================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K/A
-----------
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 333-64641
----------
Philipp Brothers Chemicals, Inc.
(Exact name of registrant as specified in its charter)
New York 13-1840497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Parker Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)
(201) 944-6020
(Registrant's telephone number, including area code)
----------
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act: none
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant computed by reference to the price at which such voting stock was
sold was $0 as of June 30, 1999.
The number of shares outstanding of the Registrant's Common Stock as of June 30,
1999: 24,488.50
Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50
================================================================================
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC.
TABLE OF CONTENTS
Page
----
PART I ................................................................... 4
Item 1. Business .................................................. 4
Item 2. Properties ................................................ 23
Item 3. Legal Proceedings ......................................... 24
Item 4. Submission of Matters to a Vote of Security Holders ....... 25
PART II .................................................................. 26
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ..................................... 26
Item 6. Selected Financial Data ................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................... 26
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 35
Item 8. Financial Statements and Supplementary Data ............... 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................ 35
PART III ................................................................. 36
Item 10. Directors and Executive Officers of the Registrant ........ 36
Item 11. Executive Compensation .................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management .............................................. 40
Item 13. Certain Relationships and Related Transactions ............ 41
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ............................................. 42
Index to Financial Statements ............................................ F-1
Report of Independent Accountants ........................................ F-2
Report of Independent Auditors ........................................... F-3
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and 1998 ........... F-4
Consolidated Statements of Operations for the years ended June 30,
1999, 1998 and 1997 .............................................. F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 1997, 1998 and 1999 ................. F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997 ..................................... F-7
Notes to Consolidated Financial Statements ............................... F-8
Consolidating Financial Statements
Consolidating Balance Sheet as of June 30, 1999 .................... F-28
Consolidating Income Statement for the year ended June 30, 1999 .... F-29
Consolidating Statement of Cash Flows for the year ended
June 30, 1999 .................................................... F-30
Consolidating Balance Sheet as of June 30, 1998 .................... F-31
Consolidating Income Statement for the year ended June 30, 1998 .... F-32
Consolidating Statement of Cash Flows for the year ended
June 30, 1998 .................................................... F-33
Consolidating Income Statement for the year ended June 30, 1997 .... F-34
Consolidating Statement of Cash Flows for the year ended
June 30, 1997 .................................................... F-35
SIGNATURES ............................................................... II-1
3
<PAGE>
PART I
Item 1. Business.
General
Philipp Brothers Chemicals, Inc. ("Philipp Brothers" or the "Company") is
a leading diversified global manufacturer and marketer of a broad range of
specialty agricultural and industrial chemicals, which are sold world-wide for
use in numerous markets including animal nutrition and health, agricultural,
pharmaceutical, electronics, wood treatment, glass, construction and concrete.
The Company also provides recycling and hazardous waste services primarily to
the electronics and metal treatment industries. The Company believes it has
leading positions in certain of its end markets, and has global marketing and
manufacturing capabilities. Approximately 38% of the Company's fiscal 1999 net
sales consisted of sales made by the Company outside the United States. During
fiscal 1999, the Company's products were manufactured at ten facilities in the
United States, four facilities in Europe, two facilities in Israel, and one
facility in South America. Unless the context otherwise requires, references in
this Report to the "Company" refer to the Company and/or one or more of its
subsidiaries, as applicable.
The Company manufactures and markets more than 400 specialty agricultural
and industrial chemicals, of which 50 products accounted for approximately 83%
of fiscal 1999 net sales. The Company focuses on specialty agricultural 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 two operating segments--AgChem and Industrial Chemicals.
The Company's AgChem segment 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. These products include nicarbazin and amprolium, which the
Company distributes to the world-wide poultry industry through major
multinational pharmaceutical and animal health companies, and copper sulfate, a
key ingredient in animal nutrition, which the Company markets to the animal feed
industries in the United States and France. The Company also manufactures and
markets copper-based fungicides and other agricultural products for the United
States, French and other international markets. The Company's Industrial
Chemicals segment 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,
construction, concrete, wood treatment, automotive, aerospace, glass and coal
mining industries. Certain of these products are produced from the Company's
recycling operations, including copper oxide, which is used in the production of
water-borne wood preservatives. 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 recycles alkaline etchants in the
United States and sells fresh etchant to printed circuit board manufacturers.
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:
Enhance Growth through Selective Acquisitions and Strategic Alliances. The
Company intends to 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 Planalquimica Industrial
Ltda. ("Planalquimica"), the sole manufacturer of nicarbazin in Latin America.
In 1996, Koffolk Inc. ("Koffolk USA"), then an affiliate of the Company that
became a subsidiary in June 1998, 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 U.S. Food and Drug
4
<PAGE>
Administration ("FDA"). Separately, Merck appointed Koffolk USA as its exclusive
U.S. distributor of amprolium for poultry markets. In October 1998, the Company
acquired ODDA Smelteverk A/S ("ODDA") and the business and certain related
assets of BOC's Carbide Industries, a manufacturer 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 for wood.
Increase Product Offerings to Primary Markets. The Company seeks to offer
an extensive animal nutrition and crop protection product portfolio to
customers, 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 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
triphenyltin hydroxide-based product ("TPTH") as 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. 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.
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 Technology, a subsidiary of the Company, has 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.
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.
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.
5
<PAGE>
Products
The Company manufactures and markets more than 400 specialty agricultural
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 1999 net sales by
operating segment, principal products, principal end markets or users, and
selected well-known customers.
<TABLE>
<CAPTION>
Business Segments Principal End Selected Well-Known
(1999 Net Sales)*** Principal Products Markets or Users Customers
- ------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C>
AGCHEM Amprolium Animal Feed Agway
($177 million sales) Animal Feed Ingredients Citrus BASF
Copper Fungicides Coccidiostats* Cargill
Copper Sulfate F.G. Feed Mills Continental Grain
Fungicides Grapes Eli Lilly
Growth Regulators Nutritional Farmland
Nicarbazin Nuts Helena (Marubeni)
Trace Mineral Premixes Poultry and Pet Food Meriel (Merck/Rhone-Poulenc)
Trace Minerals Supplements Perdue
Vegetables Purina Mills
Vines (Koch Industries)
Sivam
Sumitomo
Tyson Foods
United Agri Products (Conagra)
INDUSTRIAL Alkaline Etchant Acetylene Ashland
($125 million sales) Calcium Carbide Brick and Tile Automata
Copper Oxide Catalysts BOC
Dicyandiamide Cement Coatings Colgate Palmolive
Ferric Chloride Chemical Milling Elementis
Fly Ash Concrete Engelhard
Iron Oxide Flame Retardation Fiberglass
Manganese Dioxide Frits** Hadco
Metal Treatment Glass Hoffman La Roche
Recycling Activities Intermediates Hutchinson
Selenium Disulfide Metal Finishers Laporte
Sodium Fluoride Pharmaceutical MacDermid
Printed Circuit Board Morton International
Wood Treatment Osmose
Owens Corning
PPG Industries
Procter & Gamble
Sanmina
Shipley
SmithKline Beecham
Tyco International
Unilever
Van Waters & Rogers
</TABLE>
- ----------
* Cocciostats 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.
*** Net sales excludes intersegment sales.
Reference is made to Note 14 of the Company's Consolidated Financial
Statements for certain segment information.
Champ Flowable(R), Champion (R), GibGro(R), MRT(R), Nicarb(R),
Nicarmix(R), Ac-Cu-Guard(TM), Agri-tin(TM), Chromax(TM), Chromox(TM),
Brickox(TM), Macclesfield(TM), Magna Float(TM), MRT Cement(TM), Ultra
Flourish(TM) and Phibro and design(TM) are trademarks of the Company.
6
<PAGE>
No single customer accounted for more than 4% of the Company's 1999 net
sales.
The Company manufactures and markets a broad range of specialty
agricultural and industrial chemicals, comprising two operating segments:
AgChem
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, and manufactures and
distributes fungicides and other agricultural products in the Unites States,
French and other international markets.
Animal Nutrition and Health Products
Through its subsidiary, Prince Agriproducts, Inc. ("Prince Agri"), the
Company manufactures 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 trace
mineral additives used by the U.S. animal feed industry. The majority of the
other 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.
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.
In 1996, the Company introduced Chromax brand chromium picolinate. Prince Agri
has the exclusive marketing rights for this product to the animal feed industry.
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's Israeli subsidiary, Koffolk (1949) Ltd. ("Koffolk Israel"),
is a major producer and distributor of vitamins and premixes for the animal feed
and poultry industries in Israel, and also sells such products worldwide.
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.
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 and production operations.
Through Koffolk Israel and its Brazilian subsidiary, Planalquimica, 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 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. Modern, large
scale poultry production is based on intensive animal management practices. This
type of
7
<PAGE>
animal production requires routine prophylactic medications in order to prevent
health problems. Coccidiosis is one of the critical disease 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 coccidiostats. 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 continues to distribute the product as part of its feed
additive portfolio and provides the necessary technical and commercial support
to integrated poultry producers. Additionally, Elanco uses the product to
manufacture a combination drug, marketed as Maxiban. In 1999, Koffolk Israel
purchased from Merial Limited, the successor to Merck, its European rights for
nicarbazin-based products.
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 many products registered
under FIFRA for use in crop protection in the United States, and holds product
registrations for its crop protection chemicals in many foreign countries. The
principal markets are in the Northern Hemisphere, particularly in North America
and Europe. The business is seasonal, with approximately 70% of sales occurring
between March and June.
The Company's current product line consists of a variety of copper
fungicides and gibberellins, a plant growth regulator used in table grapes and
citrus production. The Company also seeks to increase its product lines through
identification and registration of generic fungicides under FIFRA either
directly or through joint ventures or strategic alliances. In 1998, the Company
obtained the U.S. registration under FIFRA required to sell a 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, for use in a variety of end use
formulations. Mefenoxam is a systemic fungicide used in the tobacco, citrus and
vegetable industries.
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.
Industrial Chemicals
The Company manufactures and markets a number of inorganic and organic
specialty chemicals for use in the chemical catalyst, pharmaceutical,
construction, concrete, wood treatment, printed circuit board, 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.
8
<PAGE>
Inorganic
Copper Chemicals. The Company manufacturers 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"). 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.
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).
Alkaline Etchants. Through its U.S. subsidiary, Phibro-Tech, Inc.
("Phibro-Tech"), the Company manufactures and recycles 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 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.
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.
9
<PAGE>
Fly Ash Related Products. Through MRT, a subsidiary started by the Company
in 1996, the Company manages combustion and mineral by-products. MRT 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. MRT typically provides these products to its customers directly
from a utility's site or through its own terminals. Through the MRT Technology
Center in Atlanta, MRT seeks to develop end-use markets for certain of these
by-products. MRT's research and development program resulted, in March 1998, in
two issued U.S. patents and a proprietary value-added product, called MRT
Cement, made primarily from fly ash. (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; i.e., a mixture that, in the presence of water, combines with an
activator, such as portland cement, to produce a cement-like material. This
allows fly ash to be used as a less expensive substitute for other cementitious
materials.) 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.
In connection with its fly ash management operations, MRT has entered into
and will seek to enter long-term sales and distribution agreements with
utilities providing for minimum payments and/or purchase obligations by MRT.
Such contracts can generally be terminated at the convenience of the utility
company. 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 the MRT Cement and fly ash beneficiation technologies, including
constructing cement manufacturing and fly ash beneficiation plants.
Consideration is also being given to the possibility of partnership
relationships with utilities or cement manufacturers. However, there can be no
assurance that the Company will enter into any such relationships, or, if it
does, as to the terms thereof. Consistent with industry practice, in connection
with its long-term contracts, the Company has furnished and expects to furnish
substantial performance bonds or guarantees to such utilities.
Organic
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.
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. Sodium fluoride is the active anti-cavity
ingredient in fluoride toothpaste, powders and mouthwashes. Selenium disulfide
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 primarily 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. In certain cases the product supplied by Wychem is novel and
included in the customer's regulatory submissions.
Through its Norwegian subsidiary, ODDA Smelteverk AS, the Company
manufactures and distributes calcium carbide and dicyandiamide. The principal
uses of calcium carbide are in the production of acetylene for welding and
cutting, as a desulphurization agent in the steel and foundry industry, and in
the manufacture of chemicals. Dicyandiamide 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. The Company recently signed a letter of intent
to sell 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. As a result of
the sale, ODDA's concession from the Government of Norway to buy power at cost
will terminate early, and ODDA will thereafter purchase power at market rates.
There is, however, no assurance that such sale will be consummated.
10
<PAGE>
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 3,600
customers. Sales to the top ten customers represented approximately 15% of the
Company's 1999 net sales and no single customer represented more than 4% of the
Company's 1999 net sales.
The Company's sales and marketing network consists of a direct sales force
in its AgChem and Industrial segments of approximately 45 and 50 persons,
respectively, as well as more than 80 and 90 independent agents and
distributors, respectively, 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 the three key factors to
marketing its products successfully are high quality products, a highly trained
and technical sales force, and customer service.
Raw Materials
The raw materials used in the Company's business consist chiefly of copper
metal and a wide variety of organic intermediates and inorganic chemicals which
are purchased from manufacturers in the United States, Europe and Asia. In
fiscal 1999, no single raw material accounted for more than 4% of the Company's
cost of goods sold. Total raw materials cost was approximately $150 million or
49% of net sales in 1999.
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 100 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 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.
11
<PAGE>
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 4% of the Company's 1999 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.
The Company has competitors in every market in which it participates. Many
of the Company's 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.
Employees
As of June 30, 1999, the Company had approximately 1,160 employees
worldwide, of whom 42% were salaried employees and 58% were hourly employees. Of
these, 286 employees were in management and administration, 102 in sales and
marketing, 103 were chemists or technicians and 669 were in production.
Approximately 10% of the Company's domestic employees were covered by collective
bargaining agreements with three unions. These agreements expire from 2000
through 2002. 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 are 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
12
<PAGE>
wastes, the manufacture, sale and use of pesticides and the health and safety of
employees. Pursuant to 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 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. For all purposes
of the discussion under this caption, under "--Litigation," and elsewhere in
this Report, 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.
13
<PAGE>
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 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. Every five years, the EPA reviews and revises, if necessary, its
National Ambient Air Quality Standards ("NAAQS"), which is a set of national
emissions standards relating to fine particulate matter and ozone. In July 1997,
the
14
<PAGE>
EPA adopted stringent new NAAQS, and the impact of such new standards 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 new NAAQS.
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 utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone NAAQS nonattainment
areas to install reasonably available control technology for nitrogen oxides,
which are precursors to the atmospheric formation of ozone. In October 1998, the
EPA released a ruling (the "NOx SIP Call") requiring 22 eastern states to revise
their state implementation plans to substantially reduce emissions of nitrogen
oxide. 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 NOx SIP Call will make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation 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. Numerous states,
municipalities, industry trade groups, manufacturers and utilities have filed
petitions in federal court challenging the NOx SIP Call. The effect of the NOx
SIP Call and other regulations or requirements that may be imposed in the future
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, state implementation plans 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.
Phibro-Tech has various air quality permits, including a Title V operating
air permit at its Sumter, South Carolina facility.
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 decision to permit its recycling
facilities as RCRA regulated facilities and has been issued final RCRA "Part B"
permits to operate
15
<PAGE>
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 submitted Part B renewal
applications for the Santa Fe Springs and Sumter sites. The applications are
being reviewed. 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 $5.0 million as of June 30, 1999.
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
send 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 Item 3, certain of which involve such facilities, and Note 12 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.
16
<PAGE>
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-treatment of ground
water on the site and capping to address soil contamination concerns and satisfy
storm water management requirements. Such efforts remain subject to continuing
review by the DEP. In 1998, the Company curtailed operations at the Sewaren
facility.
Sumter, South Carolina. In 1991, in connection with the RCRA Part B permit
for its Sumter, South Carolina facility, Phibro-Tech 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. Phibro-Tech has
completed the remedial action to remove material from an area used by a former
owner of the site. A recommendation for no further action will be presented by
Phibro-Tech's consulting engineers to the South Carolina Department of Health
and Environmental Control ("SCDHEC"). Separately, Phibro-Tech received a (104 e)
letter from SCDHEC requesting information on a debris area partially on and
adjacent to the Sumter facility. Phibro-Tech responded that it did not operate
on nor place any materials in that area. It was apparently used by the former
owner of the site.
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 and disposition of which
is currently being discussed with the California Department of Toxic Substance
Control ("DTSC"). The principal outstanding issue under the order was 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. The study has been completed and Phibro-Tech's consulting
environmental engineers have recommended to DTSC no further action in this
regard. Separately, Phibro-Tech received a summons from Communities for a Better
Environment alleging that Phibro-Tech violated Proposition 65, the Safe Drinking
Water and Toxic Enforcement Act of 1985, and the California Health and Safety
Code. Other companies in Santa Fe Springs received similar summonses.
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 completed the first phase of the investigation process. Further
limited characterization may be requested but Phibro-Tech and its consulting
engineers do not currently anticipate any extensive ongoing corrective measures.
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.
17
<PAGE>
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
additional site characterization, which is scheduled to be undertaken 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's Part B permit renewal has been granted by the Georgia
Environmental Protection Division. The permit calls for a Phase II Work Plan for
corrective action.
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 notice 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, results of operations or cash flows.
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
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,
among other laws, the Working Environment Act, the Pollution Control Act, 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.
18
<PAGE>
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). ODDA is proceeding as requested by SFT and exploring various
alternatives.
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.
The FDA is responsible for the safety and wholesomeness of the human food
supply. It regulates foods intended for human consumption and, through The
Center for Veterinary Medicine, 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 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. 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. To
be legally marketed, a new animal drug product must be approved under an NADA.
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 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.
19
<PAGE>
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
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 coccidiostats. 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 and it is under how EU officials will implement the new rules. 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.
20
<PAGE>
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,
1999 and for the year then ended, Israeli operations (excluding Koffolk Israel's
non-Israeli subsidiaries) accounted for approximately 18% of the Company's
consolidated assets and approximately 17% of its consolidated net sales. All
figures and percentages are approximate. A portion of the information with
respect to Israel presented hereunder 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 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. 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 a 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
21
<PAGE>
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 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, 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.
22
<PAGE>
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 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.
Item 2. Properties.
