor may also
make its agreement conditional on the payment
of a Consent Fee as stated in sub-paragraph
(C) and (D) hereunder and the fulfillment of
the other conditions as customary with the Lessor
at the time of the granting of the consent, such as
the provision of certificates of payment of all
taxes, dues, compulsory changes and property
improvement tax. The
-12-
<PAGE>
consent of the Lessor is also necessary for obtaining
a mortgage on the Leased [property].
B. Any transfer of shares to a Lessee which is a
corporation the proportion of which to paid up
share capital is over 10% thereof, and any
allocation of shares at the said proportion as
well as any other action including a change in
their rights, the result of which is a change
in the control of the Lessee, as well as a
change in the directors of the Lessee, whether
it is a registered corporation or an
unregistered corporation, which constitutes a
change in the control of the Lessee, will be
deemed to be a forbidden action under this
paragraph [if done] without the consent of the
Lessor.
Any transfer of shares or allocation at a
proportion under 10% made within a period of two
years shall be considered, for the purposes of this
paragraph, as made simultaneously, as will be
deemed to be any other of the actions mentioned
above made within a period of two years all or part
of which constitute a change of control as stated.
C. The Consent Fee shall be at the rate of one
third of the difference between the basic
value of the Lot at its value at the time of
the approval of the transfer in the state it
was when possessed without taking into account
the expenses and development work done in
respect of it, all according to the valuation
by the Government Valuer. Inasmuch as the
Lessee paid one-off rent, the basis for
calculating the Consent Fee shall be the
balance of the basic value of the Lot which
was not paid as one-off rent.
The Lessee is entitled to appeal against the
decision by the Lessor that fixing the Consent
Fee, within 30 days from the date of notice,
to whoever would be nominated for this matter
by the Israel Land Council. The decision in
the appeal shall be final.
/s/
------------------------------
-13-
<PAGE>
KOFFOLK (1949) Ltd.
D. The Consent Fee that the Lessee shall be
obliged to pay in the cases enumerated in sub-
paragraph (B) will be according to a
proportion between the transferred or
allocated shares and the paid up share capital
of the Lessee, and if a change of control has
taken place as stated, the Consent Fee in
total.
E. The Lessee undertakes to give the Lessor
notice regarding any change whatsoever in the
corporation within its meaning according to
the Land Improvement Tax Act 1963 and about
any action in the corporation according to its
meaning in the above-mentioned Act even if the
said change or action do not oblige such
notice to be given to the Land Improvement Tax
Act authorities, as well as a copy of any
notice, resolution and declaration in the
matter of shares or directors it is bound to
submit to the Registrar of Companies as well
as a copy of its annual report, all these not
later than the date it should submit them by
law.
F. If the Lessor is requested to give its consent to
the transfer of the Lease rights, the Lessor shall
be entitled to demand from the Lessee to send to it
by registered post two written affidavits made in
the style stipulated in paragraph 15 in the
Evidence Order (new version 1971) as follows:
1. An affidavit by the Lessee including the
following details:
A. That it is prepared to transfer all its rights
in the Leased [property] to the suggested
Lessee.
B. The time at which it is prepared to vacate the
Leased [property].
C. The name, address and identity number of the
Proposed Lessee.
D. The amount the Proposed Lessee is prepared to
pay the Lessee in consideration for receiving
all its full rights.
-14-
<PAGE>
E. Family relationship to the Proposed Lessee
(spouse, offspring, parent, brother, legal
heir).
2. An affidavit by the Proposed Lessee including the
following details:
A. That it (he) is prepared to lease the Leased
[property].
B. The amount it is prepared to pay the Lessee in
consideration of receiving its full rights in
the Leased [property].
C. Family relation to the Proposed Lessee
(spouse, offspring, parent, brother, legal
heir).
Within 30 days from the receipt of the affidavits the Lessor
shall be entitled to send the Lessee a notice by registered
post that it intends to retake possession and all rights in
the Leased [property] and that it agrees to pay the Lessee
the amount offered it by the Proposed Lessee less the
Consent Fee due from it.
If the Lessor gives notice as stated, the Lessor and not the
Lessee shall have the right to transfer its rights in the
Leased [property].
G. The Lessor shall not use its right to repossess the
Leased [property] as stated in sub-paragraph (F)
above in cases where the Proposed Lessee is a
spouse, offspring, parent, brother or a legal heir
of the Lessee.
H. Non-fulfillment of any provision of the provision
of this paragraph shall be a basic breach of this
agreement and the Lessor shall have the right to
cancel it because of that breach.