The Company maintains its principal executive offices and a sales office
in Fort Lee, New Jersey. The Company has 17 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
Locaton 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 Industrial Chemicals; AgChem
Garland, Texas 20,000 Industrial Chemicals
Houston, Texas(a) 10,300 Administrative and Sales
Joliet, Illinois 34,500 Industrial Chemicals
Ladora, Iowa 9,500 Warehouse
Marion, Iowa 32,500 AgChem
Phoenix City, Alabama 6,000 Industrial Chemicals
Quincy, Illinois(b) 187,300 Industrial Chemicals; AgChem; Warehouse;
Administrative and Sales
Santa Fe Springs, California(c) 90,000 Industrial Chemicals
Sumter, South Carolina 123,000 AgChem; Industrial Chemicals
Union City, California 20,600 Industrial Chemicals
Wilmington, Illinois 119,000 Warehouse
Bordeaux, France 141,000 AgChem; Administrative and Sales
Braganca Paulista, Brazil 35,000 Agchem; Administrative and Sales
Meerbusch, Germany(a) 700 Sales
Petach Tikva, Israel 60,000 AgChem; Administrative and Sales
Ramat Hovav, Israel(a) 140,000 AgChem; Industrial Chemicals
Reading, Berks, United Kingdom(a) 3,100 Administrative and Sales
Stradishall, United Kingdom 20,000 Industrial Chemicals; Administrative and
Sales
Scunthorpe, United Kingdom(a) 93,000 Industrial Chemicals; Warehouse
Odda, Norway 1,725,000 Industrial Chemicals; Warehouse;
Administrative and Sales
Bremen, Indiana 50,000 AgChem; Warehouse
</TABLE>
- ----------
(a) This facility is leased. The Company's leases expire from 1999 to 2027.
For information concerning the Company's rental obligations, see Note 12
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."
23
<PAGE>
The Company's subsidiary, C.P. Chemicals, Inc., owns an inactive, former
manufacturing facility in Sewaren, New Jersey, and another subsidiary of the
Company owns inactive, former manufacturing facilities in Powder Springs,
Georgia and Union, Illinois. MRT leases terminal facilities in Atlanta, Georgia
and Spartanburg, South Carolina, and operates loading facilities in Choteau,
Oklahoma; Joppa, Illinois; St. John, Arizona; Gentry, Arizona; and Labadie,
Missouri. 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.
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 became 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, results of operations or
cash flows.
Item 3. Legal Proceedings.
Reference is made to the discussion above under "Environmental Matters" in
Item 1 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 former owner of the Sewaren site
and Chevron's site and a prior tenant of the Chevron site. Additional parties
have been brought into the action. Interrogatories have been exchanged and
depositions are expected to begin. 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.
The Company's Phibro-Tech subsidiary was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under CERCLA by
the EPA, involving a former third party fertilizer manufacturing site in
Jericho, South Carolina. Phibro-Tech 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. The South Carolina Department of
Health and Environmental Control, which had assumed oversight of this site,
filed suit in United States District Court to approve a settlement with certain
steel company PRPs. Other parties intervened and filed administrative actions to
contest the substantive and procedural fairness of that settlement. The Court
permitted other PRPs to intervene and, in August 1999, disapproved the
settlement. Certain PRPs are objecting to the SCDHEC allocation. Under
applicable law all non-settling PRPs could be found to have strict, joint and
several liability under CERCLA. Accordingly, Phibro-Tech will continue to assess
how best to respond to claims raised in this proceeding.While the outcome of
ongoing negotiations is uncertain, the Company has accrued its best estimate of
the amount for which this matter can be settled. See Note 12 to the Company's
Consolidated Financial Statements.
24
<PAGE>
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, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended June 30, 1999.
25
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. There is no public trading market for the
Company's common equity securities.
(b) Holders. As of June 30, 1999, there was one holder of the Company's
Class A Common Stock and two holders of the Company's Class B Common Stock.
(c) Dividends. The Company did not declare dividends on any of its common
stock during the two years ended June 30, 1999.
Item 6. Selected Financial Data.
The following table sets forth summary consolidated financial data for the
Company for the past five years ended June 30, 1999. The summary consolidated
financial data for the five years are derived from the Company's audited
consolidated financial statements. The consolidated financial data set forth
below should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein.
Summary of Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------
1999(a) 1998 1997 1996 (e) 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ......................................... $302,324 $277,983 $268,362 $241,395 $230,805
Net income (loss) before extraordinary items ...... (466) (7,065) 8,036 (10) 2,982
Extraordinary items ............................... -- (1,962) -- -- --
Net income (loss) (b) (c) ......................... (466) (9,027) 8,036 (10) 2,982
Balance Sheet Data:
Total assets ...................................... $237,373 $192,196 $162,700 $158,182 $149,798
Debt (d) .......................................... 138,739 104,296 67,259 70,269 56,171
</TABLE>
Notes to Summary Consolidated Financial Data:
- ----------
(a) Reflects the acquisition of ODDA effective October 1, 1998.
(b) In 1999, includes $3.7 million property damage insurance gain as a result
of a fire at the Bowmanstown, Pennsylvania facility.
(c) In 1999, includes a $1.5 million charge related to the severance of a key
executive. In 1998, includes a $10 million nonrecurring plant curtailment
charge and $5.6 million for the forgiveness of limited recourse notes
receivable from certain executives of the Company and payment for related
income taxes resulting from the cancellation. 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.
(d) Debt is equal to loans payable to banks, other loans payable, long term
debt and current portion of long term debt.
(e) Reflects the acquisition of Planalquimica effective December 7, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 Report.
General
The Company is a leading diversified global manufacturer and marketer of a
broad range of specialty agricultural and industrial chemicals, which are sold
world-wide for use in numerous markets, including
26
<PAGE>
animal nutrition and health, agriculture, pharmaceutical, electronics, wood
treatment, 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 two industry segments: AgChem and Industrial
Chemicals.
On October 1, 1998 the Company acquired all of the outstanding capital
stock of ODDA Smelteverk AS, a Norwegian company and certain assets of the
business of BOC Carbide Industries in the United Kingdom from the BOC Group, for
$19 million in cash and the assumption of $18.2 million in debt. The acquisition
was primarily financed by proceeds from the issuance of $100 million in
principal amount of Senior Subordinated Notes in June 1998. The acquisition was
accounted for as a purchase and, accordingly, the acquired assets and
liabilities were recorded at fair values at the acquisition date, with the
excess of purchase price over the fair value allocated to goodwill. ODDA, which
is in the Company's Industrial Chemicals segment, is a manufacturer and
distributor 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.
Results of Operations
Sales
($000's)
Year Ended June 30
-----------------------------------------
Operating Segments: 1999 1998 1997
--------- --------- ---------
AgChem .......................... $ 182,441 $ 184,223 $ 177,253
Industrial Chemicals ............ 151,045 127,416 124,159
Elimination of intersegment sales (31,162) (33,656) (33,050)
--------- --------- ---------
$ 302,324 $ 277,983 $ 268,362
========= ========= =========
Operating Income (Loss)
($000's)
Year Ended June 30
--------------------------------------
Operating Segments: 1999 1998 1997
-------- -------- --------
AgChem ............................ $ 11,412 $ 9,532 $ 10,954
Industrial Chemicals .............. 9,079 (2,389) 6,453
Corporate expenses and eliminations (10,136) (11,370) (6,176)
-------- -------- --------
$ 10,355 $ (4,227) $ 11,231
======== ======== ========
Comparison of Fiscal Year Ended June 30, 1999 to Fiscal Year Ended June 30, 1998
Net Sales. Net Sales increased by $24.3 million or 8.7% to $302.3 million
in fiscal 1999 as compared to the prior year. This increase was primarily due to
higher sales of $23.6 million in the Company's Industrial Chemicals group for
dicyandiamide and calcium carbide ($29.8 million) as a result of the ODDA
acquisition and higher volume sales of the Company's coal fly ash products ($3.8
million). This increase was partially offset by lower volume sales of inorganic
intermediate products primarily to the wood treating industry ($1.4 million) due
to lower demand, lower sales of copper sulfate feed grade ($1.2 million) due to
lower copper prices and competitive pressures, and lower volume sales of metal
finishing and electronic chemicals and lower recycling revenues due to lower
customer demand ($3.0 million).
AgChem sales in 1999 were lower by $1.8 million as compared to the prior
year primarily as a result of lower demand for the Company's animal nutrition
and health products ($13.4 million), which was partially offset by higher crop
protection chemical sales ($8.3 million) primarily due to introduction of new
generic fungicides and the acquisition in December 1998 of a feed pre-mix
business ($3.3 million).
Gross Profit. Gross profit increased by $10.0 million or 14.5% to $79.1
million in 1999. This increase was primarily attributable to higher sales in the
Company's Industrial Chemicals group ($9.8 million), due to the ODDA acquisition
and higher sales of coal fly ash products, which were partially offset by lower
sales of inorganic chemical intermediates (primarily to the wood treating
industry) and copper sulfate feed grade.
27
<PAGE>
Gross profit of the Company's AgChem segment was comparable to the prior year as
higher crop protection product sales were offset by lower sales of animal
nutrition and health products, principally coccidiostats. Gross profit as a
percentage of net sales also increased to 26.2% in 1999, as compared to 24.9% in
1998, principally due to the impact of the ODDA acquisition in the Industrial
Chemicals group and higher margins on new generic fungicides within the AgChem
group.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $5.9 million or 9.3% to $69.2 million in fiscal
1999 as compared to the prior year. This increase was primarily due to the
Company's acquisition of ODDA ($9.0 million), higher selling expenses associated
with sale of the Company's newly introduced generic fungicides ($1.8 million)
and compensation expenses associated with the separation of employment of an
executive of a subsidiary of the Company ($1.5 million). These increases were
partially offset by $2.5 million in lower expenses due to the 1998 curtailment
of operations at the Company's Sewaren, New Jersey facility. Also included in
1998 are charges of $5.6 million associated with the forgiveness of executive
notes and related income tax reimbursements and $1.2 million of severance
charges.
Operating Income (Loss). Operating income of the AgChem group increased
$1.9 million in 1999 as compared to the prior year, due primarily to the
introduction of new generic fungicides. Excluding the 1998 charge for
curtailment of operations at the Sewaren, New Jersey facility, operating income
of the Industrial Chemicals group increased by $1.5 million, due primarily to
the ODDA acquisition and the increase in sales of coal fly ash. In addition,
non-segment operating expenses in 1999 included a charge associated with the
separation from employment of an executive and in 1998 included a $5.6 million
charge associated with the forgiveness of certain notes due from executives and
related tax reimbursements.
Interest Expense. Interest expense increased by $6.3 million or 91.4% to
$13.1 million in fiscal 1999 as compared to the prior year primarily due to
increased principal and interest expense associated with the offering of $100
million of Senior Subordinated Notes in June 1998 and interest expense incurred
by ODDA on its bank borrowings.
Gain from Property Damage Claim. In April 1999, a fire damaged the
Company's Bowmanstown, Pennsylvania facility, including real property and
machinery and equipment. The gain of $3,701 represents the excess of insurance
proceeds to be recovered over the net carrying value of the damaged property.
Other Expense, Net. Other expense, net, principally reflects foreign
currency transaction gains and losses of the Company's foreign subsidiaries.
Taxes. The 1999 tax provision differs from the net benefit calculated at
the U.S. statutory rate due primarily to the effect of non-deductible expenses
and tax rate differences on foreign operations. 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, except with respect to certain
foreign and U.S. state net operating loss carryforwards.
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 AgChem 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). Higher net sales of $3.2 million
in the Company's Industrial Chemicals group were primarily due to increased
sales of coal fly ash products.
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 AgChem 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. Higher gross profits in the Company's Industrial Chemicals group were
primarily due to coal fly ash products.
28
<PAGE>
Selling, General and Administrative Expense. Selling, general and
administrative expense 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 those notes (totaling $5.6 million), a $1.2
million provision for personnel reductions at one of the Company's foreign
subsidiaries and at 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.
Curtailment of Operations. During the fourth quarter of fiscal 1998, the
Company curtailed manufacturing operations of its Sewaren, New Jersey facility,
which is included in the Industrial Chemicals group. 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 Sewaren, New Jersey 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). Operating income for the AgChem group in 1998
decreased by $1.4 million as compared to the prior year primarily due to lower
margins and higher expenses for crop protection products and a $1.2 million
provision for personnal reductions at one of the Company's foreign subsidiaries.
Operating income for the Industrial Chemicals group in 1998 increased by
$1.2 million as compared to the prior year after excluding the $10 million 1998
charge for curtailment of operations at the Sewaren, New Jersey facility. This
increase was primarily attributable to higher margins for mineral oxide
products.
Fiscal 1998 non-segment operating expenses include a charge of $5.6
million associated with the forgiveness of certain notes due from executives and
related tax reimbursements.
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 principal amount of Senior Subordinated Notes
issued in June 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 impact of
lower tax rates on foreign pre-tax income. The 1997 tax benefit is less then the
U.S. statuory rate principally due to non-taxable gain on life insurance and
certain foreign tax benefits.
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 of senior notes and the write-off of deferred financing costs associated
with indebtedness of the Company repaid from proceeds of its $100.0 million
Senior Subordinated Notes.
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.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities. Net cash used in operations was
$3.8 million for fiscal 1999 as compared to $1.3 million of net cash generated
by operations in fiscal 1998. This change was primarily due to lower earnings
before non-cash items, primarily due to higher interest expenses, and higher
levels of accounts receivable and inventories due to the ODDA and animal feed
business acquisitions. Partially offsetting these changes were fiscal 1999
accruals for payments associated with separation of employment of a key
executive and payments for obtaining label registration rights for certain
fungicides which will be paid in fiscal 2000. 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 sales having
occurred later in the season than the prior year), offset by depreciation and
amortization and non-cash, non-recurring charges.
29
<PAGE>
Net Cash Used in Investing Activities. Net cash used in investing
activities for fiscal 1999 was $33.8 million, an increase of $25.7 million. This
increase was primarily due to the ODDA acquisition, as well as an acquisition of
a business in the animal feed industry. Higher capital expenditures were
primarily due to expenditures by ODDA for increased production capacities. 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 Provided by Financing Activities. Net cash provided by financing
activities for fiscal 1999 was $15.7 million, primarily as a result of drawdowns
under the Company's revolving credit facility. 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 of Senior Subordinated Notes less discounts
and fees of $3.8 million and after repayments of the Company's long-term and
short-term indebtedness.
Liquidity. As of June 30, 1999 and 1998, the Company had $72.7 and $79.7
million of working capital, respectively.
In June 1998, the Company issued $100 million aggregate principal amount
of 9-7/8% Senior Subordinated Notes due 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 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 domestic
subsidiaries of the Company.
In August 1998, the Company and certain of its domestic subsidiaries
terminated their existing credit facility with Fleet Bank. Simultaneously, the
Company and all of its domestic subsidiaries entered into a 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.
At June 30, 1999, the Company was not in compliance with the domestic net
worth requirements of the credit agreement. The lenders have waived the default
as of June 30, 1999 and amended domestic net worth requirements for fiscal 2000.
The Company's Norwegian subsidiary, ODDA, was not in compliance with the debt
service and liabilities to equity ratios in its bank credit agreement.
Subsequently, a waiver was obtained from ODDA's lenders.
In April 1999, the Company suffered inventory, real property and machinery
and equipment loss at its Bowmanstown, Pennsylvania facility resulting from a
fire. The Company carries insurance coverage for the property damage and
business interruption losses and has recorded a receivable of $4.3 million in
other receivables at June 30, 1999 for amounts reimbursable from the insurance
carrier. The receivable is net of the Company's deductible and $1.0 million
advanced by the insurance carrier prior to June 30, 1999. Additional advances
are expected to be received during fiscal 2000, as the Company incurs
replacement expenditures. As a result of its ability to transfer production to
another owned facility and payment of the insurance proceeds, the Company does
not expect the fire loss to have any significant impact on its liquidity.
ODDA recently signed a letter of intent to sell its minority interest in
Tyssefaldene, a company which operates power stations in the region in which
ODDA is located. As a result of the sale, ODDA's ability to buy power at cost
will terminate and ODDA will thereafter purchase power at prevailing market
rates. The sale proceeds will primarily be used for debt repayment, capital
expenditures and payment of related income taxes. The sale is subject to due
diligence of the parties and regulatory approval. Final negotiation and closing
is expected to take place in January 2000. There is, however, no assurance that
such sale will be consummated.
The Company anticipates spending approximately $16 million for capital
expenditures for its existing business in fiscal 2000, principally for
improvements and expansion at ODDA and MRT. These amounts are subject to change,
depending upon actual needs.
At June 30, 1999, the Company had $13.4 million outstanding borrowings
under its credit agreement with PNC Bank. In addition to amounts outstanding,
the Company had $21.6 million available under the borrowing base formula. 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.
30
<PAGE>
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.
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 two 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 $1,829,000 and $979,000 for the 1999 and 1998
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 adopted 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 required additional disclosure, but
did not have an effect on the Company's financial position, results of
operations or cash flows.
The Company will 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.
31
<PAGE>
The Company is required to adopt Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" in
fiscal 2000. This standard establishes guidelines for capitalization of costs of
computer software developed or obtained for internal use and is not expected to
have a material effect on financial position, results of operations or cash
flows of the Company.
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 does 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.
Interest Rate Risk
The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. The carrying amounts of cash and cash
equivalents, trade receivables, trade payables and short term debt is considered
to be representative of their fair value because of their short maturities. As
of June 30, 1999, the fair value of the Company's senior subordinated debt is
estimated based on quoted market rates is $94.6 million and the related carrying
amount is $100 million. A 100 basis point increase in interest rates could
result in approximately $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 Euro
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, 1999, the fair value did not differ materially from its
carrying amount. Based on the limited amount of foreign currency contracts at
June 30, 1999, the Company does not believe that an instantaneous 10% adverse
movement in foreign currency rates from their levels at June 30, 1999, with all
other variables held constant, would have a material effect on the Company's
results of operations, financial position or cash flows.
Other
The Company obtains third party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. At June
30, 1999, the contract values of these letters of credit and surety bonds were
$2.0 million and their fair values did not differ materially from their carrying
amount.
32
<PAGE>
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, 1999 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.
Year 2000 Disclosure
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
The term "Year 2000 ("Y2K") Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the dates in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues affect the Company and most companies in the
world.
The Company has conducted a review of its core management information
systems and equipment with embedded chips or processors ("Management Systems")
used in the Company's operations, and also its internal manufacturing systems at
its plants, including computer-based manufacturing, logistical and related
systems ("Manufacturing Systems").
Over the last three years, the Company has replaced or upgraded most of its
Management Systems and Manufacturing Systems. The Company has substantially
upgraded its desktop computers, networks and servers and software applications
and packages. The Company has expended approximately $587,000, $920,000 and
$245,000 in the fiscal years ended June 30, 1997, 1998 and 1999, respectively,
towards compliance with Y2K issues. Such amounts during such periods were
allocated as follows: for 1997, $72,700 for hardware, $9,000 for software,
$300,800 for outside consultants and $205,000 for internal costs; for 1998,
$229,700 for hardware, $35,600 for software, $235,000 for outside consultants
and $420,000 for internal costs; for 1999, $168,000 for hardware, $53,000 for
software, $24,000 for outside consultants and nominal internal costs. The
Company believes that its Manufacturing Systems worldwide are currently in Y2K
compliance. With regard to its Management Systems, the Company estimates that
100 percent of its U.S. operations are Y2K compliant. The Company's operations
in France and the United Kingdom are presently in Y2K compliance, while the
Company estimates that its Israeli and Norwegian operations are currently 90
percent and 75 percent compliant, respectively, and that they will be in full
compliance during calendar 1999. The Company expects that any required
modifications will be made on a timely basis. The Company continues to test its
Management and Manufacturing Systems, on a system-by-system basis, as it
completes its ongoing compliance efforts. The Company estimates that future
expenditures will not exceed $150,000, of which $30,000 is expected to be spent
on hardware, $70,000 on software modifications and systems testing by outside
consultants and $50,000 is allocated to internal costs and contingencies. The
Company's estimates of completion are based on management's estimates of the
number and complexity of the systems involved and the status of its Y2K effort
with respect to such systems. Such estimates may not necessarily be consistent
with the timing of the Company's incurrence of Y2K-related expenditures.
As part of the Company's Y2K readiness program, the Company has identified
significant service providers, vendors, suppliers and customers ("Key Business
Partners") that it believes are critical to business operations after January 1,
2000 and has sent questionnaires in an attempt to reasonably ascertain their
stage of Y2K readiness. The Company may follow-up responses to the
questionnaires through interviews and other
33
<PAGE>
available means. In conjunction with this effort, key utilities upon which the
Company and its operating subsidiaries rely will be approached on a worldwide
basis to identify their level of Y2K preparedness. In many cases, these entities
(particularly outside North America) have a lower level of Y2K awareness and are
less willing to provide information concerning their state of Y2K readiness.
The Company is considering business interruption contingency plans to
address internal and external issues specific to the Y2K problem, to the extent
practicable. These contingency plans, which are intended to enable the Company
to continue to operate on January 1, 2000 and beyond, may include stockpiling
raw and packaging materials, increasing inventory levels, securing alternate
sources of supply, performing certain functions manually, repairing or obtaining
replacement systems to interface with third-party systems and other appropriate
measures. The Company's Manufacturing Systems rely on control systems which
include process manufacturing and mixing controls, production monitoring power,
and emission and safety. While comparable control systems are used at plants
having similar processes, specific facility-related configurations exist to meet
the needs of production equipment at each plant. If a failure were to occur, the
potential impact would be isolated to the affected facility and, more
particularly, the product or products manufactured with the affected equipment.
Also, in many cases, the Company has the ability to manufacture the same product
at different facilities. The Company's Management Systems include administrative
and financial applications, such as for order processing and collection. In the
event one of these systems were not corrected, the Company's ability to capture,
schedule and fulfill customer demands could be impaired. Similarly, if a
collection processing system were to fail, the Company may not be able to
properly apply payments to customer balances or correctly determine cash
balances. However, as discussed above, the Company will consider various
alternatives, including performing manually certain functions that it had
performed manually before the applicable computer system was in use.
The Company's plans are intended to provide a means of managing risk, but
cannot eliminate the potential for disruption due to third party failure. To the
extent that responses to Y2K readiness are unsatisfactory, the Company may
consider changing suppliers, service providers or contractors to those which
have demonstrated Y2K readiness. However, the Company believes that due to the
widespread nature of the potential Y2K issues, its contingency planning is an
ongoing process which will require further consideration as the Company obtains
additional information regarding the Company's internal systems and equipment
during completion of the testing of its systems and regarding the status of its
suppliers, customers and other third party providers regarding their becoming
Y2K compliant. The Company is defining a strategy based on the importance of
each relationship. The Company's efforts with respect to specific problems
identified will depend in part upon its assessment of the risk that such problem
may have an adverse impact on its operations. The Company has not yet developed
contingency plans in the event of a Y2K failure caused by a supplier or third
party, but would intend to do so if a specific problem is identified through the
program described above. In some cases, particularly with respect to its utility
vendors, alternative suppliers may not be available.
Because of the substantial number of Manufacturing and Management Systems
used by the Company and its operating subsidiaries, the significant number of
Key Business Partners, the extent of the Company's foreign operations, including
operations within countries that are not actively promoting remediation of the
Y2K issue, the Company presently believes that it may experience some disruption
in its business due to the Y2K issue. The Company currently believes that the
greatest risk of disruption in its business exists in certain international
markets. The possible consequences of the Company or Key Business Partners not
being fully Y2K complaint by January 1, 2000 include, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. More specifically, the
Company could be materially adversely affected if utilities and private
businesses with which it does business or that provide essential products or
services are not Y2K ready. Due to the general uncertainty inherent in the Y2K
problem, resulting in part from the uncertainty of the Y2K readiness of the
Company's customers, suppliers, and other third-party providers, the Company is
unable to determine at this time whether the consequences of any Y2K failures
will have a material impact on the Company's results of operations, liquidity,
financial condition or cash flows. 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.
34
<PAGE>
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.
Certain Factors Affecting Future Operating Results
This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward- looking statements.
Certain factors that might cause such a difference include, among other factors
noted herein, the following: the Company's substantial leverage and potential
inability to service its debt; the Company's dependence on distributions from
its subsidiaries; risks associated with the Company's international operations;
the Company's dependence on its Israeli operations; competition in each of the
Company's markets; potential environmental liability; extensive regulation by
numerous government authorities in the United States and other countries;
significant cyclical price fluctuation for the principal raw materials used by
the Company in the manufacture of its products; the Company's reliance on the
continued operation and sufficiency of its manufacturing facilities; the
Company's dependence upon unpatented trade secrets; the risks of legal
proceedings and general litigation expenses; potential operating hazards and
uninsured risks; the risk of work stoppages; the Company's dependence on key
personnel; the uncertain impact of the Company's acquisition plans; the
seasonality of the Company's business; and risks associated with Year 2000
compliance by the Company and third parties.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information regarding quantitative and qualitative disclosures about
market risk is set forth in Part I Item 7 of this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The financial statements are set forth on pages F-1 through F-35 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No response required.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following sets forth, as of June 30, 1999, the name, age, and position
of the Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jack C. Bendheim 52 Director, President and Chief Executive Officer
Marvin S. Sussman 52 Director; Chief Operating Officer and Executive Vice
President; President, Prince Group
James O. Herlands 57 Director and Executive Vice President; President,
CP/PhibroChem Group
Nathan Z. Bistricer 48 Vice President and Chief Financial Officer
Joseph M. Katzenstein 57 Treasurer and Secretary
</TABLE>
JACK BENDHEIM -- Director, President and Chief Executive Officer. Mr.
Bendheim has been President since 1988. He was Chief Operating Officer from 1988
to 1998, and was appointed 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, Chief Operating Officer and Executive Vice
President, and President of the Company's Prince Group. He has been a director
since 1988 and was appointed Chief Operating Officer in 1998. 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.
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.
36
<PAGE>
Item 11. Executive Compensation.
The following table sets forth the cash compensation paid by the Company
and its subsidiaries for services during fiscal 1999, 1998 and 1997 to each of
the Company's five most highly compensated executive officers:
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
----------------------------------------- -------------------- --------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation** Awards Options/SARs Payouts Compensation***
------------------ ---- ------ ----- -------------- ------ ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack C. Bendheim ........ 1999 $1,207,000 $ -- $ -- $-- $-- $-- $5,200
President & CEO 1998 1,725,000 -- -- -- -- -- 5,200
1997 967,500 -- -- -- -- -- 4,925
Marvin S. Sussman* ...... 1999 467,000 597,200 -- -- -- -- $5,200
Executive Vice 1998 479,500 423,700 -- -- -- -- 5,200
President; President 1997 517,500 450,780 -- -- -- -- 4,925
of Prince Group
James O. Herlands ....... 1999 365,000 250,000 24,015 -- -- -- $5,200
Executive Vice 1998 350,000 250,000 1,030,100 -- -- -- 5,200
President; President 1997 337,000 145,000 -- -- -- -- 4,925
of CP/Phibrochem
I. David Paley**** ...... 1999 365,000 -- 80,400 -- -- -- $5,200
former President 1998 360,000 -- 3,450,700 -- -- -- 5,200
and COO of Phibro- Tech 1997 347,500 -- -- -- -- -- 4,925
Nathan Z. Bistricer, .... 1999 233,700 180,000 24,015 -- -- -- $5,200
Vice President & CFO 1998 223,700 60,000 1,030,100 -- -- -- 5,200
1997 215,000 60,000 -- -- -- -- 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 1999, 1998 and 1997 the
amount attributable to Mr. Sussman's shares was $(187,000), $(1,250,000)
and $130,000, 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."
**** Mr. Paley's employment as an officer and director of Phibro-Tech was
terminated in March 1999. See "Certain Relationships and Related
Transactions."
In fiscal 1999, 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.
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, 1999, the aggregate balance of such notes was $40,000
plus accrued interest at 6% per annum.
37
<PAGE>
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,
1999, severance payments equal to an aggregate of approximately $588,000 would
have been due to Messrs. Bistricer and Herlands if they were terminated. In
September 1999, Phibro-Tech paid Mr. Paley $2,862,660 in connection with his
separation. 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 $5,200, respectively, for fiscal
1999.
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. For purposes of
calculating the portion of the benefit based on "average salary" in excess of
the average wage base, years of service shall not exceed 35. "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 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.
38
<PAGE>
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.
Years of Service
-------------------------------------------------------
Average Compensation 15 20 25 30 35
- -------------------- ------- ------- ------- ------- -------
$ 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 ........... 12,570 16,240 19,800 23,530 27,410
$100,000 ........... 18,190 23,740 29,170 34,780 40,530
$150,000 ........... 29,440 38,740 47,920 57,280 66,780
$200,000 ........... 31,690 41,740 51,670 61,780 72,030
As of June 30, 1999, Messrs. Bendheim, Sussman, Paley, Herlands and
Bistricer had 30, 28, 10, 35 and 14 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, 1999 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, 1999, is $106,740, $122,180, $36,160, $120,400 and
$65,320, 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, 1999.
Annual Survivor's Deferred
Retirement Income Compensation
Income Benefit Benefit Benefit
-------------- ---------- ------------
Jack C. Bendheim ......... $ 13,295 $1,889,592 $ 140,640
Nathan Z. Bistricer ...... 10,000 454,998 98,759
James O. Herlands ........ 13,295 710,016 119,790
I. David Paley ........... 13,295 729,984 140,640
Marvin S. Sussman ........ 13,295 933,984 52,110
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
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
39
<PAGE>
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 1999, 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 1999, 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."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The table sets forth certain information as of June 30, 1999 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.
<TABLE>
<CAPTION>
Number of Shares (Percentage of Class)
-----------------------------------------
Name Class A Voting(1) Class B 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 holders of Class B Common Stock
elect one of the five directors but do not vote on any other matters.
40
<PAGE>
(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.
Item 13. 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.
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 connection with the consummation of the offering by the Company of its
Senior Subordinated Notes in June 1998, Phibro-Tech canceled certain limited
recourse promissory notes from I. David Paley ($1,392,461), Nathan Z. Bistricer
($415,685) and James O. Herlands ($415,685) (the "Executives"), related to
acquiring 10.7% of the stock of Phibro-Tech in 1995 and forgave all amounts due
thereunder (including an aggregate of $628,000 in accrued interest), and paid
the Executives an additional aggregate amount of $2,740,000 as reimbursement for
their resulting income tax liability. As a result of the repayment of certain
notes of the Company with proceeds of the offering of the Company's Senior
Subordinated Notes, the Class B common stock of the Executives converted into an
equal number of Class A common stock of Phibro-Tech. Pursuant to an amendment to
the Certificate of Incorporation of Phibro-Tech adopted in January 1999, the
shares of Phibro-Tech owned by the Executives were exchanged for an equal number
of newly authorized shares of non-voting Class B Common Stock of Phibro-Tech,
and the shares of MMC owned by Phibro-Tech were transferred to and became
directly owned by Philipp Brothers. A Shareholders Agreement among the
Executives and Phibro-Tech provides, among other things, for restrictions on
such shares as to voting, dividends, liquidation and transfer rights. 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 "Executive Compensation--Employment and Severance Agreements."
In connection with the retirement of I. David Paley from Phibro-Tech in
March 1999, (i) pursuant to the Shareholders Agreement among the Executives and
Phibro-Tech, the Company paid $2,862,660 in connection with the repurchase of
the 240.03 shares of his Class B Common Stock of Phibro-Tech and in satisfaction
of Phibro-Tech's severance obligation under a Severance Agreement between
Phibro-Tech and Mr. Paley. In addition, the Company has retained Mr. Paley,
pursuant to a Consulting Agreement, through March 15, 2002,
41
<PAGE>
to render consulting and advisory services to the Company on a part-time basis.
The consulting fees payable to Mr. Paley is $200,000 for the first year and
$150,000 for each of the second and third years of the term. Mr. Paley is also
entitled under such Consulting Agreement to life insurance equal to the unpaid
consulting fee, and certain other benefits.
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 for the Senior Subordinated Notes and the Company's secured domestic
credit agreement. The Indenture and the credit agreement both include a similar
restriction on the Company and its domestic subsidiaries with respect to the
sale, purchase, exchange or lease of assets, property or services, subject to
certain limitations as to the applicability thereof.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)Exhibits
Exhibit No. Description of Exhibit
- ---------- -------------------
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., as
amended**
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*
3.14.1 -- Amendments to Limited Liability Company Agreement of
Mineral Resource Technologies, L.L.C.**
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 Company*
42
<PAGE>
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
Report 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, 1999. For a description
of such indebtedness, see Note 7 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.
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*
43
<PAGE>
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+*
10.28 -- Subcription and Exchange Agreement, dated as of January
29, 1999 among I. David Paley, Nathan Z. Bistricer, James
O. Herlands and Phibro-Tech, Inc.**
10.29 -- General Release between Phibro-Tech, Inc. and I. David
Paley dated as of September 1, 1999***
10.30 -- Separation Agreement between Phibro-Tech, Inc. and I.
David Paley dated as of September 1, 1999***
10.31 -- Stock Purchase Agreement between Phibro-Tech, Inc. and I.
David Paley dated as of September 1, 1999***
10.32 -- Consulting Agreement between Phibro-Tech, Inc. and I.
David Paley dated as of September 1, 1999***
21.1 -- Subsidiaries of Philipp Brothers Chemicals, Inc.***
27.1 -- Financial Data Schedule***
- ----------
* Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4, No. 333-64641.
** Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended December 31, 1998.
*** Filed herewith.
+ A request for confidential treatment has been granted for portions of such
document. Confidential portions have been omitted and filed separately
with the SEC as required by Rule 406(b).
(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.
(c) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
fiscal year ended June 30, 1999.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants ....................................... F-2
Consolidated Balance Sheets--June 30, 1999 and 1998. ..................... F-4
Consolidated Statements of Operations--for the years ended
June 30, 1999, 1998 and 1997 ........................................... F-5
Consolidated Statements of Changes in Stockholders'
Equity--for the years ended June 30, 1999, 1998 and 1997 ............... F-6
Consolidated Statements of Cash Flows--for the years ended
June 30, 1999, 1998 and 1997 ........................................... F-7
Notes to Consolidated Financial Statements ............................... F-8
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 at June 30, 1999 and June 30,
1998, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999 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 of 6.6 percent and
revenues of 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 thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for L.C. Holding
S.A., is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 28, 1999
F-2
<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 year ended 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, 1997 and
the consolidated results of operations and cash flows for 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-3
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and 1998
(In thousands, except share and per share amounts)
ASSETS
1999 1998
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 2,308 $ 24,221
Trade receivables, less allowance for doubtful
accounts of $ 886 at June 30, 1999 and
$751 at June 30, 1998 ............................ 69,113 57,560
Other receivables .................................. 9,961 6,000
Inventories ........................................ 51,430 37,567
Prepaid expenses and other current assets .......... 7,273 5,491
--------- ---------
TOTAL CURRENT ASSETS ............................ 140,085 130,839
PROPERTY, PLANT AND EQUIPMENT, net ................... 66,040 40,510
INTANGIBLES .......................................... 6,959 3,771
OTHER ASSETS ......................................... 24,289 17,076
--------- ---------
$ 237,373 $ 192,196
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft ..................................... $ 1,438 $ 1,915
Loans payable to banks ............................. 3,019 --
Current portions of long-term debt ................. 1,450 1,646
Accounts payable ................................... 36,260 31,517
Other loans payable ................................ 182 492
Accrued expenses and other current liabilities ..... 25,072 15,602
--------- ---------
TOTAL CURRENT LIABILITIES ....................... 67,421 51,172
LONG-TERM DEBT ....................................... 134,088 102,158
OTHER LIABILITIES .................................... 11,524 10,103
--------- ---------
TOTAL LIABILITIES ............................... 213,033 163,433
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Common stock ....................................... 2,376 2,563
Common stock of subsidiary ......................... 581 2,623
--------- ---------
TOTAL REDEEMABLE SECURITIES ..................... 2,957 5,186
--------- ---------
STOCKHOLDERS' EQUITY:
Series "A" preferred stock-$100 par value,
6% noncumulative, 5,207 shares authorized and
issued at June 30, 1999 and 60,000 shares
authorized and 5,207 shares issued at
June 30, 1998 .................................... 521 521
Common stock-$0.10 par value, 30,300 shares
authorized; 24,488 shares issued at
June 30, 1999, and 38,400 shares authorized;
24,488 shares issued at June 30, 1998 ............ 2 3
Paid-in capital .................................... 816 435
Retained earnings .................................. 22,755 23,221
Accumulated other comprehensive income
(loss) -- cumulative currency translation
adjustment ....................................... (2,711) (603)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ...................... 21,383 23,577
--------- ---------
$ 237,373 $ 192,196
========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
--------- --------- ---------
NET SALES ............................... $ 302,324 $ 277,983 $ 268,362
COST OF GOODS SOLD ...................... 223,247 208,913 201,038
--------- --------- ---------
GROSS PROFIT .......................... 79,077 69,070 67,324
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .............................. 69,222 63,297 56,093
CURTAILMENT OF OPERATIONS AT
MANUFACTURING FACILITY ................ (500) 10,000 --
--------- --------- ---------
OPERATING INCOME (LOSS) ............... 10,355 (4,227) 11,231
OTHER:
Interest expense ...................... 13,142 6,865 6,253
Interest income ....................... (628) (383) (252)
Gain from property damage claim ....... (3,701) -- --
Gain on life insurance policy ......... -- -- (5,642)
Other expense, net .................... 1,829 1,045 1,768
--------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ............... (287) (11,754) 9,104
PROVISION (BENEFIT) FOR INCOME TAXES ... 179 (4,689) 1,068
--------- --------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (466) (7,065) 8,036
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT (NET OF APPLICABLE INCOME
TAXES OF $ 1,011) ..................... -- (1,962) --
--------- --------- ---------
NET (LOSS) INCOME ..................... $ (466) $ (9,027) $ 8,036
========= ========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
F-5
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------------- --------------------------------------
Class Class Class Class
Special Second Series "A" "A" "B" "C" "E"
------- ------- ------- ------ ------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1,1996 ................ $ 100 $ 6,537 $ 521 $ 1 $ 1 $ 1 $ --
Redemption of preferred stock ..... (100) (5,857)
Translation adjustment ............