-15-
<PAGE>
19. Natural resources and antiquities
A. The Lessee hereby declares that it knows that
all natural resources such as: oil, gas, water
springs, carbon and metal ore, marble, stone,
sand and soft limestone deposits and any other
deposits as well as antiquities and antique
sites, which might be found in the grounds of
the Leased [property], are the property of the
Lessor and/or the State and are not included
in the Leased [property] and the conditions of
lease under the present Lessor do not apply to
them. The Lessee shall enable the
Administration and/or the State - as the case
may be - to extract or exploit in another
manner the said natural resources and
antiquities according to binding laws and the
present Agreement.
B. The Lessee shall not carry out excavations in the
Lot beyond what is necessary for the execution of
the purpose of the Lease.
C. The Lessee shall not sell substances it
extracted from the Lot because they are the
property of the Lessor and the State, unless
it obtains the written advance permission of
the Lessor to do so.
Should the Lessee breach this prohibition, the
Administration would be entitled to demand
damages. The amount of damages would be
determined according to the cost of the
substances sold as obtaining at the
Administration at the time of the breach of
prohibition and the quantity of the
substances, as determined by the
Administration. The Lessee undertakes to pay
the damages as determined by the
Administration in accordance with the above
within 14 days of posting the payment demand.
/s/
---------------------------
KOFFOLK (1949) Ltd.
-16-
<PAGE>
20. Observance of the Sabbath day and Jewish holidays
The Lessee and anyone empowered by it must refrain from any
building and work in the Leased [property] on the Sabbath
day and Jewish holidays.
In this paragraph "work" [means] conducting a business and
any manual labor carried out permanently and openly by the
Lessee for remuneration or carried out by others for
remuneration and openly.
21. Transfer of the Agreement rights by the Lessor
A. The Lessor is entitled to transfer its rights under this
Agreement without obtaining the Lessee's consent.
B. The Lessee undertakes, in case of such transfer, to fulfill
all its undertakings under this Agreement towards the
Receiver of the transfer.
22. Right of way and the execution of works in the Leased
[property] and its maintenance
A. The Lessor has the right to transfer through,
inside or above the Leased [property], by itself or
by others, by any institution or company, water,
sewage, gas and other pipes, to erect electricity
or telephone poles, put up wires for electricity,
telephone and/or other purposes, all according to
plans approved by the competent Planning
Institutions. The Lessee shall allow the Lessor,
its employees and/or officers as well the employees
and/or officers of an institution or company as per
the above, to enter the Leased [property] and carry
out the works required for that and all the repairs
that might be required from time to time.
B. The Lessor undertakes to compensate the Lessee for any
damage caused to it through the execution of the above
mentioned works.
23. Right of access to the Leased [property]
The Lessor, or any person on its behalf, is permitted,
at any reasonable time, to have access to the Leased
-17-
<PAGE>
[property] to inspect the use of the Leased [property]
in accordance with the stipulations of this Agreement.
24. Waivers
A. The Lessee, is not protected under the Tenant
Protection Law (Combined Version) 1972.
B. No waiver, discount, the receipt of any payment,
avoidance of any action, the granting of extension
on the part of the Lessor, shall be considered a
waiver of its rights and prevention of legal
action, unless the Lessor explicitly waives its
rights in writing.
C. The parties hereby waive the need to send notarial or other
notices regarding this Agreement and everything emanating from it and the very
non-observance or infringement of any condition in this Agreement shall serve
in lieu of such notice.
25. Cancellation and termination of the Agreement
A. If the Lessee breaches any of the conditions
of this Agreement, and the breach is a Basic
Breach (see below), the Lessor is entitled to
cancel the Lease under this Agreement by
giving notice by registered letter, after
advance notice was delivered to the Lessee
regarding the Lessor's intention of so doing,
and if, in spite of the such advance notice,
any condition of the Agreement was not
observed within a reasonable time, which in no
case is to exceed three months from the
dispatch of the advance notice.
The Parties agree that the conditions of paragraphs
4, 6, 10, 15, and 18 of the Agreement are
conditions the breach of which shall be deemed to
be Basic Breaches whether or not this is stated in
the Agreement that because of it the Lessor is
entitled to cancel the Agreement.
/s/
----------------------------
9/..
KOFFOLK (1949) Ltd.
-18-
<PAGE>
B. Notwithstanding the statement in sub-paragraph (A),
the Lessor is entitled, in any of the following
cases, to cancel the present Agreement with
immediate effect and without the need to give
advance notice by registered letter:
(1) If the Lessee breaches the provisions of
paragraph 18 (A) of the Agreement.