Net income ........................
------- ------- ------- ------ ------- ----- ----
BALANCE, June 30, 1997 .............. -- 680 521 1 1 1 --
Redemption of preferred stock ..... (680)
Foreign currency translation
adjustment ......................
Receivable from principal
shareholder .....................
Distribution to principal
shareholder for .................
acquisition of business
Net loss ..........................
------- ------- ------- ------ ------- ----- ----
BALANCE, June 30, 1998 .............. -- -- 521 1 1 1 --
Foreign currency translation
adjustment ......................
Elimination of Class "C" shares
to Class "A" common stock ....... (1)
Receivable from principal
shareholder .....................
Net loss ..........................
------- ------- ------- ------ ------- ----- ----
BALANCE, June 30, 1999 .............. $ -- $ -- $ 521 $ 1 $ 1 $ -- $ --
======= ======= ======= ====== ======= ===== ====
<CAPTION>
Appraisal
Value
Accumulated Other Reflected in
Paid-in Retained Comprehensive Preferred
Capital Earnings Income (loss) Stock Total
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1,1996 ............... $7,060 $24,278 $ (785) $(4,200) $33,514
Redemption of preferred stock .... (4,696) 4,200 (6,453)
Translation adjustment ........... 307 307
Net income ....................... 8,036 8,036
------ ------- ------- ------- -------
BALANCE, June 30, 1997 ............. 2,364 32,314 (478) -- 35,404
Redemption of preferred stock .... (680)
Foreign currency translation
adjustment ..................... (125) (125)
Receivable from principal
shareholder .................... (429) (429)
Distribution to principal
shareholder for ................
acquisition of business (1,500) (66) (1,566)
Net loss ......................... (9,027) (9,027)
------ ------- ------- ------- -------
BALANCE, June 30, 1998 ............. 435 23,221 (603) -- 23,577
Foreign currency translation
adjustment ..................... (2,108) (2,108)
Elimination of Class "C" shares
to Class "A" common stock ...... 1 --
Receivable from principal
shareholder .................... 380 380
Net loss ......................... (466) (466)
------ ------- ------- ------- -------
BALANCE, June 30, 1999 ............. $ 816 $22,755 $(2,711) $ -- $21,383
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-6
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income ................................................ $ (466) $ (9,027) $ 8,036
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization .................................. 11,245 9,253 9,342
Gain on life insurance ......................................... -- -- (5,642)
Deferred income taxes .......................................... (773) (5,229) (859)
Forgiveness of promissory notes ................................ -- 2,591 --
Provision for curtailment of operations at
manufacturing facility ....................................... (500) 10,000 --
Change in redemption amount of redeemable securities ........... (860) (1,250) --
Extraordinary loss on extinguishment of debt,
net of tax ................................................... -- 1,962 --
Gain from property damage claim ................................ (3,701) -- --
Other .......................................................... (167) 1,391 (222)
Changes in operating assets and liabilities, net of
businesses acquired:
Accounts receivable .......................................... (4,858) (5,487) (4,356)
Inventories .................................................. (3,550) 1,605 (868)
Prepaid expenses and other current assets .................... (657) (3,279) 439
Other assets ................................................. (5,564) (1,349) (529)
Accounts payable ............................................. (107) (879) (1,394)
Accrued expenses and other current liabilities ............... 6,143 1,037 (1,024)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES ....................................... (3,815) 1,339 2,923
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures ........................................... (12,262) (8,031) (4,697)
Acquisition of businesses, net of cash acquired ................ (21,505) -- --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ........................ (33,767) (8,031) (4,697)
--------- --------- ---------
FINANCING ACTIVITIES:
Cash overdraft ................................................. (477) 1,915 2,817
Net increase in short-term debt ................................ 2,227 (13,533) (176)
Proceeds from long-term debt ................................... 15,214 100,380 1,691
Payments of long-term debt ..................................... (1,675) (52,922) (3,896)
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 .......................... 380 (429) --
Redemption of preferred stock .................................. -- (6,812) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................... 15,669 26,820 436
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ....................................... (21,913) 20,128 (1,338)
CASH AND CASH EQUIVALENTS
at beginning of period ..................................... 24,221 4,093 5,431
--------- --------- ---------
CASH AND CASH EQUIVALENTS at end of period .................... $ 2,308 $ 24,221 $ 4,093
========= ========= =========
Supplementary cash flow information:
Interest paid .................................................. $ 12,125 $ 6,060 $ 7,313
========= ========= =========
Income taxes paid .............................................. $ 1,284 $ 1,930 $ 1,134
========= ========= =========
Summary of significant noncash investing and financing activities:
Preferred stock redemption ..................................... $ -- $ -- $ 6,453
========= ========= =========
Debt assumed through acquisition ............................... $ 18,195 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-7
<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 two
business segments: (i) AgChem and (ii) Industrial Chemicals. During fiscal 1999,
the Company's products were manufactured at ten facilities in the United States,
four 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 $1,499 at
June 30, 1999 and $2,686 at June 30, 1998, included in other receivables, which
represent net transactions (merchandise purchases and cash payments) with the
subsidiaries during the three months ended June 30.
Risks and Uncertainties:
As a chemical 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.
Significant estimates include reserves for bad debts, inventory obsolescence,
environmental matters and depreciation and amortization periods of long-lived
assets.
Revenue Recognition:
Revenue is recognized upon transfer of title to the customer, generally at
time of shipment. Net sales are comprised of total sales billed, net of goods
returned, trade discounts and customer allowances.
F-8
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
1. Organization and Summary of Significant Accounting Policies--(Continued)
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, 1999 and 1998 would have been higher by $735 and $928,
respectively. Inventories valued at LIFO amounted to $5,802 at June 30, 1999 and
$3,999 at June 30, 1998.
Inventories consist of the following at June 30,1999 and 1998:
1999 1998
------- -------
Raw materials ........................ $24,499 $18,511
Work in process ...................... 5,409 2,604
Finished goods ....................... 21,522 16,452
------- -------
$51,430 $37,567
======= =======
Comprehensive Income:
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 states that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the financial
statements.
The Company's comprehensive income (loss) amounts were computed as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings (loss) .............................. $ (466) $(9,027) $ 8,036
Change in foreign currency translation adjustments (2,108) (125) 307
------- ------- -------
Total comprehensive income (loss) ................ $(2,574) $(9,152) $ 8,343
======= ======= =======
</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:
Building and improvements ............................ 8-20 years
Machinery and equipment .............................. 3-10 years
Deferred Financing Costs:
In connection with the issuance of notes described in Note 2, the Company
has recorded deferred financing costs which are being amortized using the
interest method over the ten year life of the notes.
F-9
<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 20 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 $ 8,778 and $7,843 at
June 30, 1999 and 1998, respectively.
Licensing and Permit Fees:
Licensing and permit fees incurred to obtain the required federal, state
and local hazardous waste treatment, storage and disposal permits and the cost
of label registration rights are included in other assets and are amortized over
the lives of the licenses, permits and rights of 5 to 10 years.
Foreign Currency Translation:
Balance sheet accounts of the Company's foreign subsidiaries, with the
exception of the Brazilian subsidiary and a subsidiary of Koffolk (1949) Ltd.
("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 $1,829, $979, and $2,270 in the
accompanying consolidated statements of operations for the years ended June 30,
1999, 1998 and 1997, 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 income when currency
fluctuations occur. 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 income when the related inventory is sold.
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.
Advertising Costs:
Advertising expenditures, expensed when incurred, were $1,077, $826 and
$799 for the years ended June 30, 1999, 1998 and 1997, 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.
F-10
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
1. Organization and Summary of Significant Accounting Policies--(Continued)
At each balance sheet date, management evaluates the recoverability of
long-lived assets, including intangible assets and goodwill, using certain
financial indicators, such as historical and future ability to generate cash
flows 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.
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, when appropriate. 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.
Research and Development Expenditures:
Research and development expenditures were $1,536, $774 and $754 for the
years ended June 30, 1999, 1998 and 1997, respectively.
New Pronouncements:
The Company will 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.
F-11
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
1. Organization and Summary of Significant Accounting Policies--(Continued)
The Company is required to adopt Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" in
fiscal 2000. This standard establishes guidelines for capitalization of costs of
computer software developed or obtained for internal use and is not expected to
have a material effect on financial position, results of operations or cash
flows of the Company.
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, Inc. ("Koffolk USA") from its principal
shareholder, (ii) acquired the interest in Mineral Resource Technologies, L.L.C.
("MRT") 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.
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 1998 consolidated statement of operations.
3. Acquisition
On October 1, 1998, the Company acquired all of the outstanding capital
stock of ODDA Smelteverk, AS, 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 $19 million in cash and $18.2 million in debt. 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 ODDA are included in the Company's consolidated
statements of operations from the date of acquisition. The fair value of assets
acquired, including goodwill, was $40,811, and liabilities assumed totaled
$18,195. Goodwill related to this acquisition of $3,916 is being amortized over
20 years on a straight-line basis.
The unaudited consolidated results of operations on a pro-forma basis, as
if such acquisition had occurred at the beginning of fiscal 1999 and 1998 are as
follows:
1999 1998
--------- ---------
Net Sales .................................... $ 311,683 $ 319,158
Income (loss) before extraordinary items ..... $ (2,246) $ (7,408)
Net (loss) ................................... $ (2,246) $ (9,370)
F-12
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
4. Property, Plant and Equipment
Property, plant and equipment consists of the following at June 30:
1999 1998
-------- --------
Land ........................................ $ 4,368 $ 2,108
Buildings and improvements .................. 22,337 19,837
Machinery and equipment ..................... 101,931 74,491
-------- --------
128,636 96,436
Less: Accumulated depreciation .............. 62,596 55,926
-------- --------
$ 66,040 $ 40,510
======== ========
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 $9,963, $8,023 and $7,886 for the years
ended June 30, 1999, 1998 and 1997, respectively.
5. Related Party Transactions
In June 1998, the Company acquired the stock of 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 Koffolk USA in
connection with these sales. In addition, the Company charged Koffolk USA a fee
for certain administrative services including treasury, credit and collections,
customer service, order processing and financial reporting functions. Fees
charged for the year ended June 30, 1997, amounted to $367.
In November 1995, the Company formed MRT Management Corp. ("MMC"), to
manage MRT. 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 employees
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
acquired the principal shareholder's interest in MRT for $25 and repaid $995 of
loans made by him to MRT.
Effective June 30, 1999, the limited liability company interests in MRT
owned by the employees of MRT were exchanged for non-voting common stock of MMC,
and the employees' right to contingent member units of MRT was converted into
the right to "phantom shares" of MMC. The shareholders agreement of MMC provides
for the vesting of shares to the employees over certain periods of employment
and granting of "phantom shares" to the employees based on certain performance
goals. No additional shares have been granted. The agreement also provides for
the purchase of the minority shares for fair value in connection with
termination of employment.
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
2008, (refer to Note 2) the term of such lease was extended to June 30, 2008.
F-13
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
5. Related Party Transactions--(Continued)
The Company had a liability to an affiliate controlled by the principal
shareholder of the Company in the amount of $482 at June 30, 1998. The
liability, which was non-interest bearing, was paid in July 1998.
The Company periodically advances funds to the principal shareholder on a
short-term, non-interest-bearing basis. Amounts outstanding at June 30, 1999,
and at June 30, 1998 have been reflected as a reduction of stockholders' equity.
6. Accrued Expenses and Other Current Liabilities
Included in accrued expenses and other current liabilities is a payable of
$3,704 for product registration rights as of June 30, 1999. In addition,
liabilities related to commissions and royalties amounted to $4,627 and $1,924
as of June 30, 1999 and 1998, respectively.
7. Debt
Long-term debt consists of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Domestic:
Senior Subordinated Notes due June 1, 2008 (a) ............................. $100,000 $100,000
Bank borrowings under revolving credit loan agreements (b) ................ 13,400 --
Notes payable by subsidiary in connection with noncompete
agreements payable through June 1999 without interest,
based on imputed interest at 10.5% (c) .................................. -- 226
Environmental litigation settlement, with interest at 8.57%,
payable in annual installments through March 2001, interest
imputed at 10% (d) ...................................................... 605 836
Obligation, payable through March 2000 without interest, less
unamortized discount of $59 in 1999 and $191 in 1998,
based on an effective interest rate of 8.5% (e) ......................... 941 1,809
Capitalized lease obligations and other .................................... 656 878
Foreign:
Revolving credit bank loan with interest at Libor plus 2% payable in
Norwegian Krone (NOK) maturing through 2003 (f) ......................... 8,254 --
Bank term loan with interest at 3.5% payable in Euro maturing
through December 31, 2002 (f) ........................................... 11,215 --
Capitalized lease obligations and other .................................... 467 55
-------- --------
135,538 103,804
Less: Current maturities ................................................... 1,450 1,646
-------- --------
$134,088 $102,158
======== ========
</TABLE>
(a) In June 1998, the Company issued $100 million aggregate principal
amount of 9-7/8% Senior Subordinated Notes due 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 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.
F-14
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
7. Debt--(Continued)
The Indenture contains certain covenants with respect to the Company and
the Guarantors, 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 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.
(b) On August 31, 1998, the Company entered into a $60 million senior
credit facility with PNC Bank, National Association, as agent and on behalf of
the lenders thereunder ("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,
which also serve as collateral on the borrowing. In addition to amounts
outstanding, the Company had $21.6 million available under the borrowing base
formula as of June 30, 1999. The Company, under terms of the Credit Facility,
may choose between two interest rate options: (i) base rate, as defined, or (ii)
Euro rate, as defined, plus 11/4%-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 down under the acquisition line of credit.
The Credit Facility 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, and contains an acceleration clause should a
material adverse event occur (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.
At June 30, 1999, the Company was not in compliance with the domestic net
worth requirements of the Credit Facility. The lenders have waived the default
as of June 30, 1999 and amended domestic net worth requirements for fiscal 2000.
(c) These notes were collateralized by real property and machinery of a
domestic subsidiary and were repaid in June 1999.
(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 Company's Norwegian subsidiary has entered into two separate
multi-currency revolving facilities, as follows: In August 1998, the subsidiary
entered into a five-year multi-currency credit facility, for NOK (Norwegian
Kroner) 90,000,000 (approximately $11,335 as of June 30, 1999), in agreed
Euro-currencies. Borrowings under such facility bear interest at the LIBOR or
NIBOR rate as defined plus 0.475%. the subsidiary has agreed to pay a commitment
fee of 1/4% on the unused portion of such facility. In August 1998, the
subsidiary entered into a five-year multi-currency revolving credit facility,
for NOK 65,000,000 (approximately $8,120 as of June 30, 1999), 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 the subsidiary's debt service coverage
and equity ratios (which margins could be 3/4% or 1%). The subsidiary has agreed
to pay a commitment fee equal to 50% of the applicable margin. In connection
with both such facilities, the subsidiary may choose the duration (one, three or
six months) for which the interest rate may apply. As of June 30, 1999, the
subsidiary has borrowed the maximum amount available under the facilities.
Indebtedness under both such currency facilities is collateralized by a lien on
the subsidiary's receivables and inventory and a pledge of the subsidiary's
shares of and receivables from a company which operates three power stations,
and a negative pledge on the subsidiary's other property and production
facilities. In connection with the completion of the subsidiary's acquisition,
Philipp Brothers Chemicals, Inc. guaranteed both such credit facilities.
F-15
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share amounts)
7. Debt--(Continued)
At June 30, 1999, the subsidiary was not in compliance with the debt
service and liabilities to equity ratios. Subsequently a waiver was obtained
from the lenders.
The aggregate maturities of long-term debt after June 30, 1999 are as
follows:
Year Ended June 30,
-------------------
2000 ................................................... $ 1,450
2001 ................................................... 449
2002 ................................................... 129
2003 ................................................... 20,002
2004 ................................................... 13,437
Thereafter ............................................. 100,071
--------
Total ................................................ $135,538
========
8. 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 which were forgiven in connection with the issuance of the
Senior Subordinated Notes, referred to in Note 2. 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.
In addition, 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 are subject to certain restrictions pursuant to
terms of the PNC Bank Credit Facility. At June 30, 1999, aggregate severance
payments of approximately $588 would have been due the executives if they were
terminated.
In connection with the separation of employment of a key executive, in the
current fiscal year and pursuant to the stock buyback and severance provisions
of the aforementioned agreements, the Company recorded a charge of $1.5 million
in selling, general and administrative expenses and reclassified $1.3 million
from redeemable securities to accrued expenses and other current liabilities.
9. 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
redeemed 59,573 shares of special and second preferred stock and reduced this
number of shares from the amount outstanding. 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 was collected in July 1997. The proceeds,
F-16
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share amounts)
9. Preferred Stock, Common Stock and Paid-in Capital--(Continued)
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.
Common Stock:
Common stock consisted of the following at June 30, 1999 and 1998:
June 30, 1999
Authorized
Shares Issued Shares Amount at Par
---------- ------------- -------------
Class A common stock .............. 16,200 12,600 $ 1
Class B common stock .............. 14,100 11,888 1
------- ------- -------
30,300 24,488 $ 2
======= ======= =======
June 30, 1998
Authorized
Shares Issued Shares Amount at Par
---------- ------------- -------------
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
======= ======= =======
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.
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, 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 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.
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.
F-17
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
10. 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.
The Company's Norwegian subsidiary also maintains a funded noncontributory
defined benefit pension plan for all eligible employees, with benefits based on
employee compensation and service.
Effective June 30, 1999, the company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The provisions of
SFAS No. 132 revise employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of these plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable.
The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plans.