(2) If the Lessee, being a corporation with
share capital, allocated or agreed to
allocate shares, or exchanged shares
registered in the name of their holders
to bearer shares without obtaining the
consent of the owner of the
Administration share according to
paragraph 18 (B) of the Agreement.
C. If the Lessee has died, or, being a
corporation, a decision has been taken to
liquidate it, before the end of the Term of
the present Agreement, the Agreement would
expire with the decease of the Lessee or with
the decision of liquidation, as the case may
be, with the exception that the Lessor would
be bound to sign a new Agreement with one of
his heirs, should an application be lodged
with it within two months of the death of the
Lessee, unless reasonable grounds exist for
rejecting the application.
D. Upon the cancellation of the Agreement by the
Lessor under sub-paragraph C, above, the Lessee
shall be bound to:
(1) vacate the Leased [property] forthwith,
(2) return it forthwith to the Lessor vacant
of any object and person and free of any
third party lien or right,
(3) demolish all structures, fences,
plantations and any immovables affixed to
the Lot (hereafter: "Immovables") on
written demand by the Administration or
immediately after the cancellation or
expiry of the Agreement and remove the
-19-
<PAGE>
debris from the Leased [property] and
return it to its state before the
erection of the Immovables,
(4) take immediately all the necessary steps
for the cancellation of the registration
of the Right of Lease made under
paragraph 11, including the payment of
all charges, taxes and other relevant
expenses without exception, as well as
sign, in order to ensure the fulfillment
of the present undertaking, upon the
signing of the present Agreement or at
any other time, at the discretion of the
Lessor and on its first demand, a
notarial irrevocable power of attorney in
the name of the Lessor,
(5) Pay to the Lessor for all damage and
losses, past or future, caused to it
because of the breach and cancellation of
the Agreement or because of its expiry
(including damage and loss because of
leasing the asset to another party),
Should the Lessee fail to fulfill what is incumbent upon it
under clauses (3) and (4) in the present paragraph, the
Lessor would have the right to execute itself all the said
actions on the account of the Lessee and collect from it all
expenses made by it with the addition of interest at the
maximum rate allowed by law at the time, this from the date
of the cancellation of the Agreement until the date of
actual payment.
E. (1) In case the cancellation of the Agreement
by the Lessor according of paragraphs
25(A) and (B) and, in case of its expiry
under paragraph 25(C), the Lessor shall
be bound, after the Lessee will have
fulfilled everything incumbent upon it
under paragraphs 25(D)(1) and (2), to pay
the Lessee the value of the Immovables
erected by it and which it was not
required to demolish under sub-paragraph
D(3) above, at the value determined by
the Government Valuer less all the
amounts due to the Lessor from the Lessee
-20-
<PAGE>
under sub-paragraph (D), above, and the
other paragraphs of the present Agreement
and still outstanding and less an amount
equal to the installment the Lessee was to
have paid the Lessor according to
paragraph 18 had they been transferred on
the date of the cancellation or expiry of
the Agreement [non sequitur text at this
point] the rights of the Lessee in full to
another [Party] with the consent of
Lessor, against the payment of Consent Fee
as stated in paragraph 18 (D), but in no
event shall the Lessor be obliged to pay
the Lessee for the Immovables more than
stated in sub-paragraph (2) below less the
above mentioned deductions and this, too,
after the amount was paid to the Lessor by
a new Lessee.
/s/
------------------------------
10/..
KOFFOLK (1949) Ltd.
(2) It is hereby agreed that, after the
cancellation or expiry of the present
Agreement, as stated, the Lessor shall
take all the necessary steps customary
with the Lessor, including public tender,
in order to find a suitable new Lessee
and sign a Lease Agreement with it on the
conditions under which the Lessor
customarily leases such property. Should
it be stipulated in the new Lease
Agreement that the new Lessee should pay
one off rent as defined in paragraph 6
(A) (1) or another consideration for the
property (all these hereafter: "the Price
of the Property"), then the Government
Valuer shall fix the appropriate portion
of the Price of the Property that should
be deemed to be consideration for the
Immovables.
The stipulations of sub-paragraphs D and E of this
paragraphs are also valid upon the termination of
the Agreement at the end of the Term of Lease or
the termination of the
-21-
<PAGE>
renewed Term of Lease but, if the Leased [property]
shall not be leased to the Lessee within 3 months
of the end of the Term of Lease, the Price shall be
fixed by the Government Valuer who will fix the
appropriate portion of that Price returnable to the
Lessee in consideration of the Immovable, according
to sub-paragraph (E), above.