<TABLE>
<CAPTION>
Domestic Norwegian
----------------------- ---------
June 1999 June 1998 June 1999
--------- --------- ---------
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year (October 1, 1998
for Norwegian plan) ........................................ $ 6,240 $ 5,038 $ 11,193
Service cost .................................................. 826 899 228
Interest cost ................................................. 452 374 523
Benefits paid ................................................. (69) (51) (526)
Actuarial (gain) or loss ...................................... (171) (20) (188)
-------- -------- --------
Benefit obligation at end of year ............................. $ 7,278 $ 6,240 $ 11,230
======== ======== ========
Change in Plan Assets
Fair value of plan assets at beginning of year (October 1, 1998
for Norwegian plan) ........................................ $ 4,834 $ 3,402 $ 10,710
Actual return on plan assets .................................. (3) 624 434
Employer contributions ........................................ 863 860 284
Benefits paid ................................................. (69) (52) (527)
-------- -------- --------
Fair value of plan assets at end of year ...................... $ 5,625 $ 4,834 $ 10,901
======== ======== ========
Funded Status
Funded status of the plan ..................................... $ (1,653) $ (1,436) $ (329)
Unrecognized net actuarial (gain) or loss ..................... (105) (336) 7
Unrecognized prior service cost ............................... (1,247) (1,411) 0
Unrecognized transition obligation/asset ...................... (24) (28) 0
-------- -------- --------
(Accrued) prepaid pension cost ................................ $ (3,029) $ (3,211) $ (322)
======== ======== ========
</TABLE>
F-18
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
10. Employee Benefit Plans--(Continued)
<TABLE>
<CAPTION>
June 1999 June 1998 June 1997
--------- --------- ---------
<S> <C> <C> <C>
Assumptions (Domestic)
Discount rate ........................................................ 7.50% 7.50% 7.50%
Expected rate of return on plan assets ............................... 7.50% 7.50% 7.50%
Rate of compensation increase ........................................ 5.00% 5.00% 5.00%
Components of net periodic pension costs (Domestic)
Service cost - benefits earned during the year ....................... $ 826 $ 899 $ 838
Interest cost on benefit obligation .................................. 452 374 295
Expected return on plan assets ....................................... (393) (288) (210)
Amortization of initial unrecognized net transition obligation (asset) (3) (3) (3)
Amortization of prior service costs .................................. (164) (164) (165)
Amortization of (gain) or loss ....................................... (6) 0 2
----- ----- -----
Net periodic pension cost ............................................ $ 712 $ 818 $ 757
===== ===== =====
<CAPTION>
June 1999
---------
<S> <C>
Assumptions for the period October 1, 1998 to June 30, 1999
(Norwegian)
Discount rate ........................................................ 6.50%
Expected rate of return on plan assets ............................... 8.00%
Rate of compensation increase ........................................ 3.30%
Components of net periodic pension costs (Norwegian)
Service cost - benefits earned during the period ..................... $ 228
Interest cost on benefit obligation .................................. 523
Expected return on plan assets ....................................... (628)
-----
Net periodic pension cost ............................................ $ 123
=====
</TABLE>
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 $547, $529 and $497 in 1999, 1998 and 1997, respectively.
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 $92, $89 and $91
in 1999, 1998 and 1997, respectively. At June 30, 1999 and 1998, the aggregate
liability under this plan amounted to $482 and $387, 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, 1999
and 1998 had cash surrender values of $941 and $729, respectively, and are
included in other asssets
In addition to Norway, 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. Expenses under these plans
amounted to $509, $441 and $429 for 1999, 1998 and 1997, respectively. The
Norwegian plan used the following assumptions as of October 1, 1998, 6.0%
discount rate, 8.0% expected rate of return on plan assets and 3.3% rate of
compensation increase.
F-19
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
11. Income Taxes
Income (loss) from operations before provision for income taxes and
extraordinary item consisted of:
1999 1998 1997
-------- -------- --------
Domestic .............. $ (755) $(15,750) $ 4,697
Foreign ............... 468 3,996 4,407
-------- -------- --------
$ (287) $(11,754) $ 9,104
======== ======== ========
Components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current tax provision (benefit):
U.S. Federal ............................................... $ 0 $ (306) $ (88)
State and local ............................................ 160 64 343
Foreign .................................................... 792 782 1,521
------- ------- -------
Total current tax provision ................................ 952 540 1,776
------- ------- -------
Deferred tax provision (benefit):
U.S. Federal ............................................... 220 (5,121) (889)
State and local ............................................ (125) (115) 121
Foreign .................................................... (868) 7 60
------- ------- -------
Total deferred tax provision (benefit) .................... (773) (5,229) (708)
------- ------- -------
Provision (benefit) for income taxes before extraordinary item 179 (4,689) 1,068
Benefit for extraordinary item ............................... -- (1,011) --
------- ------- -------
Provision (benefit) for income taxes ......................... $ 179 $(5,700) $ 1,068
======= ======= =======
</TABLE>
A reconciliation of the Federal statutory rate and the Company's effective
tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<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 8.0 (0.2) 3.4
Tax rate differences on foreign operations ............ (81.9) (3.5) (0.3)
Non-taxable insurance policy gain ..................... -- -- (21.1)
Tax credit on reorganization of foreign subsidiaries .. -- -- (7.4)
Expenses with no tax benefit .......................... 104.9 -- 2.6
U.S. losses with no state tax benefit ................. 79.1 -- --
Other ................................................. (13.7) (1.0) 0.5
------ ------ ------
62.4% (38.7)% 11.7%
====== ====== ======
</TABLE>
The tax 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 foreign subsidiaries of approximately $20,000,
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.
F-20
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
11. Income Taxes--(Continued)
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities at June 30, 1999 and 1998 are as
follows:
1999 1998
-------- --------
Deferred tax assets:
Employee benefits ............................. $ 2,302 $ 2,542
Depreciation .................................. 1,347 1,267
Insurance ..................................... 262 368
Asset valuation allowances .................... 1,225 505
Inventory capitalization ...................... 493 379
Plant curtailment and environmental remediation 3,140 4,927
Alternative minimum tax ....................... 572 503
Net operating loss carryforward--domestic ..... 3,104 1,841
--foreign ...... 1,756 1,028
Other ......................................... 470 318
-------- --------
14,671 13,678
Valuation Allowance ........................... (758) (1,000)
-------- --------
13,913 12,678
Deferred tax liabilities
Property, plant and equipment ................. (2,179) (241)
Gain on property damage ....................... (1,480) --
Other ......................................... (763) (215)
-------- --------
(4,422) (456)
-------- --------
Net deferred tax asset .......................... $ 9,491 $ 12,222
======== ========
Deferred taxes are included in the following line items in the
consolidated balance sheets:
1999 1998
-------- --------
Prepaid expenses and other current assets ............ $ 3,088 $ 4,018
Accrued expenses, taxes and other current liabilities (68) (60)
Other assets ......................................... 8,379 8,599
Other liabilities .................................... (1,908) (335)
-------- --------
$ 9,491 $ 12,222
======== ========
The Company has domestic net operating loss carryforwards of approximately
$8,000 that expire in 2019 and foreign net operating loss carryforwards of
approximately $6,000 that begin to expire in 2009. Valuation allowances have
been provided against the tax benefit of certain foreign and domestic state net
operating loss carryforwards, which are considered not likely to be realized. A
portion of such tax benefits will be allocated to reduce goodwill of the
Company's Brazilian subsidiary, when recognized.
F-21
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
12. 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:
Capital Operating
Year Ended June 30 Leases Leases
------- ---------
2000 ............................................. $ 140 $1,326
2001 ............................................. 129 1,329
2002 ............................................. 84 1,219
2003 ............................................. 63 1,198
2004 ............................................. -- 1,185
Thereafter ....................................... -- 2,350
------ ------
Total minimum lease payments ..................... $ 416 $8,607
====== ======
Amounts representing interest .................... 55
------
Present value of minimum lease payments .......... $ 361
======
Property, plant and equipment under capitalized leases included in the
consolidated balance sheets at June 30, 1999 and 1998 amounted to $126 and $351,
net of accumulated depreciation of $1,328 and $1,086, 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,
1999, 1998 and 1997 amounted to $1,619, $2,126 and $2,224, 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 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.
F-22
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
12. Commitments and Contingencies--(Continued)
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. 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 $1,706,
which is included in current and long-term liabilities in the 1999 consolidated
balance sheet (approximately $2,000 in 1998). 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 $167, $925 and $530 for the fiscal
years ended June 30, 1999, 1998 and 1997, 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 represented non-cash asset write downs during fiscal 1998
related to the manufacturing facility, $.6 million represented associated site
restoration and $3.3 million represented the cost of long-term groundwater and
remediation activities. The accrual for groundwater monitoring represented
personnel, utility and related costs aggregating an estimated $4.2 million over
10 years and discounted at a 7% rate. During fiscal 1999, the Company expended
$480 related to site restoration and groundwater and remediation activities and
reversed $500 to income based upon a reassessment of ongoing cost requirements.
(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
twenty four 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). Nineteen of these
employees were terminated as of June 30, 1999 and the remainder will be
terminated by September 30, 1999. These employees are primarily involved in
plant operations, both domestically and foreign. Certain employee severance is
payable over a period up to three years, of which $129 was paid in 1999.
13. 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 value of the Company's
Senior Subordinated Notes is estimated based on quoted market prices. The fair
value of the
F-23
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
13. Financial Instruments--(Continued)
Company's Senior Subordinated Notes is $94,650 at June 30, 1999, and the related
carrying amount is $100,000. At June 30, 1999 and 1998, the fair value of the
Company's other long-term debt does not differ materially from its carrying
amount based on the variable interest rate structure and frequent repricing of
these obligations.
The Company obtains third-party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. The
contract values of the letters of credit and surety bonds at June 30, 1999 and
1998 were $2,000, and $4,600, respectively. The carrying values and fair values
of these letters of credit and surety bonds were not material.
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, 1999 and 1998,
unrealized gains and losses on these contracts were immaterial.
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, 1999 and 1998, the Company has $1,760 and $1,127,
respectively, in carrying amounts of commodity contracts with a fair value of
$1,945 and $1,062, respectively.
14. Business Segments
The Company operates in two business segments: AgChem and Industrial
Chemicals. The AgChem segment manufactures and markets a variety of animal
nutrition and health products, copper based fungicides and growth regulators.
The Industrial Chemicals segment manufactures and markets a number of specialty
organic and inorganic intermediate chemicals for use in a broad variety of
industrial chemical applications. The Company aggregates certain operating
segments into its reportable segments. Management evaluates the performance of
its operating segments and allocates resources based on operating income.
Transfers between segments are priced at amounts that include a manufacturing
profit except that transfers of $11,422, $10,512 and $10,715 from the Industrial
Chemicals group to the AgChem group for fiscal 1999, 1998 and 1997,
respectively, are recorded at the cost of product transferred. Other includes
corporate expenses and elimination of intersegment revenues. Property, plant and
equipment, includes assets acquired in business combinations.
<TABLE>
<CAPTION>
Industrial
Agchem Chemicals
Group Group Other Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999 Segment Detail
Revenues--external customers ................. $177,114 $125,210 $ -- $302,324
--intersegment ....................... 5,327 25,835 (31,162) 0
-------- -------- -------- --------
Total revenues ............................... $182,441 $151,045 $(31,162) $302,324
======== ======== ======== ========
Operating income (loss) ...................... $ 11,412 $ 9,079 $(10,136)(1) $ 10,355
Depreciation and amortization ................ 4,429 6,285 531 11,245
Total assets ................................. 104,361 117,075 15,937 237,373
Expenditures for property, plant and equipment 3,776 32,286 219 36,281
</TABLE>
F-24
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
14. Business Segments--(Continued)
<TABLE>
<CAPTION>
Industrial
Agchem Chemicals
Group Group Other Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998 Segment Detail
Revenues--external customers ................. $ 177,861 $ 100,122 $ -- $ 277,983
--intersegment ....................... 6,362 27,294 (33,656) 0
--------- --------- --------- ---------
Total revenues ............................... $ 184,223 $ 127,416 $ (33,656) $ 277,983
========= ========= ========= =========
Operating income (loss) ...................... $ 9,532 $ (2,389)(2) $ (11,370)(3) $ (4,227)
Depreciation and amortization ................ 3,937 4,780 536 9,253
Total assets ................................. 100,014 60,432 31,750 192,196
Expenditures for property, plant and equipment 1,981 5,483 567 8,031
<CAPTION>
Industrial
Agchem Chemicals
Group Group Other Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997 Segment Detail
Revenues--external customers ................. $171,338 $ 97,024 $ -- $268,362
--intersegment ....................... 5,915 27,135 (33,050) 0
-------- -------- -------- --------
Total revenues ............................... $177,253 $124,159 $(33,050) $268,362
======== ======== ======== ========
Operating income (loss) ...................... $ 10,954 $ 6,453 $ (6,176)(4) $ 11,231
Depreciation and amortization ................ 3,683 5,074 585 9,342
Total assets ................................. 88,672 61,464 12,564 162,700
Expenditures for property, plant and equipment 1,236 3,348 113 4,697
</TABLE>
- ----------
(1) Includes corporate expenses of $7,461, intercompany inventory profit
elimination of $1,150 and $1,525 related to the severance of a key
executive.
(2) Operating income was reduced $10,000 related to a nonrecurring plant
curtailment charge.
(3) Includes corporate expenses of $5,518, intercompany inventory profit
elimination of $248 and $5,604 for the forgiveness of limited recourse
notes receivable from certain executives of the Company and payment for
related income taxes resulting from the cancellation.
(4) Includes corporate expenses of $6,176.
F-25
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
15. Geographic Information
The following is information about the Company's operations in different
geographic areas. Revenues to external customers and property, plant and
equipment are attributed to the geographic areas based on the location of the
Company's subsidiaries.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States ....................... $ 187,989 $ 181,648 $ 165,447
Western Europe ...................... 57,723 30,152 31,716
Israel .............................. 51,889 62,399 67,659
South America ....................... 4,723 3,784 3,540
--------- --------- ---------
Total revenues .................... $ 302,324 $ 277,983 $ 268,362
========= ========= =========
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating income (loss):
United States ....................... $ 10,872 $ (599) $ 8,273
Western Europe ...................... 3,989 2,980 3,136
Israel .............................. 5,059 4,711 6,078
South America ....................... 571 51 (80)
Other ............................... (10,136) (11,370) (6,176)
--------- --------- ---------
Total operating income (loss) ..... $ 10,355 $ (4,227) $ 11,231
========= ========= =========
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Property, plant and equipment
United States ....................... $ 17,377 $ 12,590 $ 18,101
Western Europe ...................... 29,108 5,642 4,709
Israel .............................. 16,276 18,292 18,983
South America ....................... 2,315 2,823 3,133
Other ............................... 964 1,163 383
--------- --------- ---------
Total property, plant and equipment $ 66,040 $ 40,510 $ 45,309
========= ========= =========
</TABLE>
16. Valuation and Qualifying Accounts:
Activity in the allowance for doubtful accounts consisted of the following
for the fiscal years ended June 30:
1999 1998 1997
----- ----- -----
Balance at beginning of period ....... $ 751 $ 656 $ 756
Provision for bad debts .............. 153 144 16
Bad debt write-offs .................. (18) (49) (116)
----- ----- -----
Balance at end of period ............. $ 886 $ 751 $ 656
===== ===== =====
F-26
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands)
17. Insurance Recoveries:
In April 1999, the Company suffered inventory, real property and equipment
loss at its Bowmanstown, Pennsylvania facility resulting from a fire. The
Company carries insurance coverage for the property damage and business
interruption losses and has recorded a receivable of $4,259 in other receivables
at June 30, 1999 for amounts reimbursable from the insurance carrier. The
receivable is net of the Company's deductible and $1,000 advanced by the
insurance carrier prior to June 30, 1999. A reduction of cost of sales of $396
has been recorded for insurance recoveries in excess of the net book value of
damaged inventory and a gain of $3,701 has been recorded in other income for the
excess of amounts reimbursable over the net book value of property and
equipment. In addition, incremental costs of shifting production to another
facility are being reimbursed under business interruption coverage. Ultimate
amounts reimbursable for property and equipment damage and business interruption
will be determined and paid by the insurance carrier as actual costs are
incurred during fiscal 2000 and, where appropriate, the Company has recorded
estimated minimum recoverable amounts.
18. Extraordinary Loss:
On August 31, 1994, the Company issued a 10-year $20,000 senior unsecured
note ("Note") with interest at 11%, payable semi-annually. 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. In connection with the issuance of the Company's Senior Subordinated
Notes, the Company terminated the Note and Revolving Facility agreements and
repaid all amounts outstanding under the Note and Revolving Facility agreement
in June 1998 and 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.
19. 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 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 of PBC including the following: 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, Ferro Metal and Chemical Corporation
and ODDA Smelteverk, AS. The U.S. and foreign Guarantor and Non-Guarantor
Subsidiaries are wholly owned as to voting common stock 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.
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.
F-27
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING BALANCE SHEET
As of June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............. $ 393 $ 166 $ 1,749 $ 2,308
Trade receivables ..................... 6,091 31,838 31,184 69,113
Other receivables ..................... 993 5,684 3,284 9,961
Inventory ............................. 4,212 26,543 20,675 51,430
Prepaid expenses and other ............ 1,964 1,580 3,729 7,273
--------- --------- --------- --------- ---------
Total current assets .............. 13,653 65,811 60,621 -- 140,085
--------- --------- --------- --------- ---------
Property, plant & equipment, net ...... 964 17,377 47,699 66,040
Intangibles ........................... 268 2,668 4,023 6,959
Investment in subsidiaries ............ 67,264 1,386 (2,995) (65,655) 0
Intercompany .......................... 52,393 (13,790) 364 (38,967) 0
Other assets .......................... 11,604 8,833 3,852 24,289
--------- --------- --------- --------- ---------
Total assets ...................... $ 146,146 $ 82,285 $ 113,564 $(104,622) $ 237,373
========= ========= ========= ========= =========
Liabilities and Stockholders Equity
Current Liabilites:
Cash overdraft ........................ $ 277 $ 213 $ 948 $ 1,438
Loan payable to banks ................. 0 0 3,019 3,019
Current portion of long term debt ..... 94 1,345 11 1,450
Accounts payable ...................... 1,967 14,312 19,981 36,260
Other loans payable ................... 32 0 150 182
Accrued expenses and other ............ 2,660 17,385 5,027 25,072
--------- --------- --------- --------- ---------
Total current liabilites .............. 5,030 33,255 29,136 -- 67,421
--------- --------- --------- --------- ---------
Long term debt ........................ 113,541 620 58,894 (38,967) 134,088
Other liabilities .................... 1,876 5,981 3,667 0 11,524
Redeemable securities .................