26. All expenses incurred in connection with the making of the
present Agreement and its registration with the Land
Registry office, including the payment of Stamp Duty, shall
be borne by the Lessee only.
27. The addresses of the parties
The Lessor: Israel Land Administration Southern
District, Ben Tzvi, Be'er Sheva
The Lessee: KOFFOLK South Ltd, P.O.Box 1098 Tel-Aviv.
Notice sent in accordance to the present Agreement by
registered post to one of the above mentioned addresses
shall be considered duly received three days after the day
of posting.
28. Special conditions:
All development expenses, past and future, shall be borne by
the Lessee.
/s/
----------------------------
Koffolk (1949) Ltd
To Anita
-22-
<PAGE>
The List
--------
<TABLE>
<S> <C> <C> <C>
Place Be'er Sheva, Ramat Hovav Area 58,965 sq. m. approx.
-------------------------------------- ------------------------------
Registration block 100177 Plots 1 (part)
----------- ------------------------------
----------- ------------------------------
----------- ------------------------------
----------- ------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Tax Plots
assess- Registered Volume Page
ment at
---------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- ----------
Lot According Block Plot
number 4 A. to town 110/03/11
---------- building ---------- ---------- ---------- ----------
plan
</TABLE>
According to the enclosed diagram forming an integral part of
this Agreement.
And in Witness thereof we have attached our signatures
Israel Land Administration Koffolk (1949) Ltd
Southern District
Be'er Sheva /s/
-------------------------------
/s/
- ----------------------------
- -------------------------------------- ----------------------------------------
Lessor Lessee
- -------------------------------------- ----------------------------------------
According to new town building plan 6/110/03/11 called Lot no. 5
-23-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED FOR ALL ([ ]) BRACKETED INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
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
- ------ ----
I. 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
<PAGE>
of the Company including penal duties and taxes, interest charges and other
extraordinary assessments;
"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
<PAGE>
Branch: 22 Victoria Street, London, SWIH ONJ
Sort Code: 40.07.13
Account Number: 50951730.
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;
<PAGE>
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 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
<PAGE>
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.
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);
<PAGE>
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.
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
<PAGE>
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",
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
<PAGE>
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
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
<PAGE>
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 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:
<PAGE>
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 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
<PAGE>
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;
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.
<PAGE>
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; 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
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
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 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;
<PAGE>
2.2.3 make full provision for or disclose all liabilities, whether actual,
contingent or disputed, of the Company at 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.
<PAGE>
4.3 The Company has no branch, agency, place of business or permanent
establishment outside Norway.
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
<PAGE>
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:
(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.
<PAGE>
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.
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
<PAGE>
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
within the period of six years 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
CONFIDENTIAL TREATMENT REQUESTED FOR ALL ([ ]) BRACKETED INFORMATION. THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
Part 2 - Employees
[ ]
<PAGE>
SCHEDULE 5
INSURANCE POLICIES
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.
DATED 01.10.1998
(1)Philipp Brother Chemicals Inc
(2)BOC Limited
AGREEMENT
FOR
SUPPLY OF
CALCIUM CARBIDE
1
<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
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, NJ 07024 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
3
<PAGE>
schedule 1 of this agreement.
2.7 Arrangements for the supply of Products to other BOC's Group
companies around the world shall be covered, [
]
3. Duration and Termination
3.1 This Agreement shall be for an initial period commencing
on 1 1998 and ending [
]
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 [
]
4. Volumes
4.1 PB shall supply BOC's total requirements of Products for consumption
in [ ]
4
<PAGE>
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.
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. [ ]
2. [ ]
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) [
]
b) [
]
c) [ ]
PB shall give BOC a minimum of two months written notice of their
intended variation in price.
5.3 [
]
5.4 [
]
6. Purchasing Procedures
6.1 In order to assist with PB's production and delivery planning, BOC
shall during June in
5
<PAGE>
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.
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.