Common stock .......................... 2,376 2,376
Common stock of subsidiary ............ 581 581
--------- --------- --------- --------- ---------
2,376 581 0 0 2,957
--------- --------- --------- --------- ---------
Stockholders' equity
Series "A" preferred stock ............ 521 0 0 521
Common stock .......................... 2 32 127 (159) 2
Paid in capital ....................... 878 34,040 2,654 (36,756) 816
Retained earnings ..................... 23,096 7,745 20,654 (28,740) 22,755
Accumulated other comprehensive
income (loss) -- cumulative currency
translation adjustment .............. (1,174) 31 (1,568) (2,711)
--------- --------- --------- --------- ---------
Total Stockholders' equity ........ 23,323 41,848 21,867 (65,655) 21,383
--------- --------- --------- --------- ---------
Total liabilities and equity ...... $ 146,146 $ 82,285 $ 113,564 $(104,622) $ 237,373
========= ========= ========= ========= =========
</TABLE>
F-28
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING INCOME STATEMENT
For the Year Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ 35,339 $ 171,796 $ 129,243 $ (34,054) $ 302,324
Cost of goods sold ................... 28,545 126,834 101,922 (34,054) 223,247
--------- --------- --------- --------- ---------
Gross profit ..................... 6,794 44,962 27,321 0 79,077
Selling, general, and administrative
expenses ........................... 11,575 38,373 19,274 69,222
Curtailment of Operations at
Manufacturing Facility ............. 0 (500) 0 (500)
--------- --------- --------- --------- ---------
Operating (loss) income .............. (4,781) 7,089 8,047 0 10,355
Interest expense ..................... 6,907 289 5,946 13,142
Interest income ...................... (357) 0 (271) (628)
Gain from property damage claim ...... 0 (3,701) 0 (3,701)
Other expense ........................ 0 (371) 2,200 1,829
Intercompany allocation .............. (9,668) 9,528 140 0
(Profit) loss relating to subsidiaries (341) 0 0 341 0
--------- --------- --------- --------- ---------
(Loss) income before income taxes .... (1,322) 1,344 32 (341) (287)
(Benefit) provision for income taxes . (856) 1,285 (250) 0 179
--------- --------- --------- --------- ---------
Net (loss) income .................... $ (466) $ 59 $ 282 $ (341) $ (466)
========= ========= ========= ========= =========
</TABLE>
F-29
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net (loss) income ....................... $ (466) $ 59 $ 282 $ (341) $ (466)
Adjustments to reconcile net
(loss) income .........................
Cash provided by operating activities:
Depreciation and amortization ......... 531 3,953 6,761 11,245
Deferred income taxes ................. (2,771) 2,866 (868) (773)
Provision for curtailment of operations
at manufacturing facility ........... 0 (500) 0 (500)
Change in redemption amount
of redeemable securities ............ (187) (673) 0 (860)
Gain from property damage claim ....... 0 (3,701) 0 (3,701)
Other ................................. (912) (523) 1,268 (167)
Changes in operating assets
and liabilites:
Net of effect of business acquired:
Accounts receivable ..................... (405) (3,275) (1,178) (4,858)
Inventory ............................... (616) (7,181) 4,247 (3,550)
Prepaid expenses and other .............. 1,596 (2,184) (69) (657)
Other assets ............................ (1,018) (4,113) (433) (5,564)
Intercompany ............................ (23,226) 14,998 7,887 341 0
Accounts payable ........................ (401) 2,513 (2,219) (107)
Accrued expenses and other .............. (1,539) 8,165 (483) 6,143
-------- -------- -------- -------- --------
Net cash (used in) provided by
operaties activities .................. (29,414) 10,404 15,195 0 (3,815)
-------- -------- -------- -------- --------
Investing activities
Capital expenditures .................... (219) (6,431) (5,612) (12,262)
Acquisition of businesses, net of cash
acquired .............................. 0 (2,505) (19,000) (21,505)
-------- -------- -------- -------- --------
Net cash used in investing activities ... (219) (8,936) (24,612) 0 (33,767)
-------- -------- -------- -------- --------
Financing activities:
Cash overdraft .......................... (636) (789) 948 (477)
Net (decrease) increase in short
term debt ............................. (942) 0 3,169 2,227
Proceeds from long term debt ............ 13,432 82 1,700 15,214
Payments of long term debt .............. (140) (1,523) (12) (1,675)
Receivable from principal shareholder ... 0 0 380 380
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities .................. 11,714 (2,230) 6,185 0 15,669
-------- -------- -------- -------- --------
Net (decrease) increase in cash
and cash equivalents .................. (17,919) (762) (3,232) 0 (21,913)
Cash and cash equivalents
at beginning of year .................. 18,312 928 4,981 24,221
-------- -------- -------- -------- --------
Cash and cash equivalents
at end of year ........................ $ 393 $ 166 $ 1,749 $ -- $ 2,308
======== ======== ======== ======== ========
</TABLE>
F-30
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING BALANCE SHEET
As of June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............ $ 18,312 $ 928 $ 4,981 $ 24,221
Trade receivables .................... 5,729 27,999 23,832 57,560
Other receivables .................... 952 60 4,988 6,000
Inventory ............................ 3,596 18,910 15,061 37,567
Prepaid expenses and other ........... 3,599 1,241 651 5,491
--------- --------- --------- --------- ---------
Total current assets ............. 32,188 49,138 49,513 -- 130,839
--------- --------- --------- --------- ---------
Property, plant & equipment, net ..... 1,163 12,590 26,757 40,510
Intangibles .......................... 15 3,136 620 3,771
Investment in subsidiaries ........... 67,049 1,534 (2,483) (66,100) 0
Intercompany ......................... 28,932 (29,587) 655 0
Other assets ......................... 7,729 7,864 1,483 17,076
--------- --------- --------- --------- ---------
Total assets ..................... $ 137,076 $ 44,675 $ 76,545 $ (66,100) $ 192,196
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity
Current Liabilites:
Cash overdraft ....................... $ 913 $ 1,002 $ -- $ 1,915
Current portion of long term debt .... 144 1,491 11 1,646
Accounts payable ..................... 2,368 11,799 17,350 31,517
Other loans payable .................. 492 0 0 492
Accrued expenses and other ........... 4,223 8,281 3,098 15,602
--------- --------- --------- --------- ---------
Total current liabilites ............. 8,140 22,573 20,459 -- 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
--------- --------- --------- --------- ---------
2,563 2,623 0 0 5,186
--------- --------- --------- --------- ---------
Stockholders' equity
Series "A" preferred stock ........... 521 0 0 521
Common stock ......................... 3 0 0 3
Paid in capital ...................... 764 2,560 (429) (2,460) 435
Retained earnings .................... 23,221 7,877 20,372 (28,249) 23,221
Accumulated other comprehensive
income (loss) -- cumulative currency
translation adjustment ............. (14) 30 (619) (603)
--------- --------- --------- --------- ---------
Total Stockholders' equity ....... 24,495 10,467 19,324 (30,709) 23,577
--------- --------- --------- --------- ---------
Total liabilities and equity ..... $ 137,076 $ 44,675 $ 76,545 $ (66,100) $ 192,196
========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING INCOME STATEMENT
For the Year Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<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 ............. 0 10,000 0 10,000
--------- --------- --------- --------- ---------
Operating (loss) income .............. (3,474) (8,495) 7,742 0 (4,227)
Interest expense ..................... 3,798 287 2,780 6,865
Interest income ...................... (253) (97) (33) (383)
Other expense ........................ 74 0 971 1,045
Intercompany allocation .............. (5,903) 5,863 40 0
(Profit) loss relating to subsidiaries 6,430 0 0 (6,430) 0
--------- --------- --------- --------- ---------
(Loss) income before income taxes
and extraordinary item ............. (7,620) (14,548) 3,984 6,430 (11,754)
(Benefit) provision for income taxes . (448) (5,080) 839 0 (4,689)
--------- --------- --------- --------- ---------
Net (loss) income before
extraordinary item ................. (7,172) (9,468) 3,145 6,430 (7,065)
Extraordinary loss (net of $1,011
of tax) ............................ (1,855) 0 (107) (1,962)
--------- --------- --------- --------- ---------
Net (loss) income .................... $ (9,027) $ (9,468) $ 3,038 $ 6,430 $ (9,027)
========= ========= ========= ========= =========
</TABLE>
F-32
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net (loss) income ......................... $ (9,027) $ (9,468) $ 3,038 $ 6,430 $ (9,027)
Adjustments to reconcile net
(loss) income
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)
Foregiveness of promissory notes ........ 0 2,591 0 2,591
Provision for curtailment of operations
at manufacturing facility ............. 0 10,000 0 10,000
Change in redemption amount of
redeemable securities ................. (1,250) 0 0 (1,250)
Extraordinary loss on extinguishment
of debt, net of tax ................... 1,855 0 107 1,962
Other ................................... (902) 729 1,564 1,391
Changes in operating assets and liabilites:
Net of 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 (used in) provided by
operaties 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 0 1,915
Net (decrease) increase in short
term debt ............................... 149 (350) (13,332) (13,533)
Proceeds from long term debt .............. 100,000 380 0 100,380
Payments of long term debt (31,517) ....... (31,517) (1,570) (19,835) (52,922)
Payments of deferred financing costs ...... (3,724) 0 0 (3,724)
Extinguishment of debt .................... (2,493) 0 (107) (2,600)
Proceeds from life insurance .............. 6,045 0 0 6,045
Distribution to principal shareholder
for purchase of subsidiary .............. (1,500) 0 0 (1,500)
Receivable from principal shareholder ..... 0 0 (429) (429)
Redemption of preferred stock ............. (7,569) 757 0 (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 $ -- $ 24,221
========= ========= ========= ========= =========
</TABLE>
F-33
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING INCOME STATEMENT
For the Year Ended June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<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 (loss) income .............. (4,099) 6,196 9,134 0 11,231
Interest expense ..................... 3,197 506 2,550 6,253
Interest income ...................... (80) (14) (158) (252)
Gain on life insurance policy ........ (5,642) (5,642)
Other expense ........................ (719) 0 2,487 1,768
Intercompany allocation .............. (5,215) 5,215 0 0
(Profit) loss relating to subsidiaries (2,454) 0 0 2,454 0
--------- --------- --------- --------- ---------
Income (loss) before income taxes .... 6,814 489 4,255 (2,454) 9,104
(Benefit) provision for
income taxes ....................... (1,222) 723 1,567 0 1,068
--------- --------- --------- --------- ---------
Net income (loss) .................... $ 8,036 $ (234) $ 2,688 $ (2,454) $ 8,036
========= ========= ========= ========= =========
</TABLE>
F-34
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
--------- -------------- -------------------- ------------- ------------
<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
Deferred income taxes ................... (19) (132) (557) (708)
Gain on life insurance .................. (5,642) 0 0 (5,642)
Other ................................... 135 (125) (383) (373)
Changes in operating assets and liabilites:
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 (used in) provided by
operaties 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) (4,697)
------- ------- ------- ------- -------
Financing activities:
Cash overdraft ............................ 2,817 0 0 2,817
Net (decrease) increase in short
term debt ............................... 5 0 (181) (176)
Proceeds from long term debt .............. 900 0 791 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 $ -- $ 4,093
======= ======= ======= ======= =======
</TABLE>
F-35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHILIPP BROTHERS CHEMICALS, INC.
By: /s/ Jack C. Bendheim
-------------------------------------
Jack C. Bendheim
President and Chief Executive Officer
Date: September 27, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dated indicated.
Signature and Title Date
------------------- ----
/s/ Jack C. Bendheim September 27, 1999
- ---------------------------------------
Jack C. Bendheim
Director, President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Nathan Z. Bistricer September 27, 1999
- ---------------------------------------
Nathan Z. Bistricer
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Joseph M. Katzenstein September 27, 1999
- ---------------------------------------
Joseph M. Katzenstein,
Secretary and Treasurer
(Principal Accounting Officer)
/s/ Marvin S. Sussman September 27, 1999
- ---------------------------------------
Marvin S. Sussman
Director and Executive Vice President
/s/ James O. Herlands September 27, 1999
- ---------------------------------------
James O. Herlands
Director and Executive Vice President
II-1
<PAGE>
Exhibit Index to Report on Form 10-K
Exhibit No. Description of Exhibit
- ----------- ----------------------
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., as amended**
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*
3.14.1 -- Amendments to Limited Liability Company Agreement of Mineral
Resource Technologies, L.L.C.**
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 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 Report 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, 1999. For a
description of such indebtedness, see Note 7 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.
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.+*
<PAGE>
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
MarvinSussman*
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.*
<PAGE>
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+*
10.28 -- Subcription and Exchange Agreement, dated as of January 29, 1999
among I. David Paley, Nathan Z. Bistricer, James O. Herlands and
Phibro-Tech, Inc.**
10.29 -- General Release between Phibro-Tech, Inc. and I. David Paley
dated as of September 1, 1999***
10.30 -- Separation Agreement between Phibro-Tech, Inc. and I. David
Paley dated as of September 1, 1999***
10.31 -- Stock Purchase Agreement between Phibro-Tech, Inc. and I. David
Paley dated as of September 1, 1999***
10.32 -- Consulting Agreement between Phibro-Tech, Inc. and I. David
Paley dated as of September 1, 1999***
12.1 -- Statements re computation of ratios.***
21.1 -- Subsidiaries of Philipp Brothers Chemicals, Inc.***
27.1 -- Financial Data Schedule***
- ----------
* Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4, No. 333-64641.
** Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended December 31, 1998.
*** Filed herewith.
+ A request for confidential treatment has been granted for portions of such
document. Confidential portions have been omitted and filed separately
with the SEC as required by Rule 406(b).
GENERAL RELEASE AND WAIVER
I understand that my active employment with PHIBRO-TECH, INC., a Delaware
corporation ("Phibro-Tech"), terminated effective as of August 31, 1999. I
understand that in consideration for my agreement to the following terms of this
General Release and Waiver, I will receive compensation and/or benefits
described in the Separation Agreement (the "Separation Agreement") between me
and Phibro-Tech of even date which is attached hereto and which is hereby
incorporated herein and made a part of this General Release and Waiver.
1. I understand and agree that I will not receive the compensation and/or
benefits specified in the Separation Agreement unless I execute this General
Release and Waiver.
2. I understand that I may revoke this General Release and Waiver for a
period of seven (7) days following the date I execute this General Release and
Waiver. Any revocation within this period should be submitted in writing to
Phibro-Tech and state "I hereby revoke my agreement to the General Release and
Waiver." The revocation must be personally delivered, or mailed and post marked
within seven (7) days of the execution of this General Release and Waiver. This
General Release and Waiver shall not become effective or enforceable until the
revocation period has expired.
3. Except as otherwise set forth in this General Release and Waiver and in
the Separation Agreement, and except for any and all rights and obligations
created by this General Release and Waiver and the Separation Agreement, and
those arising under or in connection with Section 2(b) of the Severance
Agreement dated February 21, 1995 (the "Severance Agreement"), and the Stock
Purchase Agreement of even date herewith between me and Phibro-Tech ("Stock
Purchase Agreement"), and the Consulting Agreement ("Consulting Agreement")
between me and Philipp Brothers Chemicals, Inc. ("PBC"), and any indemnification
obligations arising by statute or under any directors and officers' liability
insurance policy, the Certificate of Incorporation or Bylaws of Phibro-Tech or
PBC or any affiliate in effect from time to time, I knowingly and voluntarily
release and forever discharge Phibro-Tech and all of its parents, affiliates and
subsidiaries, and their employees, shareholders, officers and directors
(hereinafter "Releasees") from any and all claims known and unknown, which I, my
heirs, executors, administrators and assigns may have, including but not limited
to, any claim that arises out of my employment with or the termination of my
employment with Phibro-Tech; or any allegation, claim or violation arising under
Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of
1991; the Age Discrimination in Employment Act of 1967, as amended; the Older
Workers Benefits Protection Act; the Equal Pay Act of 1963, as amended; the
Americans with Disabilities Act of 1990; the Family Medical Leave Act of 1993;
the Civil Rights Act of 1866, as amended; the Worker Adjustment Retraining and
Notification Act; the Employee Retirement Income Security Act of 1974; any
applicable Executive Order Programs; the Fair Labor Standards Act, or their
state or local counterparts; the New Jersey Law Against Discrimination; the
Conscientious Employee Protection Act; and any other federal, state or local
civil or human rights law or any other local, state or federal law, regulation
or ordinance; or under any public policy, contract or tort, or under common law;
for wrongful discharge; breach of contract, infliction of emotional distress, or
defamation; or arising under any policies, practices or procedures of
Phibro-Tech; or any claim for costs, fees or other expenses, including
attorneys' fees, incurred in these
<PAGE>
matters.
4. I agree not to file any charge or complaint on my own behalf, based
upon claims arising from, or attributable in any way to, my employment with or
separation from Phibro-Tech, before any federal, state or local court, or
administrative agency, or to participate in any such charge or complaint which
may be made by any other person or organization on my behalf. I also agree to
withdraw and/or dismiss any such pending charges or complaints.
5. Notwithstanding the provisions of paragraphs 3 and 4 above, this
General Release and Waiver shall not act as a release of the obligations of
Phibro-Tech specified in the Separation Agreement, Section 2(b) and, if
applicable, Section 2(c) of the Severance Agreement, the Stock Purchase
Agreement, or of Philipp Brothers Chemicals, Inc. in the Consulting Agreement.
6. I acknowledge that I have been advised I have twenty-one (21) days to
consider this General Release and Waiver. I acknowledge that Phibro-Tech has
advised me in writing of my right to consult with an attorney regarding the
legal consequences of this General Release and Waiver and that I have had an
opportunity to discuss the terms of this General Release and Waiver with an
attorney. I understand the legal consequences of this General Release and
Waiver.
7. I agree that neither this General Release and Waiver, nor the
furnishing of the consideration for this General Release and Waiver, shall be
deemed or construed at any time to be an admission by either Phibro-Tech or
myself of any improper or unlawful conduct.
8. I agree that if I violate this General Release and Waiver by suing
Phibro-Tech or those associated with Phibro-Tech, I will pay all costs and
expenses of defending against the suit incurred by Phibro-Tech or those
associated with Phibro-Tech, including reasonable attorneys' fees. This
paragraph does not apply to claims which I may have, if any, that may arise out
of the obligations of Phibro-Tech specified in the Separation Agreement, the
Severance Agreement, the Stockholders Agreement, the Stock Purchase Agreement,
or of Philipp Brothers Chemicals, Inc. in the Consulting Agreement.
9. I agree that this General Release and Waiver is confidential and agree
not to disclose any information regarding the terms of this General Release and
Waiver, except to my attorneys, accountants or tax advisors, or as required by
applicable securities or other law or stock market or accounting requirements,
or in other cases only with the prior written consent of the other party.
BY SIGNING THIS GENERAL RELEASE AND WAIVER, I STATE THAT:
A. I HAVE READ IT.
B. I UNDERSTAND IT AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS,
INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, AS AMENDED; TITLE VII OF' THE CIVIL RIGHTS ACT OF 1964, AS AMENDED;
THE EQUAL PAY ACT OF 1963; THE
<PAGE>
AMERICANS WITH DISABILITIES ACT OF 1990; THE NEW JERSEY LAW AGAINST
DISCRIMINATION; THE CONSCIENTIOUS EMPLOYEE PROTECTION ACT; AND UNDER ALL OTHER
STATUTES AND LAWS AS MORE PARTICULARLY DESCRIBED IN THIS GENERAL RELEASE AND
WAIVER, AND PURSUANT TO ANY OTHER AGREEMENTS OR CONTRACTS I MAY HAVE WITH
PHIBRO-TECH (EXCEPT AS EXCLUDED AS PROVIDED HEREINABOVE).