6
<PAGE>
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 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,
7
<PAGE>
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 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
[
]
1.2 Size and Dust content
1.2.1 Graded Size
[
]
1.2.2 Limits of oversize and undersize
[ ]
[ ]
[ ]
[ ]
[ ]
[
]
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 [ ]
[
]
1.3.2 [ ]
[
]
1.4 Purity of Gas Generated
1.4.1 [ ]
[
]
1.4.2 [ ]
[ ]
1.4.3 [ ]
[ ]
1.5 Residual Products
[
]
10
<PAGE>
Iss/Rev: uk1
Date: 11/06/96
Page: 3 of 4
Document Title : CALCIUM CARBIDE PURCHASE SPECIFICATION
- --------------------------------------------------------------------------------
1.5.1 [ ]
[
]
1.5.2 [ ]
[
]
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
[
]
[ ]
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.
13
<PAGE>
2.4 Price
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.
17
<PAGE>
3.8 Statutory Requirements
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
<PAGE>
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
[
]
19
<PAGE>
PURCHASE AGREEMENT
This PURCHASE AGREEMENT ("the Agreement"), dated as of June
1, 1998 between Jack C. Bendheim (the "Seller"), and Philipp Brothers Chemicals,
Inc. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner of 100 shares (the "Shares") of
common stock, no par value, of Koffolk, Inc., a Delaware corporation (the
"Corporation"), representing 100% of the total outstanding common stock of the
Corporation; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to buy from Seller, the Shares for a purchase price (the "Purchase
Price") equal to the cancellation of certain indebtedness of Seller to
Purchaser in the sum of $1,500,000, subject to the terms and conditions of
this Agreement;
NOW, THEREFORE, in consideration of the mutual terms,
covenants, and conditions contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Sale and Purchase. On the Closing Date (as defined
below), Seller shall sell, assign, transfer, convey and set over to Purchaser,
effective as of the date hereof, all Seller's Right, title, and interest in
the Shares, and Purchaser shall pay the Purchase Price, in the manner set
forth in Paragraph 2 below.
<PAGE>
2. The Closing. The closing of the purchase and sale of the
Shares as contemplated by this Agreement (the "Closing Date") which shall
occur upon the consummation of the offering by the Purchaser of its 9-7/8%
Senior Subordinated Notes due 2008. At such time (a) Seller shall deliver to
Purchaser one or more stock certificates representing ownership of the Shares
by Seller, duly endorsed in blank for transfer; and (b) Purchaser shall pay
the Purchase Price by cancelling the indebtedness of Seller to Purchaser in
the sum of $1,500,000 (the "Indebtedness").
3. Seller's Representations and Warranties. Seller hereby
makes the following representations and warranties to Purchaser as of the date
of this Agreement. The representations and warranties contained in this
Paragraph 3 shall survive the Closing Date.
(a) Seller is the legal and beneficial owner of the
Shares which are fully paid, non-assessable and free and clear of any lien,
pledge, option, security interest or other encumbrance of any kind.
(b) This Agreement is the legal, valid and binding
obligation of Seller.
4. Purchaser's Representations and Warranties. Purchaser
hereby makes the following representations and warranties to Seller as of the
date of this Agreement. The representations and warranties set forth in this
Paragraph 4 shall survive the Closing Date.
(a) Purchaser has made such examination and
inspection of the records, books, agreements and other documents relating to the
Corporation as Purchaser has deemed necessary or desirable in connection with
entering into this Agreement, and Purchaser is relying on no representations of
Seller or any other person in entering into this Agreement except those
representations of Seller contained in Paragraph 3 above.
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<PAGE>
(b) This Agreement is the legal, valid and binding
obligation of Purchaser.
(c) Purchaser is the owner of the Indebtedness,
free and clear of any encumbrance thereon, and Purchaser has the unrestricted
right to cancel same in consideration for the purchase of the Shares.
5. Miscellaneous.
(a) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof.
(b) If any provision of this Agreement shall be
held invalid or unenforceable, then the remainder of this Agreement shall not be
affected. Each provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(c) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
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<PAGE>
(d) In the event of a dispute involving this
Agreement or any other instrument executed in connection herewith, the parties
hereto irrevocably agree that venue for such dispute shall lie in any court or
competent jurisdiction in the County and State of New York.
(e) The obligations of this Agreement shall bind
and benefit the successors and assigns of the parties with the same effect as if
mentioned in each instance where a party is named or referred to.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first set forth above.
/s/ Jack Bendheim
-----------------
Jack C. Bendheim, Seller
PHILIPP BROTHERS CHEMICALS, INC.