C. I AGREE WITH EVERYTHING IN IT.
D. I HAVE BEEN ADVISED OF MY RIGHT TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING
IT.
E. I HAVE BEEN GIVEN WHAT I CONSIDER A SUFFICIENT PERIOD OF TIME TO REVIEW AND
CONSIDER THIS GENERAL RELEASE AND WAIVER BEFORE SIGNING IT; AND I UNDERSTAND
THAT FOR A PERIOD OF SEVEN (7) DAYS AFTER SIGNING IT, I MAY REVOKE MY ACCEPTANCE
OF IT IN THE MANNER PROVIDED IN THIS WAIVER AND RELEASE.
F. I HAVE SIGNED THIS GENERAL RELEASE AND WAIVER KNOWINGLY AND VOLUNTARILY.
G. I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE AND WAIVER MAY NOT BE
AMENDED, WAIVED, CHANGED, OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF PHIBRO-TECH.
Dated: September 1, 1999 /s/ I. David Paley
---------------------------------
SIGNATURE OF I. DAVID PALEY
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
I certify that on September 21, 1999, I. David Paley personally came
before me and acknowledged under oath, to my satisfaction, that this person:
(a) is named in and personally signed this document; and
(b) signed, sealed and delivered this document as his act and deed.
_________________________________________
Notary Public
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (this "Agreement") is made and is effective as
of the later of the dates set forth herein, by and among I. DAVID PALEY
("Paley"), PHILIPP BROTHERS CHEMICALS, INC., a New York corporation ("PBC") and
PHIBRO-TECH, INC., a Delaware corporation (the "Company"), having their
principal place of business at One Parker Plaza, Fort Lee, New Jersey.
WHEREAS, Paley has faithfully and responsibly served the Company as
President and Chief Operating Officer and a member of the Board of Directors of
the Company for a period in excess of ten (10) years;
WHEREAS, Paley and the Board of Directors of the Company have determined
that it is in the parties' best interests to formalize the terms and conditions
of Paley's separation of employment to assure continued stability to both the
Company and Paley and to set forth herein the parties' respective rights and
obligations;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, and for other good and valuable consideration
receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Separation Date. Paley's employment as an officer, director, and
employee of the Company and all related entities (PBC, the Company, and their
subsidiaries and affiliates being collectively referred to as the "Companies")
will terminate effective as of the close of business on August 31, 1999 (the
"Separation Date"), and the Company agrees to accept Paley's resignation from
such positions effective as of the Separation Date. All communications and
correspondence relating to Paley's separation of employment from the Companies
shall make appropriate reference to such voluntary resignation.
2. Effective Date. This Separation Agreement shall become effective upon
the later to occur of: (a) the execution and delivery of (i) this Agreement,
(ii) the attached General Release and Waiver (the "General Release"), (iii) the
Stock Purchase Agreement between them of even date herewith (the "Stock Purchase
Agreement"), and (iv) the Consulting Agreement between Paley and PBC (the
"Consulting Agreement"); and (b) the date and time as of which all waiting
periods and all of Seller's rights to withdraw, revoke or rescind his acceptance
and execution of the General Release shall have expired and terminated (such
date being referred to as the "Closing Date" or the "Effective Date").
3. Payment under Severance Agreement. On the Closing Date, the Company
shall pay to Paley the amount of $862,660, by certified or bank cashier's check
or wire transfer to an account designated by Paley. Such payment shall be in
full satisfaction and discharge of all the Company's obligations under Section
2(a) of that certain Severance Agreement dated February 21, 1995 between the
Company and Paley (the "Severance Agreement"). Notwithstanding the preceding
sentence, the
<PAGE>
Company shall remain obligated under the Severance Agreement to pay a "Catch-up
Payment" if an "Extraordinary Event" (as such terms are defined in the Severance
Agreement) occurs within twelve (12) months of the Separation Date. For purposes
thereof, the "Severance Amount" (as defined in the Severance Agreement) shall be
deemed to be $2,862,660. Notwithstanding anything to the contrary herein, the
termination of Paley's employment as of the Separation Date shall be deemed and
treated for all purposes under the Severance Agreement and the Stockholders
Agreement as the occurrence of an "Actual or Constructive Termination" (as
defined in the Severance Agreement).
4. Expense Reimbursement. The Company shall reimburse Paley for all of his
reasonable business expenses incurred in the performance of his duties as an
officer, director, and employee of the Company and all related entities, subject
to the submission of expense statements and receipts evidencing such payments to
the reasonable satisfaction of the Company.
5. Health Benefits. Paley and his family shall be eligible to continue
their medical and health insurance coverage benefits at their own expense, at
standard non-subsidized rates, for the maximum period pursuant to the
Consolidated Omnibus Budget Reconciliation Act (COBRA). The Company agrees to
timely provide the forms necessary to permit Paley and his family to elect to
continue such insurance coverage prior to their expiration.
6. Benefit Plans. From and after the Closing Date, Paley shall have such
rights in and benefits under the Company's 401(k) Plan, The Retirement Plan of
Philipp Brother Chemicals, Inc. and the Company's Deferred Compensation Plan and
Trust as are provided by the terms thereof. Consistent with the underlying
Plans, the Companies will make all reasonable arrangements and process all forms
necessary to provide for expeditious distribution of any and all vested benefits
under such Plans, as requested by Paley.
7. Return of Property. Except for the laptop computer and the leased Range
Rover which is being provided to Paley under the Consulting Agreement, Paley
agrees to return all property of the Company or any affiliate thereof, including
but not limited to keys, correspondence, customer and mailing lists, files (in
electronic or tangible form), documents, reports, equipment, computers and
materials and other such property as may be in his possession.
8. Confidentiality. This Agreement and the General Release, the terms and
provisions thereof and the negotiations leading thereto, shall be and shall
remain confidential. The parties shall maintain such confidentiality, and shall
not reveal or discuss Paley's termination of employment other than as required
in good faith in the ordinary course, as in seeking new employment or a
successor, or with attorneys, accountants or tax advisors, or as required by
applicable securities or other law or stock market or accounting requirements,
or in other cases only with the prior written consent of the other party. Paley
may advise potential employers, and the Companies agree to confirm, that Paley
and the Companies amicably resolved their relationships and that Paley
voluntarily resigned from his positions and employment with the Companies.
9. Releases.
2
<PAGE>
(a) Except for any rights Paley may have under this Agreement, the Stock
Purchase Agreement, Section 2(b) and, if applicable, Section 2(c) of the
Severance Agreement and the Consulting Agreement, Paley hereby releases the
Companies as provided in the General Release.
(b) Except for any rights it may have under this Agreement, the Stock
Purchase Agreement and the Consulting Agreement, each of the Companies for
itself and on behalf of its subsidiaries and affiliates forever releases and
discharges Paley, his heirs, executors, administrators, legal representatives
and successors from any and all claims, demands, causes of action, and
liabilities of any kind whatsoever (upon any legal or equitable theory, whether
contractual, in tort, common law, statutory, federal, state, local or otherwise,
and including but not limited to any claims for equitable relief, compensatory,
punitive or other damages or expenses or for attorneys' fees, or costs or
disbursements of any kind), which the Companies ever had, now have, or may
hereafter have against Paley by reason of any action, omission, transaction, or
occurrence occurring up to and including the Separation Date, in each case
authorized by the Chairman of the Board of PBC or otherwise performed or omitted
to be performed by Paley in good faith and in a manner which Paley reasonably
believed to be in or not opposed to the best interests of the Companies and not
unlawful. PBC and the Company covenant that, except for a proceeding brought to
enforce the terms and provisions of this Agreement, the General Release, the
Severance Agreement, the Stockholders Agreement, the Stock Purchase Agreement or
the Consulting Agreement, they will not at any time commence, maintain,
prosecute, participate in as a party, or permit to be filed by any other person
or entity on their behalf, any action, suit or proceeding (judicial,
administrative, arbitral, or other) against Paley with respect to any act,
event, or occurrence, or any alleged failure to act, occurring up to and
including the Separation Date, in each case authorized by the Chairman of the
Board of PBC or otherwise performed or omitted to be performed by Paley in good
faith and in a manner which Paley reasonably believed to be in or not opposed to
the best interests of the Companies and not unlawful. PBC and the Company agree
that if they violate this covenant by suing Paley or his heirs, executors,
administrators, legal representatives or successors, the Companies will pay all
costs and expenses of defending against the suit incurred by Paley or his heirs,
executors, administrators, legal representatives or successors, including
reasonable attorneys' fees. This paragraph does not apply to claims which the
Companies may have, if any, that may arise out of the obligations of Paley
specified in this Agreement, the General Release, the Severance Agreement, the
Stock Purchase Agreement or Consulting Agreement.
10. Indemnification. The Companies shall continue any indemnification
obligations arising by statute, or under any directors and officers' liability
insurance policy covering Paley, in each case to the same extent as other
directors and officers remain covered from time to time, or the Certificate of
Incorporation or Bylaws of any of the Companies in effect as of the Separation
Date. The Companies agree that if Paley is made a party, or is threatened to be
made a party, to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
is or was a stockholder, director, officer or employee of any of the Companies
or is or was serving at the request of the Companies as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether or not the basis of such Proceeding is Paley's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, Paley shall be indemnified and held harmless by the Companies to the
fullest extent legally permitted or
3
<PAGE>
authorized by the Companies' certificates of incorporation or bylaws or
resolutions of such Company's Board of Directors, against all cost, expense,
liability and loss (including, without limitation, reasonable attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement with the approval of the Company) reasonably incurred or suffered
by Paley in connection therewith, and such indemnification shall continue as to
Paley even if he has ceased to be a director, officer, member, employee or agent
of either of the Companies or other entity and shall inure to the benefit of his
heirs, executors, administrators, legal representatives or successors, in each
case to the same extent as other directors and officers remain covered from time
to time. The Companies shall advance to Paley all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Companies of a written request for such advance, accompanied by an
undertaking by Paley to repay the amount of such advance if it shall ultimately
be determined that he is not entitled to be indemnified against such costs and
expenses. Paley shall be entitled to indemnification under this Section so long
as he meets the standard of conduct specified in Section 145 of the Delaware
General Corporation Law or Section 722 of the New York Business Corporation Law,
as the case may be. In addition, the Companies hereby agree to indemnify and
hold Paley, and his heirs, executors, administrators, legal representatives,
successors and assigns, harmless from and against any and all claims, loss,
damage, liability, cost or expense, including but not limited to reasonable
attorneys' fees, incurred in defense of any such claim, arising out of or
related to Paley's positions and employment with the Companies and the
Companies' business, including but not limited to actions or claims against the
Companies for copyright infringement or securities violations, other than in
respect of the embezzlement or misappropriation of funds of the Companies or
other acts of fraud against the Companies.
11. General Indemnification. The parties hereto hereby agree to indemnify
each other for all damages and loss (including without limitation, costs and
expenses of litigation and reasonable attorneys' fees) resulting from a breach
of this Agreement by the other party.
12. Benefit. This Agreement shall bind and inure to the benefit of the
heirs, executors, administrators, legal representatives, successors and assigns
of Paley and the successors and assigns of the Companies.
13. Entire Agreement; Paragraph Titles. This Agreement, the General
Release, the Stock Purchase Agreement and the Consulting Agreement contain the
entire agreement between the parties with respect to the subject matter hereof,
and supersede any and all prior agreements or understandings, oral or written,
between the parties with respect to the subject matter hereof and thereof (other
than Section 2(b) and, if applicable, Section 2(c) of the Severance Agreement).
This Agreement may not be modified other than by a writing signed on behalf of
both parties. In executing this Agreement, neither party is relying upon any
statement or representation beyond this Agreement or the General Release, the
Stock Purchase Agreement or the Consulting Agreement. Paragraph headings are
included in this Agreement for reference only, are not part of this Agreement,
and do not in any way modify any of the terms of this Agreement.
14. No Admission. Nothing contained in this Separation Agreement or in the
General Release, nor the furnishing of the consideration for the Separation
Agreement and General Release,
4
<PAGE>
shall be deemed or construed at any time to be an admission by either Paley or
the Companies of any improper or unlawful conduct.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement this 1st day of September, 1999.
PHIBRO-TECH, INC.
/s/ I. David Paley By: /s/ Nathan Z. Bistricer
- ------------------ -------------------------------
I. David Paley Nathan Z. Bistricer, Vice President
PHILIPP BROTHERS CHEMICALS, INC.
By: /s/ Jack C. Bendheim
-------------------------------
5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of September 1,
1999 between I. DAVID PALEY ("Seller"), and PHIBRO-TECH, INC., a Delaware
corporation ("Purchaser") is made with reference to the following facts.
A. Seller is the owner of 240.03 shares (the "Shares") of the Purchaser's
Class B Common Stock, par value $.01 per share, and is one of the Management
Stockholders party to that certain Stockholders Agreement dated as of February
21, 1995, as amended (the "Stockholders Agreement"), among the Purchaser and
such Management Stockholders;
B. An Actual or Constructive Termination (as defined in the Stockholders
Agreement) of the Seller's employment with the Company has occurred, and the
Purchaser is obligated to purchase the Shares pursuant to and in accordance with
the Stockholders Agreement; and
C. Seller desires to sell to Purchaser, and Purchaser desires to buy from
Seller, the Shares upon the terms and conditions set forth in this Agreement.
The parties 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, all of Seller's right,
title, and interest in the Shares for a purchase price equal to $2,000,000.00
("Purchase Price"). Upon payment of the Purchase Price, all of Purchaser's
obligations under the Stockholder's Agreement shall be satisfied in full.
2. The Closing. The closing of the purchase and sale of the Shares shall
occur upon the later to occur of (i) the execution and delivery this Agreement,
and (ii) the date and time as of which all waiting periods and all of Seller's
rights to withdraw, revoke or rescind his acceptance and execution of that
certain General Release and Waiver of even date by Seller in favor of Purchaser
shall have expired and terminated (such date being referred to as the "Closing
Date"). On the Closing Date (a) Seller shall deliver to Purchaser one or more
stock certificates representing the Shares, duly endorsed in blank for transfer,
and (b) Purchaser shall pay the Purchase Price by delivery to Seller of
certified or bank cashier's check or by wire transfer to an account designated
by Seller.
3. Seller's Representations and Warranties. Seller makes the following
representations and warranties to Purchaser, as of the date of this Agreement,
which shall survive the Closing Date.
(a) Seller is the true and lawful owner, both of record and beneficially,
of the Shares, free and clear of any claims, liens, options, charges or other
encumbrances whatsoever (except such as may exist pursuant to the Stockholders
Agreement).
(b) Seller has the unqualified right to sell, assign and deliver the
Shares as provided in this Agreement.
<PAGE>
(c) From the date of this Agreement until the Closing Date, without the
prior written consent of Purchaser, Seller shall not, either directly or
indirectly, sell, assign, mortgage, hypothecate, transfer, pledge, create a
security interest in or lien upon, encumber, give, place in trust, or otherwise
voluntarily or involuntarily dispose of any of the Shares except as hereinafter
permitted.
(d) On the sale, transfer and delivery of the Shares by Seller to
Purchaser in accordance herewith, Purchaser will acquire good and valid title to
the Shares, free and clear of any claims, liens, options, charges or other
encumbrances whatsoever.
4. Purchaser's Representations and Warranties. Purchaser makes the
following representations and warranties to Seller as of the date of this
Agreement, which shall survive the Closing Date.
(a) Purchaser has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement.
(b) This Agreement is the legal, valid and binding obligation of
Purchaser.
5. Miscellaneous.
(a) This Agreement, the Separation Agreement, the General Release, and the
Consulting 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, including Section 2(a) of the Severance Agreement and
the Stockholders Agreement (but other than Section 2(b) and, if applicable,
Section 2(c) of the Severance Agreement).
(b) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
(c) 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.
(d) The obligations of this Agreement shall bind and benefit the heirs,
administrators, legal representatives, successors and assigns of the parties
with the same effect as if mentioned in each instance where a party is named or
referred to.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first set forth above.
PHIBRO-TECH, INC.
/s/ I. David Paley By: /s/ Jack C. Bendheim
- ------------------ ---------------------------------------
I. David Paley Jack C. Bendheim, Chief Executive Officer
- 3 -
CONSULTING AGREEMENT
AGREEMENT made this 1st day of September, 1999 ("Agreement"), but
effective as of the Effective Date (as defined below), by and between PHILIPP
BROTHERS CHEMICALS, INC., a New York corporation, with its principal offices
located at One Parker Plaza, Fort Lee, New Jersey 07024 (hereinafter referred to
as "PBC"), and I. David Paley, residing at 1185 Park Avenue, #7H New York, New
York 10128 (hereinafter referred to as "Consultant").
W I T N E S S E T H:
WHEREAS, Consultant, recently retired from his position as President
of Phibro-Tech, Inc. ("Phibro-Tech"), an affiliate of PBC;
WHEREAS, in recognition of the continued value to PBC of
Consultant's extensive knowledge and expertise concerning the business of
Phibro-Tech, PBC desires to retain Consultant in an advisory capacity as a
consultant upon the terms and conditions hereinafter set forth; and
WHEREAS, Consultant is willing to render consulting and advisory
services to PBC upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties hereto agree as follows:
1. Services. PBC agrees to retain Consultant, and Consultant agrees
to render consulting and advisory services to PBC, as an independent contractor
and not as an employee, upon the terms and conditions hereinafter set forth.
2. Term of Agreement. The term of Consultant's services under this
Agreement shall be from the Effective Date (as hereinafter defined) through
March 15, 2002 (the "Term"), and for a renewal term ("Renewal Term") as may be
elected in writing by PBC on terms mutually agreeable to Consultant and PBC,
except that the Term may be terminated by Consultant at any time upon at least
four weeks' prior written notice to PBC, or by PBC as provided in Section 6, and
that the Renewal Term may be terminated by PBC or Consultant at any time by
prior written notice to the other. This Agreement shall become effective upon
the later to occur of: (a) the execution and delivery of (i) the Separation
Agreement between PBC, Phibro-Tech and Consultant of even date herewith, (ii)
the General Release and Waiver (the "General Release"), and (iii) the Stock
Purchase Agreement between Consultant and Phibro-Tech of even date herewith (the
"Stock Purchase Agreement"); and (b) the date and time as of which all waiting
periods and all of Seller's rights to withdraw, revoke or rescind his acceptance
and execution of the General Release shall have expired and terminated (such
date being referred to as the "Closing Date" or the "Effective Date").