By:/s/ Nathan Bistricer
--------------------
Name: Nathan Z. Bistricer
Title: Vice President
Purchaser
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<PAGE>
Jack C. Bendheim ("Bendheim"), hereby sells, transfers and
assigns, effective as of June 1, 1998, to MRT Management Corporation, a
Delaware corporation ("MMC"), all of Bendheim's right, title and interest in
and to Bendheim's entire membership interest (the "Interest") in Mineral
Resource Technologies, L.L.C., a Delaware limited liability company ("MRT"),
for a purchase price of $25,000, the receipt and sufficiency of which Bendheim
hereby acknowledges. Bendheim hereby represents and warrants to MMC that the
Interest is hereby transferred free and clear of any lien or encumbrance. MMC
hereby acknowledges receipt of the Interest, and agrees to accept the
assignment and transfer of the Interest effected hereby, and to assume any and
all liabilities and obligations arising out of or in connection with the
Interest and to indemnify and hold harmless Bendheim from and against any and
all loss, damage, liabilities, obligations, costs and expenses (including
reasonable attorneys fees) arising out of or in connection with the Interest.
Bendheim hereby (i) acknowledges receipt, from MRT, of
$995,000, which constitutes payment in full of all amounts owed by MRT to
Bendheim for sums advanced by Bendheim to MRT prior to the date hereof (the
"MRT Loan"), whether for principal, interest or otherwise, (ii) agrees that
the MRT Loan is hereby satisfied, discharged and cancelled, and (iii) releases
MRT from any and all liability with respect to the MRT Loan.
MRT hereby acknowledges a loan of $995,000 by MMC to it on
the date hereof the proceeds of which are being used to fund the payment to
Bendheim referred to in the immediately preceding paragraph.
Phibro-Tech, Inc., a Delaware corporation ("Phibro-Tech"),
the sole stockholder of MMC, hereby contributes to the capital of MMC
$2,131,000 in loans receivable to it from MMC, and that, upon such
contribution, such loans will be deemed satisfied and discharged.
<PAGE>
Phibro-Tech hereby contributes to MMC the additional sum of
$995,000, which sum is being used by MMC to make the loan to MMC referred to
above.
Agreed to as of June 1, 1998
/s/ Jack C. Bendheim
--------------------
JACK C. BENDHEIM
PHIBRO-TECH, INC.
By: /s/ I. David Paley
------------------
Title: President
MRT MANAGEMENT CORP.
By: /s/ Nathan Bistricer
--------------------
Nathan Bistricer, Vice President
MINERAL RESOURCE TECHNOLOGIES,
L.L.C.
By: MRT MANAGEMENT CORP.,
Managing Member
By: /s/ Nathan Bistricer
--------------------
Nathan Bistricer, Vice President
2
<PAGE>
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 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
<PAGE>
authorise by them TO HOLD -- the licensed premises unto the Licensee until the
expiry of [
] 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 [
]
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 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
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<PAGE>
(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 part thereof 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.
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 [
3
<PAGE>
] the Licensee shall pay to the Licensor by way
of compensation a sum equivalent to [
].
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. [
4
<PAGE>
]
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 [ ] If the Licensee should wish to
extend the Licence Agreement beyond 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
The Parties have executed this Agreement the day and year first above written
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<PAGE>
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/
---------------------------
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<PAGE>
ADDENDUM
TO LICENSING AGREEMENT - CLAUSE 4
[ ]
[
]
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
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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.
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
Extended Facilities
<PAGE>
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.
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<PAGE>
(ii) The receipt of the calcium carbide and diamidkalk at Gunness
Wharf or at such 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 [
] week 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
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<PAGE>
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 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
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<PAGE>
the management operation and maintenance of the Plant
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) [ ]
(ii) [ ]
(iii) [ ]
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
[ ]
[ ]
[ ]
(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 [
]
(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
6
<PAGE>
(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 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) [
]
(ii) [
7
<PAGE>
]
(iii) [
]
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) [
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
9
<PAGE>
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 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
10
<PAGE>
or Company for the purpose of carrying out duties required
to be performed under the terms of this Agreement.
13. FORCE MAJEURE
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
11
<PAGE>
Signed by /s/
-----------------------------------------
For and on behalf of BOC Limited
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
[
]
[
]
[
]
[
]
[
]
[
]
[
]
13
<PAGE>
OPERATION CHARGE
The Operation Charge shall comprise a Labour Charge and a Plant Charge being
(1) Labour Charge
[
]
[
]
[ ]
[ ]
[
]
[
]
[
]
[ ]
[ ]
[ ]
[
]
(2) Plant Charge
[ ]
[ ]
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
November 19, 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
November 22, 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
November 19th, 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 29th 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: 19th November 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 28th August 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: 19th November 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
November 20, 1998