3. Extent of Services. The Chairman of the Board of PBC may request,
either verbally or in writing, Consultant to render consulting and advisory
services on a part-time basis during the Term and any Renewal Term and
Consultant shall, if and when so requested, and at the times, dates and
locations which are mutually agreed upon by Consultant and such requesting
officer,
<PAGE>
render such services and shall consult with and advise PBC management and
officers in respect of Phibro-Tech and also with respect to strategic
opportunities available to PBC. Consultant's services as a Consultant to PBC are
intended to be performed at such times and such places as shall minimize
inconvenience to Consultant, having in mind his other business commitments which
may obligate him to perform services prior to the performance of his services
hereunder. During such periods of time when Consultant so renders such services,
he shall perform such services faithfully, diligently and to the best of his
ability. Consultant shall render said consulting and advisory services at the
principal office of PBC, and shall travel to such other locations reasonably
designated by Chairman of the Board and reasonably acceptable to Consultant, to
render said consulting and advisory services, subject to reimbursement of
expenses as provided below with respect to such travel to locations other than
the principal office of PBC. Consultant shall have the right, during the Term
and any Renewal Term hereof, to engage or participate in, or become employed by,
or render advisory or other services in connection with, any and all other
business activities, other than a business entity which is then a Competitive
Business (as defined below).
4. Compensation and Benefits. (a) As full compensation for the
consulting and advisory services to be rendered by Consultant hereunder, PBC
agrees to pay Consultant, during the Term, a consulting fee at the following
rates: $200,000 for the first year of the Term; $150,000 for the second year of
the Term; and $150,000 for the third year of the Term. Payment shall be made to
Consultant in equal monthly installments, or in such other manner as the parties
may mutually agree. For purposes of this Section 4, the first year shall be
deemed to have commenced on March 15, 1999 and the consulting fee from the
Effective Date through March 15, 2000 determined as follows: (1) $200,000 less
other compensation paid to Consultant between March 15, 1999 and the Effective
Date, plus (2) interest at the rate of ten percent (10%) per annum on the amount
which would have been received by Consultant on March 15, 1999 if the Effective
Date had been March 15, 1999, which results in the net amount of the consulting
fee from the Effective Date through March 15, 2000 being a total of $163,915
(assuming effectiveness at September 1, 1999), or $6,561 per month commencing
upon the Effective Date.
(b) As soon as practicable after the execution of this Agreement,
PBC shall obtain from an insurance carrier, licensed to do business in the State
of New York and reasonably acceptable to Consultant, a policy or policies of
insurance on the life of Consultant, which PBC shall keep in effect at its
expense throughout the Term, with a face amount equal to the lesser of $500,000
and the unpaid Consulting Fee payable pursuant to Section 4(a) above through the
expiration of the initial three-year Term, payable in the event of the death of
Consultant to such persons as Consultant may designate in writing and in default
of such designation, payable to the estate of Consultant. Consultant agrees to
submit to one or more physical examinations and to otherwise cooperate in the
obtaining of such policy or policies.
(c) PBC shall continue to provide Consultant with (i) the laptop
computer currently used by him and (ii) a leased 1999 Range Rover (or
substantially equivalent automobile) during the Term. Consultant shall be
entitled to purchase such leased automobile upon termination of the lease or
this Agreement, whichever shall first occur, by payment of the amount payable by
PBC under the lease for such automobile. PBC shall also pay for insurance and
ordinary scheduled maintenance costs for such leased automobile during the Term.
Parking shall be the responsibility of Consultant.
2
<PAGE>
(d) PBC shall reimburse Consultant for dues and assessments paid by
Consultant as a member of Sleepy Hollow Country Club, in Scarborough-on-Hudson,
New York, up to $7,000 per year during the Term; the Chairman of the Board of
PBC shall be entitled to designate persons to use such club, subject to and in
accordance with the rules and regulations of such club.
5. Independent Contractor; No Deductions and Withholding. Consultant
shall, at all times, be an independent contractor and PBC shall have no
liability whatsoever for withholding, collection or payment of income taxes or
for taxes of any other nature on behalf of Consultant. Under no circumstances
shall Consultant have or claim to have power of decision in any activity on
behalf of PBC nor supervise, hire or fire employees of PBC. It is specifically
understood that PBC shall not, with respect to the consulting and advisory
services to be rendered by Consultant, exercise such control over Consultant as
is contrary to its relationship with Consultant as an independent contractor.
6. Termination of Consultant's Engagement. (a) Notwithstanding
anything to the contrary contained herein, PBC's engagement of Consultant under
this Agreement and Consultant's right to receive the compensation and benefits
contemplated by Section 4 above shall terminate upon the earliest to occur of
the following events: (i) the death of Consultant; (ii) the expiration of the
Term, or applicable Renewal Term, if any; or (iii) upon written notice to
Consultant from PBC of its termination of this Agreement for Cause (as
hereinafter defined).
(b) "Cause" for purposes hereof shall mean the conviction of
Consultant of: (i) a felony involving the business of the Company or its
affiliates or (ii) a misdemeanor involving moral turpitude or deceit, dishonesty
or fraud involving the business of the Company or its affiliates.
(c) No waiver by any party to this Agreement of any breach or
default of any covenant or obligation of the other party or parties under any
provision of this Agreement, or any of its or their employees, agents or
affiliates, shall be deemed a waiver of any future breach or default, whether or
not such breach or default is of the same nature.
(d) If Consultant's engagement shall be validly terminated by PBC
for Cause, then PBC shall have no further obligations under this Agreement.
7. Non-Competition; Restrictive Covenants; Confidentiality and
Injunctive Relief.
(a) Consultant agrees that during the Term of this Agreement,
without the prior written approval of the Chairman, the President or the Board
of Directors of PBC, he will not directly or indirectly through any other
person, firm or corporation, whether for himself or as agent on behalf of any
such person, firm or corporation, whether as employee, consultant, principal,
lender, partner, officer, director, stockholder or otherwise:
(i) engage or participate in, or become employed by, or render
any services in connection with, any Competitive Business; or
(ii) solicit, entice or induce any employee of PBC or
Phibro-Tech, to become employed or retained by any other person or entity;
provided, however, that the foregoing provision will not prevent
Consultant from employing or offering to employ any such person
3
<PAGE>
who has been terminated by or resigned from PBC or an affiliate prior to
the commencement of employment discussions between Consultant and such
employee, and Consultant will be permitted to hire and offer to hire
non-executive employees of PBC or any affiliate who are contacted as a
result of the use of general newspaper or electronic advertisement and
other general non-targeted recruitment techniques in the ordinary course
of business and consistent with past practice as opposed to targeted
solicitations of any one or more of PBC's employees; or
(iii) solicit, entice, or induce any client, customer,
supplier or account of Phibro-Tech to terminate, reduce or phase out its
contractual relationship or other relationship with Phibro-Tech; or
(iv) make or utter dishonest statements or acts with respect
to PBC or any subsidiary of PBC or act in a manner that is intended or
understood to discredit or be detrimental to the reputation, character or
standing of PBC or any of its subsidiaries; provided, that the making in
good faith of honest misstatements or truthful statements shall not
constitute a violation of this clause (iv); or
(v) take any action or knowingly approve the taking of any
action by any other person which is intended or could be reasonably
expected to injure the business, properties, assets, condition (financial
or otherwise) or prospects of PBC or Phibro-Tech or bring PBC or any
officers thereof into disrepute.
(b) For purposes hereof, a "Competitive Business" shall mean any
business, organization or person (other than Phibro-Tech or any affiliate
thereof), whose business activities, products or services include (1) the
manufacture or recycling of etchants or the sale of fresh etchant (including,
among others, the sale to printed circuit board manufacturers), or (2) the
manufacture or sale of copper-based fungicides or gibberellins (a plant growth
regulator), regardless of the volume or other measure of materiality.
Notwithstanding anything herein to the contrary, Consultant may make passive
investments in any enterprise which engages in a Competitive Business the shares
of which are publicly traded if such investment constitutes less than five
percent (5%) of the equity of such enterprise. Consultant acknowledges that
Phibro-Tech has sales and manufacturing facilities throughout the United States
and in a number of foreign countries, that it purchases and sells materials and
products from and to suppliers and customers located throughout the world and
that it expects to expand the scope of its international activities in the
future. Consultant therefore agrees that his obligations under this Section 7
extend worldwide.
(c) For purposes of this Agreement, the term "affiliate" shall mean,
with respect to any person or entity, any person or entity which directly or
indirectly controls, is controlled by or is under common control with (through
ownership of more than 50% of the voting interests or otherwise), such person or
entity, and the term "person" shall mean in individual, a corporation, an
association, a partnership, a limited liability company, an estate, a trust, and
any other entity or organization.
(d) As used in this Agreement, "Confidential Information" means
trade secrets or confidential information belonging to PBC or an affiliate to
which Consultant has access by virtue
4
<PAGE>
hereunder of his relationship with PBC and its affiliates; provided, however,
that the confidential information and trade secrets shall not include any
information generally known to persons in the industry or the public in general
unless due to breach of Consultant's duties under this Section 7. Confidential
Information includes, without limitation, financial information, reports, and
forecasts; inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of businesses or
facilities) which have been discussed or considered by the management of PBC.
Confidential Information includes information developed by Consultant in the
course of Consultant's employment by PBC, as well as other information to which
Consultant may have access in connection with Consultant's employment.
Confidential Information also includes the confidential information of others
with which PBC has a business relationship.
(e) At all times, both during Consultant's engagement by PBC and
after his termination, Consultant will keep in confidence and trust all such
Confidential Information, and will not use or disclose any such Confidential
Information without the prior written consent of PBC, except as may be necessary
in the ordinary course of performing Consultant's duties to PBC, or as may be
required in connection with any judicial or administrative proceeding or
inquiry, provided that PBC shall have been given prior written notice of such
disclosure.
(f) Consultant recognizes that PBC possess a proprietary interest in
the Confidential Information and has the exclusive right to use, protect by
copyright, patent or trademark, or otherwise exploit the processes, ideas and
concepts contained therein to the exclusion of Consultant, except as otherwise
agreed between PBC and Consultant in writing. Consultant agrees that any and all
products, inventions, discoveries or improvements developed by Consultant
(whether or not able to be protected by copyright, patent or trademark) in the
performance of his services hereunder, or involving the use of the time,
materials, Confidential Information or other resources of PBC or any of its
affiliates, shall be promptly disclosed to PBC and shall become the exclusive
property of PBC, and Consultant shall execute and deliver any and all documents
necessary or appropriate to implement the foregoing. PBC agrees that any and all
products, inventions, discoveries or improvements developed by Consultant
(whether or not able to be protected by copyright, patent or trademark) outside
of the performance of his services hereunder, and not involving the use of the
time, materials, Confidential Information or other resources of PBC or any of
its affiliates, shall be the exclusive property of Consultant, and PBC shall
execute and deliver any and all documents necessary or appropriate to implement
the foregoing. Consultant shall own opportunities initiated by him, outside the
scope of his services hereunder and not involving the use of the time,
materials, Confidential Information or other resources of PBC or any of its
affiliates.
(g) Consultant acknowledges and agrees that all electronic media,
programs, artwork, packaging, copy, memoranda, notes, records, customer lists,
marketing materials and other documents, if any, made or compiled by Consultant
in the performance of his services hereunder or made available to Consultant
during the term of Consultant's engagement by PBC concerning the business of PBC
and/or any of its subsidiaries shall be PBC's property and shall be delivered by
Consultant to PBC upon termination of his engagement by PBC or at any other time
on PBC's request.
5
<PAGE>
(h) The parties acknowledge that the time, scope, geographic area
and other provisions of this Section 7 have been specifically negotiated by
sophisticated parties and agree that (i) all such provisions are reasonable
under the circumstances of this Agreement, (ii) are given as an integral and
essential part of this Agreement and (iii) but for the covenants of each of
Consultant and of PBC contained in this Section 7, neither PBC nor Consultant
would have entered into this Agreement. Each of PBC and Consultant has
independently consulted with its or his counsel and has been advised in all
respects concerning the reasonableness and propriety of the covenants contained
herein, with specific regard to the business to be conducted by PBC and its
subsidiaries and affiliates, and represents that this Agreement is intended to
be, and shall be, fully enforceable and effective in accordance with its terms.
(g) The provisions of this Section 7 shall survive the termination
of this Agreement, irrespective of the reason therefor.
(h) The provisions of the Employee Invention and Secrecy Agreement
dated January 1, 1991, annexed hereto as Exhibit A ("Employee Secrecy
Agreement"), shall remain effective to the extent provided therein.
(i) Consultant acknowledges that the services to be rendered by him
are of a special, unique and extraordinary character and, in connection with
such services, he will have access to confidential information which is of
commercial value to the business of PBC and/or its subsidiaries. By reason of
the foregoing, Consultant consents and agrees that the consequences of any
breach of Section 7 may not be fully compensable in damages and, therefore, in
addition to any other remedies which PBC may have under this Agreement at law or
equity or otherwise, any or all of which shall be available to PBC, PBC and/or
any affiliates shall be entitled to apply (without the necessity of posting any
bond) to any court of competent jurisdiction for an injunction restraining
Consultant or any other party from committing or continuing any such violation
(or participating therein) of this Agreement.
(j) Notwithstanding anything to the contrary in this Agreement, PBC
agrees and covenants that it shall remain obligated to pay to Consultant and
shall continue to pay, and Consultant shall have the right to continue to
receive, the compensation and benefits provided in Section 4, notwithstanding
any claimed breach or violation of any provisions of this Section 7, and PBC
shall not be entitled to offset or deduct any amounts or claimed damages
allegedly resulting from any claimed breach or violation of any provisions of
this Section 7 against any amounts due and unpaid to Consultant under this
Agreement, unless and until there has been a judgment of a court of competent
jurisdiction to the effect that Consultant shall have violated any of the
provisions of this Agreement, by awarding PBC damages or otherwise, in which
event the amount of offset or deduction shall be limited to the amount of
damages so awarded. Each of PBC and Consultant shall be entitled to seek
damages, including but not limited to the costs of enforcing this Agreement, and
avail itself or himself of any and all rights and remedies available at law or
in equity.
8. Reimbursement of Expenses. During the period of this Agreement,
Consultant may incur reasonable out-of-pocket expenses in connection with the
performance of services to PBC hereunder for entertainment, travel (exclusive of
commutation from the home of the Consultant to the principal office of PBC),
meals and hotel accommodations. PBC shall reimburse Consultant for
6
<PAGE>
all such reasonable out-of-pocket expenses which Consultant may incur in
connection with the performance of his consulting and advisory services to PBC
hereunder upon submission by Consultant to PBC of vouchers or expense statements
reasonably evidencing such expenses; provided, however, that Consultant shall
not be reimbursed for any single expense item in excess of five hundred dollars
($500) unless the incurrence of such expense is approved in advance by the
Chairman, President, an Executive Vice-President or Chief Financial Officer of
PBC. During the Term of this Agreement, if Consultant shall require secretarial
and clerical assistance in connection with the performance of his consulting and
advisory services to PBC, Consultant may request such secretarial and clerical
assistance from PBC. However, in the absence of such request by Consultant or a
failure by PBC to fulfill such request, all expenses incurred by Consultant in
respect of secretarial and clerical assistance shall be borne by Consultant.
9. General. Except as provided in Section 7 of this Agreement,
Consultant may accept employment with or render advice and consultation to
others, may travel freely, on the business of others, or for pleasure, in the
continental United States or elsewhere, and Consultant shall not be obligated to
keep PBC advised of his current location, availability or unavailability and
shall not be expected to subordinate his other activities, whether business or
personal, to those of PBC.
10. Severability. In the event that any covenant contained in this
Agreement shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or over
too great a geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over maximum period of
time for which it may be enforceable and/or over the maximum geographical area
as to which it may be enforceable and/or to the maximum extent in all other
respects as to which it may be enforceable, all as determined by such court in
such action, and the remaining provisions hereof shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
11. Assignability and Binding Effect. This Agreement shall inure to
the benefit of and be binding upon the parties, their heirs, administrators,
legal representatives, successors and permitted assigns. The obligations of
Consultant may not be delegated and, Consultant may not assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement, or any of
his rights hereunder, and any attempted delegation or disposition shall be null
and void and without effect. This Agreement shall be binding upon PBC and any
successor organization which shall succeed to substantially all of the business
and assets of PBC, whether by means of merger, consolidation, acquisition of all
or substantially all of the assets of PBC, or otherwise, including by operation
of law. PBC will require any successor organization which is a purchaser of all
or substantially all of the business or assets of Phibro-Tech, by written
agreement addressed to Consultant, to assume and agree to perform this Agreement
unless such successor shall assume such obligations as a matter of law.
12. Complete Understanding. This Agreement constitutes the complete
understanding of the parties with respect to the subject matter hereof and may
not be altered, modified, amended or rescinded except in writing signed by the
parties hereto. This Agreement shall supersede all prior agreements and
understandings between the parties hereto respecting the services of Consultant
to PBC or the subject matter hereof, except for the Employee Secrecy Agreement,
which shall remain effective to the extent provided.
7
<PAGE>
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
from time to time obtaining.
14. Headings. The headings set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement in any
respect nor shall they in any way affect the substance of the provisions
contained in this Agreement.
15. Notices. All notices and other communications which are required
or which may be given under the provisions of this Agreement shall be delivered
personally or sent by certified mail, postage prepaid, return receipt requested
to each of the parties hereto at the respective addresses set forth above, or to
such other address as either party may hereinafter designate in writing as his
or its address for this purpose in the manner herein provided for giving notice
unless otherwise provided in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
PHILIPP BROTHERS CHEMICALS, INC.
/s/ I. David Paley By: /s/ Jack C. Bendheim
- ------------------------------ -------------------------------
I. David Paley
8
Exhibit 21.1
Subsidiaries of Jurisdiction of
Phillip Brothers Chemicals, Inc. Organization
- -------------------------------- ---------------
C.P. Chemicals, Inc. New Jersey
Ferro Metal and Chemical Corporation Limited U.K.
Koffolk, Inc. Delaware
Koffolk, Ltd. Israel
Mineral Resource Technologies, L.L.C. Delaware
MRT Management Corp. Delaware
Odda Holdings AS Norway
Prince Agriproducts, Inc. Delaware
Phibrochem, Inc. New Jersey
Phibro Chemicals, Inc. New York
The Prince Manufacturing Company Pennsylvania
The Prince Manufacturing Company Illinois
Western Magnesium Corp. California
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,308
<SECURITIES> 0
<RECEIVABLES> 69,999
<ALLOWANCES> 886
<INVENTORY> 51,430
<CURRENT-ASSETS> 140,085
<PP&E> 128,636
<DEPRECIATION> 62,596
<TOTAL-ASSETS> 237,373
<CURRENT-LIABILITIES> 67,421
<BONDS> 100,000
0
521
<COMMON> 2
<OTHER-SE> 20,860
<TOTAL-LIABILITY-AND-EQUITY> 237,373
<SALES> 302,324
<TOTAL-REVENUES> 302,324
<CGS> 223,247
<TOTAL-COSTS> 68,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 13,142
<INCOME-PRETAX> (287)
<INCOME-TAX> 179
<INCOME-CONTINUING> (466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
